How NAFTA Could Spoil a Keystone XL Rejection

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How NAFTA Could Spoil a Keystone XL Rejection

TransCanada could harness trade deal's Investor-State Dispute Settlement, and U.S. taxpayers could foot the bill.

A 2013 protest against the TPP, which Lori Wallach has dubbed 'NAFTA on steroids.'  (Photo: Backbone Campaign/flickr/cc)

Environmental campaigners cheered this week when President Barack Obama vetoed a Congressional bill approving the Keystone XL pipeline, and urged him to stand up for the climate and fully reject TransCanada's tar sands pipeline project.

Yet if that rejection happens, observers point out that it could put a costly burden on U.S. taxpayers.

That's because of the corporate-friendly North American Free Trade Agreement (NAFTA).

Part of issue has to do with the Investor-State Dispute Settlement (ISDS) mechanism in the trade deal. Sen. Elizabeth Warren (D-Mass.) outlines how ISDS is problematic and cautions against its inclusion in the Trans Pacific Partnership (TPP), a massive trade deal now in the finish line. "Agreeing to ISDS in this enormous new treaty would tilt the playing field in the United States further in favor of big multinational corporations," she writes in an op-ed published Wednesday at the Washington Post.

Imagine that the United States bans a toxic chemical that is often added to gasoline because of its health and environmental consequences. If a foreign company that makes the toxic chemical opposes the law, it would normally have to challenge it in a U.S. court. But with ISDS, the company could skip the U.S. courts and go before an international panel of arbitrators. If the company won, the ruling couldn’t be challenged in U.S. courts, and the arbitration panel could require American taxpayers to cough up millions — and even billions — of dollars in damages. If that seems shocking, buckle your seat belt. ISDS could lead to gigantic fines, but it wouldn’t employ independent judges. Instead, highly paid corporate lawyers would go back and forth between representing corporations one day and sitting in judgment the next.

Digital rights group Electronic Frontier Foundation (EFF) adds: "Under investor-state, if a regulation gets in the way of a foreign investor’s ability to profit from its investment, the investor can sue a country for monetary damages based on both alleged lost profits and 'expected future profits.'There are no monetary limits to the potential award."

As Elana Schor reports for Politico Thursday: "The CEO of Keystone developer TransCanada has raised the prospect [of ISDS] 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."

Natural Resources Defense Council international program director Jake Schmidt told Politico that a NAFTA challenge from TransCanada was "definitely a possibility." Schor's reporting adds:

"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.

There's another issue that Farron Cousins laid out at DeSmogBlog in 2013:

if the State Department chooses to acknowledge the facts and prohibit the pipeline’s construction, TransCanada still has a fairly simply route to get it approved, and that’s where NAFTA comes into play.

When it comes to the energy sector, NAFTA has a lot to say, and most of it isn’t good. At the heart of it, NAFTA mandates that member countries cannot discriminate against foreign energy companies.

This means that a Canadian energy company is legally allowed the same opportunities as American companies operating in the U.S. Since we’ve allowed our oil companies to construct pipelines, it would be illegal, in most circumstances, to deny that same privilege to TransCanada.

NAFTA had its twentieth anniversary last year, an opportunity many watchdog groups seized to spotlight the trade deal's devastating consequences.

"Outside of corporate boardrooms and D.C. think tanks, Americans view NAFTA as a symbol of job loss and a cancer on the middle class," Lori Wallach, director of Public Citizen’s Global Trade Watch, said at the time.

"NAFTA’s actual outcomes prove how damaging this type of agreement is for most people, that it should be renegotiated and why we cannot have any more such deals that include job-offshoring incentives, requirements that we import food that doesn’t meet our safety standards or new rights for firms to get taxpayer compensation before foreign tribunals over laws they don’t like. Given NAFTA’s record of damage, it is equal parts disgusting and infuriating that now President Barack Obama has joined the corporate Pinocchios who lied about NAFTA in recycling similar claims to try to sell the Trans-Pacific Partnership, which is NAFTA-on-steroids," Wallach previously stated.

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