Winter 2004-12 Puerto Rico may not restrict use of foreign-manufactured cement

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Number 54
Winter 2004

Puerto Rico may not restrict use of foreign-manufactured cement

Puerto Rico laws that prohibit the use of foreign-manufactured cement in government projects are invalid, according to the U.S. District Court for the District of Puerto Rico in Antilles Cement Corporation v. Sila M. Calderón, 2003 U.S. Dist. LEXIS 18681.

Puerto Rico laws

Two Puerto Rico laws-Law No. 109 of July 12, 1985, 3 P.R. Stat. Ann. §§ 927-927(h), and Law No. 132 of September 17, 2001, 10 P.R. Stat. Ann. § 167e (a), (b)-prohibit the use of non-Puerto Rican cement in construction projects funded by the Commonwealth or the United States. The legislation applies both to the government itself and to private entities that contract construction projects funded with public moneys. It was designed to create jobs and help local businesses by substituting imports with Puerto Rican products. Foreign cement bags must bear a label stating that the contents may not be used for construction work for the governments of the United States or Puerto Rico.

The Commerce Clause

The Constitution of the United States grants Congress the power "to regulate Commerce with foreign nations, and among the several states." This provision, known as the "Commerce Clause," has been construed to imply a restraint on state power even if Congress has failed to act (the "dormant Commerce Clause").

Market participant exception

In White v. Massachusetts Council of Construction Employees, 460 U.S. 204 (1983), the Supreme Court of the United States found a "market participant" exception, applicable when a state's intervention is in its capacity as participant in a transaction, for example, as buyer or seller. "A state that acts as a 'market participant' is not subject to the restrictions of the Commerce Clause, just as a private actor who buys and sells in the private market is not subject to the limitations of the clause." But a state may not regulate commerce by imposing taxes or taking other action that affects private commercial activity.

Based on this distinction, the District Court concluded that Puerto Rico acts as a market participant with respect to imported cement, as the government enters the construction market by contracting or funding projects. As such, it would not be bound by the Commerce Clause. However, whether the market participant exception applies to commerce with foreign countries (as opposed to commerce between the states) is a question that the Supreme Court has yet to answer.

Foreign commerce

The U.S. Circuit Court of Appeals for the First Circuit has decided not to extend the exception to foreign commerce. Foreign Trade Council v. Natsios, 181 F.3d 38 (1st Cir. 1999).

Likewise, the District Court in Antilles decided not to apply the exception. The two laws in question "pose dangers to the ability of the nation to speak with one voice . . . [and] the risks [that they present] to foreign commerce are too great to allow the extension of the market participant exception in the instant case." Citing Kraft General foods, Inc. v. Iowa Dept. of Revenue and Finance, 505 U.S. 71 (1992), the court added that a state may not advance its legitimate goals by means that facially discriminate against foreign commerce. "Precedent has already established that regulations affecting foreign commerce require a very high level of scrutiny due to the risk that they could 'impair federal uniformity in an area where federal uniformity is essential.'"


© 2004 Goldman Antonetti