Keystone Pipeline Lawsuit is not a Precedent for the TPP

January 8, 2016 10:30 AM

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The TransCanada Corporation has this week filed two separate lawsuits against the US government contesting President Obama’s rejection on November 6, 2015 of its plan to build the controversial Keystone XL pipeline. Years will pass before the first claim is adjudicated by US federal courts or the second claim is decided by an arbitration panel under the investor-state dispute settlement (ISDS) provisions of the North American Free Trade Agreement (NAFTA). But already critics of the Trans-Pacific Partnership (TPP) megaregional trade agreement between the United States and 11 other countries are citing the TransCanada action, taken on January 6, as an ominous precedent. They are saying that it shows the dangers of acceding to an ISDS provision in the TPP, warning that it could overturn US environmental and safety laws.

These warnings are overblown. The ISDS provision in TPP would make it much tougher for anyone to sue the United States than the ISDS provision invoked by proponents of Keystone.

The TPP has 30 chapters, but among them the ISDS provisions in Chapter 9 have become a lightning rod for TPP critics because ISDS allows corporations to sue governments for unfair treatment.

The Keystone pipeline was designed to carry heavy crude from the Alberta oil sands to the port of Houston. A permit application was originally filed in 2008, and after five years of environmental impact studies and forceful lobbying by environmental groups on one side and business groups on the other, President Obama decided against the permit. His decision was based on authority asserted in Executive Order 13337, issued by President George W. Bush on April 30, 2004.

The first TransCanada suit was lodged in the federal district court in Houston. The complaint in that case asks the court to instruct the responsible Federal officials—namely Secretary of State John Kerry and other Cabinet members—not to enforce President Obama’s decision to deny a permit. The core argument seems to be that President Bush’s Executive Order 13337 exceeded the president’s authority under the US Constitution since Article I, Section 8 of the Constitution grants the Congress—not the president—the power “To regulate Commerce with foreign Nations…” However, this suit seems like a long shot, since the courts typically afford the president wide latitude in the conduct of foreign affairs, and Congress has never objected to the Executive branch’s assertion of authority over electric power, telephone wires, and pipeline crossings to Mexico and Canada.1

The second TransCanada suit seeks arbitration under NAFTA’s ISDS system, specifically claiming a breach of the clause in Article 1105 calling for “fair and equitable treatment” of foreign investors and seeking damages in the amount of $15 billion. This is the suit that will excite TPP opponents, rally Keystone XL supporters, and perhaps fortify TPP proponents.

Even if the TransCanada claim has legs under the “fair and equitable” treatment clause of NAFTA, it is critical to observe that the ISDS provisions in the TPP are not a carbon copy of the provisions in NAFTA. They are much more restrictive with respect to corporate claims.

The ISDS mechanism in Chapter 9 of the TPP specifically respects the legitimacy of environmental, health, and safety regulation, and more narrowly defines “fair and equitable treatment” than in NAFTA. Moreover, TPP Chapter 9 clarifies that the investor bringing a case bears the burden to prove all elements of its claims. Chapter 9 makes proceedings fully open and transparent, and allows civil society organizations and others not party to the dispute to participate. In addition, Chapter 9 will, for the first time, clarify the definition of legitimate public welfare objectives as a ground for defending a country’s regulations and makes clear that frustrated investor expectations are not in and of themselves sufficient to claim damages.

These differences are not likely to deter TPP critics. Now that the arbitral panel has dismissed the claim asserted by Philip Morris against Australia for its plain cigarette packaging law,2 TPP critics need another ISDS “whipping boy.” Premature speculation on the outcome of the Keystone XL arbitration will serve their purpose.

On the other hand, supporters of Keystone XL will welcome the arbitration suit. Their enthusiasm might spill over into success at rounding up wayward Republican votes for the TPP.  Republican reasoning might go like this: If a Republican claims the White House in 2017, he can reverse President Obama’s adverse decision on Keystone XL citing, along with other reasons, the pending arbitration suit. If Hillary Clinton claims the White House, the possibility of an adverse decision by the arbitration panel, along with the attraction of new construction jobs and better relations with Canada, might reverse her opposition to Keystone XL, expressed on the campaign trail.

It’s a close call, but probably the TransCanada suit will likely fortify critics in the contentious Congressional vote over TPP ratification perhaps to come as early as June 2016. All the more reason lawmakers and citizens should look at the facts and not exaggerated claims.

Notes

1. Executive Order 13377 amended Executive Order 11423, issued by President Lyndon Johnson on August 16, 1968. The power to authorize border crossing permits was delegated to the Secretary of State under 3 U.S. Code Section 301 (October 31, 1951). Prior to Executive Order 11423, Executive Orders issued in 1953 and 1954 asserted Executive branch authority to authorize border crossing permits for electric power and communication lines. Over the past 60 years, none of these Executive Orders have been challenged on constitutional grounds.

2. Philip Morris Asia notified Australia of its claim on June 27, 2011, and the case was dismissed on December 18, 2015. See, Matt Siegel, “Australia wins court challenge to tobacco plain packaging,” Reuters, December 17, 2015 (accessed on January 1, 2016).

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