by Kimberly Ann Elliott, Peterson Institute for International Economics
Article reprinted from the Journal of Commerce
August 6, 1997
Even before he resigned to lobby for Senate confirmation to be U.S. ambassador to Mexico, Massachusetts Governor William Weld dabbled in foreign policy.
Last year he signed legislation restricting state procurement from companies doing business in Myanmar. In that case, however, Weld was not just taking on the regime in Myanmar. Unintentionally, he was also taking on Europe, Japan, and other American allies and trading partners who argue the Massachusetts law violates American obligations under international trade rules.
In isolation, the Massachusetts law might not have attracted much attention. As of mid-July, however, similar restrictions had been adopted by New York City and local governments in six other states (California, Colorado, Maryland, Michigan, North Carolina, New York, and Wisconsin).
Berkeley and Oakland, California, also recently passed selective procurement measures protesting human rights violations in Nigeria and a number of similar proposals targeting Myanmar, China, Indonesia, Nigeria, and others are pending in several states and cities.
The proliferation of state and local sanctions is worrisome in and of itself but it is also emblematic of a larger problem that needs to be addressed. As trade policy moves further from border measures and more toward behind-the-border regulatory issues, the effects of state and local actions on international trade and investment will be increasingly likely to trigger international trade disputes.
The fundamental issue, however, is whether these actions are justifiable under the US Constitution, and only secondarily whether they violate international trade rules.
Local and state government officials claim taxpayers have the right to determine how their tax dollars are spent. The framers of the Constitution, while recognizing the legitimacy of states' rights in may areas, felt that in relations with foreign countries the nation should speak with one voice. Thus, the Constitution vests authority to conduct foreign affairs and to regulate foreign commerce in the federal government.
The Constitution also provides that the laws and treaties of the United States are the "supreme law of the land" and may not be pre-empted by state or local actions. Given all that, it seems likely that Massachusetts sanctions would be found unconstitutional if challenged in a U.S. court.
Ironically, the Clinton administration may try to defend the Massachusetts law under international trade rules even though it is almost certainly unconstitutional at home. The European Union and Japan argue that the sanctions violate U.S. obligations under the Government Procurement Agreement (GPA) of the World Trade Organization. The agreement forbids discrimination against foreign firms in procurement.
Congress approved the extension of GPA obligations to specific sub-federal entities that agreed to abide by the pact, including 37 U.S. states and seven of the 24 largest municipalities (Chicago, Detroit, Boston, Dallas, Indianapolis, San Antonio, and Nashville). Massachusetts was one of those states.
The administration's current strategy appears to be to stall the WTO process as long as possible so that the dispute does not undermine congressional support for its trade initiatives, especially "fast-track" legislation authorizing new regional and multilateral trade negotiations.
Trying to defend the Massachussets law, however, would compound the administration's problems. Since the United States would almost certainly lose the case on its merits, the apparent impetus for forcing Massachusetts to change its law would be the WTO, rather than the US Constitution, which could create an unnecessary and unjustified backlash against the WTO. Defending the Massachusetts law could also make it more difficult for this or another administration to reverse course in the future and challenge the constitutionality of such measures.
Despite the imbalance of costs and benefits in most cases, the popularity of economic sanctions around the country does not appear to be waning.
Largely for political reasons, the Clinton administration has been unwilling to stir a debate over states' rights by directly challenging the constitutionality of state and local sanctions laws.
Now is the time for the administration to confront this issue. It could start by pointing out the irony that at the same time many state and local governments are falling all over themselves offering corporations tax breaks and other incentives to invest in their area, imposing selective procurement requirements and other sanctions will drive them away.
If reasoned debate does not sway the states, the administration should take them to court so that the issue of where to draw the line between states' rights and federal authority in the international arena can be settled once and for all.
Paper: Case Studies in Economic Sanctions and Terrorism
Revised June 2012
Policy Brief 01-11: Using Sanctions to Fight Terrorism November 2001
Working Paper SPECIAL: US Economic Sanctions: Their Impact on Trade, Jobs, and Wages April 1997
Policy Brief 98-4: Sanctions-Happy USA July 1998
Op-ed: The Snake Oil of Diplomacy: When Tensions Rise, the US Peddles Sanctions July 12, 1998
Peterson Perspective: Legislation to Sanction China: Will It Work? October 7, 2011