TransCanada Files $15B Nafta Claim on Keystone XL Rejection

  • Pipeline operator seeks to recoup costs from Obama rejection
  • Claim shows how foreign firms can use trade deals against U.S.

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TransCanada Corp. is seeking to recoup $15 billion for the Obama administration’s rejection of the Keystone XL oil pipeline, in a legal claim that highlights how foreign companies can use trade deals to challenge U.S. policy.

The Calgary-based pipeline operator filed papers late Friday seeking arbitration under the North American Free Trade Agreement, arguing that TransCanada had every reason to believe it would win approval to build Keystone XL. Instead, President Barack Obama last November determined that the pipeline, which would have carried Canadian oil sands crude to the U.S. Gulf coast, wasn’t in the national interest. In response, TransCanada in January vowed to use arbitration provisions in Chapter 11 of Nafta to recover costs and damages.

The company said the U.S. spent seven years delaying a final decision on the project with multiple rounds of “arbitrary and contrived” analyses and justifications.

“None of that technical analysis or legal wrangling was material to the administration’s final decision,” TransCanada said in Friday’s filing. “Instead, the rejection was symbolic and based merely on the desire to make the U.S. appear strong on climate change, even though the State Department had itself concluded that denial would have no significant impact on the environment.”

‘Entirely Consistent’

The State Department said Secretary of State John Kerry had determined that the pipeline didn’t serve the national interest.

“We are confident that this determination is entirely consistent with all of our domestic and international obligations, including our obligations under Nafta,” State Department spokesman John Kirby said in an e-mailed statement, adding that it wouldn’t comment on pending litigation or arbitration.

TransCanada’s claim could reinvigorate opponents of the proposed Trans-Pacific Partnership and make it even harder for advocates of that 12-nation trade deal to get it ratified by Congress. Like Nafta, the Trans-Pacific Partnership includes investor-state dispute settlement provisions that allow foreign companies to challenge domestic laws in front of international arbitration panels. 

Investor-State Provisions

Foreign companies could exploit the investor-state dispute settlement provisions in the Trans-Pacific Partnership to weaken U.S. environmental policy and labor protections. TransCanada’s Nafta claim highlights the risk, said Sierra Club Executive Director Michael Brune.

“TransCanada’s attempt to make American taxpayers hand over more than $15 billion because the company’s dirty Keystone XL pipeline was rejected shows exactly why Nafta was wrong and why the even more dangerous and far-reaching Trans-Pacific Partnership must be stopped,” Brune said in an e-mailed statement.

“The TPP would empower thousands of new firms operating in the U.S, including major polluters, to follow in TransCanada’s footsteps and undermine our critical climate safeguards in private trade tribunals,” Brune said.

TPP Awaits Ratification

The Obama administration has struggled to advance the Trans-Pacific Partnership amid opposition from many Democratic lawmakers, including critics such as Massachusetts Democratic Senator Elizabeth Warren. But Obama said he was ”confident” he’d be able to win ratification of the trade accord in a news conference in Germany in April. The best opportunity to advance the pact could come after political “heat” from the U.S. primary election season dies down, Obama suggested at the time.

Obama administration officials have said there are adequate protections in the Trans-Pacific Partnership to prevent the arbitration process from being exploited. Obama last month said the “terrible scenarios” painted by critics haven’t materialized under existing trade agreements.

Nafta claims by corporations against the U.S. have been relatively rare since the trade pact went into effect in 1994. The U.S. has a good track record in winning, but companies typically emerge victorious in similar international disputes, according to Public Citizen’s Global Trade Watch.

‘Politically Driven’

In a notice of intent filed in January, TransCanada said the U.S. violated its obligations under Nafta by blocking a border-crossing permit for Keystone XL. “The delay and the ultimate decision to deny the permit were politically driven, directly contrary to the findings of the administration’s own studies and not based on the merits of Keystone’s application,” the company said.

The company also is arguing that Obama didn’t have the authority to block the project in a separate lawsuit filed in a federal district court in Texas.

A spokesman for TransCanada didn’t respond to requests for comment via e-mail and voicemail outside of regular office hours.

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