Preliminary Analysis of Supreme Court Decision:
Impact on Options for Free-Burma Legislation
TO: Supporters of Local Burma Laws
FROM: Robert Stumberg & Matthew Porterfield, Harrison Institute for Public Law
Georgetown University Law Center
DATE: June 20, 2000
Summary: The U.S. Supreme struck down the Massachusetts Burma law on the grounds that it was preempted by the act of Congress that authorized the President to impose a limited range of sanctions. Contrary to some press reports, the decision does not declare that it is generally unconstitutional for cities and states to use human rights standards for government purchasing. However, unless Congress expresses its intent to allow selective purchasing under the federal Burma sanctions, the purchasing provisions of most local Burma laws are preempted. This memo outlines some of the options for amending local Burma laws in ways that are compatible with the Court’s decision. Please contact potential legislative sponsors as soon as possible and send notice of your work to the Email address below.
What did the Supreme Court decide?
On June 19th, a unanimous Supreme Court struck down the Massachusetts Burma law on grounds that it was preempted by the act of Congress that imposed federal sanctions on Burma. The opinion by Justice Souter stated three principal reasons why the Court considered the state law to be in conflict with the federal Burma sanctions. First, the state law was an *obstacle* to the congressional delegation of authority to the President to control economic sanctions against Burma. Congress authorized the President to waive as well as expand the federal sanctions. In the Court*s view, state purchasing standards that differed from the direction taken by the President could devalue the President*s bargaining chips (the Court*s metaphor). Second, the state law interferes with Congress*s intent to limit economic pressure against Burma to a specific range of sanctions. Third, the state law interferes with Congress*s charge to the President that he speak for the United States in developing a comprehensive and multilateral strategy to promote democracy in Burma. The Court dismissed the state*s argument that Congress was aware of the state and local Burma laws and had not express any intent to preempt them. The Court felt that the conflict between state and federal laws was clear in this case * unlike previous cases in which the Court concluded that congressional awareness of a state law coupled with congressional silence on preemption were enough for the Court to imply congressional intent to sustain the state law. The Court’s decision is notable for its avoidance of two sweeping constitutional theories that the lower federal courts used to rule against the Massachusetts Burma law. First, the Court did not address the assertion that the state law encroached upon an exclusive federal power to conduct foreign affairs. Second, the Court did not address the assertion that the state law imposed a discriminatory burden on foreign commerce. A number of newspaper stories suggested that the Court ruled that states may not use ttheir purchasing power in a way that affects foreign affairs, but these stories reflected the arguments of the corporate coalition challenging the Burma law and not the Court’s opinion.
What is the immediate impact of the decision on your local Burma law?
The Supreme Court decision will have a direct legal effect on only the Massachusetts Burma law. A decision to strike the law will also provide legal authority for local governments elsewhere that choose to suspend enforcement of the provisions of their local laws that are inconsistent with the Court*s decision.
What options are available for amending or replacing your current Burma law, if necessary?
Below, we identify four possible options (there are other variations) for amending or replacing a current Burma law. Within one month of the Court*s decision, we will refine our analysis of these options and provide a summary of how they work along with model legislation. Briefly, the options include:
1. Suspend rather than repeal current selective purchasing provisions.
The option: Rather that repeal their current selective purchasing provisions, state and local governments could simply suspend their enforcement until the city/county attorney or attorney general can certify that Congress has enacted legislation to withdraw the preemption or explicitly authorize the law’s enforcement. All other options listed below would also be available.
Impact of the Court’s decision: This option would directly implement the Court’s decision.
Political and policy considerations: The option of suspending enforcement of Burma-specific selective purchasing is just as simple as repealing the same provisions. However it also creates a level of suspense over whether and when Congress might act to undo the Supreme Court’s decision. The suspense may add to the deterrent effect of other options listed below.
2. Generic selective purchasing standards – based on human rights or core labor standards.
The option: State and local governments could adopt standards to avoid doing business with companies that benefit from violation of human rights or core labor standards * as long as the law does not apply to doing business in Burma (or other countries where Congress has adopted federal sanctions). For example, California already has a law that bans state agencies from buying goods made with forced labor. This generic standard could be expanded to other forms of exploitation or repression from which a company benefits commercially. An example would be if a company is directly involved in moving people off their land, taking or destruction of people*s property, or extrajudicial imprisonment or killings. Another example would be if a company extracts or transports oil, gas, timber or other resources using infrastructure that was built with forced labor.
Impact of the Court’s decision: The Court preempted the Massachusetts Burma law based only on the act of Congress that authorizes federal sanctions on future investment in Burma. The narrowness of this ruling means that the decision does not preempt selective purchasing outside of the scope of the federal Burma sanctions. By the same token, a generic purchasing standard could not apply to companies doing business in Burma specifically (or depending on the language of federal legislation, other countries for which Congress has legislated sanctions on trade) unless Congress explicitly allows state and local purchasing measures. If that is so, then why bother? The answer is that if the market for public procurement generally avoids companies that violate human rights or exploit repressive environments, then doing business in Burma with become even more visible and morally tainted.
Political and policy considerations: This option is phrased as a primary rather than a secondary boycott. In other words, a local government would avoid doing business with a company because of that company*s own conduct and not the indirect support that the company provides to a repressive government by doing business in such a country. This direct connection is not mandated by the Supreme Court*s opinion. Rather, it is designed to affect many fewer companies and to focus attention on those companies whose own conduct is morally tainted. Should you want to consider this option, a major choice will be the scope of human rights or core labor standards that would trigger the purchasing preference. For example, a narrow (and easy to define) standard would be to avoid companies that benefit from the use of forced labor. The AFL-CIO has endorsed local purchasing based on a broader scope of core labor standards. A broader standard would be to avoid companies that benefit from violation of any core labor standard (e.g., forced labor, slave labor, child labor, right to collective bargaining). Inclusion of collective bargaining and child labor would affect many companies that trade in developing countries and thus increase the likelihood of political opposition.
3. Disclosure of doing business in Burma – condition for public contractors.
The option: State and local governments could require that as a condition for making a contract to sell goods or services to the government, a contractor must disclose the nature of business that it does in Burma. The government could avoid red tape for most contractors by only requesting this disclosure from companies known to be doing business in Burma. The government could use an existing list (such as the one published by the Investor Responsibility Resource Center) or supplement an existing list with additional information such as responses from contractors. The government could publish the identity of the contractors with which it does business that do business in Burma (or businesses that fit a narrower standard such as doing business with the government or Burma or businesses that benefit from violation of core labor standards).
Impact of the Court’s decision: This option is a much more conservative variation of the *Burma list* publication that was part of the Massachusetts Burma law. Because this option is related to one component of the Massachusetts law, the option may be opposed by business groups on grounds that any part of the Massachusetts law is preempted by the Court*s decision. It will take additional legal analysis to address this issue with complete certainty. However, a number of factors weigh in favor of retaining this option of disclosure. First, the disclosure is not linked to a purchasing preference, which was the obstacle to implementation of congressionally authorized sanctions as stated by the Court. Second, disclosure of information is a common element of the public procurement process. Third, if necessary, the disclosure can be limited to contractors that have a direct (primary rather than secondary) connection to violation of human rights. Finally, a disclosure requirement can also be linked to a state or local government’s capacity to petition or report to Congress in future years.
Political and policy considerations: We know that companies are very sensitive to disclosure of this information based on their reaction to the list published by Massachusetts. In fact, they are so sensitive that they are likely to use any available argument to avoid this kind of disclosure, including legal as well as administrative burden arguments. The administrative concerns are likely to be shared by public procurement officials. For that reason, the disclosure burden on both contractors and agencies can be limited to only the most likely companies at the very end of the procurement process. Administrative burdens can be further limited by focusing on contracts over a certain minimum amount or by focusing on discrete types of vendors where there is likely to be a direct connection to Burma (e.g., petroleum, engineering and financial services).
The option: Depending on the degree of a company’s involvement in human rights abuses, some jurisdictions may want to simply divest their holdings in companies that do business in Burma.
Impact of the Court’s decision: Some local officials have expressed concern that because the federal Burma sanctions relate to future investment by American citizens, that a deliberate policy to sell stock of companies doing business in Burma could also be challenged. The decision of the Court, however, preempts only the Massachusetts law, which is limited to selective purchasing. Neither the Massachusetts law nor the Court*s opinion makes any mention of investment powers. Therefore, the issue is not whether divestment is preempted by the Court*s decision, but whether divestment could be challenged in the future based upon an argument that divestment is an obstacle to the congressional sanctions against Burma. It will take additional legal analysis to address this issue with complete certainty. However, a number of factors weigh in favor of retaining this option of divestment. First, the kind of investment contemplated by Congress in its sanctions against Burma is foreign direct investment in assets or subsidiaries in Burma by a American company. Second, divestment is not linked to a purchasing preference, which was the obstacle to implementation of congressionally authorized sanctions as stated by the Court. It is difficult to see how the sale of stock would economically affect a company in any measurable way. Rather, divestment is a moral statement. Third, divestment is an aspect of the fiduciary power and responsibility of public fund managers. There is a high degree of political and economic risk associated with doing business in Burma, which justifies and may even require divestment by a fiduciary apart from human rights considerations. Fourth, the lower courts in this case and in other cases have distinguished divestment from selective purchasing as an activity that falls beyond the scope of a constitutional challenge. We will include treatment of divestment in these cases in our later analysis.
Political and policy considerations: While divestment is an easy option to implement, it has a very limited economic impact, and its publicity value is short-lived.
5. Public investor accountability.
The option: State and local governments could authorize or require public pension funds and investment agencies to press companies to withdraw from Burma through voting shares and cosponsoring shareholder resolutions. The resolutions could require such accountability measures as adoption of human rights standards for location of company facilities or subcontractors, as well as disclosure of the nature of a company’s business in Burma. The Vermont Burma law adopted this type of disclosure.
Impact of the Court’s decision: The same preemption concerns could be raised regarding corporate accountability options as are noted above under divestment, but to an even lesser degree than divestment. The accountability actions involve free expression of values between shareholders and their corporations.
Political and policy considerations: Considering the growing clout of public pension funds in the equity markets, shareholder actions that enjoy their support are also gaining importance as viable checks on corporate abuse of human rights.
6. Speech in the form of findings and a petition to Congress.
In addition to the economic options noted above, legislative findings are an important tool for educating local legislators and the public. Because the Supreme Court ruled against the Massachusetts law exclusively on preemption grounds, Congress has the authority to remove the preemption or authorize state and local selective purchasing. Petitions to Congress from state and local legislatures could be an important part of a congressional legislative strategy.
How long will it take to amend or replace a current Burma law?
The time that it takes to amend or replace a current Burma law will depend upon two variables that are within the knowledge or control of local advocates. The first is decision-making on locally appropriate legislative options; the second is the local legislative process.
1. Decision-making on legislative options.
Considering that the legislative options are already outlined, the most time-consuming work will be consultation with key local stakeholders to assure their support or neutrality, depending upon their role in the process. You can begin now to make connections with the key actors, including:
* Legislative sponsors.
* Allies: labor, church, human rights, environmental groups.
* City or county attorney’s office.
2. Legislative process.
There are numerous stages of the local legislative process that have to be planned to fit within the calendar of when the city or county council is in session for purposes of considering bills and how long it takes to provide notice of introduction, hold committee hearings and hold one or more votes on the bill.
For local advocates who are new to legislative advocacy, we have prepared an outline of typical tasks and stages of the legislative process for you to consider in your planning.
What long-term effect could the decision have on other types of selective purchasing laws such as environmental, buy-local or small business preferences?
The corporations that opposed the Burma law took the position before the Supreme Court that their arguments against the Burma law applied broadly to other types of selective purchasing as well. In response to the warnings sounded in the amicus briefs supporting Massachusetts, the lower federal courts that ruled against the Massachusetts Burma law took pains to explain that their decisions were not likely to affect other types of selective purchasing.
The Supreme Court limited its analysis to only the preemptive effect of the congressional act that imposed sanctions on Burma. Apart from preemption doctrine, the Court*s opinion neither supports nor limits broader arguments that could be used against selective purchasing of any kind. The Court*s approach to preemption in this case does raise a number of questions that require further analysis in the months ahead. These questions include:
* Are there acts of Congress that corporations or foreign governments can use to challenge other types of local purchasing laws as *obstacles* to implementing those acts of Congress? For example, the categories of local purchasing laws or policies include the following: environmental preferences (recycled content, alternative fuel, energy efficiency), small or minority business preferences, buy-America or buy-local preferences, laws invoking the MacBride code of corporate responsibility, and threats to boycott financial firms that withheld assets from families of Holocaust victims.
* If there is an act of Congress on the same subject as state or local legislation, is there evidence that the Executive Branch, foreign governments, or both consider the state or local legislation to be an obstacle to multilateral cooperation toward implementing the objectives of Congress?
We would appreciate hearing of examples of state and local purchasing laws or policies to which these questions apply.
In addition to the risk of preemption, there is language in the Court’s opinion that opens the door to constitutional challenges in the future based on claims by corporations or foreign governments that state law conflicts with a WTO agreement, which mean that the state law interferes with foreign commerce or encroaches upon federal foreign affairs power. In footnote 24 of its decision, the Court acknowledges that in ?02 of the WTO implementing legislation, *Congress foreclosed suits by private persons and foreign governments challenging a state law on the basis of [WTO agreements] in federal or state courts, allowing only the National Government to raise such a challenge.* However, even though ?02 forbids raising WTO conflicts in *indirect* constitutional claims, the Court accepted the mere allegations of a WTO conflict as evidence that the Massachusetts Burma law was an obstacle to achieving congressional objectives. If WTO claims can be evidence of international conflict for purposes of a preemption case, then WTO claims can be evidence of international conflict for purposes of a broader constitutional case.
Recommended Schedule for Responding to the Supreme Court Decision
July 1 Make contact with legislative sponsors of local Burma laws; share this document.
July 1 Send this preliminary analysis of the decision to the legislative sponsor of the local Burma law as well as the city or county attorney*s office.
Aug. 1 We will disseminate a revised summary of options for amending or replacing your local Burma law with model legislation. This information will support your efforts to: (1) contact potential allies and legislative sponsors; and (2) plan a schedule for legislative advocacy based on the local legislative calendar.
Sept. 1 Decide on options for amending or replacing your local Burma law; discuss the options with key local allies.
Oct. 1 Draft the revised local Burma law in bill form. You can directly use the model language that we provide, or you can work with the staff of the council or city/county attorney*s office to draft the language of the bill.
Oct. – Dec. Seek introduction and committee hearings. Organize lobbying process.
Harrison Institute for Public Law
Georgetown University Law Center
111 F St., NW – Suite 102
Washington, DC 20001-2095