Opinion ID: 2347729
Heading Depth: 1
Heading Rank: 1

Heading: the new jersey buy american statute and the federal general agreement on tariffs and trade (gatt)

Text: The General Agreement on Tariffs and Trade (GATT) [1] is a multi-lateral international agreement to which the United States is a party by virtue of executive action. Presidential authority to bind the United States to GATT has been predicated in part on the Reciprocal Trade Agreements Act of 1934 and its successors, 48 Stat. 943 (1934) (currently codified at 19 U.S.C.A. §§ 1351-1366 (1965 & Supp. 1977)), and in part upon the executive power to conduct foreign affairs. [2] The legal significance of GATT has been considered by all parties as equivalent to that of a treaty. See United States v. Belmont, 301 U.S. 324, 331, 57 S.Ct. 758, 761, 81 L.Ed. 1134, 1139-1140 (1937); United States v. Pink, 315 U.S. 203, 230, 62 S.Ct. 552, 565, 86 L.Ed. 796, 818 (1942). In the context of this litigation we do likewise. Thus we conclude that GATT is, by virtue of the federal constitution, the supreme Law of the Land. See U.S. Const., Art. VI, cl. 2. [3] A state law must yield when it is inconsistent with or impairs the policy or provisions of a treaty. Kolovrat v. Oregon, 366 U.S. 187, 190, 81 S.Ct. 922, 924, 6 L.Ed. 2d 218, 221 (1961); United States v. Pink, supra . Thus, whether federal preemption exists in this case depends upon an analysis of GATT, the New Jersey Buy American statute in question, N.J.S.A. 52:33-2 and 3, and the status and functions of the Commission. Facially the Buy American statute, N.J.S.A. 52:33-2 and 3, appears to be in direct conflict with GATT, Pt. II, Article III, paragraph 4, 62 Stat. 3680 (Vol. 3) (1948), which provides that: The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. Both the trial court and the Appellate Division opinions are bottomed on that conclusion. See also Territory of Hawaii v. Ho, 41 Haw. 565 (Sup. Ct. 1957). Article III, paragraph 4 of GATT is not, however, all-inclusive. An exception reads as follows: The provisions of this Article shall not apply to laws, regulations or requirements governing the procurement by governmental agencies of products purchased for governmental purposes and not with a view to commercial resale or with a view to use in the production of goods for commercial sale. [GATT, Pt. II, Art. III, par. 8(a), 62 Stat. 3681 (Vol. 3) (1948)] [4] The Commission has urged that materials to be acquired in connection with the construction of its proposed water treatment plant fall within the exception clause. The exclusionary requisites are: (1) procurement by a governmental agency, (2) of a product, (3) purchased for governmental purposes, (4) not for commercial sale, and (5) not with a view to use in the production of goods for commercial sale. That the Commission is a governmental agency and that it proposes to acquire products, materials with which to construct and equip the plant, are clear. The plaintiffs contend, however, that the Commission's construction of a water treatment plant is not for a governmental purpose and that the proposed plant will produce goods, namely water, for commercial sale. Consideration of these contentions necessitates examination of the Commission, its operations and functions. The North Jersey District Water Supply district was created by the Legislature in 1916 for the purpose of developing water supply sources for the use of any municipality in the eleven most northerly counties in the State. N.J.S.A. 58:5-1, L. 1916, c. 70. [5] Municipalities desirous of developing, acquiring and operating a water supply or a new or additional water supply for the use of the municipality, were authorized to join together and petition for a commission. N.J.S.A. 58:5-2. Upon appointment the commission, to be known as the North Jersey District Water Supply Commission, would become a body corporate with power to acquire and use all property necessary for the uses and purposes for which it was created, N.J.S.A. 58:5-7, more particularly to provide a sufficient water supply to the contracting municipalities. N.J.S.A. 58:5-16. Municipalities were authorized to petition the Commission for a water supply and request an estimate of the cost of such supply, each agreeing to pay its share of the cost. N.J.S.A. 58: 5-9. Thereupon the Commission was required to hold a public hearing at which other municipalities might signify their willingness to join in the project provided they agreed to pay their share of preliminary expenses. N.J.S.A. 58: 5-10 and 11. Thereafter the Commission was to formulate plans and estimate the costs of acquisition and operation. N.J.S.A. 58:5-12. The costs of the construction and acquisition of a water supply were to be borne by the municipalities in proportion to their water contract demands. N.J.S.A. 58:5-22. After completion of the plan and commencement of operations, future operating costs and expenses were to be apportioned on the basis of water consumed, but in no case would a municipality pay less than its contract amount. N.J.S.A. 58:5-23. Other municipalities in the district could petition the Commission for water, and, if the supply were available, the Commission could agree to furnish water at a price equivalent to an equitable share of the cost of such supply. N.J.S.A. 58:5-26. This statutory scheme was pursued by the seven municipalities which presently comprise the District's contracting members. One municipality, Bayonne, has been a water surplus customer of the Commission. The Commission initially constructed a dam and reservoir at Wanaque which was placed in service in March 1930. The costs were apportioned among the contracting municipalities. The Commission subsequently developed a Ramapo project which involved diversion from the Ramapo River into the Commission's 21-mile gravity aqueduct system feeding the municipalities. Here again the costs were borne by the contracting municipalities. The original act under which the Commission was created was supplemented by the water transmission facilities act in 1962. N.J.S.A. 58:5-31 et seq. That act declares it to be in the public interest and to be the policy of the State to foster and promote by all reasonable means the prompt, efficient and economical transmission, treatment, filtration, distribution and use of the water supplies acquired and developed by the State. It is the purpose and object of this act further to implement such policy by, among other things, giving additional powers to certain public corporations heretofore authorized to supply and distribute water, to the end that such public corporations will be enabled to finance, construct and operate facilities necessary for the treatment, filtration, transmission and distribution of water made available by the State to municipalities and persons, pursuant to the provisions of the Water Supply Law. [ N.J.S.A. 58:5-33] The Commission is recognized as an instrumentality exercising public and essential governmental functions and to provide for the public health and welfare. N.J.S.A. 58:5-35. The theme of operating at cost is delineated in some detail. Thus the act provides that: At the end of each year the commission shall apportion the actual cost of the operation of such system which it operates pursuant to the original act among participants upon the basis of the actual water consumed by each municipality, but such amount shall be in no event less than the quantity contracted for. In apportioning such cost, no municipality shall be charged with any item of interest or rental upon, or the cost of operation of, any part of a water supply system which is not used in supplying water to the municipality. Each participant and contracting municipality shall be charged with the amount so apportioned and credited with any amount previously paid on account of the estimated operating expenses for such year. (c) Notwithstanding any other provision of this act, a commission may apportion to and among participants and contracting municipalities as part of the operating expenses of a project or water supply system in which they have an interest a portion of the commission's general expenses not wholly or directly attributable to the operation or maintenance of any particular project or water supply system. Such allocation shall be fair and equitable taking into account the amounts of direct cost of operating and maintaining, or the volume of water supplied or allocated by or to, particular projects and water supply systems and such other factors as may reasonably be considered for the purpose of such apportionment. Except as provided in this section, a commission shall not use any moneys received by it for use in connection with a particular water supply system or project to pay any costs or expenses incurred by it in connection with any other water supply system or project. [ N.J.S.A. 58:5-40] The most important additional power created in the water transmission facilities act was the right of the Commission to finance new projects by issuing bonds. All prior plant and equipment had been paid for by the contracting municipalities, so that the Commission had not incurred any bonded indebtedness. The Commission's primary function is to obtain and divert water for transmittal to the eight municipalities which in turn distribute that water to their respective inhabitants. Justice Mountain in North Jersey District Water Supply Commission v. Newark, 103 N.J. Super. 542 (Ch. Div.), aff'd 52 N.J. 134 (1968), while sitting in the Chancery Division, summarized the Commission's present status as follows: It is, of course, clear that the North Jersey District Water Supply Commission is not a private corporation seeking to make a profit. It is a public body, politic and corporate, exercising public and essential government functions in the interest of the public health and welfare. N.J.S.A. 58:5-35. In very general terms, its function is to assist municipalities located within the district to secure and maintain adequate supplies of potable water. N.J.S.A. 58:5-1 et seq. [103 N.J. Super. at 549] Similarly, in City of Bayonne v. North Jersey, etc. Commission, 30 N.J. Super. 409 (App. Div. 1954), the Commission was described as being not a private merchant but in a number of respects a public trustee and public curator. Id. at 418. To determine whether the Commission's purchases are for governmental purposes and not for use in the production of goods for commercial sale, as is required for exclusion from GATT, it is appropriate to consider the unique nature of water. The water in our streams that have a natural outlet to the sea is not to be treated or considered in the same manner as private property. Running water of this type historically has been considered common property. E. Vattel, The Laws of Nations, Bk. I, ch. 20; 2 W. Blackstone, Commentaries 14; Arnold v. Mundy, 6 N.J.L. 1, 71-78 (Sup. Ct. 1821). Ultimate ownership rests in the people and this precious natural resource is held by the State in trust for the public's benefit. Bor. of Neptune City v. Bor. of Avon-by-the-Sea, 61 N.J. 296, 305 (1972). This is not to say that a riparian owner may not use the water for purposes related to occupation of the adjoining land. But it is a limited or restricted type of ownership. The riparian owner, at least at common law, had no right to divert the water and merchandise it to others. See generally, Hanks, The Law of Water in New Jersey, 22 Rutgers L. Rev. 621, 657-662 (1968). Justice Pitney in McCarter v. Hudson County Water Co., 70 N.J. Eq. 695 (E. & A. 1906), aff'd 209 U.S. 349, 28 S.Ct. 529, 52 L.Ed. 828 (1908), described the principle in the following language: It must, we think, be sufficiently obvious that the government established in this state by and for the people thereof has complete dominion (subject only to constitutional limitations) over all things within the borders of the state, including all lands and waters, and the mode of acquiring and disposing of rights of property therein. The fresh-water lakes, ponds, brooks and rivers, and the waters flowing therein, constitute an important part of the natural advantages of this territory, upon the faith of which its population has multiplied in numbers and increased in material and moral welfare. The regulation of the use and disposal of such waters, therefore, if it be within the powers of the state, is among the most important objects of government. [70 N.J. Eq. at 701] This language was echoed by Mr. Justice Holmes in the United States Supreme Court's affirmance: [I]t appears to us that few public interests are more obvious, indisputable, and independent of particular theory than the interest of the public of a state to maintain the rivers that are wholly within it substantially undiminished, except by such drafts upon them as the guardian of the public welfare may permit for the purpose of turning them to a more perfect use. This public interest is omni-present wherever there is a state, and grows more pressing as population grows. [209 U.S. at 356, 28 S.Ct. at 531, 52 L.Ed. at 832] Cf. Geer v. Connecticut, 161 U.S. 519, 16 S.Ct. 600, 40 L.Ed. 793 (1896) (transportation of wild game considered common property like water). As noted above, the Commission had been ordered to construct the water treatment plant so that the water distributed would meet potability standards prescribed by the State Board of Health. In deciding that contracting members must pay their proportionate share of that cost, Justice Handler, then sitting in the Appellate Division, wrote: This controversy must be understood in the perspective of the State's overriding concern and obligation to safeguard the public health. West Caldwell v. Caldwell, 26 N.J. 9, 30 (1958); Dept. of Health v. Owens-Corning Fiberglas Corp., 100 N.J. Super. 366, 381 (App. Div. 1968), aff'd 53 N.J. 248 (1969). This encompasses a comprehensive power, coupled with a correlative duty, to control and conserve the use of its water resources for the benefit of all its inhabitants. Trenton v. New Jersey, 262 U.S. 182, 43 S.Ct. 534, 67 L.Ed. 937 (1923). It is a paramount governmental policy that such water supplies must be pure in quality, and be economically and prudently managed for the benefit of the public. See Collingswood v. State Water Supply Comm'n, 85 N.J.L. 673, 676 (E. & A. 1914). Designed to protect and promote the general health, safety and welfare, statutes regulating public water resources must be liberally construed to advance and achieve this underlying beneficent policy. Jersey City v. State Water Policy Comm'n, 118 N.J.L. 72, 76 (E. & A. 1937); Newark v. N.J. Dept. of Health, supra, 109 N.J. Super. [166] at 177. [127 N.J. Super. 251 at 260] The plaintiffs contend that the diversion and treatment of water by the Commission constitute a proprietary rather than a governmental function. That distinction was recognized at one time to fix tort liability of a governmental body. We cannot and do not accept that rationale in the context of this litigation. What we said in Washington Tp. v. Ridgewood Village, 26 N.J. 578 (1958), when we rejected the same contention in interpretation of a zoning ordinance, is equally applicable here: [W]e cannot agree that the distinction between governmental and proprietary functions is relevant to this controversy. The distinction is illusory; whatever local government is authorized to do constitutes a function of government, and when a municipality acts pursuant to granted authority it acts as government and not as a private entrepreneur. The distinction has proved useful to restrain the ancient concept of municipal tort immunity, not because of any logic in the distinction, but rather because sound policy dictated that governmental immunity should not envelop the many activities which government today pursues to meet the needs of the citizens. [ Id. at 584] Furthermore, this distinction, once useful in the field of municipal tort immunity, has been discarded even for that purpose. B.W. King, Inc. v. West New York, 49 N.J. 318, 324-326 (1967); N.J.S.A. 59:1-1 et seq. (N.J. Tort Claims Act). We are satisfied that the Commission's activities in harnessing, treating and channeling the water to eight municipalities constitute appropriate governmental functions and purposes. It is transmitting common property, potable water, to municipalities for the use of their inhabitants  a necessity upon which their very existence depends. In performing these functions, the Commission, unlike a commercial enterprise, operates at cost. We find, then, that the Commission's purchases of materials and equipment for its water treatment plant are for governmental purposes and not with a view to use in the production of goods for commercial sale. Furnishing water might be considered as a sale of a service, as distinguished from the sale of goods, on the theory that water is a naturally produced item which is simply being distributed. For example, the Arizona Corporation Commission in the matter of the Acme Water Company, 24 P.U.R. (N.S.) 64 (1937), stated: A [water] public utility is selling a service. Water is God's gift to man. It is free. The utility is selling a service for the distribution of water and not water as a commodity. So, too, we refused to consider water as a product in In re Glen Rock, 25 N.J. 241, 247 (1957), overruled on other grounds, City of North Wildwood v. Bd. of Comm'rs of Wildwood, 71 N.J. 354 (1976) and in In re West New York, 25 N.J. 377, 384-386 (1957). On the other hand, an agreement between two municipalities for the sale and purchase of water has been held to involve a transfer of goods so that the statute of frauds applied to the transaction. Jersey City v. Harrison, 72 N.J.L. 185, 188-189 (E. & A. 1905). Moreover, the warranty provisions of the Uniform Sales Act, a statute restricted to the sale of goods, have been found to apply to the furnishing of water. Canavan v. Mechanicville, 229 N.Y. 473, 128 N.E. 882 (Ct. App. 1920). We find it unnecessary to resolve this problem (services or goods) since if it is a service GATT would not apply, and even if the collection and treatment of water be deemed to be the production of goods it is clear, as stated above, that these Commission operations are not for the purposes of effecting commercial sales. We hold that purchases for the construction of this water treatment plant are exempted from the operation of Article III of GATT and accordingly GATT has not preempted State jurisdiction.