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NFTC Urges Michigan State Lawmakers to Consider Consequences of Proposed Divestment Bill
Date: 11/7/2007

Says Legislation Undermines U.S. Foreign Policy, Harms Pensioners
Washington, DC – The National Foreign Trade Council (NFTC), a Washington, DC-based association of some 300 companies engaged in international trade and investment, earlier this week urged Members of the Michigan Legislature to oppose SB 846, which could require divestment from an array of companies with international operations. The NFTC sent a letter to all state lawmakers urging them to consider the bill's potentially negative consequences, warning that the measure undermines federal foreign policy and puts state pensioners and U.S. companies at undue financial risk while having no effect on the behavior of targeted governments.
"The Framers of the Constitution put the power to conduct foreign policy in the hands of the federal government for a reason," said NFTC President Bill Reinsch. "The ability of the United States to speak with a unified voice on matters of foreign relations is paramount to U.S. diplomacy. It is, at the very least, counterproductive to have 50 different states devising 50 different foreign policies."
"Statutes aimed at affecting foreign policy at the state and local levels – as divestment seeks to do – threaten to create a complex web of restrictions and regulations that interfere with the Constitutional rights given to the President to largely conduct foreign policy," wrote Reinsch in a letter to Michigan legislators. "State sanctions and divestment bills could impede various federal initiatives to develop a multilateral approach because their impact would fall primarily on companies located in the very countries whose support the President is seeking."
Reinsch called on legislators to consider two important court decisions, including NFTC v. Crosby (2000) and NFTC v. Giannoulias (2007),a case in which the NFTC brought suit against Illinois over the state's "Act to End Atrocities and Terrorism in Sudan." The letter notes that on February 23, 2007, Judge Matthew Kennelly of the Federal District Court for the Northern District of Illinois ruled that the state's law was "unconstitutional because ‘the Act violates federal constitutional provisions that preclude the states from taking actions that interfere with the federal government's authority over foreign affairs and commerce with foreign countries."
The NFTC pressed Michigan lawmakers to take a closer look at the lack of well-defined criteria that would be used to identify companies targeted for divestment. "There is no federal list to rely upon, and the available alternatives are highly subjective in terms of their accuracy and the breadth of companies they target. Additionally, some lists of companies are linked to organizations that have foreign policy motives that inform their work, which call into question their validity and the evenhandedness by which the organization evaluates ties to countries like Iran," Reinsch wrote.
The letter also argues that not only are there no clear indications for how pension fund trustees are supposed to divest, "there appears to be no transparent process for trustees to decide which companies to divest from." The letter contends that the bills' broad divestment provisions could cost pensioners millions of dollars in transaction costs and threaten to "eliminate entire stock classes from the pool of potential investments, narrowing State pension fund managers' choices and increasing the overall risk to the portfolio."
Reinsch concluded, "Direct engagement – including utilizing direct diplomatic channels to governments in Iran and elsewhere – combined with efforts to engage our allies on concerted multilateral efforts are necessary to bring about the changes in behavior we all want to see. State sanctions impede this engagement, undermine the ability of the U.S. to speak with one voice, and frustrate cooperation with U.S. trading partners who often see them as a violation of U.S. international commitments."
For a full copy of the letter, please click here.

Advancing Global Commerce for Over 90 Years
The National Foreign Trade Council ( is a leading business organization advocating an open, rules-based global trading system. Founded in 1914 by a broad-based group of American companies, the NFTC now serves hundreds of member companies through its offices in Washington and New York.