Commerce with Foreign Nations

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The Article I, Section 8, power to regulate foreign commerce, the particular power that in many ways brought about the Constitution, has not caused the Court to deal with the definitional problems, controversy, or direct conflict with state regulations that the power over commerce among the states has generated. Also, even though the language of the Constitution places all three aspects of commerce—among the states, foreign, and with the Indian tribes—under the same extent of regulatory power, a point that James Madison himself conceded, and even though the power over foreign commerce operates under somewhat similar doctrines of “dormant foreign commerce power” and preemption where Congress has acted, in recent years, especially, the federal power over foreign commerce has been construed more broadly and with less deference to federalism than its domestic analogue.

Like the power over commerce among the states, the Court did not rule on the extent of the power over foreign commerce for decades after the Constitution went into effect, the first test coming in 1827 in Brown v. Maryland, and like other commerce cases until the late 1880s, this too involved less the definition of federal power than the Court-enforced dormant Foreign Commerce Clause. Brown involved a Maryland license required of importers of goods from abroad. Chief Justice John Marshall sustained challenges to the law based both on the ban on state import duties in Article I, Section 10, and as an interference with foreign commerce. Marshall’s opinion stated that while goods from abroad were still in their “original packet,” they could not be taxed by a state. Marshall’s implication that the original packet doctrine applied to goods imported from sister states as well was explicitly rejected in 1869 in Woodruff v. Parham, the Court ruling that a local tax on all goods that did not discriminate against commerce among the states was acceptable. The dormant foreign commerce power, like its domestic counterpart, both drew upon some cases involving foreign commerce, and continued to be invoked with similar results regarding state laws.

ARTICLE I, SECTION 8, CLAUSE 3
To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.

Since the great changes in the nation’s involvement in international affairs resulting from World War II and the extraordinary dangers of the Cold War, the Court has given more deference to the power over foreign commerce as well as sometimes joined it with a new implied foreign affairs power when state interests are involved. Zschernig v. Miller (1968) introduced this latter doctrine into federalism concerns. There, an Oregon inheritance law prohibiting aliens from inheriting property if their own country did not allow Americans the same right, a law aimed at Communist countries, was overturned by the Court as interfering in foreign affairs because it had “great potential for disruption or embarassment.” This decision had deep roots in cases such as Missouri v. Holland (1920), where Justice Oliver Wendell Holmes wrote in upholding a treaty protecting migratory birds from hunting, which Missouri argued was a power reserved to it, and that the Tenth Amendment had no bearing on foreign affairs. Another source of Zschernig was the Court’s ruling in 1936 in United States v. Curtiss-Wright Export Corp. on the need for unity with the president as the “sole organ” of the government in foreign affairs.

Following this general trend of elevating foreign affairs above domestic considerations, the Court’s criteria for federal preemption of state law include additional considerations than under the power over commerce among the states. The rules for evaluating state taxes affecting interstate commerce were set out in Complete Auto Transit, Inc. v. Brady (1977) and include “whether the tax is applied to an activity with a substantial nexus with the taxing state, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the State.” In Japan Line, Ltd. v. Los Angeles County (1979), however, the Court applied these and added two more to overturn a local tax on Japanese shipping containers. The court held regarding foreign commerce that this tax might lead to double taxation if Japan also taxed the containers and that it would also disrupt the need for national uniformity in foreign commerce. To be sure, in Barclay’s Bank PLC v. Franchise Tax Board (1994) the Supreme Court rejected a challenge to California’s method for allocating, for tax purposes, the income earned by multinational corporations. Although California’s allocation formula differed from that used by most other jurisdictions, California applied the same method to all corporations, foreign and domestic. The Court held that even though it placed incidental burdens on foreign commerce, the state statute did not discriminate against foreign commerce. However, the Court did ask whether the California statute impaired the federal government’s ability to speak with “one voice” in foreign affairs.

The Court will uphold preemption outside of tax if Congress expresses an intent to preempt, if an intent to occupy a field can be implied, or if state law conflicts with federal. Pacific Gas & Elec. Co. v. State Energy Resources Conservation & Development Comm’n (1983). The Court found conflict with the implied foreign affairs power to preempt a state law in Crosby v. National Foreign Trade Council (2000). Here, the same Court that a few years earlier divided over narrowing the domestic commerce power in Lopez unanimously avoided the federalism issues that had motivated Lopez when businesses challenged a Massachusetts law prohibiting the state from purchasing goods or services from companies doing business in Myanmar (Burma), reflecting widespread disapproval of the despotic regime there. Later, Congress passed a law empowering the president to prevent American investment in Myanmar and to try to secure better treatment of human rights. Though this law was passed in part under the power to regulate foreign commerce, the Court framed the issue as one of foreign policy, and struck down the Massachusetts law because it was an “obstacle” to the president’s ability to “speak for the United States” in the conduct of foreign policy.

Potential challenges for federalism are presented by multilateral trade agreements such as the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO) passed under the foreign commerce power. These agreements subject state laws to a wide range of international standards and sanctions, such as the Agreement on Government Procurement that was partly at issue in Crosby, and the threat made by the European Union in 2003 to target the products of individual states after winning a dispute before the WTO over President Bush’s steel tariffs. Though the framers intended to protect states by requiring that major agreements with other countries be approved by two-thirds of the Senate as treaties, not by congressional majority under the power over foreign commerce, the loss of this distinction has been accepted. In general, the power to regulate foreign commerce today is not subject to the same federalistic limits as the power over commerce among the states.

BIBLIOGRAPHY: Louis Henkin, Foreign Affairs and the Constitution, 2nd ed. (Oxford: Clarendon Press, 1996); Peter J. Spiro, “The Role of the States in Foreign Affairs: Foreign Relations Federalism,” University Colorado Law Review 70 (1999): 1223; and Kathleen M. Sullivan and Gerald Gunther, Constitutional Law, 14th ed. (New York: Foundation Press, 2001).

Conrad J. Weiler Jr.

SEE ALSO: Commerce with the Indian Tribes; Crosby v. National Foreign Trade Council; Missouri v. Holland; Preemption