State and municipal economic sancti

[moe@xxxxxxxxxxxxx]

Subject: State and municipal economic sanctions coming under   fire 

State and municipal economic sanctions coming under   fire 





                            By Sudarsan Raghavan
                         INQUIRER STAFF WRITER

In 1991, Byron Rushing, a Democratic state senator in Massachusetts, wanted
to help return
Haitian pro-democracy leader Jean-Bertrand Aristide to power. So he got the
legislature to pass a
resolution urging Congress to act, and Congress ignored it.

Last year, Rushing's cause was human-rights abuses in Burma. But that time,
he took a different
tack.

He decided to give Massachusetts its own foreign policy.

He pushed through the legislature a law that bans state agencies from
signing or renewing contracts
with American and foreign firms doing business with Burma.

In the process, he created a looming battle with opponents he is not
ordinarily used to fighting in
the Massachusetts legislature: Japan, the European Union, the Burmese
regime, the World Trade
Organization, multinational firms, and, not least of all, the U.S. government.

At the heart of the matter is the propriety and legality of states and local
governments using
economic sanctions to punish countries accused of human-rights violations.

Some corporate heavyweights and political analysts warn that such state and
local initiatives thwart
Washington's ability to enforce effective foreign policy, and that they
damage U.S. economic,
political and military relationships with its allies as well as business
ties in lucrative emerging
markets.

``The fact of proliferation of local and state sanctions is that it really
undermines the unity of U.S.
foreign policy,'' said Anthony Albrecht, a senior adviser at the U.S.-ASEAN
Council, a nonprofit
organization funded by American companies with business ties to countries
belonging to the
Association of Southeast Asian Nations. ``It makes the U.S. less credible
and effective in
economic negotiations.''

Supporters of the local and state sanctions argue that there is a larger
issue: the constitutional
sovereignty of states.

``It boils down to a battle between corporate interests and the interests of
ordinary taxpayers,''
said Simon Billenness, a senior analyst at Franklin Research & Development
Corp. in Boston,
which describes itself as a socially responsible investment firm.

The pro-sanctions movement began in the early 1980s, when grassroots
activists launched a call
for U.S. firms to divest from apartheid-era South Africa. In recent months,
the movement has
escalated -- and with real impact.

Analysts say the increasingly connected nature of the world economy gives
state and local
sanctions more bite overseas than in the past. The end of the Cold War has
played a role, too.

``It is the absence of a national paranoiac preconception that occurred with
a big, bad enemy
which has emboldened people,'' said Robert Stumberg, a Georgetown University
law professor
specializing in state sovereignty issues.

``What is also different now is the global economy,'' he said. ``Why weren't
state and local
involvement in foreign policy questioned 15 years ago? The world economy was
much less
integrated.''

Foreign-directed sanctions are in effect or are proposed in more than 15
states, cities and
counties, including San Francisco; Ann Arbor, Mich.; and the State of North
Carolina:
   In May, New York City banned official purchases from firms with ties to
Burma. The City
Council is considering a similar ban directed at 15 countries, including
China, that some council
members say restrict the religious freedoms of Christians.
   Oakland, Calif., is considering a ban against firms with ties to Nigeria.
   Massachusetts is considering sanctions against Indonesia for human-rights
abuses in East
Timor.
   New Jersey and Chicago reportedly are looking into similar action against
Switzerland for its
role in laundering Nazi gold.

In what some observers see as a sign of events to come, the European Union
and Japan have
complained to Washington that Massachusetts' ``Burma law'' violates
international trade
agreements.

In mid-June, the EU formally notified the Office of the U.S. Trade
Representative that it will ask
the World Trade Organization for a formal consultation considering the
Massachusetts law.

Analysts say the international complaints appeared to have been triggered
not so much by concern
about Burma as about Indonesia and China, where European and Japanese
companies have
significant investments.

Already, the Massachusetts law has exacted a toll. A number of firms, such
as Eastman Kodak
Co., Hewlett-Packard Co. and Apple Computer Inc., have pulled out of Burma
in response. The
state's blacklist includes a number of European and Japanese companies,
among which are Nissan
Motor Co. Ltd., Siemens Corp. and Sony Corp.

The spread of local and state sanctions worries lobbyists who are already
trying to deal with
federal trade sanctions against their firms. Many critics see such actions
reeling out of control, and
question the constitutionality of what they see as states undermining the
federal government's right
to construct a cohesive foreign policy.

``What if California, whose companies have investments in Indonesia and
Burma, retaliates against
Massachusetts companies?'' asked Marino Marcich, director of international
investment for the
National Association of Manufacturers. ``If it is a moral message, it's an
ineffective one, and a
highly expensive one in terms of jobs and exports. It makes us feel good.
But the question is, does
it do any good?''

Supporters of state and local bans contend that their governments have a
constitutional right to
spend money the way they please and a moral obligation to do so because most
corporations are
insensitive to human-rights issues and effectively lobby Washington into
taking their side.

Despite small victories for the antisanctions side in some areas, the battle
appears far from over.

Observers such as Georgetown's Stumberg think the Europeans are trying to
use the issue to
challenge what they see as a byzantine, fragmented American market with a
patchwork of laws
and codes at every level, from federal government down to municipalities.

Ella Krucoff, a spokeswoman for the EU, said the organization did ``not
expect the U.S. to
change its system,'' but the point of the dispute was that ``an agreement
that governs international
trade was being violated.''

A spokeswoman for the U.S. Trade Representative's Office declined to comment
on whether the
Massachusetts law aimed at Burma would be defended by the United States in
any potential
World Trade Organization hearing.

The federal government could sue Massachusetts to comply with the treaty, an
event most analysts
say is unlikely because of the potential for political embarrassment to the
Clinton administration.

Rushing and other Massachusetts politicians, meanwhile, say they don't plan
to give up without a
fight.

If the EU ``carries through with this, it will be far more difficult for
states to buy into future
negotiations on trade and investment treaties,'' Rushing warned. ``A lot of
states will take a
negative look at this if you have your own State Department taking you to
court.''

             Philadelphia Online -- The Philadelphia Inquirer, National --
Copyright Saturday, July 5, 1997