On January 6, 2016, TransCanada Corporation filed two separate lawsuits against the U.S. government’s November 2015 rejection of TransCanada’s plan to build the Keystone XL pipeline to transport crude oil from Canada to the United States:
- One case was brought in the U.S. District Court for the Southern District of Texas, claiming that the president acted unconstitutionally in unilaterally prohibiting further development of the Keystone XL pipeline, arguing his action was unsupported by any statute and contrary to the expressed wishes of Congress. The claim seeks in principal part to secure a declaration that no presidential approval is needed to construct the Keystone XL pipeline.
- A second case was noticed and will be brought before international arbitration under the Chapter 11 investor-state dispute settlement (ISDS) procedures of the North American Free Trade Agreement (NAFTA) claiming that the rejection of the Keystone XL pipeline was contrary to the United States’ NAFTA obligations to provide Canadian investment treatment in accordance with international law, to protect against uncompensated expropriation and to ensure non-discriminatory treatment. TransCanada is seeking damages for the NAFTA violations. The claim cannot be formally filed until six months after the November 6 denial of the presidential permit to build the pipeline.
Trade and investment critics have focused on the NAFTA ISDS case as a new “cause célèbre” to once again suggest that the sky is falling and urge the rejection of the recently negotiated Trans-Pacific Partnership (TPP). Once again, they have it completely wrong.
- The fact that TransCanada has brought a case says nothing about NAFTA, let alone the TPP. It doesn’t take a law professor to know that the mere fact of filing a case does not mean the claimants’ views will be adopted. Critics like to bring up lots of undecided cases in ways that overstate or misstate the claims being asserted. Critics often use these tactics, but they should have to admit that no one can objectively analyze what these cases mean until they are actually decided. For example, trade and investment opponents were vocal about the plain packaging case brought against Australia but were remarkably silent after Australia won the case in an early procedural decision.
- While too early to evaluate the merits in any detail, TransCanada’s claim raises legitimate questions. TransCanada’s claims raise a number of issues that merit discussion. Did the U.S. government make its decision in an arbitrary and politicized manner? Did it expropriate TransCanada’s billions of dollars of U.S. investment without appropriate compensation? Did it discriminate against TransCanada as a foreign investor? The cries of outrage over this case are an affront to the United States’ own system of laws and rules, which have similar requirements, from the Administrative Procedure Act to the Due Process and Takings clauses of the Constitution that prohibit discriminatory, arbitrary and expropriatory government treatment of private property and have provided strong rules of law to limit improper government actions.
- This case has nothing to do with the TPP. Opponents jumped on this case in large part to criticize the TPP. But let’s be clear: this case has nothing to do with the TPP, and the case will continue regardless of the fate of the TPP. In fact, a case like this would be even harder to bring under the TPP. Compared to NAFTA, the TPP investment chapter provides more protection for the interests of governments and less protection for the interests of investors.
It is long past time for trade and investment opponents to stick to the facts. They have been telling us that the sky will fall for the last 20 years, and yet, there has not been one completed ISDS case finding that a government’s non-discriminatory, non-expropriatory public welfare regulation is contrary to the basic rules. Independent academic experts have confirmed that there is no chilling effect on public welfare regulations from ISDS or the basic rules of fairness and property protection they enforce.
Experts continue to remind us all that even where a government loses in ISDS proceedings, it only is required to pay damages—and not to change its policy. Only a U.S. court can set aside an administrative policy. And remember, the United States has faced fewer than 20 ISDS cases in the more than 20 years we have had these rules under NAFTA and more than 30 years since the United States first agreed to a treaty with ISDS. Compared to the thousands of property cases in U.S. federal court every year, ISDS is a drop in the bucket when it comes to challenges to the U.S. government’s actions.
If you want to know what ISDS is really about, watch our video Fair Play.
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