Massachusetts Burma Procurement Law Challenged at WTO

The serious human rights violations and the deliberate suppression of democracy perpetrated by the military junta ruling Burma (which the junta has renamed Myanmar) since it came to power in 1988 are well known throughout the world. The International Labor Organization issued a scathing report on the human rights violations of the Burmese dictatorship.[i]   The ILO found that the Burmese military dictatorship was systematically violating the basic human rights of Burmese citizens and non-Burmese minorities.[ii] It ordered the Burmese dictatorship to reform its laws and practices regarding labor rights. “There is abundant evidence before the Commission showing the pervasive use of forced labor imposed on the civilian population throughout Myanmar by the authorities and the military for portering, the construction, maintenance and servicing of military camps, other work in support of the military, work on agriculture, logging and other production projects undertaken by the authorities or the military, sometimes for the profit of private individuals. … none of which comes under any of the exceptions of the Convention. … Forced labor in Myanmar is widely performed by women, children, and elderly persons as well as persons otherwise unfit for work. … All of the information and evidence before the Commission shows utter disregard by the authorities for the safety and health as well as the basic needs of the people performing forced or compulsory labor.”[iii]

Burma’s pro-democracy movement, led by Nobel Peace Prize holder Aung San Suu Kyi, has called for South Africa-style foreign divestment from Burma to financially starve the military dictatorship.[iv] Some two dozen U.S. municipal and county governments, and the state government of Massachusetts,[v] have acted on this request and terminated purchasing contracts with companies doing business in Burma.[vi] The selective purchasing laws are designed to ensure that public money is not used to indirectly support a regime whose conduct taxpayers find repugnant. A goal of such policies is to create incentives to encourage transnational corporations to divest from Burma. The selective purchasing laws are based on the effective divestiture and selective purchasing initiatives that animated the anti-apartheid movement in the U.S. in the 1980s and which are widely credited for helping to facilitate the successful transition to democracy in South Africa.

The attack on the Massachusetts selective purchasing law was two-pronged. Japan and the EU filed a case at the WTO. In parallel, the National Foreign Trade Council (NFTC), a coalition of corporations, challenged the measure in the U.S. District Court in Massachusetts as a violation of the U.S. Constitution.  NFTC’s law suit was part of a larger campaign by a corporate front group called USA*Engage[vii] to eliminate human rights considerations from U.S. international commercial policy.

The EU and Japan challenged the law at the WTO in the summer of 1997.  The EU argued that Massachusetts’ procurement policy had to conform to the WTO rules and that the Burma law contravened the WTO procurement agreement by imposing conditions that were not essential to fulfill the contract (Art. VIII(b), imposed qualifications based on political instead of economic considerations (Art. X), and allowed contracts to be awarded based on political instead of economic considerations (Art. XIII).[viii]

Massachusetts officials were flummoxed to learn they were required to comply with WTO procurement rules that they had never approved.  They later learned that a previous governor had sent a letter to the USTR during the Uruguay Round without legislative consultation, much less approval which was the basis for the claim that the state was bound to the WTO procurement rules.

However, the EU and Japan suspended the WTO case pending the outcome of a federal lawsuit filed against that state by the NFTC in U.S. District Court.  The NFTC argued that the Massachusetts law “unconstitutionally infringed on the federal foreign affairs power, violated the Foreign Commerce Clause, and was preempted by the federal Act.”[ix]   The District Court permanently enjoined enforcement of the state law, ruling that it “unconstitutionally impinge[d] on the federal government’s exclusive authority to regulate foreign affairs.”[x]   Massachusetts appealed, but the U.S. Court of Appeals for the First Circuit affirmed the District Court’s decision.

Massachusetts appealed to the Supreme Court.  Seventy-eight Members of Congress, 38 state and local governments, all eight major state and local government associations, and 66 non-profit organizations filed amicus curiae (“friend of the court”) briefs supporting the Massachusetts law.[xi]   Nonetheless, the Supreme Court affirmed the lower courts’ decisions, although on narrower grounds, holding that a state or local selective purchasing law sanctioning a nation is preempted only when Congress has passed a corresponding law sanctioning that nation – as Congress had done in the case of Burma – and only when the two laws differ.  This leaves the door open for state and local governments to pass several other types of laws.

For example, state and local governments could enact general laws to avoid purchasing goods and services from companies that violate human rights or labor standards as long as the laws do not apply specifically to companies doing business in a country where Congress has adopted different sanctions.[xii]   Thus, states and cities could divest their holdings in companies that do business in Burma or could require companies to disclose whether they do business in Burma as a condition for selling goods or services to the government because these actions do not conflict with the federal Burma law.   Under the Supreme Court ruling, state and local governments also could use preferential purchasing policies regarding countries about which Congress has not passed conflicting legislation.  Thus, the Supreme Court decision, in contrast to WTO Agreement on Government Procurement (AGP) rules, does not rob state and local governments of all their options.

The U.S. Supreme Court ruling is more permissive of human rights links to procurement decisions than the relevant WTO rules.  The WTO AGP forbids consideration of any non-commercial factors in governments’, even sub-federal governments’, procurement decisions.

The EU and Japan suspended their WTO challenge pending the outcome of the domestic case, thus the provisions of the AGP were never interpreted.[xiii] Given the WTO has decreed that labor rights are solely in the jurisdiction of the ILO, it would have been revealing to see how a WTO tribunal treated the ILO’s clear position on Burma’s labor rights violations.

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