Politico – by Elana SchorPresident Barack Obama may decide to kill Keystone XL for good, but that could be no easy task — thanks in part to the North American Free Trade Agreement.
The 21-year-old free-trade pact allows foreign companies or governments to haul the U.S. in front of an international tribunal to face accusations of putting their investments at risk through regulations or other decisions. The CEO of Keystone developer TransCanada has raised the prospect as a potential last resort if Obama rejects the $8 billion project, although for now the company is focused on getting him to say yes.
Administration officials involved in reviewing the proposed Canada-to-Texas pipeline are aware of the potential for a NAFTA challenge and the importance of minimizing that risk in the event the president rejects Keystone. Others familiar with the trade pact’s origins agree it’s an avenue the company could take if the pipeline fails to survive the clash between industry and environmental groups over the project’s potential impact on the Earth’s climate.
Such a challenge would go before a tribunal of privately chosen arbiters who could award TransCanada damages paid by U.S. taxpayers, but it would not have the power to approve Keystone.
“If the pipeline is actually vetoed on so-called environmental grounds, I think there is a very strong case for a NAFTA challenge,” former Canadian ambassador to the U.S. Derek Burney, a senior negotiator on the landmark North American trade deal and its U.S.-Canada predecessor, said in an interview Wednesday.
Burney and former Canadian Prime Minister Brian Mulroney, whom he served as a top aide, have long described the six-year-long delay in the administration’s Keystone decision as stepping on NAFTA’s goal of unrestricted energy trade between the U.S. and its northern neighbor.
“That provision in the NAFTA agreement was really something that had been required by the U.S., not by Canada, that trade in energy should be unfettered across the border,” recalled Burney, who is on the TransCanada board but said he speaks as an individual on the trade issue.
Pro-Keystone Sen. John Hoeven has said as much too. When asked last month about the possibility of a Keystone-inspired NAFTA complaint, the North Dakota Republican told Canada’s CTV that “I think certainly Canada is entitled to move forward with any other type of challenge” if the GOP Congress can’t win the project’s approval.
Former U.S. Assistant Commerce Secretary Alan Dunn, another lead negotiator on NAFTA, agreed that TransCanada could have a valid claim under the trade deal if Obama denies Keystone after a politically volatile review that has lasted more than six years.
But Dunn also observed that the company’s claim could prove equally strong in a court challenge under U.S. law, such as the Administrative Procedure Act. “TransCanada already has a pipeline that transits the exact same oil from the same fields across the U.S.,” he said in an interview. “So they could put the U.S. on the spot and say, ‘What’s the difference between the two?’”
TransCanada’s other major heavy-oil pipeline into the U.S., known simply as Keystone, got a border-crossing permit in March 2008 after less than two years of review by the George W. Bush administration. That project carries heavy crude from Alberta to locations in Illinois.
In remarks to reporters in May, TransCanada CEO Russ Girling said the company could eventually consider filing a NAFTA challenge but that he hoped it wouldn’t be necessary.
“Obviously, down the road that’s something that hopefully we don’t have to take a look at, but obviously something we would have to take a look at if we end up in a situation where the pipeline is delayed indefinitely or denied,” Girling said in his remarks, which were reported by the Globe & Mail. “Our view is that this pipeline looks no different than other pipelines that have been approved [and] continue to be approved in the United States.”
More recently, both the company and the Canadian government have expressed optimism that Keystone will win approval without any need for legal combat. “Our focus remains on getting Keystone XL approved,” TransCanada spokesman Shawn Howard wrote in a recent email, adding that the NAFTA avenue is “not what we are focusing our efforts on.”
“It is not a question of if this project will be approved; it is a matter of when,” Canadian Natural Resources Minister Greg Rickford said in a statement Tuesday, after Obama vetoed a GOP-backed bill that would force the approval of the pipeline.
NAFTA also allows governments to challenge their neighbors’ decisions or regulations, but Canadian officials have long tamped down talk of invoking that option over Keystone, especially after multiple State Department environmental reviews found little ecological risk from the project. “We support the State Department’s science and fact-based report, and believe it will proceed on its merits,” a spokesman for Rickford said recently by email.
So far, the U.S. has yet to lose a NAFTA challenge.
The administration has said it’s continuing to review the merits of whether the pipeline would serve the interests of the United States. Obama has no deadline to make that call, although many supporters and opponents are expecting it to be in the coming weeks or months.
Meanwhile, U.S. environmentalists who are confident Obama has their backs are also aware that a trade-deal tribunal process they have never liked could complicate Keystone’s post-rejection politics. The same groups fighting Keystone are also working to stop a $250 million NAFTA challenge filed by a U.S. energy company, Lone Pine Resources, against a fracking moratorium in the Canadian province of Quebec.
“We are very strongly opposed to these provisions being in trade bills” in the first place, Natural Resources Defense Council international program director Jake Schmidt said in an interview. “A company could challenge any environmental law in the U.S. on the basis of lost profits and not have to go through the normal U.S. court system.”
TransCanada becoming the 18th company to file a NAFTA investor challenge against the U.S. is “definitely a possibility,” Schmidt said.
Investor challenges to government policies under NAFTA and other trade pacts “really are harmful,” another green group official said in an interview, speaking candidly on condition of anonymity. “It’s the signal they send to governments — state, local or national — that are considering putting in place strong climate policies.”
A potential TransCanada NAFTA challenge over Keystone “would certainly highlight everything that’s wrong in the investor-state system,” the green-group official added, “but it’s certainly not a position we want to see the U.S. in on the merits.”
A possible free-trade dispute is just one of many signs that even Obama’s signature on an order approving or rejecting Keystone won’t be the end of the matter. Republicans in Congress are promising to continue pushing for approval of the project even if the president says no — perhaps by trying to attach pro-Keystone language to must-pass spending bills. And if Obama approves the pipeline, greens are vowing to stage civil disobedience to delay construction.
Of course, Keystone supporters have another potential avenue if the dispute drags on long enough: trying again with the next U.S. president.
TransCanada has “a good argument that can be made” under NAFTA to dispute a Keystone rejection, Canadian international trade and energy lawyer Lawrence Herman said in an interview Wednesday. But, he added, the company “may feel they’re better off waiting until the results of the next election are known.”
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