Saturday, September 23, 2017

A New Front in the Race to the Bottom

States frequently compete with each other to attract businesses.  They’ll offer tax credits, subsidies, and regulatory waivers to persuade corporations to set up shop locally.  (Right now, Amazon is asking cities to compete to host its second headquarters.)  These incentives may or may not work out well for the state; it’s not uncommon for the promised jobs to disappear.  Meanwhile, competition among states can promote a race to the bottom, with states offering increasingly generous – and unaffordable – financial packages in exchange for a temporary boost in economic activity.

Wisconsin’s new deal with Foxconn represents a striking new frontier in these wars between the states.  Foxconn is a Taiwanese company with a history of reneging on its promises to establish manufacturing plants in exchange for rich government incentives.  Nonetheless, Wisconsin has promised it $2.85 billion over 15 years if it will build a $10 billion plant and hire 13,000 workers.   And to sweeten the deal, Wisconsin has also promised Foxconn preferential treatment in the Wisconsin court system.

Apparently concerned that its grant of certain environmental waivers may prompt local lawsuits, Wisconsin has promised Foxconn an expedited litigation process, including automatic stays of trial court orders, interlocutory appeals, and priority review by the Wisconsin Supreme Court for any legal challenges to Wisconsin’s decisions regarding Foxconn.  The legislation does not single out Foxconn specifically for these benefits; it simply says that they apply to any litigation concerning an Electronic and Information Technology Manufacturing Zone, but I gather Foxconn’s is the only such zone around.

A memo from the Wisconsin Legislative Council expresses concern that the litigation provisions may violate Wisconsin’s constitution by interfering with the independence of the judiciary.  (I’d also wonder about equal protection, since Foxconn is being singled out, if not by name).  But leaving aside the constitutional issues, I’m deeply troubled by the precedent.  If Wisconsin is promising favorable treatment in court, other states may feel they have to match those benefits in the future.   Corporations can already opt out of the legal system in many respects via arbitration agreements inserted into contracts of adhesion; I fear a future where for noncontractual disputes, we get a tiered court system, in which corporations are able to buy their preferred rules of civil procedure.

http://lawprofessors.typepad.com/business_law/2017/09/a-new-front-in-the-race-to-the-bottom.html

Ann Lipton | Permalink

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