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Journal of Commerce: Mass. sanction

Subject: Journal of Commerce: Mass. sanctions struck down

Massachusetts sanctions struck down
Judge's ruling may set precedent for state bans

November 6, 1998

BOSTON -- In a sweeping victory for trade interests, a federal judge has
struck down as unconstitutional a Massachusetts law that penalizes
companies doing business with military-ruled Myanmar.

The ruling could halt enforcement of the 1996 selective purchasing law
aimed at Myanmar, the former Burma. It also may serve as the basis to
challenge a host of other "subfederal" sanctions that have been enacted by
states, counties and municipalities.

In his decision of a suit brought in April by the National Foreign Trade
Council, Chief Judge Joseph Tauro of the U.S. District Court for the
District of Massachusetts said the state's law "impermissibly infringes on
the federal government's power to regulate foreign affairs."

"The Massachusetts Burma Law was designed with the purpose of changing
Burma's domestic policy," the judge wrote in a decision released late
Wednesday. "State interests, no matter how noble, do not trump the federal
government's exclusive foreign affairs power."

Frank Kittredge, president of the Washington-based trade council, hailed
the ruling in a statement, saying that it "should significantly deter
states and cities from imposing their own foreign policy sanctions."

The trade council, which filed the suit on behalf of its 580 members, sees
it as a key part of its campaign to halt the spread of unilateral economic

It is unlikely that the first-round victory over the Massachusetts law will
mean the end of the fight. Advocates on both sides expect the ruling to be
appealed within 30 days.

"I'm certainly going to be urging the (state) attorney general to appeal
this," said state Rep. Byron Rushing, who wrote the Myanmar curbs and
similar legislation aimed at South Africa in 1988. Legal experts say the
issue may eventually have to be decided by the Supreme Court.

Assistant Attorney General Thomas Barniclo said Thursday that an appeal was
being considered and that the state may ask that the law remain enforced
pending the appeal.

The law, which adds 10% to state contracting bids from companies conducting
business with Myanmar, has been a primary weapon in grass-roots efforts to
end the country's brutal repression of democracy by putting pressure on
foreign investment and trade. The statute also sparked controversy overseas.

Last month, the World Trade Organization agreed to convene a dispute
resolution panel to resolve complaints against the law by the European
Union and Japan. The EU argues that the state statute violates a 1994
Government Procurement Agreement with the United States on open bidding.

Although the court case centered on the issue of federal vs. state powers,
the Clinton administration has pledged to defend the state law before the WTO.

An important second front

While the broader struggle over unilateral sanctions has been fought out in
Congress this year, the conflict over subfederal curbs has been an
important second front for corporate interests. A recent report by the
International Trade Commission found 27 state, county and city sanctions
dealing with Myanmar, Nigeria, Cuba and Tibet.

It is unclear now whether WTO action will be suspended if the Massachusetts
law is held to be without force because of a court injunction. The EU filed
a friend of the court brief supporting the trade council case. Judge Tauro
specifically cited the EU brief as evidence that the state law has a
"disruptive impact on foreign relations."

"We welcome the decision and are accessing its implications for the WTO
case," an EU official said.

The ruling hinges on a 1968 probate ruling decided by the Supreme Court
involving the right of a non-resident alien to inherit property from an
Oregon resident, only if reciprocal treatment was allowed by the
beneficiary's country of origin.

More than incidental effect

The high court ruled in the case that state laws are invalid if they have
more than "some incidental or indirect effect in foreign countries," or if
they have "great potential for disruption or embarrassment," Judge Tauro said.

Mr. Rushing, a Boston Democrat, disagreed with the interpretation, saying
that state legislatures commonly pass resolutions on human rights abroad
and are free to do so, even if they embarrass foreign countries.

States are also free to spend their money as they see fit through selective
purchasing, he said.

Judge Tauro ruled only on the basis of the foreign affairs power argument.

He declined to rule on the issue of federal powers under the Constitution's
Foreign Commerce Clause. The state maintained that, as a "market
participant," it has an exception to federal commerce powers in making
purchasing choices for itself.

The judge also said he was not persuaded by another trade council argument
that federal Myanmar sanctions pre-empt the state curbs.