Interstate Trade Barriers
INTERSTATE TRADE BARRIERS
INTERSTATE TRADE BARRIERS. During the early years of the Confederation, states broadened and intensified the commercial blockages that had grown up among the colonies in the era before independence. A principal reason for calling the Constitutional Convention of 1787 was to eliminate this cause of friction. The Constitution granted authority over interstate commerce to Congress, except for "absolutely necessary … inspection" provisions, which it reserved for the individual states. As a result, for nearly a century and a half the United States had the most extensive free trade area in the world. The size and unimpeded nature of the domestic market in the nineteenth century invited the emphasis on economies of large-scale production so characteristic of American capitalism.
During the Great Depression, beginning in 1929, states sought more and more to impose limitations on the national free flow of commerce to raise revenue for hard-pressed state treasuries and to protect intrastate business against the competition of neighboring states. Devices were varied and often disingenuous: taxes on incoming goods and out-of-state corporations; requirements for inspection of commodities and, in some cases, lengthy quarantine; demands that incoming trucks pay fees and have certain equipment; and the creation of state "ports of entry" reminiscent of frontier customs stations in Europe. California went so far as to restrict "immigration" to individuals possessing a certain amount of cash.
The threat that the United States would be "Balkanized" (fragmented) led to a conference of state governments in 1939. President Franklin D. Roosevelt begged the states to "take effective steps toward the removal of all barriers to the free flow of trade within our union." Instead, over the following twenty-five years, restraints increased in number and incidence. The Supreme Court struck down the most undisguised discriminations but tolerated exactions that furnished states with revenues that the federal government would otherwise have had to supply. The court justified this leniency by noting that it was the province of Congress, not the judiciary, to disallow repugnant practices. A committee of the House of Representatives, after hearings in 1965, concluded that "the present system of State taxation as it affects inter-state commerce works badly for both business and the States." Complex rules bred disregard of law; for all but large enterprises, the costs of compliance exceeded the taxes. Many prefered standardization of state restrictions to rigid enforcement of constitutional prohibition. States, in the face of increasing dependence on federal aid and discipline, pled states' rights.
The rapid growth of electronic commerce in the 1990s intensified the debate over interstate trade barriers. Internet companies asked Congress for tax exempt status under the Commerce clause of the Constitution. The companies argued that, although headquartered in particular localities, they did business across the nation on the electronic "superhighway," and thus fell outside the tax jurisdiction of any one particular state. They also argued that granting tax exempt status to Internet companies would benefit the national economy by promoting high-tech expansion. As the nation entered the twenty-first century, the issue of state taxation and Internet commerce remained unresolved.
Swisher, Carl Brent. The Growth of Constitutional Power in the United States. Chicago: University of Chicago Press, 1963.
Tribe, Laurence H. God Save This Honorable Court: How the Choice of Supreme Court Justices Shapes Our History. New York: Random House, 1985.
BroadusMitchell/c. w; a. g.