Applying the Market Participant Exception to Selective Purchasing Laws That Affect Foreign Commerce Relations: Reading Between the Lines of National Foreign Trade Council v. Natsios

• Publication year: 2001
• Citation: Vol. 24 No. 03

SEATTLE UNIVERSITY LAW REVIEWVolume 24, No. 4SPRING 2001

NOTE

Applying the Market Participant Exception to Selective Purchasing Laws That Affect Foreign Commerce Relations: Reading Between the Lines of National Foreign Trade Council v. Natsios

Michelle C. Sarruf(fn*)

On June 19, 2000, the United States Supreme Court decided the case of Crosby v. National Foreign Trade Council.(fn1) Affirming the First Circuit's decision in National Foreign Trade Council v. Natsios,(fn2) the Supreme Court in Crosby held that the "Massachusetts Burma Law,"(fn3) a Massachusetts selective purchasing law, was unconstitutional because it violated the Supremacy Clause of the United States Constitution(fn4).

The Massachusetts legislature enacted the Burma Law in 1996 to condemn the human rights violations occurring in Myanmar (formally Burma).(fn5) The law essentially prohibited the state from contracting with businesses that "do business with Burma."(fn6)

In Natsios, the National Foreign Trade Council (NFTC), a coalition of business groups, alleged that the Massachusetts Burma Law was unconstitutional because it (1) violated the Supremacy Clause;(fn7) (2) violated the Foreign Commerce Clause;(fn8) and (3) unconstitutionally interfered with the foreign affairs power(fn9) of the federal government. The First Circuit agreed with NFTC, holding that the law was unconstitutional on all three grounds.(fn10)

The Supreme Court granted certiorari and, relying exclusively on the Supremacy Clause, held that the Massachusetts law was unconstitutional.(fn11) In doing so, the Supreme Court wrongly left unresolved the question of whether the "market participant exception" to the dormant Commerce Clause can be applied to allow a state to freely exclude business partners that it finds objectionable.(fn12) Rather, the Court should have held that when acting in the role of a market participant, a government is allowed to choose its own business partners, regardless of whether its choice is based on a moral or economic reason, and regardless of whether the business partners are foreign or domestic.(fn13) Such a holding is supported by the justifications for the market participant exception, a judicially created doctrine imposed to limit the reach of the dormant Commerce Clause. These justifications, including fairness and a need to avoid interference with state autonomy, apply consistently to transactions in both domestic and foreign commerce.(fn14)

In this Note, I will examine the background of the situation in Burma as well as the federal and state legislation passed in response to the atrocities occurring within Burma's borders. I will then address the First Circuit's holding that the Massachusetts Burma Law is unconstitutional, focusing on the court's foreign Commerce Clause analysis and failure to apply the market participant exception. Finally, I will discuss the history of and the justifications for the market participant exception, exploring how the exception should be applied in the context of foreign commerce.

In my analysis, I will focus on the dormant Commerce Clause and the market participant exception because of the implications these doctrines may have for future situations. For example, would a state or local government be barred from passing a selective purchasing law if there were no preemptive federal law involved? The outcome of such a case may depend on a proper application of the dormant Commerce Clause and the market participant exception. The courts have not yet decided this issue, but it is almost certain to arise in the near future, especially as markets become increasingly globalized.

I. Background

A. Human Rights Violations in Burma

Situated in Southeast Asia, Burma is bordered by China, Laos, Thailand, and India. The British colonized Burma in 1886, and it later gained independence in 1948.(fn15) Burma enjoyed a brief period of parliamentary democracy until 1962, when the military, under General Ne Win, took power, and the Burma Socialist Programme Party (BSPP) became the official party of the new government.(fn16) Under Ne Win's control, Burma entered a period of isolationism. Ne Win rejected investments by Western and other foreign governments and nationalized Burmese banks, the import/export trade, and retail and industrial businesses.(fn17) During Ne Win's military reign, the Burmese economy collapsed.(fn18) By 1987, Burma had gone from being the "rice bowl of Asia" to the United Nation's "Least Developed Country."(fn19)

By 1988, economic stagnation and the suppression of political freedom transformed general discontent into a nationwide mass movement.(fn20) As a result of this movement, the military, in September of 1988, announced a coup and established the State Law and Order Restoration Council (SLORC).(fn21) Under the SLORC regime, the sociopolitical atmosphere in Burma continued to deteriorate.(fn22)

A 1996 International Labor Organization (ILO) report confirms that under SLORC rule, Burmese authorities forced the men, women and children of Burma to carry out a variety of labor-intensive tasks.(fn23) Not only did the authorities fail to compensate these workers, but they also subjected them to various forms of verbal, sexual, and physical abuse including rape, torture, and death.(fn24) Harsh penalties were imposed for any failure to comply with forced labor:Punishments included detention at the army camp, often in leg-stocks or in a pit in the ground, commonly accompanied by beatings and other forms of torture, as well as deprivation of food, water, medical attention and other basic rights. Women were subject to rape and other forms of sexual abuse at such times.(fn25)

While forced labor has existed in Burma since at least 1988, the use of forced labor for infrastructure-related projects appears to have been much less common before 1992.(fn26) However, in recent years, an increasing number of Burmese have been subjected to forced labor.(fn27) In 1995, Human Rights Watch/Asia estimated that from 1992 to 1995, at least two million people were forced to work on the construction of roads, railways, and bridges without pay.(fn28) Additionally, the government forced civilians to work on a variety of projects undertaken by Burmese authorities. It appears that these projects, which included the cultivation and production of goods, were undertaken for income-generation purposes.(fn29) Many of these goods were traded on the international market.(fn30)

A second atrocity that is closely related to the increase in forced labor is a pattern of unsustainable overuse of natural resources.(fn31) Along with its exploitation of the Burmese people, the Burmese government is attempting to fully exploit a substantial quantity of mineral, fishing, and timber resources, resulting in widespread ecological devastation.(fn32) Many of these resources are incorporated into products that filter into international markets.(fn33)

Both of these atrocities, forced labor and the exploitation of natural resources, continue to occur in Burma, and the Burmese people continue to suffer. With little hope of assistance from within Burmese borders, it has become clear that the Burmese people need outside assistance and support. In response to these atrocities, Massachusetts took action and passed its Burma Law.

B. Federal Legislative Response to Burmese Human Rights Violations

Massachusetts was not alone in responding the human rights violations in Burma. Congress, during the Clinton administration, imposed sanctions on Burma three months after Massachusetts passed its law.(fn34) The federal legislation authorizing the sanctions includes five components: (1) it bars any United States assistance to the Government of Burma except for certain types of humanitarian assistance; (2) it authorizes the President to impose conditional sanctions by means of an executive order; (3) it instructs the President to work with members of the Association of South-East Asian Nations (ASEAN) and other countries having major trading and investment interest in Burma to develop a comprehensive, multilateral strategy to bring democracy to Burma and improve human rights practices and the quality of life for its people; (4) it instructs the President to report to Congress on conditions in Burma and on progress made in furthering a multilateral strategy; and (5) it grants the President the power to waive any of the sanctions if he or she determines and certifies to Congress that the application of such sanctions would be contrary to the national security interests of the United States.(fn35)

In May 1997, President Clinton issued an Executive Order pursuant to the Federal Burma Laws imposing trade sanctions on Burma.(fn36)

II. Facts, Procedural History and Holding in National

Foreign Trade Council v. Natsios

A. Facts

In 1996, Massachusetts enacted "An Act Regulating State Contracts with Companies Doing Business with or in Burma (Myanmar)," which popularly became known as the Massachusetts Burma Law.(fn37) In effect, the law prohibited Massachusetts and its agents from purchasing goods or services from anyone doing business with Burma.(fn38) It did this by authorizing the Operational Services Division (OSD), an agency within Massachusetts' Executive Office of Administration and Finance, to establish a "restricted purchase list."(fn39) This list was formed...