Published on Thursday, February 17, 2000 by InterPress Service
Clinton Backs Multinationals Against States in Big Court Case
by Jim Lobe
In a major boost for the forces of economic globalisation, US President Bill Clinton has decided to back multinational corporations in a key court challenge to a Massachusetts law designed to promote democracy in Burma.
In a brief quietly filed with the Supreme Court Tuesday, Clinton's Justice Department charged that cities and states which make it more difficult for companies doing business in repressive countries to win procurement contracts "impermissibly intrude into the national government's exclusive authority over foreign affairs."
Joining a coalition of some 600 major multinational corporations, the European Union (EU) and Japan, the administration asked the Supreme Court, which will hear oral arguments on the case March 22, to declare the Massachusetts law unconstitutional. A final judgment by the nine-member court is expected in June.
The case, called "Natsios versus the National Foreign Trade Council (NFTC)," has major implications for grassroots human rights and other US activist groups, which over the past 25 years have used state and local "selective-purchasing" laws to influence the behaviour of multi-national corporations abroad.
Selective-purchasing laws are designed to force companies to choose between continuing to do business with repressive foreign governments and bidding on often-lucrative state or local government contracts. The Massachusetts law, for example, adds 10 percent to any bid by a target companies - foreign and domestic - on a state procurement contract.
Such laws were used most successfully during the late 1970s and 1980s to force scores of US multinationals - including such giants as Coca-Cola, IBM, and General Motors - to withdraw from South Africa because of apartheid. The resulting divestment, according to most experts, played a crucial role in bringing about majority rule.
Similar laws in New York, California, Pennsylvania and other states and cities targeting Swiss banks and insurance companies which had failed to adequately account to Nazi Holocaust victims and their families helped prompt a settlement of outstanding claims in 1998.
Some two dozen states and cities, including New York, Los Angeles, and San Francisco - which each year put hundreds of millions of dollars in contracts up for bids - have enacted selective-purchasing laws against companies doing business in Burma, where a military junta has repressed the democratic opposition led by Nobel Peace Laureate Aung San Suu Kyi.
Multinationals naturally oppose these initiatives because they curb their freedom to do business where they like. But until now, they were reluctant to challenge the laws in court due to the negative publicity that could result from a company claiming a right to do business with abusive governments.
In 1998, however, the NFTC filed a case in federal court challenging the 1996 Massachusetts law on the grounds that it violated US constitutional provisions which gave the federal government the power to regulate foreign commerce and foreign policy. In an unprecedented step, the EU and Japan filed amicus curiae (friend of the court) briefs on the NFTC's behalf.
At the same time, Brussels and Tokyo also filed their own challenges to the law with the World Trade Organisation (WTO) in Geneva. They claimed that Massachusetts, by enacting the law, had violated the WTO's 1995 Government Procurement Agreement (GPA), which forbids states from using non-economic criteria in deciding contract bids.
The Clinton administration, deeply split on the issue, stayed out of the case. While strong supporters of globalisation, like the Treasury and Commerce Departments, argued for backing the NFTC, other offices, especially in the State Department and the National Security Council, opposed taking any position.
In a letter to state officials in April 1998, Secretary of State Madeleine Albright expressed the administration's deep ambivalence.
"Our challenge," she wrote, "is to ensure that America speaks with a single voice." She also noted, however, that "President Clinton and I recognise the authority of state and local officials to determine their own investment and procurement policies, and the right - indeed their responsibility - to take moral considerations into account as they do so."
The latter position is the one taken by Massachusetts in the case. "The states should be free...to apply a moral standard to their spending decisions," according to a brief filed by the state, which, in a rare breach of legal protocol, was not informed in advance by the administration - apparently to avoid publicity - of its own submission.
"Nothing in the federal Constitution...requires the states to trade with dictators," argues the Massachusetts brief, which is supported by amicus briefs from more than two dozen states and cities, some 24 members of Congress, and a plethora of human rights and labour groups.
The Clinton administration brief stresses that it, too, strongly opposes the current government in Burma and has imposed trade and other sanctions against it.
"The disagreement," according to the brief, "is only over whether the State could permissibly take the sort of action reflected in the Massachusetts Burma Act."
Citing complaints against the law by the EU, Japan, and the Association for Southeast Asian Nations, the administration goes onto argue that it has "complicated (US) efforts to develop a multilateral strategy" and thus "impermissibly infringe(s) upon the national government's exclusive authority to conduct foreign affairs."
"Indeed, if the (Act) were sustained, a multitude of different, and differing state and local measures sanctioning foreign governments could be expected," the brief states, adding that similar selective-purchasing statutes have been or adopted or considered against companies doing business in China, Cuba, Egypt, Indonesia, Iran, Iraq, Laos, Morocco, Nigeria, North Korea, Pakistan, Saudi Arabia, Sudan, Switzerland, Tibet, Turkey, and Vietnam.
The administration's arguments echo those made by the two courts which have considered the case to date. In November 1998, US federal court judge Joseph Tauro ruled that "State interests, no matter how noble, do not trump the federal government's exclusive foreign affairs power."
Last June, in a more sweeping decision, a three-judge federal appeals court in Boston found that "the conduct of this nation's foreign affairs cannot be effectively managed on behalf of all the nation's citizens if each of the many state and local governments pursues its own foreign policy."
But supporters of the Act remain confident. "This could actually backfire against the administration," noted Robert Stumberg, a professor at Georgetown Law Centre. "Some justices who might have been more sympathetic to the administration's case may now be more inclined to see in this a major extension of federal power at the expense of state and local authorities."
The Court's majority consists of justices appointed by Republican presidents, who generally have been more solicitous of state and local rights. Ironically, President Ronald Reagan's attorney-general, a strong supporter of apartheid South Africa, opposed a constitutional challenge to the selective-purchasing laws against Pretoria for precisely that reason.
"The administration's brief amounts to an unparalleled attack by the federal government on state sovereignty and local democracy and really makes a sharp contrast with even the Reagan administration's view that selective-purchasing laws were constitutional," says Simon Billeness, a financial analyst in Boston who has led the anti-Burma campaign there.
Whatever the Supreme Court decides, however, the case's main impact may actually work against the WTO, which was already badly wounded by the debacle of its Seattle meeting last December, according to Stumberg.
In 1994, when the administration was negotiating with Congress over Washington's membership in the WTO, it offered assurances to the attorneys-general of all 50 US states that private corporations could not sue states in connection with WTO agreements, including any constitution-based challenges to state laws.
"To get it through Congress, that's what the US Trade Representative agreed to," said Stumberg. "Now the fact that the administration is lining up with the corporations will not help the USTR's credibility when new trade agreements come up."
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