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Should States Use Their Economic Muscle
To Impose Morality in World Affairs?

By Michael Y. Park   Fox Market Wire
NEW YORK — American companies may have to drastically change the way they conduct business overseas when the Supreme Court rules on a case that it heard last week.

 

The case, Natsios v. National Foreign Trade Council (Docket No. 99-0474), is a smorgasbord of legal conflict, pitting states against the federal government, the United States against foreign dictatorships and free-trade supporters against civil-rights watchdogs.

For American businesses, the case hits at the heart of two often competing goals — the globalization of business and human-rights concerns.

The case stems from a 1996 law that Massachusetts enacted to punish Burma's oppressive military dictatorship for using forced labor and jailing Nobel Peace Prize winner Aung San Suu Kyi. Other states and cities soon followed suit with Burma, now known as Myanmar, and other so-called repressive countries.

Under the law, companies must choose to do business either with Myanmar or Massachusetts. A company with offices or employees in Myanmar, or that profits from business in the region, must bid 10 percent lower than competitors to be eligible for a state contract.

Human-rights activists applauded the state's actions.

"States should be able to determine how taxpayers' money is used, and if they want to divert it from supporting egregious human rights abusers ... that's a right that should be affirmed," said Mike Jendrzejczyk, director of Human Rights Watch Asia.

However, free-trade groups were appalled, saying the laws threaten U.S. businesses in the global marketplace.

"Laws of this type make American businesses out to be unreliable suppliers," said Frank Kittredge, president of the National Foreign Trade Council. "It's Burma today, it's Indonesia tomorrow. The next day it's China or Saudi Arabia."

Three months after Massachusetts passed the law, Congress passed its own watered-down legislation regarding Burma. But because the federal law was far more lenient than the state law, companies found themselves violating only the Massachusetts law.

 
'States should be able to determine how taxpayers' money is used,' — Mike Jendrzejczyk
 
Kittredge's group, representing an armada of concerned companies, decided it was time to take legal action.

The trade council made three arguments — that federal law superseded the state law; that Massachusetts was unconstitutionally dabbling in foreign affairs; and that the state was illegally imposing regulations on interstate and international commerce.

Bolstered by various human-rights groups and congressmen such as Sen. Edward Kennedy, D-Mass., Massachusetts shot back with its own case that Congress hadn't specifically overturned its state law; that states have the authority and moral obligation to punish inhumane regimes; and that it was acting as a participant in the market.

Two lower courts didn't buy the state's arguments, ruling for the trade council. And most of the Supreme Court justices seemed skeptical as well.

Justice Stephen Breyer said the Burma law could get out of hand. For instance, South Carolina firms could be punished until the Confederate flag no longer flies over Charleston. That, Breyer said, would lead to "chaos."

Justice Ruth Bader Ginsburg said the Burma law complicated U.S. international policy and strayed from the Constitution's admonition to "speak with one voice" on foreign affairs.

However, Justice Antonin Scalia defended Massachusetts' actions, saying Congress didn't explicitly prevent "states from running off with foreign affairs powers."

Whatever the Supreme Court decides, the case should continue to highlight the controversy over whether the United States should use its economic clout to encourage — or impose — morality in world affairs.

"In the globalized economy that exists today, the notion that we can withdraw trade and influence foreign governments is really far-fetched," Kittredge said.

But Jendrzejczyk said that when it comes to incorrigible regimes, foreign money props up the wrong people.

"In Burma, clearly the involvement of business there has not made a difference, and conditions are if anything worse (than when the military took power in 1988)," he said.

The justices are expected to render their decision before the end of June.

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