DEFINITION OF A BUSINESS BARRIER

One authority has defined a trade barrier as "a statute, regulation, or practice which operates or tends to operate to the disadvantage of persons, products, or commodities coming from sister States, to the advantage of local residents or industries."5 I would modify this definition by changing the last clause so that the definition would read as follows: "A State, trade, or business barrier is a statute, regulation, or practice which operates or tends to operate to the disadvantage of persons, products, or commodities coming from sister States to the apparent or temporary advantage of a very limited number of local residents and industries, but in the long run to the disadvantage of the people of the State originating the measure."

FALLACY OF SELF-SUFFICIENCY

No State can be sufficient unto itself economically. Even the United States as a whole, which comes about as close as any country in the world to being self-sufficient, falls very far short of that goal when it comes to many essential commodities. It is axiomatic to the economist that isolationist and self-sufficiency concepts spell economic degradation and reduced standards of living. The basis of all economic progress is specialization and exchange. There are few States in this country which do not have special advantages for the production of certain types of products or services. There is no State which excels in the production of all commodities and services. There is no State that could conceivably be self-sufficient today without dropping back in its standard of living to the primitive methods of its pioneers.

PROGRESS OF UNITED STATES DEPENDENT

ON GREAT FREE-TRADE AREA

Someone may recall that the traditional foreign trade policy of the United States has been one of protection. They may point out also that the United States has waxed wealthy and powerful under a regime of protection which dates back to the days of Alexander Hamilton. There is one good and sufficient answer to that contention, and that is, if the United States has been able to progress and to forge ahead economically it is despite its protective trade policy, and because it has had the largest free-trade area in the world in which to develop industrial and economic efficiency. The absence in the past of restrictive legislation between the States has made possible a tremendous market. The existence of this market has enabled the industries of the United States to develop mass-production techniques which otherwise would have been impossible. The existence of the market has justified the heavy expenditures for capital and plant necessary to bring about such economies in production as has given many common laborers of the United States an automobile with which to drive to work. The existence of these free markets has made possible the employment of labor at wages unparalleled in the world.

5Address by S. Chesterfield Oppenheim, April 5, 1939.

RESULTS OF BUSINESS BARRIERS

Let us contrast the results which we have enjoyed with those which must inevitably follow a persistent continuation of the erection of barriers to trade between the States. Let us begin with your own great State of Colorado. First of all, let us be crystal clear on one point. No State can enact restrictive laws and regulations, whether direct or indirect, aimed at its sister States, without incurring almost certain reprisals. These reprisals are apt to take various forms, but they inevitably spell restricted markets for your products. Do you want to see your market for sugar beets restricted to your own State line? Do you want your great coal industry reduced to a small-scale enterprise? Do you realize the danger which faces your iron and steel industry should you embark upon a course of restriction? Colorado is a great supplier of national markets with fresh fruits and vegetables. Your iceberg lettuce has wide distribution your Rocky Ford cantaloups are staples in Eastern produce markets and on the bills-of-fare of hotels and restaurants. Your cattle ranches are dependent upon a wider market than your own State affords and don't forget your dude ranches. Tourist trade is a large source of income to Colorado. Do you want to run the risk of jeopardizing these important industries? Then be wary of imposing restrictions on the products of other States.

I know that neither the people of Colorado nor those of other States would even consider seriously the extreme isolationist policy of attempting to prohibit all goods not made in their own State. It may be amusing as well as instructive, however, to consider what such extreme restrictions might mean to you, not because they are likely to occur, but because even minor restrictions are in the wrong direction and endanger the sale of products of your industries in other States. The first thing that would happen to you would be the certain curtailment of the sale of your products outside of the State, unless you were able to smuggle or bootleg some of them. But what price would exclusion carry in your own enjoyment? You would, of course, have to make exceptions from the beginning, because you would not want to go without coffee, tea, spices, and other products such as citrus fruits, bananas, and rubber, which your climate precludes from production in Colorado. But beyond that, what would you do? For example, how long could you run your automobile on the gasoline and oil produced and refined in Colorado? I can give you the answer. Colorado produces and has refining capacity for about 1 million barrels of crude petroleum. In 1938, Colorado consumed 5 million barrels of gasoline; the crude petroleum equivalent of which is some 13 million barrels or about nine times your own production. You could therefore operate your cars but one-ninth of the time you now drive, on the average. If you could surmount that problem, what would you do for automobiles when your present cars wore out? "Establish an industry and make our own", someone may say. Very well, assume that you could establish your own automobile industry in Colorado, I venture to say that very few of your working men would be driving their own cars to work under those conditions. Why? Because the Colorado market, which compares very favorably with many other States in the Union, having in 1937 some 68 million dollars in annual income and a higher per capita income than the United States as a whole, is too small to permit economical production of automobiles, unless sales could be made outside, and you would not be permitted

by other States to make sales outside for the reason we have noted. Hence, the limitation' would come on the size of your market. An automobile industry, in order to make cars which will sell at a price which the average citizen can pay, must have the advantage, not merely of the market of a single State, but of many States. The cost of producing cars to supply the wants of a single State would be excessive and only the very rich could afford the luxury of car ownership. What is true of the automobile industry would be true of many other industries as well.

In order to appraise vividly and accurately just what restrictive State barriers to interstate trade mean for a State, I would suggest that you study the statistics on the products of your own State, the probable consumption of those products within your own State, and see whether or not you favor any legislation, the trend of which is in the direction of restricting your economy within such a straitjacket. If not, beware of the siren voices of well-organized minorities who seek temporary advantages for themselves at the expense of all the people of the State.

THE BASIC INDUSTRIES SUFFER

The effect on existing industries even of moderately restrictive barriers to business is far reaching. Consider what happens to the major industries of a State, those which normally rely upon a regional or national market. I am informed, for example, that one of Denver's leading manufacturing industries maintains n office as far east as Detroit and does a substantial volume of business there. There are no doubt others of which I have not heard. These are the industries which are usually most efficient and provide largest employment. These basic industries are not as a rule responsible for restrictive laws. On the contrary, it is usually some minority group interest which enlists legislative support of a weak position.

Restrictive State legislation, by evoking reprisals from other States, causes the key industries of the original State to suffer. This means that labor suffers, for the key industries normally provide the largest payrolls and the steadiest employment. The vicious circle carries the burden from producers to middlemen, and the latter, particularly the retailers, feel the pinch of reduced buying power. If the basic industries be manufacturing or mining, the secondary industries such as agriculture suffer as a result of diminished markets. On the other hand, if agriculture is the basic industry and suffers curtailment, as inevitably follows restrictive laws, then manufacturing or mining will suffer as secondary industries, dependent upon a flourishing trade in farm produce with other States.

EFFECT ON WHOLESALE TRADE

Wholesalers generally feel the effects of business barriers very quickly for wholesale trading areas frequently embrace several States. Homogeneous trading areas or economic regions know no State lines, which have aptly been called political accidents. But State lines take an ominous meaning when a wholesaler finds that his delivery trucks have to meet certain specifications in neighboring States which his own State does not require. Or he may find that tax or license fees are excessive. He may in fact be compelled to abandon part of his natural territory and thereby work hardships on his own

people and people of the neighboring State who have depended upon him for economical distribution services. He may have to discharge some salesmen, sell some of his trucks, reduce his warehouse staff, or reduce the scale of his buying, all of which has the tendency to reduce his efficiency with the net result that his own State suffers.

REASONS FOR BUSINESS BARRIERS

These are only a few of the many and devastating consequences which inevitably follow misguided business barriers. The tendency to pass these laws is easily understood. Governor Stark, of Missouri, cites two major reasons: (1) the desire to protect business enterprises within the State from out-of-State competition, and (2) the State's need for new sources of revenue. Both reasons stem from the long-continued business depression which has caused our legislators to seek remedies in strange places. The results of these laws have been so to weigh down our national economy that recovery has been retarded.

6

SOME LEGAL ASPECTS

From the legal standpoint, our Commercial Laws Division has suggested to me that it is necessary to distinguish between direct and openly discriminating legislation, and legislation concealing discrimination under some legal guise or other. Most of the laws which we are discussing fall in the second category. They come under four types of powers reserved or delegated to the States by the Federal Constitution. These powers are (1) the power to tax, (2) police powers including powers to quarantine and to impose embargoes, (3) regulatory powers in the interest of morals and health, (4) sovereign proprietary powers such as conservation of natural resources and ownership of public works.

OPENLY DISCRIMINATORY LEGISLATION

Avowedly discriminatory legislation cannot stand the test of the United States Supreme Court which has ruled that, "It is the established doctrine of this Court that a State may not, in any form or under any guise, directly burden the prosecution of interstate business.7

The Solicitor General of the United States says, "Under our Constitutional system today trade among the States may be embargoed, restricted, or regulated by any State in only two articles of commerce. These articles are intoxicating liquors and prison-made goods... Great mischief would follow any attempt to apply this technique to commerce generally. This method of regulation would impose a great number of conflicting standards and rules... States, however, for local interests, are attempting by subtle indirect means to apply discriminations to other commerce where they have neither the social nor legal justifications that apply to liquor and prison-made goods. The Solicitor General condemns this

1939.

"

Many

and

Address by The Honorable Lloyd C. Stark, Governor of Missouri, January 19,

7Baldwin v. Seelig, 294 U. S. 522.

167535 0-39-2

trend roundly and cites ancient and modern authorities from John Marshall and Roger Tany to Felix Frankfurter.

8

CAMOUFLAGED BUSINESS BARRIERS

These camouflaged barriers, however, present the problem most difficult of solution, especially in the light of the Supreme Court decision which stated, "It has been recognized that these are matters of local concern, the regulation of which unavoidably involves some regulations of interstate commerce but which, because of their local character and their number and diversity, may never be fully dealt with by Congress. Notwithstanding the commerce clause, such regulation in the absence of Congressional action has for the most part been left to the States by the decisions of this Court, subject to the other applicable Constitutional restraints."9

The Supreme Court pointed out that courts cannot examine into the motives behind such laws when it said, "But motives alone will seldom, if ever, invalidate a tax that apart from its motives would be recognized as lawful." The Court has maintained that the interstate trade barrier problem is one whose solution rests with the legislative rather than the judicial power.10 In upholding the right of States to legislate on certain subjects which at least indirectly affect the free flow of interstate commerce, the Court has pointed out a legislative "no man's land" within which States may legislate even though such lebislation may be in apparent conflict with constitutional prohibitions against the State interference with interstate commerce.

On the other hand, Justice Frankfurter recently held that a Florida statute "was a 'calculated discrimination' and that 'it would not be easy to imagina a statute more clearly designed than the present to circumvent what the commerce clause forbids', and he declared, 'such assumption of national powers by a State has, ever since March 12, 1827, been found to be in collision with the Constitution'."11

THE SOLUTION

Two possible solutions to this pressing national problem present themselves. The first is State cooperation such as now being tried under the guidance of the Council of State Governments and such other agencies and groups of States as are here convened today. Meetings have been called, the problem analyzed and discussed, and endeavors made to secure State cooperation in removing these barriers. This requires the practical application of the Golden Rule. It is undoubtedly the most desirable method, yet at the same time the most difficult, due to conflicting local interests, political considerations, and certain basic components of human nature.

Should this method be unsuccessful or too protracted, the solution may be found in more specific Federal legislation That such a solution has been contemplated is evidenced by Senate Resolution 101 of

8Address by Robert H. Jackson, Solicitor General of the United States, April

6, 1939.

9South Carolina State Hwy. Dept. v. Barnwell, 303 U. S. 176.

10 Supra note 9.

11Quoted from an address by Robert H. Jackson, April 6, 1939, "Trade Barriers a Threat to National Unity", p. 10 of press release.