Keystone Goes to (International and Domestic) Court

There’s a new development in the Keystone XL pipeline saga. Recall that last year the Obama administration denied a permit, ostensibly on environmental grounds, to build this pipeline. Now the Canadian company behind the pipeline, TransCanada, has started the process of suing the U.S. government before a NAFTA tribunal, asking for $15 billion in damages. Yes, that’s “b” for billions. (They have also filed a case in U.S. court).

A NAFTA lawsuit on this issue may seem odd, but provisions for claims by foreign investors are a standard feature of today’s trade agreements. I have argued that this feature is unnecessary, and should be abandoned. But as long as it’s in there, companies can use it, and TransCanada seems to have a case.

It’s hard to say, at this point, exactly how strong the case is. The legal obligations are vague, and there’s no international appellate court in the area of investment to bring order to the jurisprudence. Roughly speaking, TransCanada is arguing that the U.S. government has treated it in an arbitrary manner and discriminated against it, in violation of several specific obligations. I don’t like to predict outcomes, but I’m guessing that, based on the facts (and these cases are very fact-intensive), TransCanada’s lawyers are feeling pretty good about things.  But I’m reluctant to express too strong a view until both sides present all of their factual and legal arguments.

Keep in mind, also, that these investment cases are not quick. We’ll have a new president long before the NAFTA case is completed. If the new president is a Republican, he/she will likely approve Keystone (if TransCanada files a new application). That should end the NAFTA lawsuit (although TransCanada could still claim damages from the delay). If it’s President Clinton/Sanders, though, who both oppose Keystone, we could see a ruling in the case.

Beyond the specifics of the pipeline, the case has implications for the public debate over trade agreements more generally. Discussing the trade agreement provisions that give rise to these investment claims was kind of hard without a simple, straightforward, and well-known case. This lawsuit should make clear that foreign investors can sue governments before international tribunals when they feel mistreated.

Now, maybe people will like the idea of such lawsuits, although I have doubts that most will. I still say it is not needed, but at least everyone will understand how the system works and the kinds of cases governments may face.