Can the European Union (EU) and Japan force U.S. states to do business with those who do business with dictators?
Yes, allege the EU and Japan, making a powerful argument under the rules of the World Trade Organization (WTO).
Last week, Japan joined the European Union in challenging a 1996 Massachusetts law preventing state agencies from purchasing goods or services from companies that do business with Burma. Burma is currently ruled by a brutal junta, known as the SLORC (the State Law and Order Restoration Council), which has killed thousands of Burmese and annulled the election in which Nobel Prize winner Aung San Suu Kyi was elected president.
Earlier this year, the EU sent 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 since seconded the EU objection.
The EU says 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 EU and Japan have now entered formal negotiations with the United States in an effort to convince the federal government to force Massachusetts to repeal its law.
If the law is not changed, the EU and Japan are on course to bring a formal case against the United States in the WTO, where a panel of foreign trade bureaucrats would be empowered to decide whether the Massachusetts law complies with WTO rules. If the United States lost, the federal government would have to force Massachusetts to change its law, or accept sanctions or 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 are illegal, even though they 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."
Condemned by the EU, selective purchasing laws have been endorsed by Aung San Suu Kyi. It is easy to see why. The Massachusetts law has significantly influenced corporate decisions to deal with the Burmese generals. 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," says Simon Billenness, a leading campaigner for the Massachusetts selective purchasing law.
The EU/Japan challenge to the Massachusetts law is intended to chill other states' consideration of selective purchasing laws against Burma or other countries ruled by heinous regimes. Connecticut, Texas, North Carolina, Vermont and California are among the states now considering selective purchasing laws against Burma.
Not coincidentally, the EU challenge comes as U.S. businesses have mounted a major campaign against unilateral trade sanctions of all sorts by U.S. states and the federal government. Hundreds of large corporations have together set up USA Engage, a business coalition to lobby against trade sanctions.
Decisions about selective purchasing laws and related matters belong in state houses and city halls, not in closed tribunals in Geneva. Should the European Union and Japan be able to force Massachusetts to deal with those who deal with the Burmese dictators? Surely not. To preserve Massachusetts and other states' freedom of action, the United States should pull out of the WTO.
COPYRIGHT © RUSSELL MOKHIBER AND ROBERT WEISSMAN