Economic Sanctions

• Author: International Law Group

Massachusetts enacted a statute in 1996 (An Act Regulating State Contracts with Companies Doing Business with or in Burma (Myanmar)," 1996 Mass. Acts 239, ch. 130) (the state Act). With some exceptions, it prevented state entities from buying goods or services from U.S. or foreign companies doing business with Burma/Myanmar mainly because of its poor human rights record. Several months later, Congress also legislated in the field, directing mandatory and conditional sanctions upon Burma. (Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1997, Section 570, 110 Stat. 3009-166 to 3009-167) (the federal Act).

The National Foreign Trade Council (NFTC) had over thirty member companies claiming to have been adversely impacted by the state Act and haled Massachusetts into federal court. The NFTC alleged that the state Act contravened the U.S. Constitution by encroaching upon the federal foreign affairs power, and by breaching the Foreign Commerce Clause. In addition, it contended that the later federal Act preempted the state Act.

Agreeing with the NFTC, the district court permanently enjoined the enforcement of the state Act and the First Circuit affirmed [see 181 F.3d 88]. The U.S. Supreme Court granted certiorari and affirms.

In general terms, the Court first points out that state law must yield to an Act of Congress either if Congress intends to take over the field or to the degree the state law conflicts with the federal enactment. The preemption doctrine should apply if the Court finds that a private party could not comply with both the federal and state law and that the state statute hinders Congress from carrying out its goals and purposes. In this case, the state Act impedes the will of Congress by subverting the provisions of at least three federal enactments.

In the first place, the state Act hinders the federal Act's delegation of discretion to the President to regulate and fine-tune the economic sanctions the Act sets up.

"Within the sphere defined by Congress, then, the statute has placed the President in a position with as much discretion to exercise economic leverage against Burma, with an eye toward national security, as our law will admit. And it is just this plenitude of Executive authority that we think controls the issue of preemption here. The President has been given this authority not merely to make a political statement but to achieve a political result, and the fullness of his authority shows...