US changes stance on role in state

[sbillenness@xxxxxxxx]

US changes stance on role in state sanctions cases

Officials realize denying federal supremacy in New York's move against
Swiss banks could backfire in Massachusetts case.

Journal of Commerce
July 8, 1998

BY MICHAEL S. LELYVELD
JOURNAL OF COMMERCE STAFF

U.S. officials are no longer saying they can't block states from
sanctioning Swiss banks over Nazi gold because it could affect a
Massachusetts court case on Myanmar sanctions beginning this week.

The change in position surfaced after State Department officials reportedly
told Switzerland they lacked the authority to order city and state agencies
in New York not to penalize two Swiss banks that dealt in gold taken from
Holocaust victims during World War II.

The Myanmar connection involves a lawsuit filed in April by the National
Foreign Trade Council against Massachusetts for its selective purchasing
law specifically aimed at that nation. A federal judge in Boston is
expected to set a schedule for the case today and may rule on an NFTC
motion to keep company names in the case confidential to avoid public
boycotts.

The council, representing companies allegedly harmed by the sanctions, is
arguing that Massachusetts has usurped federal powers over foreign policy
by barring contracts with firms doing business in military-ruled Myanmar.

Going the other way

But the State Department position, as reported by the Financial Times on
Saturday, would essentially abandon the claim of precedence over states on
selective purchasing laws.

An official said Monday that legal experts at the State Department and the
U.S. Trade Representative's office had advised that disclaiming federal
supremacy on the Swiss question could affect the Myanmar dispute.

"More accurately, we need to look into that issue," said the official,
adding that there is "no opinion yet."

The hitch adds another dimension to the widening row over "subfederal"
sanctions, which already involves U.S. corporations, the European Union and
the federal government's ability to make trans-Atlantic trade treaties stick.

An official confirmed a report by Inside U.S. Trade that the EU will file
an amicus brief in the Massachusetts case. The EU has threatened a formal
dispute before the World Trade Organization because of conflicts between
the state law and a 1994 Government Procurement Agreement with the United
States on open bidding for contracts.

The EU trade commissioner, Sir Leon Brittan, was expected to press the
Myanmar issue Tuesday during Washington meetings with Undersecretary of
State Stuart Eizenstat and other officials.

The outcome of the NFTC suit may also be used to determine whether New York
can bar the Swiss banks from bidding on overnight deposit business starting
Sept. 1. Several NFTC members are U.S. banks which oppose the curbs, an
official of the Washington-based group said.

Simon Billenness, a senior analyst at Franklin Research & Development Corp.
in Boston and an organizer for the Myanmar sanctions, agreed that the
selective purchasing principle is at stake. The tactic was used effectively
in 1988 when Massachusetts imposed contracting penalties on companies
dealing with South Africa. Like the Myanmar curbs, the South Africa
sanctions were written by State Rep. Byron Rushing, a Dorchester Democrat.

The subfederal conflict has become a second front in the corporate campaign
to restrain the spread of unilateral sanctions. Two sanctions reform bills
were filed in Congress last month, and Senate Majority Leader Trent Lott
named an 18-member panel to study the issue.

Looking past Massachusetts

The NFTC hopes that the Massachusetts suit will knock out a series of state
and city curbs aimed at countries including Indonesia, Nigeria and China.

The issue has proved complicated for Mr. Eizenstat, who has tried to forge
a settlement of Holocaust survivor claims by persuading the Swiss National
Bank to join the Credit Suisse and UBS banks in offering more than the $600
million proposed last month. The Swiss are also threatening WTO action.

Mr. Eizenstat has opposed the mounting number of unilateral measures and
has tried to keep peace with Europe on sanctions issues. Although the
subfederal questions could come together in the WTO, Switzerland is not a
member of the 15-nation EU.

A tough issue

The selective purchasing issue is a tough one. In a brief filed last month
in the Myanmar case, Massachusetts Assistant Attorney General Thomas
Barnico argued that the state is not interfering with U.S. powers but only
acting as a "market participant" with the right to choose its suppliers.
Also, the federal government has never stated any intent to pre-empt the
state law on Myanmar, he said. USTR officials did seek repeal of the law
last year, however, after the EU objected to conflicts with the trans-
Atlantic pact. But officials have since said the administration would back
Massachusetts in a WTO dispute.