The dormant foreign affairs pre-emption doctrine in the US and the EU
According to the American doctrine of foreign affairs pre-emption, in a federation the conduct of foreign affairs must be reserved for the federal government. If member states are allowed to pursue their own international agendas, it can embarrass the union and prevent it from speaking with one voice and from acting effectively on the international stage. Hence, member states should not only refrain from contradicting the federal government in international relations, but must not take any individual action in foreign affairs—even if the federal government remains silent on a particular issue of foreign policy. This negative aspect of the doctrine of foreign affairs pre-emption is called the “dormant foreign affairs pre-emption doctrine.”
Some examples of how the doctrine operates are found in Zschernig v. Miller, 389 U.S. 429 (1968), and Crosby v. National Foreign Trade Council, 530 U.S. 363 (2000). In Zschernig the Supreme Court of the United States struck down a law passed by the state of Oregon which restricted the right of foreign citizens to inherit property in the state when their home countries did not ensure reciprocity. In Crosby, a law passed by the state of Massachusetts barring state agencies from purchasing goods or services from companies doing business with Burma (now Myanmar) was held to be pre-empted under the same doctrine. According to the Supreme Court, it was for the federal government to decide whether to restrict the inheritance rights of foreigners from non-reciprocating countries, or to decide whether to impose sanctions on Burma or any other foreign country, and what restrictions to impose on companies doing business with such foreign countries.
It is useful to have in mind the American cases interpreting the US doctrine of dormant foreign affairs pre-emption when reading the now notorious judgment of the Court of Justice of the European Union in C-652/22, Kolin Inşaat Turizm Sanayi v Ticaret.
The European Union is obviously not a federal state. But in matters of commerce, it is as close to a federation as an association of states can be. Hence, in the EU, as in a federal state, matters of foreign commerce are reserved for the EU itself. And the activity of individual EU member states in this area is pre-empted—even if the EU has not yet legislated on a particular matter. This is what the Court of Justice held in Kolin. But it went further than that.
In Kolin a Turkish contractor was bidding for public works in Croatia (an EU member state). It complained to the local court that it was not treated equally by the contracting authority. The court referred the question of the interpretation of the relevant principle of EU public procurement law to the EU’s top court. Surprisingly, the Court of Justice refused to answer. It explained that the principle of EU public procurement law in question did not apply, because it only protected EU economic operators. If third countries wanted similar protection in the EU for their citizens, they had to reach international agreements to that effect with the EU. According to the Court of Justice, it was improper for EU member states to extend to third-country operators, via the member states’ national laws, the protection envisaged by EU law for EU citizens. In the absence of EU law regulating the treatment of third-country operators in government purchasing procedures, the Court of Justice held, it should be left to each contracting authority to decide whether to invite third-country operators to tender for public contracts, and how to treat them.
The following observations are based on a comparison between Kolin and the US doctrine of dormant foreign affairs pre-emption.
First, Kolin is concerned specifically with EU public procurement law. The procurement directives were adopted by the EU to facilitate cooperation between European states and to enable the free flow of goods and services between EU member states in the area of government purchasing. Thus, as the court essentially reasoned in Kolin, extending the reach of this law to operators from third countries, through national law, would amount to an act of international economic integration, i.e. an act of foreign economic policymaking, which would be improper for any individual member state to take on its own. Still, member states are perfectly capable, and indeed obliged, to ensure non-discrimination, to prevent arbitrariness, and to provide for due process in the area of government purchasing—as a matter of their own domestic policy, for the sake of the rights of their citizens, including the citizens’ right to good administration and efficient public spending.
Second, distinguishing between foreign and domestic affairs in today’s world is an almost impossible task. So, while it might still make sense to require that member states not pass legislation that unduly restricts foreign commerce, requiring them not to pass legislation that enables such commerce (as the Court of Justice essentially did in Kolin) does not make sense. Almost any good domestic legislation can be said to facilitate trade, including international trade. If the EU wishes to restrict international exchange, as it may want to do in pursuit of a foreign commercial policy goal, it should simply pass proper restrictive laws (and face constitutional scrutiny for doing so). It should not create ambiguity and uncertainty by merely reserving the right to do so in the future and, until then, delegating discretionary decision-making power in this area to obscure state agencies and state-owned companies. Notably, the cases where the US Supreme Court struck down state laws under the doctrine of dormant foreign affairs pre-emption concerned legislation that unduly restricted international exchange or discriminated against foreigners. It never occurred to the court in Zschernig, for example, that allowing foreign citizens to inherit property in Oregon and treating them equally could just as well constitute a pre-empted act of foreign policy, just as the law discriminating against foreigners and preventing them from inheriting property in the state did. The US top court considered restrictions and discrimination as potentially pre-empted, implying that freedom and equal treatment by the state are the natural, default position.
Third, foreign affairs—foreign commerce included—is a special area, where substantive judicial review of the actions of governments and their agencies has always been difficult, if possible at all. That is why it has always been vital in democracies that foreign policy at least be conducted transparently, by officials who are democratically accountable. But in the EU, the Court of Justice left the conduct of this aspect of foreign affairs to the discretionary and obscure decision-making processes of specific contracting authorities. Essentially, under Kolin, unless a third country enters into an international agreement in this area with the EU, it cannot know whether its citizens will be admitted to public tenders in the EU, and if so, how they will be treated. This is left to the discretion of each contracting authority. This “strategic ambiguity” is a peculiar way of conducting foreign economic policy. It also displays an awesome belief in the purity of the intentions guiding contracting authorities—state-owned companies for the most part—as they exercise their newly discovered discretion and largely unfettered buyer power. The US Supreme Court apparently does not share that idealism. According to its reading of the dormant pre-emption doctrine, unless the federal government imposes restrictions, individuals—including foreigners—are to be free to act and are to be treated equally by the state and its agencies. The more interventionist European approach should certainly accelerate the process described in America as “normalisation” of foreign affairs, i.e. the process of subjecting the conduct of the state and its agencies in the area of foreign affairs, and in particular in the area of foreign commerce, to greater legal scrutiny by the courts. Especially now, when we have gotten used to living in a globalised world, and are thus more sensitive to the restrictions and deprivations stemming from its sudden unravelling.
Finally, as stated at the outset, unlike the US, the EU is not a federal state. In some areas—most notably defence and national security—it is more akin to an international organisation. Member states retain full sovereignty in those areas. Hence, there is no dormant foreign affairs pre-emption in the EU, and the laws in those areas are adopted according to entirely different rules. It will be an enormous challenge for the law to mark out the boundary between commerce and national security. This is especially true in a time of renewed international tensions and “national security creep,” when “economic security is national security” and when “cybersecurity” or other “national security” arguments are being used to justify vesting governments with ever more broad, far-reaching and arbitrary powers. This will constitute a threat to individual liberties and the rule of law, but will also pose a great challenge to the EU’s constitutional setup.
Stanisław Drozd, adwokat, Dispute Resolution & Arbitration practice, Wardyński & Partners
