TransCanada filed a lawsuit on June 24 against the U.S. government under the NAFTA agreement for its rejection of the Keystone XL pipeline. They are suing in the amount of more than $15 billion compensation. The company claims that the rejection violates the rights of foreign investors by frustrating their “expectations”. President Obama rejected the tar sands pipeline on November 6 last year.
The company is able to bring the lawsuit under NAFTA’s “investor-state dispute settlement” (ISDS) system. The lawsuit will be heard by an international tribunal which consists of three “judges”. These are usually lawyers who act in the role of judge in some cases but are able to switch hats to become the lawyer representing the foreign corporation in other cases. The tribunal is not held accountable to any countries’ legal system and the decisions are binding and cannot be appealed. The tribunal makes its decision by looking at whether the foreign corporation has received “fair and equitable treatment”.
If successful, TransCanada will be able to bypass the courts of the U.S. and the safeguards it has built in to its laws and regulations to protect the environment. But, the Keystone XL pipeline itself is not able to be revived regardless of the outcome of the decision.
The lawsuit is a very offensive act by TransCanada in reaction to the U.S. government’s decision. They are motivated by the lost profits they would have received if the pipeline had proceeded. If they win the lawsuit the U.S. taxpayer will foot the bill.
The power imbalance in international trade agreements like NAFTA becomes evident when corporations’ rights are held supreme to those of governments. Foreign corporations are able to subvert the policies of the country sued when they can challenge the laws and regulations of a country.
Foreign corporations have been successful on a number of previous occasions in suing governments. An example is the 2009 decision of Vattenfall vs. Germany where environmental restrictions placed on a coal-fired power plant in Germany had to be watered down.
The TransCanada case has wider implications with the Trans Pacific Partnership (TPP) agreement ratification still hanging in the balance. Under the TPP foreign corporations will also be able to challenge governments, with unaccountable tribunals hearing the cases. This will impinge on the governments laws and regulations, specifically its environmental protection and climate policies, if the foreign corporation is a fossil fuel corporation.
Finally, looking at the the process followed when these agreements were first proposed, the negotiations were done in secret. This is no way to conduct the process, especially when the rules are tilted so far in favor of foreign corporations. There is no clearer example of this than with the ISDS where domestic laws and policies take second place to foreign investors’ rights.
The TPP has a lot of opposition to date. Over 450 organizations having sent letters to Congress disapproving the agreement.