THE MARKET-PARTICIPANT EXCEPTION AND
THE DORMANT FOREIGN COMMERCE CLAUSE
J.T. Hutchens*
The Supreme Court has long accepted the proposition that the
Constitution's Commerce Clause' contains an implied prohibition
3
against a state' law that burdens interstate or international trade.
While the bulk of Dormant Commerce Clause jurisprudence and literature relates to state impediments to interstate commerce, the first, and
perhaps more fundamentally important, part of the Commerce Clause
gives Congress power over trade with foreign countries.4 Thus, the
Court has imposed the strictures of the Dormant Commerce Clause on
state regulation of foreign trade. 5
* A.B., College of William & Mary; Candidate for J.D., Benjamin N. Cardozo School of
Law. I am grateful to Laura Grosshans and Professors Paul R. Verkuil and Martin J. Stone for
their thoughtful critiques of earlier drafts of this Note.
1 U.S. CONST. art. I, § 8, cl.3. ("The Congress shall have Power ... [tloregulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes").
2 For the sake of clarity and simplicity, I refer throughout this Note to the individual
United States as "states"; I refer to foreign sovereigns as "countries" or "nations."
3 See, e.g., S. Pac. Co. v. Arizona, 325 U.S. 761, 769 (1945) ("For a hundred years it has
been accepted constitutional doctrine that the commerce clause, without the aid of Congressional legislation, thus affords some protection from state legislation inimical to the national
commerce .. ") (citations omitted). While Dormant Commerce Clause theory came under
attack by the Court in the 1990s, its application was never overruled and was rejuvenated in
2005 in Granholm v. Heald, 544 U.S. 460, 472 (2005) (reiterating that "all but the narrowest
circumstances" dictate that "state laws violate the Commerce Clause if they mandate 'differential
treatment of in-state and out-of-state economic interests that benefits the former and burdens
the latter.' . . . States may not enact laws that burden out-of-state producers or shippers simply
to give a competitive advantage to in-state businesses." (quoting Oregon Waste Systems, Inc. v.
Dep't of Environmental Quality of Oregon, 511 U.S. 93, 99 (1994))); Gibbons v. Ogden, 22
U.S. 1, 196 (1824) ("[T]he power to regulate; that is, to prescribe the rule by which commerce
is to be governed.... is complete in itself, may be exercised to its utmost extent, and acknowledges no limitations, other than are prescribed in the constitution."); see Amy M. Petragnani,
The Dormant Commerce Clause: On its Last Leg, 57 ALB. L. REv. 1215 (1994); see generally
Donald H. Regan, The Supreme Court and State Protectionism: Making Sense of the Dormant
Commerce Clause, 84 MICH. L. REv. 1091 (1986).
4 Professor Albert Abel argued that foreign commerce was the primary focus of the Framers
in drafting the Commerce Clause. Albert S. Abel, The Commerce Clause in the Constitutional
Convention and in Contemporary Comment, 25 MINN. L. REV. 432, 465-76 (1940).
5 Barclays Bank PLC v. Franchise Tax Bd., 512 U.S. 298 (1994); see also LAURENCE H.
TRIBE, AMERICAN CONSTITUTIONAL LAw § 6-21 (2d ed. 1988) [hereinafter TRIBE, CONSTITUTIONAL LAw] ("If state action touching foreign commerce is to be allowed, it must be shown not
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For the past three decades the Supreme Court has recognized an
exception to the Dormant Interstate Commerce Clause rule when the
state acts not to regulate the market but instead behaves as a "market
participant."'6 This relatively young exemption was born in the Court's
decision in Hughes v. Alexandria Scrap Corp.7 and was succinctly stated
in South-Central Timber Development, Inc. v. Wunnicke: "If a State is
acting as a market participant, rather than as a market regulator, the
Dormant Commerce Clause places no limitation on its activities." 8 To
date, the Court has not settled the question of whether the marketparticipant exception applies to foreign commerce. While the circuits
have held opposing views on this question, 9 the Supreme Court has not
reached the issue. ° This Note will argue that the exception should not
apply to foreign commerce. Arguments that might support the exception's application to domestic commerce are vulnerable on their own
terms and fail when applied to foreign commerce. Moreover, even state
participation in (as distinct from regulation of) the market infringes on
and impedes the federal government's constitutionally-vested power to
attend to foreign affairs.
I.
THE MARKET-PARTICIPANT EXCEPTION:
A
PRIMER
In Reeves, Inc. v. Stake," the Court expounded on the principle
that supports its application of the market-participant exception. When
to affect national concerns to any significant degree, a far more difficult task than in the case of
interstate commerce.").
6 South-Central Timber Development, Inc. v. Wunnicke, 467 U.S. 82, 93 (1984); Hughes
v. Alexandria Scrap Corp., 426 U.S. 794, 810 (1976) ("Nothing in the purposes animating the
Commerce Clause prohibits a State, in the absence of congressional action, from participating in
the market and exercising the right to favor its own citizens over others."); see generally Dan T.
Coenen, Untangling the Market-ParticipantExemption to the Dormant Commerce Clause, 88
MICH. L. REv. 395 (1989).
7 426 U.S. at 794.
8 467 U.S. at 93 (plurality opinion of White, J.) (citing White v. Mass. Council of Constr.
Employers, Inc., 460 U.S., at 206-08; Reeves, Inc. v. Stake, 447 U.S. 429, 436-37 (1980);
Hughes v. Alexandria Scrap Corp., 426 U.S. 794, 810 (1976)).
9 Compare National Foreign Trade Council v. Natsios, 181 F.3d 38 (1st Cir. 1999) (holding in part that the exception should not apply), with Trojan Techs., Inc. v. Pennsylvania, 916
F.2d 903, 912 (3d Cir. 1990) (see discussion infra at Part II.A).
10 See Crosby v. National Foreign Trade Council, 530 U.S. 363 (2000) (deciding the case,
the same controversy as Natsios, on a Supremacy Clause question and declining to address the
market-participant question); cf. Daniel M. Price & John P. Hannah, The Constitutionalityof
United States State and Local Sanctions, 39 HRv. INT'L L.J. 443 (1998) (arguing for a constitutional challenge to selective purchasing laws such as that at issue in Natsios and Crosby).
11 447 U.S. 429 (1980).
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a state, whose primary duty is to attend to its citizens' well-being, conducts business in the marketplace, it is subject to the same limitations as
a private party. Thus, it should enjoy the same freedoms as a private
actor, including the ability "'to exercise [its] own independent discretion
as to parties with whom [it] will deal.' "12
In South-Central Timber, a seller of unprocessed logs challenged an
Alaska law that required that timber harvested from state land be
processed, prior to being exported, at mills inside the state. The Court
began to sketch the boundary for actions that qualify as market
participation:
The limit of the market-participant doctrine must be that it allows a
State to impose burdens on commerce within the market in which it is
a participant, but allows it to go no further. The State may not impose
conditions, whether by statute, regulation, or contract, that have a
13
substantial regulatory effect outside of that particular market.
The Court distinguished between the timber market, in which it decided the state was a participant, and the processing market, in which
the Court found the state not to be a mere participant. The Court
noted that it is highly unusual for a seller to be able to dictate the
buyer's use of a product once it has been sold.' 4 The Court saw Alaska's
market-participant argument as an attempt to "avail itself of the marketparticipant doctrine to immunize its downstream regulation of [a] market in which it is not a participant."' 5
12
Id. at 438 (quoting United States v. Colgate & Co., 250 U.S. 300, 307 (1919)); cf
LAURENCE H. TRIBE, CONSTITUTIONAL CHOICES
145 (1985 ed.) [hereinafter
TRIBE, CHOICES]
(noting that the principles of state sovereignty on which the Reeves Court leaned go far beyond
simple market participation). Justifications for the market-participant exception vary. See infra
Part II.C. Compare TRIBE, CHOICES, supra, at 146 (arguing that the exception is founded on the
notion that "when the state is creating commerce that would not otherwise exist, it has greater
freedom to shape that commerce than when it is merely intruding into a previously existing
private market."), with Coenen, supra note 6, at 410-11 (declaring Professor Tribe's synopsis of
the participant-regulator distinction both underinclusive, because it ignores the fact that Alexandria Scrap involved a state's entry to a preexisting market, and overinclusive, because the test of
simply "creating commerce" could be met by patent commerce clause violations that would not
fall under the market-participant exception).
13 467 U.S. at 97.
14 Id. at 96.
15 Id. at 99.
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More recently, in Camps Newfound/Owatonna v. Town of Harrison, 1 6 the Court specifically stated that a general tax exemption is market regulation, not participation. 17 In that case, Maine disallowed
church camps that served predominantly out-of-state visitors from taking advantage of an exemption from one of the state's property tax laws.
Justice Stevens defined more clearly the Court's theory of the marketparticipant exception by explaining that the law at issue in that case was
too broad to be classified as anything but market regulation by the state
acting as a state:
Maine's tax exemption-which sweeps to cover broad swathes of the
nonprofit sector-must be viewed as action taken in the State's sovereign capacity rather than a proprietary decision to make an entry into
all of the markets in which the exempted charities function .... The
Town's version of the "market-participant" exception would swallow
the rule against discriminatory tax schemes. 8
Unless a state narrowly targets its action toward a specific market,
the action cannot be considered participation; otherwise a tax code, for
example, that applies to individuals and corporations in any commercial
area would arguably constitute the state's entry into every one of those
markets.1 9 The Dormant Commerce Clause would thus cease to have
meaning, because the exception would apply to every field of commerce.
II.
THE MARKET-PARTICIPANT EXCEPTION APPLIED TO THE
FOREIGN COMMERCE CLAUSE
Few academics have directly addressed the question of whether to
broaden the market-participant exception to include foreign trade and
16
17
520 U.S. 564 (1997).
Id. at 593 ("'In this kind of case there is "a single inquiry: whether the challenged 'pro-
gram constituted direct state participation in the market.'"' A tax exemption is not the sort of
direct state involvement in the market that falls within the market-participation doctrine."
(quoting White v. Massachusetts Council of Construction Employers, Inc., 460 U.S. 204, 208
(1983), and Reeves, 447 U.S. at 436, n.7). But see Gibbons v. Ogden, 22 U.S. 1, 199-200
(1824) ("In imposing taxes for State purposes, [states] are not doing what Congress is empowered to do. Congress is not empowered to tax for those purposes which are within the exclusive
province of the States. There is no analogy, then, between the power of taxation and the power
of regulating commerce." This is in spite of the Gibbons Court's apparently broad view of regulation as simply "the power... to prescribe the rule by which commerce is to be governed." Id.
at 196.).
18 520 U.S. at 594 (citation omitted).
19 Id. at 593-94.
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scant literature supports such an expansion. The argument for application of the exception to foreign commerce amounts to "what's sauce for
the goose is sauce for the gander," that is, the benefits and rationale for
its application to interstate commerce carry over to international commerce. 2' The justifications presented by courts and commentators,
however, do not hold in the realm of foreign commerce;2 1 the importance of the federal government's power as the sole voice of foreign policy, including economic policy, demands that states be weakened in
regulating foreign commerce. Simply put, in the realm of interstate
commerce, the stakes are lower than they are in foreign commerce.
In Barclays Bank PLC v. Franchise Tax Board,22 the Supreme Court
noted that foreign commerce involves special considerations that do not
exist in interstate trade questions: "In 'the unique context of foreign
commerce,' a State's power is further constrained because of 'the special
need for federal uniformity.'" 2 3 International relationships rely in large
part on trade arrangements, and the risk of retaliation against all of the
United States because of a policy of one is too great to allow an exception to the federal government's constitutional power. 24 For example, in
response to the Massachusetts Selective Purchasing Act ("Massachusetts
Burma Law"), 25 Japan and the European Union began dispute settlement proceedings before the World Trade Organization, arguing that
the state restrictions violated the United States' international obligations
26
under the WTO Agreement on Government Procurement.
20
For arguments that the market-participant exception should apply to foreign commerce,
see Michelle C. Sarruf, Note, Applying the Market ParticipantException to Selective Purchasing
Laws That Affect Foreign Commerce Relations: Reading Between the Lines of National Foreign
Trade Council v. Natsios, 24 SEA-rLE UNIV. L. R. 1151 (2001); Steven R. Jenkins, Note,
National Foreign Trade Council v. The Commonwealth of Massachusetts: A State Acting as a
"Market Participant"Should Trump the Federal Government's Right to Regulate Foreign Affairs
Unless Congress Expressly Declares Otherwise, 14 CONN. J. INT'L L. 593 (1999).
21 See infra Part II.C.
22
23
512 U.S. 298 (1994).
Id. at 311 (quoting Wardair Canada, Inc. v. Florida Dep't of Revenue, 477 U.S. 1, 8
(1986)).
24 See Price & Hannah, supra note 10, at 463; Lucien J. Dhooge, The Wrong Way to Mandalay: The Massachusetts Selective PurchasingAct and the Constitution, 37 Am.Bus. L.J. 387, 440
(2000) ("economic injury resulting from the application of the Act would most likely beget a
cycle of retaliation and response inimical to the national interest.").
25 The Massachusetts Burma Law responded to human rights abuses in Burma by preventing Commonwealth agencies from doing business with companies that had ties to Burma. See
Dhooge, supra note 24, at 387-88.
26 Price & Hannah, supra note 10, at 445.
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Professor Laurence Tribe argues that the federal government has a
broad and exclusive duty to attend to international affairs:
[W]hatever the division of foreign policy responsibility within the national government, all such responsibility is reposed at the national
level rather than dispersed among the states and localities.
[A]ll state action, whether or not consistent with current federal foreign policy, that distorts the allocation of responsibility to the national
government for the conduct of American diplomacy is void as an unconstitutional infringement upon an exclusively federal sphere of
responsibility.2 7
When an individual state assumes a role as a participant in foreign affairs, there is a risk that other countries will impute that state's action to
all of the United States; it is as if the government of that lone state,
lacking any authority to act on behalf of the citizens of another state,
nevertheless purports to serve as the United States' representative in the
international market. 28 Regardless of whether the state action flatly contradicts a federal law or policy, or simply addresses a topic on which the
federal government has declared no opinion, the risk and possible repercussions of confusion and insult in the international forum are too great
to permit states such deference.
Any state regulation of trade burdens businesses related to the regulated market, but that burden is especially severe when it is imposed on
international trade. Such state regulation would engender a "patchwork" of laws, forcing businesses to tailor their activities for each set of
local and state laws in addition to the federal government's restrictions.2 9 Companies with any relationship to international trade,
whether through subsidiaries, consumers, or suppliers, would have to
ensure compliance with not only federal law but also state law that,
while not contradictory, might operate at cross purposes with the federal
policy. Investors, foreign and domestic alike, would be less inclined to
put money behind businesses subject to such regulation. Those companies would also be the pawns in the middle of any retaliatory measures
taken by the countries targeted by states' activities. The resulting ineffi27 TRIBE, CONSTITUTIONAL LAW, supra note 5, at
§ 4-6 (emphasis in the original).
28 See the foundational case of Gibbons v. Ogden, 22 U.S. 1, 195 (1824) ("The commerce of
the United States with foreign nations, is that of the whole United States.").
29 Price & Hannah, supra note 10, at 446.
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ciency and loss of financial support could be devastating for international businesses (the number of which increases as global markets
expand) and, by extension, the global, national and local economies.
In this section, I present a history of the market-participant exception's relationship with the Dormant Foreign Commerce Clause. I describe the ways in which such an exception would interfere with the
federal government's foreign relations powers, emphasizing in particular
the fact that the Framers themselves foresaw such interference. Finally, I
address the variety of arguments judges and commentators have posited
for the market-participant exception. I note their respective shortcomings in the interstate commerce arena but focus on their inability to
support extending the exception to the realm of foreign commerce.
A.
History
Courts considering the market-participant exception have concerned themselves almost exclusively with domestic, specifically interstate, commerce; international trade is a wholly different matter. After
the exemption's inception in Alexandria Scrap, the first case in which
the Court refused to apply the exception was South-Central Timber.
Among the reasons the Court cited for its refusal was the involvement of
foreign commerce, which had not been present in any of the preceding
market-participant cases? (A significant fact of the case was that much
of the timber at issue was to be sold to Japanese companies.)
In Reeves, the Court referred to the Commerce Clause's desire to
protect the "nationalmarketplace." 3 ' The Reeves Court emphasized the
bright line between interstate and foreign commerce questions by specifically stating that its holding did not extend to cases involving state
restrictions on commerce with foreign nations: "We note ... that Commerce Clause scrutiny may well be more rigorous when a restraint on
32
foreign commerce is alleged."
In Japan Line Ltd. v. County of Los Angeles, 33 the Court struck
down a California tax that unconstitutionally "prevent[ed] the Federal
Government from speaking with one voice in" conducting foreign trade
30
South-Central Timber Dev., Inc. v. Wunnicke, 467 U.S. 82, 96 (1984).
31 Reeves, Inc. v. Stake, 447 U.S. 429, 436-37 (1980) (emphasis added).
32
Id. at 437, n. 9 (referring to Japan Line, Ltd. v. County of Los Angeles, 441 U.S. 434
(1979)).
33 441 U.S. 434 (1979).
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and resulted in multiple taxation of foreign shipping containers.34 The
Court stated that
Foreign commerce is preeminently a matter of national concern....
Although the Constitution, Art. I, § 8, cl. 3, grants Congress power to
regulate commerce "with foreign Nations" and "among the several
States" in parallel phrases, there is evidence that the Founders in35
tended the scope of the foreign commerce power to be the greater.
There is, however, no absence of defenders of the market-participant exception as applied to international trade. In K S. B. Technical
Sales Corp. v. North Jersey District Water Supply Comm'n,36 the Supreme
Court of New Jersey heavily relied on Alexandria Scrap to find that New
Jersey's "Buy American Act" ("BAA") did not violate the Commerce
Clause. The court dismissed the importance of constitutional differences between interstate and foreign commerce, invoking Chief Justice
Taney's opinion in The License Cases: "The power to regulate commerce
among the several states is granted to Congress in the same clause, and
by the same words, as the power to regulate commerce with foreign
nations, and is co-extensive with it."' 3 7 The KS.B. Technical Sales court
also noted that "the cases scrutinizing state regulations affecting commerce, in the absence of interference with the foreign affairs power,
seem to have made no distinction between interstate and foreign commerce."3' 8 As suggested above, however, in regards to the market-participant exception the Supreme Court (since KS.B. Technical Sales) has
explicitly distinguished between interstate and international trade. 9 In
fact, documentary evidence suggests that the Framers themselves consid-
34 Id. at 453-54 (internal quotation marks omitted).
35 Id. at 448 (referring to THE FEDERALIST No. 42, pp. 279-83 (J. Cooke ed. 1961)
(Madison); 3 M. Farrand, The Records of the Federal Convention of 1787, 478 (1911)
(Madison); Abel, supra note 4, at 465-75. (Citation omitted)).
36 381 A.2d 774, 784-89 (1977).
37 46 U.S. 504, 578 (1847), overruled by Leisy v. Hardin, 135 U.S. 100 (1890), superseded
by statute as recognized in Granholm v. Heald, 544 U.S. 460 (2005).
38 381 A.2d at 788 (citing Brown v. Maryland, 25 U.S. 419 (1827) and Hale v. Bimco
Trading, Inc., 306 U.S. 375 (1939)); cf. Price & Hannah, supra note 10, at 470-71 (noting the
fact that both the KS.B. Technical Sales and Trojan Technologies courts relied on the political
neutrality of the state laws at issue, that is, that the laws did not comment on the politics of the
countries against which they discriminated).
39 See supra text accompanying notes 22-23.
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ered the separate parts of the Commerce Clause to have distinct importance and power.4 °
Similarly to the KS.B. Technical Sales court, the Third Circuit in
Trojan Technologies, Inc. v. Pennsylvania4' upheld a Pennsylvania requirement that companies that provide supplies to public works projects
must furnish American-made steel. The court distinguished Japan Line,
noting that in the Trojan Technologies case there was no risk of double
taxation of a foreign entity.4 2 The court held that state procurement
policy is an area where there is no need for the United States to maintain a uniform policy, since, for example, it does not implicate the need
to reconcile conflicting programs between various nations.4 3
In 1989, Maryland's Court of Appeals, in Board of Trustees of Employees' Retirement System v. Mayor of Baltimore City,44 found that a city
ordinance requiring pension system divestment from South African
companies complied with the Foreign Commerce Clause. The court
quoted Container Corp. v. Franchise Tax Board4 5 in holding that "even
when state legislation relates to questions of foreign policy, the legislation violates the negative implications of the foreign Commerce Clause
only 'if it either implicates foreign policy issues which must be left to the
Federal Government or violates a clear federal directive."' 46 The court
decided that, because the ordinance required only a one-time decision
by the City, rather than a continuing inquiry into South Africa's governmental practices, and because the effect on South Africa itself was
minimal, the law did not violate the Dormant Foreign Commerce
Clause.4 7
However, the Board of Trustees case was preceded by the Supreme
Court of Illinois's 1986 decision in Springfield Rare Coins Galleries, Inc.
v. Johnson,48 which held that a state tax exemption for the sale of all
40
41
See infra Part II.B.1.
916 F.2d 903 (3d Cir. 1990).
42 Id. at 912.
43 Id.
44 562 A.2d 720 (Md. 1989), cert. denied, 493 U.S. 1093 (1990).
45 463 U.S. 159 (1983).
46 562 A.2d at 756 (quoting 463 U.S. at 194). The citation to Container Corp. is not precisely apposite, however, as that case was decided on the grounds that a foreign franchise had a
relationship sufficiently close to its principal corporation to constitute a "unitary business," 463
U.S. at 179-80, and was distinguished from Japan Line by the fact that the tax burden fell on the
domestic corporation, not a foreign entity. Id. at 188.
47 562 A.2d at 746.
48 503 N.E.2d 300 (Ill. 1986).
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coins except South African Krugerrands unconstitutionally interfered
with federal foreign affairs powers. As in Board of Trustees, the purpose
of the Illinois law was to express disapproval of apartheid and to discourage investment in South African holdings; however, the court found
that "an impermissible encroachment upon a national prerogative-the
authority of the Federal government to conduct foreign affairs."4 9 The
Board of Trustees court attempted to distinguish Springfield Rare Coins
by claiming that the Baltimore divestment ordinance was "primarily an
attempt by the City to structure its own financial affairs" and would
5
have only "some tangential effect on economic relations." 1
It is hard to believe, though, that the effect from divesting a city's
$1.2 billion employee pension fund 51 would be less than that from requiring sales tax on the sale of collectible coins. At any rate, both laws
sought to censure South Africa's government and thus constituted
equally impermissible actions by local governments in the arena of foreign affairs.
B.
Interference with FederalForeign Relations Powers
The importance that the United States speak with one voice in
carrying on relations with foreign countries is obvious. It is clear that in
ratifying the Constitution, the states ceded to the federal government
the ability to conduct foreign policy on their behalf. In the case of
Zschernig v. Miller,52 the Supreme Court held that an Oregon statute
that established certain requirements for inheritance by a nonresident
alien was an unconstitutional intrusion on federal foreign relations powers. 53 The Court acknowledged that the descent of property is an arena
traditionally regulated by the states and that such regulation is proper
under most circumstances. Nevertheless, the Court would not permit
states to impose restrictions that "impair the effective exercise of the
Nation's foreign policy."54 In a field such as foreign commerce, where
49 Id. at 305. The court went on to reason that "[e]ven though such disapproval may be
justified, it nonetheless creates a risk of conflict between nations, and possible retaliatory measures. No single State should put the nation as a whole to such a risk." Id. at 307.
50 562 A.2d at 748.
51 Id. at 723.
52 389 U.S. 429 (1968).
53 While a general reciprocity requirement might not have significantly interfered with federal powers, the Oregon statute at issue went beyond that. Id. at 432-33 (citing Clark v. Allen,
331 U.S. 503 (1947)).
54 389 U.S. at 440. The Court went on to say that even though "[t]he present Oregon law is
not as gross an intrusion in the federal domain as ... others might be ....
it has a direct impact
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the Constitution substantially and explicitly limits state powers, it is
clearly inappropriate to test the boundary of states' rights by allowing
them to venture into the realm of the federal government's authority.
While states may have international relationships, such as sister cities and economic development missions, they may not undertake an act
that can have any significant influence on international relations, particularly one that invites a negative reaction against other states or the
Union as a whole." The Zschernig Court described the forbidden laws
as those that "ha[ve] a direct impact upon foreign relations and may well
adversely affect the power of the central government to deal with those
problems,""6 which is not an especially strict standard. Foreign trade
restrictions clearly fall outside the Zschernig boundary, as they are likely
to incur retaliatory measures not just against the state imposing them
but also against the rest of the United States, and mixed messages from
the states confound the federal government's ability to establish a coherent foreign policy.
1.
The Framers' View
Any discussion of the meaning and effect of a constitutional provision must account for the opinions of those who drafted it and lobbied
for its ratification. The Federalist Papers as well as other evidence from
the era of the Constitution's framing support the argument that the
upon foreign relations and may well adversely affect the power of the central government to deal
with those problems." Id. at 441.
55 See Hines v. Davidowitz, 312 U.S. 52, 63 n.ll (1941) (quoting Thomas Jefferson: "The
States should severally preserve their sovereignty in whatever concerns themselves alone, and that
whatever may concern another State, or any foreign nation, should be made a part of the federal
sovereignty." (citation omitted)). For an overview of recent state relations with foreign countries,
see Daniel Halberstam, The ForeignAffairs of FederalSystems: A NationalPerspective on the Benefits of State Participation, 46 VILL. L. REV. 1015, 1027-40 (2001).
56 389 U.S. at 441. Justice Stewart, writing in concurrence, agreed with the Court's formulation, in fact implying that it might go even further:
The Solicitor General, as amicus curiae, says that the Government does not "contend
that the application of the Oregon escheat statute in the circumstances of this case
unduly interferes with the United States' conduct of foreign relations." But that is not
the point. We deal here with the basic allocation of power between the States and the
Nation. Resolution of so fundamental a constitutional issue cannot vary from day to
day with the shifting winds at the State Department. Today, we are told, Oregon's
statute does not conflict with the national interest. Tomorrow it may. But, however
that may be, the fact remains that the conduct of our foreign affairs is entrusted under
the Constitution to the National Government, not to the probate courts of the several
States.
Id. at 443.
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Framers intended the federal government exclusively to control foreign
commerce. 57 John Jay argued generally that relations with foreign countries are likely to be more civil, and thus peaceful, when one federal
government manages international affairs:
It is of high importance to the peace of America that she observe the
laws of nations towards all these powers, and to me it appears evident
that this will be more perfectly and punctually done by one national
government than it could be either by thirteen separate States or by
58
three or four distinct confederacies.
While Jay apparently wrote with armed conflict in mind, his remarks are
equally applicable to the threat of a trade "war." While it no longer
seems likely that a trade dispute will cause a military confrontation between the United States and another country, the threat of retaliatory
sanctions from trade partners always exists and is frequently
brandished. 9
In The Federalist No. 11, Alexander Hamilton called the "Union,
in a commercial light, [ ] one of those points, about which there is least
room to entertain a difference of opinion. . . . This applies as well to
our intercourse with foreign countries, as with each other."60 Later in
the same essay, he suggested that a principal reason for the need for
unity is the ability to counteract unfair trade policies carried out by
foreign countries and to force them to grant the United States favorable
61
terms.
Finally, addressing the problems of commerce under the Articles of
Confederation, Hamilton wrote that
57 See generally THE FEDERALIST No. 42 (Madison) (arguing for the value of uniformity in
international relations: "This class of powers forms an obvious and essential branch of the federal
administration. If we are to be one nation in any respect, it clearly ought to be in respect to
other nations.").
58 THE FEDERALIST Nos. 3, 4, at 14-15 (Jacob E. Cooke ed., 1961).
59 See Price & Hannah, supra note 10, at 465 ("The threat that local selective purchasing
laws pose to the coherence of United States foreign policy is increasingly a matter of concern
among senior American officials.").
60 THE FEDERALIST No. 11, at 65 (Jacob E. Cooke ed., 1961).
61 Id. at 66 ("If we continue united, we may counteract a policy so unfriendly to our pros-
perity in a number of ways. By prohibitory regulations, extending at the same time throughoutthe
States, we may oblige foreign countries to bid against each other, for the privileges of our markets." (emphasis added)).
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457
It is indeed evident, on the most superficial view, that there is no
object, either as it respects the interests of trade or finance, that more
strongly demands a federal superintendence ....
It is not .
.
. to be
wondered at that [Great Britain would think itself] prudent to persist
in [its interim trade] plan until it should appear whether the American
62
government was likely or not to acquire greater consistency.
The Federalist essays thus provide clear evidence that the Framers
had in mind a federal government that would serve as the sole conduit
for trade relations with foreign nations. A fundamental flaw of the Articles of Confederation was the multitude of trade policies it allowed.6 3
The Constitution was drafted with the goal of achieving a solitary voice
in trade not only between states, but between states and other nations:
The incapacity of the States separately to regulate their foreign commerce was fully illustrated by an experience which was well known to
the Federal Convention when forming the Constitution. It was well
known that the incapacity gave a primary and powerful impulse to the
transfer of the power to a common authority capable of exercising it
64
with effect.
Professor Albert Abel suggested that the Framers' primary intention in drafting the Commerce Clause was to touch foreign trade; 65 relying on recollections by Charles Pinckney and James Madison, Professor
Abel wrote that "[t]here can be little doubt that the [Framers'] major
preoccupation was with foreign trade and that the power over interstate
commerce, while coordinate in expression, was distinctly secondary in
scope and intended operation." 66 Such an understanding of the Foreign
Commerce Clause certainly bolsters the argument that the Supreme
Court should be more reluctant to create exceptions to it. If the Interstate Commerce Clause was something more like an afterthought, then
creating an exception to it is perhaps not especially troubling. It does
violence to the Framers' intentions, though, to pull that exception up to
the level of the Foreign Commerce Clause by its bootstraps. Notwithstanding the paucity of contemporary jurisprudence regarding it, to accord with the drafters' understanding, the Foreign Commerce Clause
62 THE FEDERALIST No.
22, at 136 Uacob E. Cooke ed., 1961).
63 See Abel, supra note 4, at 448.
64 3 Farrand 519 (1832 letter from James Madison to Professor Davis).
65 Abel, supra note 4, at
465-76.
66 Id. at 469 (citing 3 Farrand 444; 3 Farrand 478).
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should be treated with a great deal more deference and should not
lightly be diminished.
2.
Congress's Foreign Affairs Power
As the body given the task of regulating foreign commerce, Congress is primarily responsible for the relationship between foreign countries and the laws of the United States; it is essential that that
relationship treat countries, if not equitably, at least rationally. The
Court in Japan Line emphasized the fact that California's taxation
scheme prevented the United States from addressing foreign trade
through Congress "with one voice."16 7 The entire United States bore the
"acute" risk of retaliation that arose from California's multiple taxation-parties even in those states that did not adopt California's policy
would be subject to measures that foreign governments like Japan would
likely put into place. 68 The Court broadly declared that "California, by
its unilateral act, cannot be permitted to place these impediments before
this Nation's conduct of its foreign relations and its foreign trade."'6 9
70
The Court looked to its opinion in Michelin Tire Corp. v. Wages
for the foundation of its analysis of the risk to which California's law
subjected the Union. In Michelin, the Court addressed a question over
the Import-Export Clause 71 by reviewing the Constitution's history to
distinguish between a nondiscriminatory property tax imposed on items
that happen to be imported and a discriminatory levy placed on items
67
Japan Line, Ltd. v. County of Los Angeles, 441 U.S. 434, 452-53 (1984). See supra text
accompanying notes 33-35; cf.Gibbons v. Ogden, 22 U.S. 1, 199-200 (1824) ("[When a State
proceeds to regulate commerce with foreign nations . . . it is exercising the very power that is
granted to Congress, and is doing the very thing which Congress is authorized to do.").
68 441 U.S. at 452-53. The Court noted that in some countries, such as West Germany, the
United States enjoyed exemptions from levies; those exemptions might be withdrawn mechanically when laws such as California's affected those countries' interests. Id. at 453, n. 18.
69 Id. at 453.
70
423 U.S. 276 (1976).
71
Art. I,
§
10, c. 2. The Import-Export Clause reads:
No State shall, without the Consent of the Congress, lay any Imposts or Duties on
Imports or Exports, except what may be absolutely necessary for executing its inspection Laws: and the net Produce of all Duties and Imposts, laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States; and all such
Laws shall be subject to the Revision and Controul of the Congress.
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specifically because they are imported. 7 2 The Michelin Court noted that
"[o]ne of the major defects of the Articles of Confederation, and a compelling reason for the calling of the Constitutional Convention of 1787,
was the fact that the Articles essentially left the individual States free to
burden commerce . . . with foreign countries very much as they
pleased."'73 Justice Brennan's opinion for the Court went on to posit
that the Framers "commit[ed] sole power to lay imposts and duties on
imports in the Federal Government, with no concurrent state power"
because "the Federal Government must speak with one voice when regulating commercial relations with foreign governments, and tariffs, which
might affect foreign relations, could not be implemented by the States
' 74
consistently with that exclusive power. "
That concern for a coherent message can reasonably be applied to
any matter that implicates international relations, and the "one voice"
principle is a thread that runs through the Court's foreign commerce
cases. The phrase may have been made popular by the Michelin opinion, but its foundation lies in the Federalist Papers. 75 The authors of the
Federalist Papers, as well as the other Framers, clearly believed that it
was vital to the United States' interest that they present a single front
when approaching foreign partners or adversaries, and the Court's opinions continue to emphasize that importance.7 6
72
423 U.S. at 286 ("[S]uch an exaction, unlike discriminatory state taxation against
im-
ported goods as imports, was not regarded as an impediment that severely hampered commerce
or constituted a form of tribute by seaboard States to the disadvantage of the other States.").
73 Id. at 283.
74 Id. at 285.
75 See supra text accompanying notes 57-62.
Dept. of Revenue v. Assoc. of Wash. Stevedoring Cos., 435 U.S. 734, 753-53
76 See, e.g.,
(1978) (finding that a state property tax "did not usurp the Federal Government's authority to
regulate foreign relations since it did not 'fall on imports as such because of their place of
origin."' (quoting Michelin, 423 U.S. at 286)); ContainerCorp., 463 U.S. 159, 193-94 (1983)
("a state tax at variance with federal policy will violate the 'one voice' standard if it either implicates foreign policy issues which must be left to the Federal Government or violates a clear
federal directive." (emphasis in original)); Wardair Canada, Inc. v. Florida Dept. of Revenue,
477 U.S. 1, 8 (1986) (noting that "[i]n the unique context of foreign commerce," there is a
"special need for federal uniformity."); ITEL CONTAINERS INTERN. CORP. v. HUDDLESTON,
507 U.S. 60, 75 (1993) (finding that a Tennessee tax on foreign cargo containers did not impede foreign affairs powers because "[flar from conflicting with international custom, the Tennessee tax appears to promote it." (internal quotation marks omitted)); Am. Ins. Ass'n v.
Garamendi, 539 U.S. 396, 413-14 (2003) ("There is, of course, no question that.., an exercise
of state power that touches on foreign relations must yield to the National Government's
policy.").
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While the Supreme Court's Dormant Foreign Commerce Clause
jurisprudence has centered on taxes, the principles the Court has invoked apply equally to non-tax questions. 77 The First Circuit in National Foreign Trade Council v. Natsios78 was notably skeptical of the
prospect of extending the market-participant exception to cover foreign
commerce. 79 In that case, a group of businesses challenged the Massachusetts Burma Law, which restricted the state from doing business with
companies that dealt with Burma, in response to Burmese human rights
violations.8" The court stated:
We believe that the risks inherent in state regulation of foreign commerce-including the risk of retaliation against the nation as a whole
and the weakening of the federal government's ability to speak with
one voice in foreign affairs-weigh against extending the market participation exception to the Foreign Commerce Clause .... To extend
the market participant doctrine would be to ignore these additional
risks that arise in the foreign commerce context.8"
In the recently-decided case of Antilles Cement Corp. v. Calderon,82
the District Court of Puerto Rico explicitly held that the market-participant exception does not apply to the Dormant Foreign Commerce
Clause.83 The court relied on Japan Line and Natsios in determining
that "the risks to foreign commerce are too great to allow the extension
of the market participant exception."" Like KS.B. Technical Sales,85
Antilles Cement dealt with a BAA-style selective purchasing law; 86 the
law at issue, though, was even more restrictive than the traditional BAA.
In this case Puerto Rico required that cement used in construction
77 See Antilles Cement v. Acevedo Vilo, 408 F.3d 41, 46 (1st Cir. 2005) ("The Court's only
iterations of [the federal government's interest in 'speaking with one voice'] have come in situations involving state taxation of foreign commerce[, but] .... [w]e regard this concern as equally
vivid in non-tax dormant Foreign Commerce Clause cases.") (citations omitted).
78 181 F.3d 38 (1999).
79
Id. at 65.
80 For a recent overview of allegations of abuses by the Burmese government (which refers to
its country as Myanmar), see U.S. Department of State, Bureau of East Asian and Pacific Affairs,
Background Note: Burma (2005), http://www.state.gov/r/pa/ei/bgn/35910.htm.
81 181 F.3d at 66 (citation omitted).
82 288 F. Supp. 2d 187 (2003), vacated on other grounds in part, 408 F.3d 41 (1st Cir.
2005).
83
Id. at 196.
84
Id. at 197.
85
381 A.2d 774, 784-89 (N.J. 1977); see supra text accompanying notes 36-40.
3 P.R. Laws Ann. § 927.
86
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461
funded by the Commonwealth or by the United States be manufactured
not just in the United States, but specifically in Puerto Rico, and that
bags of cement manufactured outside of Puerto Rico but sold in the
Commonwealth should bear a warning of their foreign nature.
The
court specifically refuted Puerto Rico's argument that Natsios should not
control because the law at issue in Antilles Cement was broader than the
Massachusetts Burma law, in that it did not target a specific country.
Even in the absence of a direct target of the legislation, the court held,
such restrictions "pose dangers to the ability of the nation to speak with
'
88
one voice.
When Antilles Cement was appealed to the First Circuit, the court
remarked that the concern that the United States should speak uniformly in international affairs applies to all Dormant Foreign Commerce Clause cases. 89 The court went on to note the continued
openness of the question of whether the market-participant exception
applies to foreign commerce and suggested that the exception would
have to be much narrower, if it applies at all to the Foreign Commerce
Clause.9 °
3.
The President's Foreign Relations Power
The President has the constitutional authority to carry on diplomatic relations with other countries; 9 a significant function in that role
is the negotiation of trade arrangements. Congress, in turn, has the
responsibility to ratify those agreements that rise to the level of treaties,
to pass laws executing those treaties and to enact laws otherwise directing the terms of trade between the United States and other
countries.9 2
By entering the foreign marketplace in a non-neutral manner, a
state assumes the mantle of a participant in foreign relations. While a
87
Incidentally, courts have determined that the Commerce Clause does restrict the Com-
monwealth of Puerto Rico. 288 F. Supp. 2d at 194. See Secretary of Agriculture v. Central Roig
Refining Co., 338 U.S. 604, 616 (1950).
88 288 F. Supp. 2d at 197 ("The Court finds that the risks to foreign commerce are too great
to allow the extension of the market participant exception in the instant case.").
89 408 F.3d 41, 46 (1st Cir. 2005) (citing National Foreign Trade Council v. Natsios, 181
F.3d 38 (1st Cir. 1999), and Crosby v. National Foreign Trade Council, 530 U.S. 363 (2000)).
90 Id. at 47.
91 U.S. CONST. art. II, § 2, cl.2 ("The President ... shall have Power, by and with the
Advice and Consent of the Senate, to make Treaties ...and he shall nominate, and by and with
the Advice and Consent of the Senate, shall appoint Ambassadors.").
92 Id.; U.S. CONST. art. I, § 8, cf. 16, 17.
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state certainly may choose not to spend its money in a given way, when
an explicit policy erects a barrier between the United States and the
target of the policy, the state's actions sound in international relations.
It seems unlikely that a foreign government would make cautious distinctions between the discriminatory trade policy of an individual state
and one that emanates from Washington, D.C.; that foreign government's citizenry would seem even less likely to parse American policy.
As the Supreme Court noted in Hines v. Davidowitz, "[e]xperience has
shown that international controversies of the gravest moment, sometimes even leading to war, may arise from real or imagined wrongs to
another's subjects inflicted, or permitted, by a government." 93 The
Zschernig Court emphasized that point when it noted that while "laws
[that] conflict with a treaty . . . must bow to the superior federal policy. . . . Yet, even in absence of a treaty, a State's policy may disturb
94
foreign relations.
It is perhaps in the absence of a specific national policy that state
forays into international relations threaten the most harm, for then it is
not apparent to foreign countries that the state plan is not that of the
United States. When state and national policies conflict, the result is a
confused or paradoxical message; when a state serves as the only voice in
relations with a particular country or in a specific market, outsiders are
likely to attribute that voice to all of the United States. 9" Such a mistake
can invite action against the United States as a whole and preemptively
disable the executive branch's possible future attempts at building international relationships.
Even in Crosby, when the Supreme Court avoided the question of
extending the market-participant exception, the Court noted that state
impositions on trade threaten the President's power to serve as the country's chief diplomat:
[Tihe state Act undermines the President's capacity, in this instance
for effective diplomacy. It is not merely that the differences between
the state and federal Acts in scope and type of sanctions threaten to
complicate discussions; they compromise the very capacity of the President to speak for the Nation with one voice in dealing with other
96
governments.
93 312 U.S. 52, 64 (1941).
94 389 U.S. 429, 441 (1968) (citing Kolovrat v. Oregon, 366 U.S. 187 (1961)).
95 See TRIBE, CONSTITUTIONAL LAW, supra note 5, at § 4-6.
96
530 U.S. 363, 381 (2000).
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If the Court were to extend the market-participant exception to the
Dormant Foreign Commerce Clause, it would bless states' entry to the
arena of active foreign policy-a field from which the Constitution for97
bids states.
C.
Failures of the TraditionalMarket-ParticipantJustifications
While it is rare for courts to specify the particular theory under
which they uphold the market-participant exception in a particular case,
justices and commentators have posited a number of generally-applicable explanations.9 8 The focus of this Note is the weakness of those justifications as applied to the Foreign Commerce Clause. They falter even
in the area of interstate commerce. This section questions the traditional justifications on both the foreign and domestic levels.
1.
Fairness
The first and most basic argument for the market-participant exception is that it is most fair to allow states to spend money as they like.
The states certainly have the option of not spending the money and
when they decide to enter the market they should be able to spend their
citizens' funds as their constituents see fit. Because the citizens of a state
are those who pay into its coffers, the state's expenditures should prima97 See United States v. Belmont, 301 U.S. 324, 330 (1937) ("Governmental power over
external affairs is not distributed, but is vested exclusively in the national government."); Hines,
312 U.S. at 63 ("Our system of government is such that the interest of the cities, counties and
states, no less than the interest of the people of the whole nation, imperatively requires that
federal power in the field affecting foreign relations be entirely free from local interference.").
98 See supra note 6; Reeves, Inc. v. Stake, 447 U.S. 429, 436-439 (1980) (summarizing
reasons for the market-participant exception). The list of popular rationalizations presented in
this note is derived from the collection and critical examination of reasons for the marketparticipant exception in domestic commerce in Coenen, supra note 6, at 421-41. Based on four
of these defenses, Professor Coenen also offers a list of questions to ask in seeking to determine
whether the market-participant exception is implicated:
(1) whether the program reflects an effort of local citizens to reap where they have
sown;
(2) whether invalidation of the program is consonant with the underlying values of
federalism, including in particular the values of local experimentation and optimal
responsiveness to local concerns;
(3) to what extent the program threatens the underlying commerce clause values of a
free market and unified nation; and
(4) whether the state bears the appearance of "participating in," rather than "regulating," the market.
Id. at 441.
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rily benefit those citizens, 99 and the citizens should have the ability to
direct how the funds are spent. Proponents of this justification may go
on to say that, because the state is a collection of private individuals and
is acting as if it were a private party in the market, it should enjoy the
same freedom as would any other private market-participant. 1"'
Of course, while fairness is good, it is not always the ultimate goal
of constitutional law, and some considerations must trump evenhandedness. Moreover, the argument misses the point that there is always
something distinctive about a state's entry to a marketplace: "Precisely
because state proprietary activity is a blend of both private and public
business, it is not sufficient to assume that the state should have the
same freedom to choose business policy as private business." 10 1 When
an action bears the imprimatur of the state's government it ceases to be
private action, and must assume greater, or at least different, scrutiny.
The fairness argument fails to recognize that the Constitution embodies the delegation of certain powers-specifically, the authority to
conduct foreign affairs and control foreign trade. While it is certainly a
good thing for states to be able to control where they spend their
money, the importance of foreign relations trumps that desire for fairness. A state that issues an official policy simply does not appear to be a
private actor, even when its participation in the market is similar to an
individual's. 10 2 While a state purchasing authority certainly can contract with foreign businesses, and can even fail to buy from a particular
country's producers, that failure is illegitimate when it is with the blessing of a policy. By granting its imprimatur to the market action, the
state ceases to exist as a mere private party and enters the realm of an
official entity acting in foreign affairs.
99 See Jonathan D. Varat, State "Citizenship "and Interstate Equality, 48 U. CHI. L. REv. 487,
518 (1981); Regan, supra note 3, at 1193.
100 See Coenen, supra note 6, at 422 ("An essential feature of having property is... the right
to exclude others; and if individuals may exclude others from their property, so too may [jointlyowning] groups of individuals.... There is no apparent reason why this logic should not apply
to a group of individuals that calls itself a state." (citing Corfield v. Coryell, 6 F. Cas. 546, 552
(C.C.E.D. Pa. 1823) (No. 3230) (State citizens "may be considered as tenants in common of
[state] property.")) (other citations omitted)).
101 Varat, supra note 99, at 506.
102
See
TRIBE, CONSTITUTIONAL LAw,
at 430-32.
supra note 5, at §6-11. But see Coenen, supra note 6,
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Federalism
Another argument for the market-participant exception is founded
on notions of federalism, i.e., restricted federal government and expansive states' rights; this principle is said to support the market-participant
exception and its laissez-faire approach to state spending. 103 Because the
Constitution grants the federal government limited powers that are derived from the states," 4 the federal government can legitimately control
only those specific areas that are delineated in the Constitution; by default, power resides in the states. Under this theory, the federal government should defer to the decisions made by those states regarding how
they will distribute their own assets, including distribution favoring
their own respective citizens.1 05
This argument, though, goes too far in the market-participant context, for it would equally support an outright end to the negative Commerce Clause. It ignores the fact that the Supreme Court reads the
Commerce Clause as exclusive, with few exceptions, of states' impositions on interstate and foreign commerce. Federalist principles propose
that the national government should defer to states' decisions when the
Constitution is silent; the Constitution explicitly gives Congress the
power to regulate interstate and foreign commerce. 1 6 As an argument
for the market-participant exception, the federalism argument contributes little.
In its application to foreign commerce, moreover, this argument
fails because foreign policy is one of the primary areas in which the
states do cede all authority to the federal government. The principal
case addressing this issue is United States v. Pink,10 7 in which the Court
declared that "[p]ower over external affairs is not shared by the States; it
103
Thomas K. Anson & P. M. Schenkan, Federalism, the Dormant Commerce Clause, and
State-Owned Resources, 59 TEXAS L. REv. 71, 86 (1980); Walter Hellerstein, Hughes v.
Oklahoma: The Court, the Commerce Clause, and State Control of NaturalResources, 1979 Sup.
CT.REv. 51, 75 (1980).
104 U.S. CONST. amend. X ("The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved by the States respectively .... ); cf.THE
FEDERALIST
No. 45, at 310 Uames Madison) (Jacob E. Cooke ed., 1961) ("the States will retain
under the proposed Constitution a very extensive portion of active sovereignty.").
105 See Coenen, supra note 6, at 427 ("It is . . . a greater intrusion on state autonomy to
restrict a state's use of its own tangible resources than to cabin its otherwise limitless power to
coerce through government fiat.").
106 U.S. CONST. art. I, 8, cl. 3; see TRIBE, CONSTITUTiONAL LAw, supra note 5, at § 6-2.
107 315 U.S. 203 (1942).
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is vested in the national government exclusively."' 0 8 If individual states
were to create their own defense departments and embark on military
expeditions, it is obvious that chaos would result for both state and federal forces. Foreign policy raises analogous concerns. The simple rule is
that, with very few exceptions, states cannot make laws that bind or
have a direct deleterious effect on other states.' °9 Because economic
policies are inextricably intertwined with foreign relations, the federal
government must have the exclusive power to create foreign alliances
and manage international trade." 0
3.
Participation versus Regulation
Others argue that the market-participant exception is appropriate
because it permits only preferential spending programs, which are innocuous compared to the regulations and taxes that the exception does
not allow."' This line, however, gains little ground in favor of the exception; "it's not as bad as it could be" isn't the same as "it's not bad."
Professor Dan Coenen attacks the argument on its face:
It is ... difficult to see why state spending programs are "less coercive"
than discriminatory regulations or tariffs in any meaningful respect.
And even if spending programs are in some sense "less coercive," it is
difficult to see why that means they "interfere less" with the free-market values underlying the dormant commerce clause." 2
The lesser-evil argument is disingenuous, for it ignores the fact that
a state's entry into a given market often has massive economic effects
108
Id. at 233; see also United States v. Belmont, 301 U.S. 324, 331 (1937) ("In respect of all
international negotiations and compacts, and in respect of our foreign relations generally, state
lines disappear.").
109 Cf. TRIBE, CHOICES, supra note 12, at 141 ("Courts ... require an explicit congressional
...
authorization in order to exempt state action from Commerce Clause scrutiny.").
CONSTITUTIONAL LAw, supra note 5, at § 4-6. The Import-Export Clause
11o See TRIBE,
explicitly limits state action in the realm of international trade by preventing states from imposing most tariffs on goods in foreign trade. U.S. CONST. art. I, § 10, cl. 2; TRIBE, CONSTITUTIONAL LAw, supra note 5, at § 6-23.
111 See Regan, supra note 3. Compare Hughes v. Alexandria Scrap Corp., 426 U.S. 794, 810
(1976) ("Nothing in the purposes animating the Commerce Clause prohibits a State, in the
absence of congressional action, from participating in the market and exercising the right to
favor its own citizens over others."), with South-Central Timber Development, Inc. v. Wunnicke, 467 U.S. 82, 93 (1984) ("[I]f a State is acting as a market participant, rather than as a
market regulator, the dormant Commerce Clause places no limitation on its activities.").
112 Coenen, supra note 6, at 415.
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STATE-IMPOSED RESTRAINTS OF FOREIGN TRADE
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not only on the businesses with which the state deals but also on all of
the markets in which those businesses then operate. To say that the
effect is less than that of a tax or other regulation is a tremendous
overgeneralization that improperly diminishes the importance of the ripple effect. 113 Justice Blackmun's separate opinion in White v. Massachusetts Council of Construction Employers, Inc. 4 points out that market
participation can result in problematic downstream consequences: "The
power to dictate to another those with whom he may deal is viewed with
suspicion and closely limited in the context of purely private economic
relations. When exercised by government, such a power is the essence of
regulation."" 5
The demarcation between regulation and participation can be
quite fine. One might defend tax incentives for local businesses, for
example, as preferential spending by the state-a decision not to fill the
state treasury.'16 A number of courts' market-participant decisions
17
come down to the distinction between participation and regulation,"
and many of those are close cases. It makes little sense to rely so heavily
on such a subtle (and often dubious) differentiation.
The argument is even weaker when advanced in the realm of foreign commerce:
A foreign government has little inclination to discern whether a burdensome action taken by a political subdivision of the United States
was taken under a proprietary or a regulatory guise: its constituency is
unlikely to be interested in the fine distinction between a state divest113
The Supreme Court in White v. Mass. Council acknowledged, but dismissed with little
investigation, the market effects of local restrictions under the market-participant exception:
[T]he Mayor's executive order . . . does not represent the sort of "attempt to force
virtually all businesses that benefit in some way from the economic ripple effect" of
the city's decision to enter into contracts for construction projects "to bias their employment practices in favor of the [city's] residents."
460 U.S. 204, 211 (1983) (quoting Hicklin v. Orbeck, 537 U.S. 518, 531 (1978)).
114
460 U.S. 204 (1983).
115
Id. at 219 (dissenting in part and concurring in part).
See, e.g., Camps Newfound/Owatonna v. Town of Harrison, 520 U.S. 564, 589 (1997)
116
(discussing the Town's argument that the discriminatory tax is the state's "purchase" of the
services of the camps that cater to in-state visitors, or alternatively that it is a subsidy like that
the Court found permissible in West Lynn Creamery v. Healy. 512 U.S. 186, 199 (1994)); cf
Abel, supra note 4, at 446-51 (arguing that the Framers considered taxation a primary form of
regulation).
117 See, e.g., Camps NewfoundOwatonna, 520 U.S. 564; White v. Mass. Council, 460 U.S.
204; Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984).
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ment statute that forces state banks to divest as a practical matter and
a state regulation of those banks that forces them to divest as a legal
matter. In short, the potential for the creation of friction between the
United States and a foreign nation is not lessened because the state
acts as a proprietor instead of as a regulator.'18
The point of many state burdens on foreign trade is to express
disapproval of a particular country's practices-that was the case in the
laws sanctioning trade in Natsios119 and Crosby,12 which dealt with
Massachusetts's restrictions on trade with Burma. The rhetorical effect
is the purpose of the law, and so to argue that its actual result is minimal
because it is "mere" participation gains nothing against valid international relations concerns. The line between participation and regulation
is often narrow or obscure, and a court's classification of a policy as
discriminatory would likely have little impact on the sentiment of the
The subtleties of Dormant Commerce Clause thetargeted country.
ory are sure to be lost when the arguments are amplified in a global
forum.
4.
Textualism
A textualist argument distinguishes between the power to "regulate," granted to Congress, 122 and the power to "participate," which is
not mentioned by the Commerce Clause. 12 3 This defense also leans too
heavily on the line between participation and regulation-a line that is
fuzzy at best, and for practical purposes may not exist at all. Such
parsing of words, while perhaps legitimate when the stakes are relatively
low, is inappropriate when such a serious topic as foreign relations and
policy are implicated. The textualist argument also puts weight on the
notion that when a state takes off its regulating hat, as it were, it should
118
Kevin P. Lewis, Dealing With South Africa: The ConstitutionalityofState and Local Divest-
ment Legislation, 61 TUL. L. REv. 469, 485 (1987).
119 181 F.3d 38 (1st Cir. 1999).
120
530 U.S. 363 (2000).
121
Lewis, supra note 118.
122
U.S. CONST. art. I, § 8, cl. 3.
123
See Reeves, Inc. v. Stake, 447 U.S. 429, 436-37 (1980) ("There is no indication of a
constitutional plan to limit the ability of the States themselves to operate freely in the free
market."); United Bldg. & Constr. Trades v. Mayor of Camden, 465 U.S. 208, 220 (1984)
(noting the Privileges and Immunities Clause's "concern with comity [that] cuts across the market regulator-market participant distinction that is crucial under the Commerce Clause.").
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be treated just as any other participant in the market12 4-a theme that
runs through the defenses of the market-participant exception but is
certainly open to challenge by the argument that there are always differences between individuals and states, regardless of the market role the
state plays. It is beyond dispute that even a "market-participating" state
125
bears characteristics that distinguish it from non-state actors.
At any rate, Dormant Commerce Clause theory seems to fail on all
terms with textualists-the Dormant Clause is derived by implication
from the Clause's underlying principles, not from any specific language
in the Commerce Clause. 1 26 As with the federalism justification, this
argument does not apply specifically to the market-participant exception, except perhaps as a move to stop the Supreme Court from running
rampant.
5.
The Supremacy Clause and Institutional Concerns
A final argument, which more than anything else serves as a backstop to the other arguments, emphasizes the dormant nature of the Negative Commerce Clause-the Supremacy Clause 127 assures Congress the
power to step in and override a state law or policy it sees as improper. 128
Clearly this argument is incompatible with the textualist argument-if
the language of the Commerce Clause grants a state the exclusive power
to "participate" as it wishes in the marketplace, then that particular language cannot also be understood to grant Congress the power to supersede the state's participation. Such congressional interference would be
outside of the Commerce Clause, as it would be something other than
"regulation."
The Supremacy Clause argument also runs headlong against the
theory, articulated by Chief Justice Fuller, that the Dormant Commerce
124 See Coenen, supra note 6, at 437.
See supra Part II.C.1; cf. Parker v. Brown, 317 U.S. 341 (1943).
The Commerce Clause does not grant Congress all "Power ... To regulate Commerce,
with foreign Nations, and among the several States." U.S. CONST. art. I, § 8, cl. 3. Rather, the
Dormant Commerce Clause is inferred from the text because of the danger of state burdens on
interstate trade. TRIBE, CONSTITUTIONAL LAw, supra note 5, at § 6-2 ("the constitutional limitations upon state interference with interstate commerce . . . . [originated] as negative judicial
inferences from a constitutional grant of power to Congress"); Mark P. Gergen, The Selfish State
and the Market, 66 TEXAs L. REv. 1097, 1117 (1988) ("in [the] grant to Congress of authority
to regulate interstate commerce lies an implied denial of that power to the states").
127 U.S. CONST. art. VI, cl. 2.
128 See Wisconsin Dep't of Industry, Labor & Human Relations v. Gould Inc., 475 U.S. 282
125
126
(1986).
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Clause itself is justified by the fact that Congress's inaction amounts to
intentionally leaving a market unregulated:
Whenever .
.
. a particular power of the general government is one
which must necessarily be exercised by it, and Congress remains silent,
this is not only not a concession that the powers reserved by the States
may be exerted as if the specific power had not been elsewhere reposed, but, on the contrary, the only legitimate conclusion is that the
general government intended that power should not be affirmatively
exercised, and the action of the States cannot be permitted to effect
that which would be incompatible with such intention.129
It is certainly true that the Supremacy Clause would allow Congress to step in and override any state-imposed restriction on foreign
trade-in fact, that is the basis on which the Supreme Court decided
Crosby.'13 When a state law explicitly contradicts a federal foreign commerce law, there is no question that the federal law is superior, but that
does not answer all foreign relations concerns.
Congressional interposition could occur too late to repair the damage resulting from a discriminatory state policy. Foreign relationships
are easily damaged and mended only with difficulty. 13 ' Bills of substance can require a great deal of time to make their way through the
legislative process-it was the Framers' intention to force deliberation
and impede reactionary legislation-and it might be months before a
federal statute could bandage the wound to the United States' relation132
ship with the foreign target of a particular state's market policy.
129
Leisy v. Hardin, 135 U.S. 100, 109 (1890) (emphasis supplied), superseded on other
grounds by statute, Wilson Act, 51 Cong. Ch. 728, 26 Star. 313 (YEAR), as recognized in
Granholm v. Heald, 544 U.S. 460 (2005); cf. TRIBE, CHOICES, supra note 12, at 34 (suggesting
that the Dormant Commerce Clause could be justified by the principle that Congress's silence
on a particular market may indicate its affirmative desire to leave that market unrestricted).
130 530 U.S. 363, 388 (2000) ("Because the state Act's provisions conflict with Congress's
specific delegation to the President . . . it is preempted, and its application is unconstitutional,
under the Supremacy Clause."). The Court thus avoided having to answer whether the marketparticipant exception applied to the Dormant Foreign Commerce Clause. Id.
131
132
See Zschernig, 389 U.S. 429, 441 (1968).
See Steven G. Calabresi & Joan L. Larsen, One Person, One Office: Separation of Powers or
Separation of Personnel?, 79 CORNELL L. REv. 1045, 1047 (1994) ("Through checks and balances, separation of powers, bicameralism, and federalism, [the Framers] sought to preserve liberty by making it hard for government to act.").
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A state measure could also conflict with an informal federal policy.' 33 The Supremacy Clause does not address those cases in which
state action simply impedes the day-to-day work, rather than the formal
laws and policy, of the federal government.
Another aspect of the institutional considerations argument is the
supposition that courts seek to intervene only in the most egregious
cases of states unjustifiably exceeding the bounds of their authority.
States have a duty to seek the welfare of their citizens, and that duty can
be incoherent with a hard and fast rule against preferring their citizens
in the marketplace. Courts may find themselves ill-equipped to distinguish between legal and illegal preferences except in the clearest cases,
leaving the legislature more politically accountable and capable of gathering evidence to make policy choices. 134 This concern for institutional
competency seems to be a weak pillar on which to base the marketparticipant exception. Courts have long been in the business of examining subtlety and complexity, and, as described above, 135 any distinction
that can be made between participation and regulation still requires a
136
difficult line-drawing exercise.
The most obvious weakness of the institutional considerations defense is that a market-participant exception advances the purported interest of the state without regard to the federal government's power. If
courts are incompetent to make policy choices between state policies
and the interest of foreign relations, states are certainly less competent
than the federal executive and legislative branches in the field of foreign
policy. The institutional competency argument thus defeats itself-if
the power to make policy choices should be reserved to the institution
most capable and with the most resources dedicated to making those
choices, then certainly the power to conduct foreign trade should only
be held by the federal government.
133 See Price & Hannah, supra note 10, at 445 ("The ability of the United States to work
cooperatively with its allies and trading partners, and to confront antagonists, depends vitally on
the formulation and implementation of a single foreign policy for the entire country.").
134 See Reeves, Inc. v. Stake, 447 U.S. 429, 439 (1980) ("[T]he competing considerations in
cases involving state proprietary action often will be subtle, complex, politically charged, and
difficult to assess under traditional Commerce Clause analysis ....
Alexandria Scrap wisely recognizes that, as a rule, the adjustment of interests in this context is a task better suited for Congress
than this Court."); Coenen, supra note 6, at 439-40.
135 See supra Parts II.C.3-4.
136 See Varat, supra note 99, at 507.
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PROBLEM OF CONSISTENCY?
One particular objection to limiting the market-participant exception to domestic applications might be that it makes little sense to apply
an exception to one part of the Commerce Clause and not the other. As
Chief Justice Taney noted, 137 the Commerce Clause does not distinguish between foreign and interstate commerce as far as their importance or Congress's level of authority to regulate them.
This criticism, though, fails to recognize that Commerce Clause
jurisprudence is itself a compendium of implications and suppositions; 138 the widely-accepted (though not uncontroversial) Dormant
Commerce Clause itself has little basis in the text of the Constitution.
The rule this Note argues for is not an exception to the exception.
Rather, it is a limiting rule-a simple refusal to extend the market-participant exception to the implied rule of the Dormant Foreign Commerce Clause. If it is inappropriate to deny the market-participant
exception to foreign trade because doing so works violence against the
Constitution's text, then surely it is equally incorrect and similarly assaults the text to read the Commerce Clause as stating "Congress shall
have Power ... exclusively to regulate Commerce with foreign Nations,
and among the several States."
Addressing the charge that a failure to apply the market-participant
exception creates a false distinction between foreign and domestic commerce, it is not at all clear that Chief Justice Taney's point stands on
firm ground. He suggests that because the Constitution grants regulatory power using the same words that appear in the same clause, the
powers must be the same. 139 But if that is the case, why distinguish
between the two at all? The Framers just as easily could have granted
authority "to regulate Commerce that travels across a State's boundaries," or some similarly crafted phrase. The Framers listed separately the
two fields-interstate and international trade-because they are by their
nature different; accordingly there is no reason that they should not be
treated differently under the Commerce Clause's jurisprudence.
137 See supra text accompanying note 37.
138 See supra note 3.
139
Of course, it is not exactly true that the words are the same; Congress can regulate trade
"with foreign Nations, and among the several States" (U.S. CONST. art. I, § 8, c. 3 (emphasis
added)). Such a distinction is admittedly semantic and may be insignificant, but it does undermine the notion that the Framers intended precisely equivalent powers of regulation.
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Indeed, as pointed out above, it is quite clear that the Framers did
not consider the separate parts of the Commerce Clause to be equally
important-there is significant evidence that the grant of power to control interstate commerce was simply added as an afterthought. 40 At the
very least, it was not thought to be nearly as vital to the new United
States.
In Brolan v. United States, 4 ' Chief Justice White drew a broad
distinction between Congress's foreign commerce and interstate commerce powers:
[T]he very postulate upon which the authority of Congress to absolutely prohibit foreign importations as expounded by the decisions of
this court rests is the broad distinction which exists between the two
powers and therefore the cases cited and many more which might be
cited announcing the principles which they uphold have obviously no
relation to the question in hand.' 4 2
The line between the concepts of foreign and domestic commerce,
then, is decidedly unlike that between regulation and participation-it
is both defined and firm, and there is no reason to imagine that the
Constitution does or should hold the concepts in the same regard and
subject to precisely the same principles. Thus, there is no justification
for the assumption that because the market-participant exception applies to interstate commerce it must apply equally to foreign commerce.
IV.
THE FUTURE
So far, the Supreme Court has managed to avoid the question of
whether the market-participant exception should extend to the Dormant Foreign Commerce Clause. In Crosby, the Court was able to decide the case on Supremacy Clause grounds, 4 3 and, because the Court
has a longstanding policy of avoiding new and difficult constitutional
140
See supra notes 65-66 and accompanying text.
141 236 U.S. 216 (1915).
142
Id. at 222.
143 530 U.S. 363, 373-86 (2000). The Court found that "the state law undermine[d] the
intended purpose and 'natural effect' of at least three provisions of the federal Act," which gave
the President the power to impose specific restrictions on trade with Burma. Id. The Court
decided the Container Corp. case primarily on the question of the relationship between a corpo-
ration and its franchise. 463 U.S. 159 (1983).
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questions when possible, 144 it is likely future Courts similarly will sidestep the issue whenever possible.
Although potential market-participant cases often implicate other,
more settled constitutional concerns on which the Court can render a
decision, the Court will surely at some point have to tackle the question
of extending the market-participant exception. In spite of a possible
Supremacy Clause issue, Antilles Cement 145 appears to be a candidate for
such a decision. The domestic market-participant case that appears to
be most closely parallel to Antilles Cement is White v. Massachusetts
Council,1 46 in which the Supreme Court held that the Commerce
Clause does not prohibit Boston's mayor from requiring by executive
order that crews working on publicly-funded construction projects in
that city be comprised at least in half by city residents. 147 The Court
relied on traditional justifications for the exception, 4 8 and the arguments presented in this Note distinguish arguments for the decision in
White from the foreign commerce context of Antilles Cement.
When the First Circuit remanded Antilles Cement to the District of
Puerto Rico, it did so with hopes of avoiding the need to confront the
market-participant question; the Circuit opinion cited a lack of evidence
of the actual scope and the downstream effects of the challenged statutes. 1 49 For better or worse, the courts may again dodge the marketparticipant question on Supremacy Clause grounds. One issue in Antilles Cement is the question of whether the federal BAA 150 constitutes an
endorsement of or conflicts with Puerto Rico's laws; the Circuit Court
questioned the District Court's assertion that the federal BAA does not
15 1
apply to the Commonwealth's agencies.
144 See Ala. State Fed'n of Labor v. McAdory, 325 U.S. 450, 461 (1945); see also Trade-Mark
Cases, 100 U.S. 82, 96 (1879) ("It is manifestly the dictate of wisdom and judicial propriety to
decide no more than is necessary to the case in hand.").
145 408 F.3d 41 (1st Cir. 2005).
146 460 U.S. 204 (1983).
147 460 U.S. 204, 214-15 (1983) ("Insofar as the city expended only its own funds in entering into construction contracts for public projects, it was a market participant and entitled to be
treated as such under the rule of Hughes.").
stand for the proposition that when a
148 See id. at 208 ("Alexandria Scrap and Reeves ...
state or local government enters the market as a participant it is not subject to the restraints of
We reaffirm that principle now.").
the Commerce Clause ....
149 408 F.3d 41, 47, 50 (1st Cit. 2005).
150 41 U.S.C. §§ 10a, 10b(a) (2006).
151 408 F.3d at 48-49 (citing Caribbean Tubular Corp. v. Fernandez Torrecillas, 67 B.R. 172
(D.P.R. 1986)). The federal BAA requires, with some exceptions, that
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Of course, if the Supreme Court reads the federal BAA to conflict
with the Puerto Rican law, then Congress's directive will prevail, making the Commonwealth's law illegal and avoiding the market-participant question altogether. On the other hand, if the federal law is
sufficiently synchronous with the Puerto Rican BAA as to constitute an
endorsement of Puerto Rico's law, then the Foreign Commerce Clause
inquiry is moot, because there is no question that Congress can dictate
trade terms and can grant authority to states (or territories) to regulate
trade. 152
However, the Puerto Rican law goes further than the federal BAA
by restricting purchased materials specifically to those manufactured in
Puerto Rico and includes no exception to allow for the use of foreign
153 If
goods when it is in "the public interest," as the federal law does.
the Supreme Court does determine, based on the discrepancies between
the two laws, that the federal BAA does not cover the same ground as
the Puerto Rican law, then the market-participant question must
arise.1 54 If it does, then the Court should find that the Commonwealth's law constitutes an impermissible intrusion on the federal government's power to conduct foreign affairs.
Every contract for the construction, alteration, or repair of any public building or
public work in the United States growing out of an appropriation heretofore made or
hereafter to be made shall contain a provision that in the performance of the work the
contractor, subcontractors, material men, or suppliers, shall use only such unmanufactured articles, materials, and supplies as have been mined or produced in the United
States, and only such manufactured articles, materials, and supplies as have been manufactured in the United States substantially all from articles, materials, or supplies
mined, produced or manufactured, as the case may be, in the United States.
Id. (emphasis supplied).
152 The circuit court noted the "remarkable" parallels between the federal BAA and the Puerto Rican law:
The BAA forbids the use of foreign materials in public works, but gives 'the head of
the department or independent establishment making the contract' authority to determine when to grant exemptions from that rule based on impracticability or expense.
Law 109 forbids the use of foreign materials in public works and directs an independent establishment . . . to authorize exceptions if domestic goods are unavailable or
markedly more costly.
Id. at 49 (citing 41 U.S.C. § 10b(a); 3 P.R. Laws Ann. § 927e (2006)).
153 See Antilles Cement, 408 F.3d at 49.
154 See generally TRIBE, CONSTITUTIONAL LAw, supra note 5, at §§ 6-25 - 6-27 (explaining
the issues related to the Supremacy Clause).
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CONCLUSION
The market-participant exception to the Dormant Interstate Commerce Clause is, by all appearances, settled law, although its justifications are, in part, questionable. Those justifications, however, are
wholly insufficient to support an extension of the exception to the Dormant Foreign Commerce Clause. The particular concerns raised by foreign commerce trump the notions of fairness and federalism that might
be advanced by granting states the power to restrict international trade,
even when they spend state funds. The Supreme Court has indicated in
its market-participant cases that the Foreign Commerce Clause raises
unique issues and that the two parts of the Commerce Clause should by
no means be treated uniformly. Evidence from the time of the Constitution's drafting suggests that the Framers would endorse such a
distinction.
The practical burden businesses would bear under separate state
regulation of trade-raising concerns of unpredictability, incoherence,
and discouraging investment-is amplified in the context of foreign
trade regulation. More importantly, a market-participant exception to
the Dormant Foreign Commerce Clause would do violence to the foreign affairs powers that the Constitution vests solely in the federal government. During debate surrounding the Constitution, the Framers
emphasized the foreign commerce aspect of the Commerce Clause, seeking to prevent states from creating their own foreign trade policies that
could disrupt federal policies concerning both trade and foreign relations in general. Those disparate state policies could incur retaliation,
economic or military, against other states and the country as a whole.
This Note has focused, in large part, on state regulations that burden foreign trade in some manner, either by explicit embargoes, such as
that in the Massachusetts Burma Law at issue in Crosby, by general
purchasing restrictions like the Puerto Rican statute in controversy in
Antilles Cement, or by taxes like the one found unconstitutional in Japan
Line. However, it is clear that a state law favoring particular foreign
nations would implicate the same concerns. For one thing, such a law
would amount to discrimination against disfavored countries' 55 and
threats of retaliation would remain. Secondly, the state's favoritism
could work to contradict a federal policy. Even in the absence of any
155
Cf. Camps Newfound/Owatonna v. Town of Harrison, 520 U.S. 564 (1997) (finding
that a tax exemption discriminated against out-of-state visitors).
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conflicting federal policy, though, the state statute should fall. As it
would bear the imprimatur of the state's government, the law would
reflect a United States policy-one not necessarily endorsed by other
states but that could nevertheless be viewed by other countries as
American.
State foreign trade policies are illegitimate even when they do not
explicitly conflict with some federal policy. It is perhaps then that individual states most threaten to assume for themselves the banner of representing the United States in international relations-a foray into foreign
affairs that the constitutional principles of the Union cannot allow. The
Supreme Court has repeatedly emphasized the fact that federal authority
over foreign affairs is exclusive and does not readily admit of exceptions.
As Justice Field wrote in the Chinese Exclusion Case, "For local interests
the several States of the Union exist, but for national purposes, embracing our relations with foreign nations, we are but one people, one nation, one power."'15 6 The Court has made it clear that "relations with
foreign nations" are not only embraced by "national purposes," but are
the ne plus ultra of them.
Admittedly, it may be at a time far in the future that the Supreme
Court finally reaches the question. But perhaps it will be as soon as
Antilles Cement winds its way back up through the system-the constitutional-avoidance canon can protect the Supreme Court from the foreign market-participant problem for only so long. And when eventually
it does address the matter, the Supreme Court should account for the
constitutional and practical concerns collected here and refuse to extend
the market-participant exception to the Dormant Foreign Commerce
Clause.
156
Chae Chan Ping v. United States, 130 U.S. 581, 606 (1889).