News & Insights

Reinsch Says State Sanctions and Divestment Legislative Efforts Are Ineffective

Washington, DC ­ National Foreign Trade Council (NFTC) President Bill Reinsch today delivered remarks about the costs and foreign policy concerns posed by states using public pension funds to influence the behavior of foreign governments. In a speech before the annual conference of the largest national nonprofit association for public pensions, the National Conference on Public Employee Retirement Systems, Reinsch noted that multilateral action and a unified U.S. foreign policy – not multiple state sanctions or divestment laws – are best suited to address the serious concerns raised by Sudan and Iran.

 

In discussing the NFTC’s advocacy efforts in support of a unified, federal foreign policy, Reinsch said, “We have opposed these sanctions not only on their merits but also because the Constitution reserves the right to conduct foreign policy to the federal government.” In this context, he cited the unanimous 2000 Supreme Court ruling in Crosby v. NFTC, in which the NFTC successfully challenged the constitutionality of a Massachusetts law prohibiting procurement contracts to companies doing business in Burma.

 

According to Reinsch, “The essence of their ruling was that the President makes foreign policy, not the legislature and the governor of Massachusetts. And, he does not need fifty states, or lots of cities and counties, coming along with sticks and carrots which conflict with his and which pose enormous compliance burdens on the primary victims of sanctions – U.S. companies, banks and asset managers.”

 

While the Massachusetts sanctions prohibited the state government from procurement from companies that did business with Burma, Reinsch noted that current efforts by states are altogether different as they seek to force public pension funds to divest from companies with direct or indirect business ties to Sudan or Iran. In August 2006, the NFTC filed a lawsuit to challenge an Illinois Sudan divestment law, and in February 2007 a federal judge declared the law unconstitutional. The state is currently appealing the decision.

 

In closing Reinsch said, “We are often asked what states can do. The answer is they can pass resolutions and lobby Congress and the Administration to take stronger action. However unsatisfactory this may seem to sanctions proponents, only the federal government has the diplomatic and economic resources to move other countries and multilateral organizations to join in effective action.”

“Quite apart from the constitutional issues raised by state divestment laws, the costs of pension fund divestment must be weighed very carefully against the prospect of the sacrifices they entail having any beneficial impact,” he concluded.

 

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Advancing Global Commerce for Over 90 Years

The National Foreign Trade Council (www.nftc.org) 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.

USA*Engage (www.usaengage.org) is a coalition of small and large businesses, agriculture groups and trade associations working to seek alternatives to the proliferation of unilateral U.S. foreign policy sanctions and to promote the benefits of U.S. engagement abroad. Established in 1997 and organized under the National Foreign Trade Council (www.nftc.org), USA*Engage leads a campaign to inform policy-makers, opinion-leaders, and the public about the counterproductive nature of unilateral sanctions, the importance of exports and overseas investment for American competitiveness and jobs, and the role of American companies in promoting human rights and democracy world wide.