Amicus Curiae Brief — Barclays Bank PLC v. Franchise Tax Board of California

No. 92-212

IN THE

Supreme Court of the United States

OCTOBER TERM, 1992

BARCLAYS BANK PLC,

Petitioner,

V.

FRANCHISE TAX BOARD,

Respondent.

On Petition for Writ of Certiorari to the

Supreme Court of the State of California

BRIEF FOR

NATIONAL FOREIGN TRADE COUNCIL, INC.,,

NATIONAL ASSOCIATION OF MANUFACTURERS,

CHAMBER OF COMMERCE OF THE UNITED STATES

OF AMERICA, UNITED STATES COUNCIL FOR

INTERNATIONAL BUSINESS, EMERGENCY

COMMITTEE FOR AMERICAN TRADE,

AMERICAN PETROLEUM INSTITUTE,

CHEMICAL MANUFACTURERS ASSOCIATION,

FINANCIAL EXECUTIVES INSTITUTE, AND

CALIFORNIA CHAMBER OF COMMERCE

AS AMICI CURIAE IN SUPPORT OF PETITIONER

MARK L. EVANS

MILLER & CHEVALIER, Chartered

Metropolitan Square

655 Fifteenth Street, N.W.

Washington, D.C. 20005

(202) 626-5800

_— ———— ---- —

WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

TABLE OF CONTENTS

ARGUMENT ...._........... RRR aN Rg ee aa sitet ect

I.

Il.

CALIFORNIA’S WORLDWIDE COMBINED

REPORTING METHOD OF APPORTIONED

TAXATION, AS APPLIED TO FOREIGN-

OWNED MULTINATIONAL BUSINESSES,

VIOLATES THE FOREIGN COMMERCE

a NT ERE LEE 2 aD

A. California’s Worldwide Unitary System Im-

pairs Federal Uniformity and Prevents the

Federal Government from Speaking with

One Voice in Its Commercial Relations with

Foreign Governments .

B. Congressional Silence Cannot Validate an

Otherwise Unconstitutional State Statute.

THE ISSUE HAS ENORMOUS PRACTICAL

IMPORTANCE FOR THE U.S. ECONOMY

AND WARRANTS URGENT RESOLUTION

BP I Io ereiseciens tna densen traces, ancanannendiationes

SMM th tis cstreg bags couasaacaainvabiscetiioes unc cuuevise tarts

APPENDIX ..............

10

13

15

la

ii

TABLE OF AUTHORITIES

CASES Page

Brown v. Maryland, 25 U.S. (12 Wheat.) 419

CRIT) rassisiesisis:dscssacceconaSies tanec alten ee 9

Chy Lung v. Freeman, 92 U.S. 275 (1876) .......... ne 9

Container Corp. v. Franchise Tax Board, 463 U.S.

350 (CIOGB) once 2, 5-6, 10, 18

Japan Line, Ltd. v. County of Los Angeles, 441

US. 408 CX0TB) occ eee 5, 9, 10

Kraft General Foods, Inc. v. lowa Dep’t of Reve-

nue & Finance, 112 S. Ct. 2365 (1992) -.....00........ 9

Maine v. Taylor, 477 U.S. 131 (1986) —..00000000000..... 11

Michelin Tire Corp. v. Wages, 423 U.S. 276

§ |. , | Bnet once. lene 2 aos ors Pn te 5

Prudential Insurance Co. v. Benjamin, 328 U.S. 408

CIGD av ncennsinckcincsnecaenccecenses ee eee 10

South-Central Timber Development, Inc. v. Wun-

nicke, 467 0.5. Ge CEG) ccna eres 11

Sporhase v. Nebraska ex rel. Douglas, 458 U.S. 941

CRED a vnnsin cavbcccisuncoereuce manne an ete aeras 11

Wardair Canada Inc. v. Florida Dep’t of Revenue,

OTT U.S. 1 CRBS sacctios eee 3-4, 11-13

Wyoming v. Oklahoma, 112 S. Ct. 789 (1992) _...... 10-11

CONSTITUTIONAL PROVISION

US. Comat, emt. 1, BGs ea re ae 5,9

MISCELLANEOUS

1 J. Elliot, Debates on the Federal Constitution

CRG GG. TBS E vicccccctenceaete eee 9

The Federalist No. 11 (J. Cooke OU RED vacncicesceeans 9

The Federalist No. 42 (J. Cooke ed., 1961) 0000.00.00... 9

IN THE

Supreme Court of the United States

OCTOBER TERM, 1992

No. 92-212

BARCLAYS BANK PLC,

‘ Petitioner,

FRANCHISE TAX BOARD,

Respondent.

On Petition for Writ of Certiorari to the

Supreme Court of the State of California

BRIEF FOR

NATIONAL FOREIGN TRADE COUNCIL, INC.,

NATIONAL ASSOCIATION OF MANUFACTURERS,

CHAMBER OF COMMERCE OF THE UNITED STATES

OF AMERICA, UNITED STATES COUNCIL FOR

INTERNATIONAL BUSINESS, EMERGENCY

COMMITTEE FOR AMERICAN TRADE,

AMERICAN PETROLEUM INSTITUTE,

CHEMICAL MANUFACTURERS ASSOCIATION,

FINANCIAL EXECUTIVES INSTITUTE, AND

CALIFORNIA CHAMBER OF COMMERCE

AS AMICI CURIAE IN SUPPORT OF PETITIONER

INTEREST OF THE AMICI CURIAE

The amici curiae are organizations representing a wide

spectrum of U.S. business interests, including both large

and small, domestic and multinational, and U.S.- and

foreign-owned companies. All share a strong commit-

ment to principles of domestic and international free

trade. Each is concerned that California’s taxation of

2

foreign-owned multinational businesses under a_ world-

wide combined reporting method impairs U.S. foreign

economic relations, threatens to incite destructive retalia-

tory measures by foreign governments, and endangers

U.S. business and the U.S. economy. International eco-

nomic tensions, and especially the threat of foreign re-

prisals, artificially impede U.S. trade and restrict the

flow of capital in global markets, dampening both foreign

investment in the United States and U.S. investment

abroad. Amici believe that the question presented by the

petition for certiorari in this case requires urgent resolu-

tion by this Court to avert these undesirable consequences.

Additional information about each of the amici curiae

is set forth in the Appendix hereto.

Counsel for the parties have consented to the filing

of this brief in letters filed with the Clerk of the Court.

SUMMARY OF ARGUMENT-

This case squarely presents the question expressly re-

served by this Court in Container Corp. v. Franchise Tax

Board, 463 U.S. 159 (1983): whether the Foreign Com-

merce Clause permits California to apply its worldwide

combined reporting method of apportioned income taxa-

tion to a foreign-owned unitary business. The Court in

Container upheld California’s system as applied to a

U.S.-owned company. Its analysis there requires a differ-

ent result here.

The Court in Container concluded that California’s

worldwide unitary tax method did not seriously threaten

the ability of the United States to speak with “one voice”

in conducting foreign affairs. In the absence of advice

from the Executive Branch, whose province comprises

the nuances of foreign policy, the Court saw little objec-

tive reason to suppose that a tax levied on a domestically

based multinational business would ‘“‘justifiably lead to

significant foreign retaliation.” 463 U.S. at 194.

3

Here, by contrast, the Secretary of State advised the

Governor of California that the state’s worldwide unitary

tax method “has become a source of conflict with foreign

states,” “has seriously complicated our economic relations

with many of our closest allies,’ has triggered formal

protests “from virtually every developed country in the

world,” and “greatly impair|s] the ability of the federal

government to carry out its tax and investment policy in

the international arena.” Pet. App. F45-46. The United

States, appearing as amicus curiae before the California

Supreme Court, advised that the state’s taxing method

“is in conflict with the internationally accepted standard

and policies,” “has caused serious disputes and difficulties

for the United States in the conduct of foreign affairs,”

and “constitutes an impermissible interference in the

conduct of the nation’s fereign affairs.” Jd. at F18,

F35-36. Moreover, as the California Court of Appeal

stated, “we do not have to speculate on whether the tax-

ation method at issue may offend our foreign trading

partners and lead them to retaliate against the nation as

a whole. They are offended; they have retaliated.” Td.

at B27 ‘citation omitted).

Differences of principle as well as practicality explain

why the foreign reaction is so much stronger when Cali-

fornia upplies its tax to a foreign-based company. First,

it is a fundamental precept of international law, and an

underlying theme of Container, that a nation may tax

its own domiciliaries as it chooses. The balance of in-

terests shifts when one nation seeks to tax the domiciliary

of another in a manner at odds with international norms.

Second the record here demonstrates that the compliance

burdens for foreign companies far exceed those for do-

mestic companies, adding a discriminatory gloss.to a tax

system that already offends foreign nations.

The California Supreme Court refused to weigh these

considerations despite their obvious importance to the

analysis prescribed by Conteiner. In its view, this Court’s

4

decision in Wardair Canada Inc. v. Florida Dep’t of Rev-

enue, 477 U.S. 1 (1986), “reoriented” and “reduced the

scope” of the dormant Foreign Commerce Clause doctrine

(Pet. App. A19). allowing courts to bypass the Container

analysis if they can infer from Congressional silence a

federal decision to acquiesce in a particular form of state

taxation. Wardair did no such thing. On the contrary,

it held that Florida could lawfully tax sales of aviation

fuel to tu.eign as well as domestic airlines because Con-

gress had “affirmatively acted |on the subject], rather

than remained silent.” 477 U.S. at 9 (emphasis added).

Nothing in Werdair or any other decision of this Court

supports the California Supreme Court’s novel theory that

Congressional viaction can validate a state statute that

otherwise would violate the Commerce Clause.

Plenary review by this Court is urgently needed to

stave off a potentially destructive cycle of international

retaliation that would interfere with foreign trade, dis-

rupt international flows of capital and technology, and

harm U.S. commercial interests abroad. The interna-

tional community has closely watched this case and has

deferred implementation of retaliatory measures pending

the outcome in this Court. California’s tax system is a

current and significant irritant in our foreign commercial

relations, and delay in addressing its lawfulness risks

exhausting the patience of our trading partners.

5

ARGUMENT

I. CALIFORNIA’S WORLDWIDE COMBINED RE-

PORTING METHOD OF APPORTIONED TAXA-

TION, AS APPLIED TO FOREIGN-OWNED MULTI-

NATIONAL BUSINESSES, VIOLATES THE FOR-

EIGN COMMERCE CLAUSE

A. California’s Worldwide Unitary System Impairs

Federal Uniformity and Prevents the Federal Gov-

ernment from Speaking with One Voice in Its Com-

mercial Relations with Foreign Governments

In granting to Congress the “Power... To regulate

Commerce with foreign Nations,’ U.S. Const. art. I, § 8,

cl. 3, the Framers recognized that ‘| f|oreign commerce is

preeminently a matter of national concern.” Japan Line,

Ltd. v. County of Los Angeles, 441 U.S. 434, 448 (1979).

This Court accordingly has held that a state tax is uncon-

stitutional under the Foreign Commerce Clause if it “pre-

vents the Federal Government from ‘speaking with one

voice when regulating commercial relations with foreign

governments.” /d. at 451 (quoting Michelin Tire Corp.

v. Wages, 423 U.S. 276, 285 (1976) ).

In Container, the Court upheld California’s worldwide

combined reporting method of apportioned income taxa-

tion as applied to a U.S.-owned multinational unitary

business.' The Court expressly reserved the question

whether the California system would be lawful as applied

to “domestic corporations with foreign parents or foreign

corporations with either foreign parents or foreign sub-

1 Under the ‘“‘worldwide combined reporting method,” a taxpayer

_aggregates the income of all the entities that compose its unitary

business throughout the world and apportions a share of the total

to California under the familiar three-factor formula of property,

payroll, and sales. Under the ‘“arm’s-length/separate accounting

method,” by contrast, each corporation is treated as a separate

entity taxable only by the jurisdictions in which it operates and

only on its own income; transfers between affiliated entities are

deemed to occur at arm’s length and must be reported on that basis

in determining taxable income.

6

sidiaries.”” 463 U.S. at 189 n.26. This case presents pre-

cisely that question.

The record here leaves little room for doubt that Cali-

fornia’s worldwide combined reporting method, as applied

to foreign-owned businesses, offends the Foreign Com-

merce Clause. It is one thing for a sovereign nation to

tax (or allow a subnational authority to tax) its own cor-

porate Gomiciliaries under a system at odds with interna-

tional norms. it is quite another ‘and a far more pro-

vocative! thing for that nation to tax foreign businesses

under an internationally disfavored system, all the more

so if the taxing nation has been the principal moving

force in establishing the prevailing international stand-

ards for the taxation of multinational businesses. That

is this case.

The trial court found that the arm’s-length ‘separate

accounting method of taxation “is universally used and

favored” while worldwide combined reporting “is every-

where disliked.” Pet. App. C21; see also id. at A8 n.6.

As the Court of Appeal observed, “no other country in the

world uses | worldwide combined reporting|.” /d. at B23.

California’s departure from the international norm and

its embrace of an abberational method excites particularly

strong reactions from the international community be-

cause of “the critical role the United States has played in

attempting to construct a coherent and nondiscriminatory

tax policy for all nations based on the {[arm’s-length|

method.” Jd. at B26. It is of no comfort to other nations

that the tax at issue is imposed by a state rather than

the federal government. As petitioner notes (Pet. 26), if

California were a separate nation, its economy would

rank seventh or eighth in the world. It is no wonder that

its tax policies have global reverberations.

The worldwide combined reporting method imposes far

more costly compliance burdens on foreign-owned than on

U.S.-owned unitary groups. As the Secretary of State ex-

plained in a letter to the Governor of California, “|t]he

7

information required by the tax authorities of the juris-

diction practicing a worldwide unitary method of taxa-

tion may not be readily available to the enterprise and

. will require costly conversion into a form usable by

the jurisdiction’s tax authority.” Pet. App. F45-46. In-

deed, the trial court found that “literal compliance .. . is

impossible, because no foreign multi-national maintains

appropriate accounting books.” Jd. at C27. The cost to

reconstruct the necessary information for past periods

would be ‘prohibitive’; the cost to set up and maintain

systems to obtain the information for future periods

would be so “huge” that even the state conceded the bur-

den would be unreasonable. /d. at C27-28. The California

Court of Appeal aptly characterized the compliance prob-

lem as an “administrative nightmare for the foreign-

based multinational.” /d. at B25.

Not surprisingly, the worldwide combined reporting

method of state taxation has provoked an extraordinary

degree of ‘international furor” (id. at C24}, bringing the

United States into unprecedented economic conflict with

its trading partners. The Secretary of State advised the

Governor of Calfornia that the United States “thas re-

ceived diplomatic notes complaining about state use of

the worldwide unitary method of taxation from virtually

every developed country in the world.” Jd. at F46. The

record reflects that ‘‘/t|hese protests have been sharp.

frequent, and incessant over a number of years.” Jd. at

B22.

The threat of international economic retaliation against

United States interests is very real. Indeed, the United

Kingdom, frustrated by this nation’s inability to elimi-

nate worldwide combined taxing methods, adopted retalia-

tory legislation in 1985. It withdraws from U.S. parent

corporations operating in worldwide combination states

certain tax benefits relating to the payment of dividends

by their U.K. subsidiaries. /d. at B22-23. Although the

United Kingdom has thus far deferred implementation of

the legislation while awaiting the outcome of litigation in

ra

the U.S. courts, concerns about possible retroactive penal-

ties “impelled many American companies into preimple-

mentation compliance” ‘id, at B23), with the result that

some companies altered their normal policy for the re-

patriation of dividends from U.K. subsidiaries and de-

clined to claim benefits properly available to them under

the applicable treaty. /d. at F46,

U.S. trading partners have expressed their displeasure

in other ways as well. For example, some nations have

cancelled trade missions to states that applied worldwide

combined reporting methods to foreign-based multina-

tionals, /d. at B23. According to the Secretary of State,

tensions over this issue have “seriously complicated our

economic relations with many of our closest allies” and

have been “partially responsible for stalling some bilateral

tax treaty negotiations.” /d, at F46. In his view, “|¢]on-

Unued state taxation on a worldwide unitary basis will

greatly impair the ability of the federal government to

carry out its tax and investment policy in the interna-

tional arena and to manage the sensitive issue of inter-

national double taxation.” /d.

In sum, in the words of the Secretary of State, “world-

Wide unitary taxation is adversely affecting the United

States’ foreign economic relations.” /d. The United States.

appearing as amicus curiae, accordingly advised the Cal-

ifornia Supreme Court that it considers the state’s tax-

ing method “an egregious interference with the Federal

Executive’s conduct of foreign affairs.” Jd. at F26 n.123.

While pursuing its tax policy according to its own pa-

rochial interests, California has thus hobbled the federal

government in its pursuit of important foreign economic

policy goals and has placed the whole nation at risk of

international commercial retaliation. The Foreign Com-

merce Clause was meant to foreclose just such inappropri-

ate state intrusions into international affairs.

The Articles of Confederation had restricted the power

of the national government .and had given the states ple-

9

nary authority over foreign commerce. That experiment

failed, see Drown «. Maryland, 25 U.S. (12 Wheat.) 419

445-46 (1827), and the Constitution marked a dramatic

reversal. In place of the states’ “partial and separate

reguiations,” 1 J. Elliott, Debates on the Federal Consti-

tution 114 (2d ed, 1888), the Convention of 1787 sought

a “vigorous national government ... directed to a com-

mon interest.” The Federalist No. 11, at 69 (Hamilton)

(J. Cooke ed., 1961). The Framers believed that, “ji]f

we are to be one nation in any respect, it clearly ought

to be in respect to other nations.” The Federalist No. 42,

at 279 (Madison) ‘J. Cooke ed., 1961). The Foreign

Commerce Clause accordingly reassigned from the states

to Congress the power “!t]o regulate Commerce with for-

eign Nations.”

The Framers recognized that an individual state, acting

in furtherance of its own commercial interests, might en-

act legislation that would incite foreign reprisals. Even

though provoked by a single state’s tax measure, such

commercial retaliation “of necessity would be directed at

American |interests| in general, not just that of the tax-

ing State, so that the Nation as a whole would suffer.”

Japan Line, 441 U.S. at 450. See also Kraft General

Foods, Tne. ve, Jowe De pe of Re vewue & Finance, 112 S.

Ct. 2365, 2370 (1992). The Foreign Commerce Clause

thus sought to ensure that measures bearing a high risk

of international commercial discord would lie within the

sole discretion of the national government, acting in the

collective self-interest of all the states, rather than within

the power of each individual state acting by its own

lights. “If it be otherwise, a single State can, at her

pleasure, embroil us in disastrous quarrels with other na-

tions.” Chy Luny v. Freeman, 92 U.S. 275, 280 (1876).

That is what California has done in the case of its

worldwide unitary method of taxation, and that is

why the tax must be struck down. As the trial court

found, “|t|his case factually demonstrates as extreme an

example of predictable international consequences stem-

10

ming from a local tax as can be conceived.” Pet. App.

C23. This Court’s words in /apan Line apply here with

full force: “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.”

141 U.s. at 403.

B. Congressional Silence Cannot Validate an Otherwise

Unconstitutional State Statute

The California Supreme Court did not deny that dor-

mant Foreign Commerce Clause considerations would

require invalidation of the state’s tax method. In fact,

the court acknowledged that Barclays’ argument might

have carried force had it been presented “in the imme-

diate aftermath of the Coniainer decision.” Pet. App.

Al19. The court held, however, that this Court’s decisions

after Container had “reoriented” (id.) dormant For-

eign Commerce Clause doctrine, making resort to tradi-

tional considerations inappropriate (and apparently ren-

dering Confatner inoperative! wherever Congressional

inaction implies a legislative intention to permit the state

taxation at issue. As the California Supreme Court put

it, this Court’s recent jurisprudence “reflects a diminu-

tion in the reach of dormant foreign commerce clause

analysis in favor of an expanded recognition that, under

circumscribed conditions, governmental silence may con-

stitute a ratification of state taxation of foreign com-

merce, rendering a dormant analysis inapposite.”’ /d. at

A4 ‘emphasis added).

This novel theory rests on a dangerous misreading of

this Court’s precedents. It is true, of course, that when

Congress has “taken affirmative action” expressiy con-

senting to a form of state taxation, the courts are not

free to invalidate the tax under the dormant Commerce

Clause. Prudential Insurance Co. v. Benjamin, 328 U.S.

408, 421 (1946). It is equally true, however, that only

a clear expression of Congressional consent will suffice

to validate an otherwise unconstitutional state law. As

1]

the Court reiterated only last Term, “Congress must

manifest its uwwambiguous intent before a federal statute

will be read to permit or approve ... a violation of the

Commerce Clause.” Wyoming v. Oklahoma, 112 S. Ct.

789, 802 (1992) (emphasis added). See also Maine v.

Taylor, 477 U.S. 131, 138-39 (1986): Sporhase v. Ne-

braska ex rel. Douglas, 458 U.S. 941, 960 (1982). Indeed,

“{t{he need for affirmative approval is heightened’? when

a state’s policy “has substantial ramifications beyond the

Nation’s borders”; in those circumstances, “{t]he need

for a consistent and coherent foreign policy . . . enhances

the necessity that congressional authorization not be

lightly implied.’”’ South-Central Timber Development, Inc.

v. Wunnicke, 467 U.S. 82, 92 n.7 (1984).

The California Supreme Court identified no “affirma-

tive’ Congressional action authorizing the use of world-

wide combined 1eporting methods of taxation. Instead, it

relied primarily on the Senate’s narrow failure in 1978

to ratify a bilateral income tax convention that included a

prohibition against worldwide unitary taxation. Pet. App.

AZ7-31. As the Court of Appeal noted, however, the

Senate voted 49 to 32 to approve the convention, falling

only five votes short of the necessary 2:; majority. Jd. at

B20. Opposition to the relevant provision “was rooted

not in the substance of the article but in the procedural

wariness of addressing the problem through patchwork

treaties rather than through comprehensive legislation.”

/d, In these circumstances, the Senate’s ultimate approva

of the convention without the controversial restriction can

hardly be construed as an affirmative endorsement by that

body, much less by the entire Congress, of the state laws

to which the restriction was directed.

The California Supreme Court mistakenly believed that

this Court’s decision in Wardair Canada Inc. v. Florida

Dep't of Revenue, 477 U.S. 1 (1986), prescribed a “proto-

eol for identifying those kinds of governmental silences”

that imply federal ratification of a state’s power to impose

a challenged tax. Pet. App. A23. On the contrary, this

12

Court in Wardair emphasized that “we do not confrqnt

federal governmental silence’’ because “the Federal Gov-

ernment has affirmatively acted, rather than remained

silent.” 477 U.S. at 9 (emphasis added}. It also reaffirmed

the rule, overlooked by the California Supreme Court,

that when the federal government “has not affirmatively

acted, . . . it is the responsibility of the judiciary to

determine whether action taken by state or local authori-

ties unduly threatens the values the Commerce Clause

was intended to serve.” /d. at 7 (emphasis added).

The circumstances in Wardair make clear that the

California court’s mistake was not merely semantic. The

question was whether the Foreign Commerce Clause pre-

cluded Florida from applying to foreign airlines a sales

tax on aviation fuel purchased within the state. The

Federal Aviation Act, in a section entitled “State taxation

of air commerce,” expressly prohibited certain forms of

state taxation and expressly authorized others. Among

the authorized taxes were “sales or use taxes on the sale

of goods or services.” /d. at 6-7. That was enough for

Chief Justice Burger, who concluded in a_ concurring

opinion that “the Florida tax—even in the area of for-

eign air commerce—is expressly authorized by Congress.”

Id. at 17. The majority, however, thought it was “plausi-

ble that Congress never considered whether States should

be permitted to impose sales taxes on foreign, as opposed

to domestic, carriers.” /d. at 7. It therefore looked beyond

the statute for confirmation that the unqualified statutory

authorization embraced taxes on sales to foreign carriers

as well as domestic.

The Court did not have to look far. An international

convention to which the United States was a party “‘pre-

clude|d]| the imposition of local taxes on fuel only when

the fuel is ‘on board an aircraft... on arrival... and

retained on board on leaving’ a contracting party; it

[did] not prohibit taxation of fuel purchased in that

country.” Jd. at 10 (emphasis added). The convention

thus reflected an affirmative decision “curtailing and

13

limiting only some of the localities’ power to tax [sales

of aviation fuel], while implicitly preserving other aspects

of that authority.” Jd. Unlike this case, where Congress

has taken no affirmative action at all on the issue of

worldwide combined reporting, it was clear in Wardair

that “the Federal Government has not. remained silent”

but “has affirmatively decided to permit the States to

impose these sales taxes on aviation fuel.” Jd, at 12

(emphasis added).

The California court’s misguided holding that govern-

mental silence can ratify an otherwise unconstitutional

State taxing regime thus finds no Support in this Court’s

precedents. It is also unworkable, requiring courts to

distinguish between “species” of Congressional silence

that are constitutionally neutral and those that supposedly

are “eloquent.” Pet, App. A21, A39. This quixotic in-

quiry, which defies meaningful guidance or limitation, is

likely to produce capricious and inconsistent outcomes

incompatible with this Court’s traditional insistence upon

an explicit and unambiguous expression of Congressional

consent.

Il. THE ISSUE HAS ENORMOUS PRACTICAL IMPOR-

TANCE FOR THEUSS. ECONOMY AND WARRANTS

URGENT RESOLUTION BY THIS COURT

In the nearly 10 years since this Court’s decision in

Container, perhaps no other U.S. legal issue has been the

subject of more widespread and _ intense international

concern than the constitutionality of worldwide combined

taxation as applied to foreign-owned multinationals. The

international community, while expressing through diplo-

matic channels its strong objections to the practices of

California and other States, has for the most part de-

ferred adopting retaliatory measures in anticipation of

this Court’s resolution of the issue. A denial of review

at this stage, after many years of litigation in the Cali-

fornia courts and in the face of an adverse ruling by the

iia

14

highest court of the most significant worldwide unitary

state, would almost certainly be understood by foreign

governments as the final judicial word on the subject.

A number of our major trading partners have already

threatened economic reprisals against the United States

unless the worldwide unitary issue is resolved compatibly

with international norms. Allowing the California deci-

sion to stand could well provoke a cascade of international

retaliatory actions, the consequences of which for the

U.S. economy, for U.S.-owned foreign businesses, and

for the global economy as a whole are likely to be ex-

tremely damaging. At a minimum, government-imposed

economic countermeasures will almost certainly skew in-

ternational investment decisions, disrupting the flow of

foreign capital into the United States and reducing the

attractiveness of foreign investment for U.S. businesses.

If other nations were to follow the lead of the United

Kingdom, for example, it may become significantly more

costly for U.S. subsidiaries abroad to repatriate dividends

to their domestic parent corporations. That additional

cost would necessarily enter into any investment deter-

mination by a U.S. business, with the result that capital

is likely to be deployed in other than the most efficient

manner.

There is no reason to delay plenary consideration of the

constitutional issue. This case is unusually well postured

for review. The legal issue is squarely framed. The

record is exceptionally complete. All three courts below

have addressed the facts and the law at substantial length.

The Commerce Clause question can be answered defini-

tively only by this Court, and this case provides an ex-

cellent vehicle for resolving it.

15

CONCLUSION

The petition for writ of certiorari should be granted.

Respectfully submitted.

MARK L. Evans

MILLER & CHEVALIER. Chartered

Metropolitan Square

655 Fifteenth Street, N.W.

Washington, D.C. 20005

SEPTEMBER 1992 (202) 626-5800

APPENDIX

la

APPENDIX

This brief is submitted on behalf of the following

amici curiae:

National Foreign Trade Council, Inc.

The National Foreign Trade Council, established in

1914, consists of approximately 500 manufacturing com-

panies, financial institutions, and other firms with sub-

stantial international operations and interests. Its mem-

bers account for more than 60 percent of all U.S. non-

agricultural exports and 60 percent of all U.S. private

foreign investment. The NFTC’s purpose is to develop

policies designed to expand exports, protect U.S. foreign

investment, enhance the competitiveness of U.S. industry,

and promote and maintain a fair and equitable inter-

national trading system.

National Association of Manufacturers

The National Association of Manufacturers is a non-

profit voluntary business association consisting of more

than 12,000 manufacturing and related businesses operat-

ing in the United States and worldwide. NAM supports

a taxing system that encourages the competitiveness of

U.S. manufactured goods in domestic and foreign markets.

Chamber of Commerce of the United States of America

The U.S. Chamber of Commerce is the largest federa-

tion of business companies and associations in the world.

With substantial membership in each of ‘the 50 states,

the Chamber represents approximately 200,000 businesses

and organizations and serves as a major voice of the

American business community. It has a strong interest

in tax measures that impact on the competitiveness of

U.S. industry and on the U.S. economy.

2a

United States Council for International Business

The United States Council advances the global interests

of American business both at home and abroad. It is the

American affiliate of the International Chamber of Com-

merce, the Business and Industry Advisory Group to the

Organization for Economic Cooperation and Development,.

and the International Organization of Employers. The

Council. officially represents U.S. business positions in the

main intergovernmental bodies and in dealings with for-

eign business and foreign governments. Working with

its membership of about 300 corporations, law firms, and

associations, the Council addresses policy issues affecting

an increasingly globally oriented American business com-

munity. Its objective is to promote an open system of

world trade, finance, and investment.

Emergency Committee for American Trade

The Emergency Committee for American Trade is an

organization of the leaders of approximately 60 large

U.S. firms with extensive international business opera-

tions. Their annual worldwide sales total well over $1

trillion, and they employ more than five million workers.

ECAT’s mission is the advocacy of open international eco-

nomic policies that will expand international trade and

investment.

American Petroleum Institute

The American Petroleum Institute is a trade associa-

tion that represents approximately 300 companies involved

in all aspects of the oil and gas industry, including ex-

ploration, production, transportation, refining, and mar-

keting. Many of its members conduct extensive business

operations in foreign countries. API’s mission includes

promoting the interests of the petroleum industry in the

development of national policy conducive to a favorable

domestic and international business environment.

3a

Chemical Manufacturers Association

The Chemical Manufacturers Association is a non-profit

trade association whose member companies represent more

than 90 percent of the productive capacity for basie in-

dustrial chemicals in the United States. The U.S. chemi-

cal industry provides jobs for 1.1 million American work-

ers. In 1991, the chemical industry was the largest ex-

porting sector of the U.S. economy, with exports of $43

billion that produced a net trade surplus of $18.2 billion.

CMA and its members have a vita] interest in issues af-

fecting international trade and U.S. foreign economic re-

lations.

Financial Executives Institute

The Financial Executives Institute, founded in 1931,

is a professional association of 14,000 senior financial

executives representing over 8,000 major companies

throughout the United States and Canada. Through its

technical committees, FEI formulates positions on a va-

riety of tax, employee benefits, international trade, and

public policy issues of concern to corporate financial

executives.

California Chamber of Commerce

The California Chamber of Commerce represents 5,000

member companies, 160 member trade associations, more

than 400 affiliated local chambers of commerce, and a

statewide network of 168,000 smal] business owners. Its

members include firms of all sizes from every industry

throughout California. Among the Chamber’s missions js

to help member firms Stay competitive in the fast-chang-

ing global marketplace and to promote their interests in

matters affecting international trade.