Pacific Trade Deal Foes Say Keystone Case Shows Pact's Risk

  • TransCanada's claim under Nafta seeks $15 billion from U.S.
  • Trans-Pacific Partnership allows similar dispute process

A legal dispute over the Keystone XL oil pipeline is giving opponents of a Pacific trade agreement a fresh argument in their effort to get Congress to kill the pact.

They say the case announced Wednesday, in which TransCanada Corp. is seeking arbitration to recover $15 billion tied to the Obama administration’s rejection of Keystone, shows how foreign companies could use provisions of the proposed Trans-Pacific Partnership trade agreement to challenge U.S. policy on the environment and other matters.

“I can’t think of many clearer signals that could have been offered at this moment to show how big a threat the TPP poses to our efforts to keep fossil fuels in the ground,” said Ben Beachy, a senior policy adviser for the Sierra Club, the San Francisco-based environmental group. The trade pact will encourage oil and gas companies to use arbitration to seek compensation from the U.S., he said.

TransCanada argues that by rejecting the pipeline, which would have carried Canadian oil sands to the U.S. Gulf, the Obama administration violated provisions of a different trade deal -- the North American Free Trade agreement. The Calgary-based company said it intends to start a claim for costs and damages against the U.S. under Nafta. The dispute would be decided by a three-member arbitration panel to be established under the terms of the trade agreement. A panel couldn’t force approval of the pipeline, proposed to carry Canadian crude into the U.S., but it could award damages for lost profits and costs incurred by the company.

‘Entirely Consistent’

The administration in November determined the pipeline was not in the national interest, and that decision “is entirely consistent with all of our international obligations, including our obligations under Nafta,” White House Press Secretary Josh Earnest said at a press briefing Thursday. He said the U.S. has never lost a similar arbitration case, which is a “strong argument for precisely why Congress should approve the Trans-Pacific Partnership.”

U.S. environmental and labor groups say that companies could seek compensation for government decisions under similar provisions found in the Trans-Pacific Partnership, a 12-nation trade pact seven years in the making that would clear barriers to commerce among nations that produce 40 percent of global economic output. It’s a top priority for President Barack Obama that must be approved by a skeptical U.S. Congress before it can take effect.

Keystone supporters said conservationists were confusing the issue. “President Obama’s environmental extremist friends will look for any excuse to deny Americans natural resources, driving up the cost of energy and costing jobs,” said AshLee Strong, a spokeswoman for House Speaker Paul Ryan, a Wisconsin Republican who backs passage of the trade agreement.

New Mechanism

Communications Workers of America said TransCanada’s Nafta claim provides a case study in how the TPP arbitration process would give thousands more companies a new mechanism to challenge U.S. laws and regulations.

Abuses of the system could be avoided if the TPP language were revised to address concerns between companies and nations, said Representative Sander Levin, a Michigan Democrat who had unsuccessfully proposed such changes to the Obama administration while the pact was being negotiated.

“TransCanada’s challenge to the President’s decision on the Keystone XL pipeline through a NAFTA investment claim further highlights why we must be certain that the Trans-Pacific Partnership trade agreement addresses serious concerns,” Levin said in a statement. “A full and vigorous public debate is needed to identify problems like this one before the TPP agreement is signed.”

Obama’s Argument

Obama administration officials have said there are adequate protections in the TPP to prevent the arbitration process from being exploited, and the president has described the agreement as “the most pro-labor, pro-environment, progressive deal in history.”

Martin O’Malley, the former Maryland governor seeking the Democratic nomination for president, tweeted that the Keystone challenge through Nafta was “outrageous” and “an example of why I oppose #TPP.”

“Trade deals shouldn’t value corporate profits over national interests,” he wrote.

If completed, the 12-nation TPP would be the largest U.S. free-trade agreement, covering an area with a combined annual economic output of more than $28 trillion. The countries seeking the accord reached a deal in October, though each government’s approval may take months or even years. 

Current Treaties

Under current treaties and agreements with more than 50 countries, about 9,500 U.S. subsidiaries of foreign firms can pursue such suits against the U.S., according to data from Public Citizen, a Washington-based consumer rights group. Under the TPP, that would roughly double, with about 9,200 more subsidiaries getting rights to file trade claims.

Lori Wallach, head of Public Citizen’s Global Trade Watch, said TransCanada’s claim “is exactly the attack on U.S. environmental policy that the president insisted could never happen” under the TPP.

“This particular Nafta investor-state attack basically destroys all of the administration’s arguments in defense of the TPP expanding the regime to thousands more corporations who could attack the U.S.,” Wallach said.

TransCanada said it is seeking compensation “as a result of the U.S. administration’s breach” of its obligations under Nafta, the deal signed by the U.S., Canada and Mexico that took effect in 1994.

“TransCanada had every reason to expect its application would be granted,” the company said in a statement. “TransCanada invested billions of dollars in the Keystone XL project and the denial of permit deprived TransCanada of the value of that investment.”

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