State Divestiture Law Threatened : U.S. Senate’s Weaker S. Africa Bill Could Preempt It, Experts Say

California’s landmark law mandating the divestiture of stock in companies operating in South Africa could be repealed by legislation recently passed by the Senate, congressional legal experts said Tuesday.

While some lawmakers, including Sen. Alan Cranston (D-Calif.), claim that Congress constitutionally cannot dictate state investment policies, the measure passed by the Senate on Aug. 15 is weaker than the California law and is intended by its authors to preempt all state and local laws directed at the system of apartheid in South Africa.

If Congress enacts the Senate bill over a threatened presidential veto, as expected, the issue of conflicting state and local laws is expected to be tested in the courts by opponents of these divestiture laws. “We’re going to make a lot of lawyers rich off this statute,” a Senate aide said.

Other Local Laws

At the same time, congressional sources predicted that the threat of a legal challenge under federal law would halt the current wave of anti-apartheid measures being passed across the country. According to the American Committee on Africa, California is one of 19 states and 62 municipalities that have passed some law designed to express opposition to racial discrimination in South Africa.

The California measure, which passed the Legislature on Aug. 27 and is expected to be signed into law shortly by Gov. George Deukmejian, requires the sale of up to $8.3 billion in state pension fund investments and clears the way for the University of California to proceed with its own $3.1-billion divestiture plan. The U.S. Senate-passed bill halts new investment in firms that do business with South Africa but falls short of requiring total divestiture.

Although no provision of the Senate-passed bill expressly outlaws actions by states and municipalities, legal advisers employed by the Senate Foreign Relations Committee predicted that the courts would rule against the California law based on legal precedent and legislative history. They argued also that the federal law would supersede divestiture decisions by the UC Board of Regents and the Los Angeles City Council.

Court Rulings

According to Senate legal experts, who declined to be identified, the courts have frequently ruled that federal law preempts state and local statutes in the field of foreign policy. In legal language, the law passed by Congress “occupies the field”--crowding out state actions.

The Congressional Record shows that shortly before the Senate bill passed by a vote of 84 to 14, Foreign Relations Committee Chairman Richard G. Lugar (R-Ind.) made this statement on the floor:

“Does the bill in front of us occupy the field with regard to U.S. law on apartheid and thereby supersede or preempt all state and local laws on the subject? The answer to the question for the moment is it does. . . . We cannot have individual states and cities establishing their own foreign policies.”

To bolster his argument, Lugar quoted from the Federalist Papers: “If we are to be one nation in any respect, it clearly ought to be in respect to other nations.”

Lugar’s argument succeeded in defeating a proposed amendment by Sen. Alfonse M. D’Amato (R-N.Y.) designed to preserve a New York City statute that restricts contracts with firms that do business with South Africa. Committee legal experts view the 64-35 vote against the D’Amato amendment as further evidence of the Senate’s legislative intent to preempt state and local statutes.

A House-passed bill requiring complete divestiture also was defeated by the Senate. No amendment was offered in the Senate to preserve state laws like the California statute.

In addition, committee advisers noted that the Senate bill is entitled “Comprehensive Anti-Apartheid Act of 1986” and that its stated purpose “is to set forth a comprehensive and complete framework to guide the efforts of the United States” in dealing with South Africa.

“Complete and comprehensive means there ain’t room for state and local legislation,” one Senate committee aide said.

Different Opinion

To the contrary, Cranston and other supporters of the California law argued that states should have the right to determine their investment policies without the interference of Congress. Cranston adviser Gerald Warburg said that Lugar was discouraged from offering an amendment to the Senate bill expressly outlawing competing state and local statutes because such a provision would have been defeated.

Deukmejian’s office in Sacramento declined to take sides in the controversy. Press Secretary Kevin Brett said state attorneys still are studying the Senate bill.

Rep. Irving Stolberg, the Democratic leader of the Connecticut House and president-elect of the National Conference of State Legislatures, predicted that a legal challenge to the California law based on the Senate bill would fail. “The states are not making foreign policy,” he said. “What they are doing is determining how to invest their money.”

“I don’t know to what extent a state can be told what it must own,” said Ira H. Goldman, counsel for Sen. Pete Wilson (R-Calif.). “It seems to me if Congress had intended to preempt state law, it would have said so.”

House Democrats

In the House, Robert B. Bauer, an aide to California Rep. Ronald V. Dellums (D-Oakland), said supporters of the California divestiture laws hope to iron out the matter before the House Democratic leadership decides whether to agree to the Senate bill. Earlier this year, the House had passed its own much tougher bill imposing sanctions on South Africa. Senate leaders are hopeful that the House will endorse the Senate legislation, thus avoiding reconciliation of the two bills in conference.

Congressional sources noted that even though many states and municipalities have passed anti-apartheid legislation, none of them except New York City made any effort to protect their statutes when the Senate was considering legislation.

“The dirty little secret is that many state and local officials want the federal government to preempt their laws,” a Senate aide said.

Cranston disagreed. “The only reason that the federal government has moved so far, so fast on this issue is because of the activities of the state and local governments,” he said. “Washington is responding to state and local pressure.”