Trade Watch

Sanctioning Burma, Sanctioning the USA

Can the European Union (EU)force the state of Massachusetts to do business with those who do business with dictators?

Yes, alleges the EU, making a powerful argument under the rules of the World Trade Organization (WTO).

The European Union is currently challenging a 1996 Massachusetts law preventing state agencies from purchasing goods or services from companies that do business with Burma.

In January, the EU sent a demarche (a formal diplomatic submission) to the U.S. State Department arguing that the Massachusetts selective purchasing law violates the WTO Government Procurement Agreement. Japan has also complained to the U.S. State Department.

The Massachusetts law violates the WTO agreement because it "allows the award of contracts to be based on political instead of economic considerations," such as price and quality, the demarche says.

The EU says it "fully reserves its rights," meaning it may file a formal complaint against the United States in the WTO if the Massachusetts law is not changed. At the WTO, it would be federal officials who would defend the Massachusetts law. If the United States lost, the federal government would have to force Massachusetts to change its law, or accept sanctions or pay fines.

The European Union itself has implemented sanctions against Burma, recently lifting tariff preferences for the country under the Generalized System of Preferences. Nonetheless, the EU argues that the means Massachusetts has chosen to sanction Burma is illegal, even though it applies equally to U.S. and foreign corporations.

The Massachusetts law "is a major breach of an international code to which the state of Massachusetts has agreed and to which the United States has agreed," says Ella Krucoff, an EU spokesperson in Washington, D.C. "We don't believe this kind of action is fair to the trade and investment community."

So far, the official U.S. response to the EU challenge has been muted. The U.S. Trade Representative (USTR) is currently consulting with Massachusetts officials about how the law operates and is implemented, according to a USTR official. The USTR has not taken a position on the WTO-legality of the Massachusetts law, according to the official, who refused to comment when asked if the USTR would pledge to defend the law.

In Massachusetts, the EU complaint has generated a storm of controversy. In tandem with Byron Rushing, the bill's lead sponsor in the state House of Representatives, a well-organized grassroots movement ushered the selective purchasing law through the Massachusetts legislature, and Republican Governor William Weld signed the bill with a flourish. The bill's supporters are up in arms about the EU attack on the first state selective purchasing law to penalize the Burmese dictatorship, and the entire Massachusetts delegation to the U.S. House of Representatives sent a letter of protest to the EU.

The Massachusetts law "is a model of how people can organize at the grassroots" to affect international affairs, says Simon Billenness, a financial analyst at Franklin Research & Development in Boston and a leading campaigner for the selective purchasing law.

The law has made a difference. Since its passage, Apple Computer, Eastman Kodak, Philips Electronics and Hewlett-Packard have pulled out of Burma, moves attributed in significant part to the Massachusetts law and the possibility that other states and cities will soon follow suit.

"If the World Trade Organization agreements had been successfully used against South Africa selective purchasing laws, then Nelson Mandela might still be in prison today," Billenness says.

It is possible that the EU-Massachusetts controversy might end with a whimper rather than a bang. Unlike with most of the WTO agreements, individual states are not bound by the Government Procurement Agreement unless they specifically signed on. The only Massachusetts commitment appears to be a December 1993 letter from Weld to then-USTR head Mickey Kantor in which Weld said the state "has no present intention" of not adhering to the agreement. This appears unlikely to be sufficient to bind the state, especially not the state legislature.

Whether or not the Massachusetts law is repealed, the EU has sent a chilling message to other states -- among them Connecticut, Texas, North Carolina, Vermont and California -- considering selective purchasing laws against Burma. (The Massachusetts legislature is now debating an Indonesian selective purchasing law, and around the United States other selective purchasing bills on Nigeria and Tibet are in the works.) One California activist reports that the first question a state government official asked him about a proposed selective purchasing law was whether it was WTO-legal.

Not coincidentally, the EU chill comes as U.S. businesses are launching a major campaign against unilateral trade sanctions of all sorts by U.S. states and the federal government. A March report by the National Association of Manufacturers claims that sanctions only hurt U.S. businesses and employees; and big business has set up a National Foreign Trade Council to campaign generically against sanctions.

The Clinton administration appears to tacitly support this agenda. Inside U.S. Trade, a Washington, D.C.-based trade publication, quotes U.S. Commerce Secretary William Daley as saying in March that the administration shares "the same concerns on" the Massachusetts Burma law as the EU and that "we've encouraged the business community to make their views known."