How the Keystone XL Pipeline Still Haunts Obama and Threatens His Legacy

How the Keystone XL Pipeline Still Haunts Obama and Threatens His Legacy

REUTERS/TransCanada Corporation/Handout

Barack Obama must wish he never heard the name TransCanada.

First, the company’s application to build the nearly 2,000-mile Keystone XL pipeline from Alberta, Canada to Port Arthur, Texas, and the backlash from environmentalists, caused him years of agita. Now, after Obama finally sided with the greens and rejected the pipeline, TransCanada has reacted in a way that threatens his most cherished remaining policy achievement, the Trans-Pacific Partnership (TPP).

This week, TransCanada filed suit against the United States over what it claims was a wrongful permit denial for Keystone XL. In a separate filing seeking $15 billion in damages, TransCanada alleged that denying the pipeline approval violates the North American Free Trade Agreement (NAFTA). TransCanada argues that it has been “unjustly deprived of the value of its multibillion-dollar investment by the U.S. administration's action.”

Related: TransCanada Legal Challenges Over Keystone Face Long Odds

In the trade challenge, TransCanada is using the investor-state dispute settlement (ISDS) provision embedded in NAFTA Chapter 11 and thousands of trade deals over the past few decades. ISDS allows companies to sue governments over trade agreement violations for monetary damages equivalent to expected future profits. Non-governmental tribunals composed of three corporate lawyers adjudicate the claims. Nations can reverse their policies to the benefit of the corporation rather than pay out the monetary damages.

Trade specialists believe TransCanada has a chance in an ISDS tribunal. “In a case like these facts and those claims,” said Lori Wallach of Public Citizen’s Global Trade Watch to Bloomberg, “I have seen repeatedly, enormous amounts of money extracted from governments’ treasuries and taxpayers and doled out to corporations.”

The problem for the Obama administration is that ISDS provisions also appear in the TPP, negotiated among 12 nations last year and awaiting a vote in Congress. ISDS has already proven controversial, with anti-TPP lawmakers warning that the process could undermine national sovereignty. The White House has rejected this, saying that the U.S. has never lost an ISDS claim. But past performance is no guarantee of future results.

TPP opponents have already jumped on TransCanada’s action. Sierra Club Executive Director Michael Brune said in a statement that ISDS provisions “that wrongly empower corporations to attack our safeguards show exactly why NAFTA was wrong and why the dangerous and far-reaching Trans-Pacific Partnership is worse and must be stopped in its tracks.”

The high-profile nature of Keystone XL assures that this claim will hang over the TPP debate, particularly among Democrats, who widely supported the president’s rejection of the pipeline. There’s also a built-in network of millions of anti-Keystone activists who may now be empowered to go after TPP, increasing the firepower of the deal’s opponents.

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Disputes of this type typically go on for several years, meaning it will likely be active at the time of the TPP vote, whenever that may occur. The White House cannot say there’s nothing to fear from ISDS when TransCanada has an open claim. And House Democrats, who likely hold the margin of victory for TPP, will have to face the potential damage to democracy accompanying their vote.

We already have a model for how trade deals can lead to alterations in U.S. law. In the end-of-year omnibus spending deal, Republicans added a provision repealing country-of-origin labeling (COOL) laws for meat and poultry. The reason was that the World Trade Organization ruled for Canada and Mexico that the COOL law violated prior trade agreements, awarding them $1 billion in trade sanctions. Instead of paying the fine, Congress took the other option and repealed the law, and President Obama signed it.

Similarly, the World Trade Organization ruled in November that “dolphin-safe” tuna labels required by the U.S. violated the rights of Mexican fishers. Mexico filed that challenge on behalf of its fishing industry, and a subsequent award of trade sanctions could again cause the U.S. to repeal its consumer information law.

Food labels aside, while TransCanada’s claim involves a corporation suing a country directly rather than a country making a claim on an industry’s behalf, the inherent danger associated with these third-party tribunals is the same. Once a country assents to ISDS, it opens up its laws to scrutiny for trade violations, effectively creating an extra branch of government with judicial review, outside of the sovereign structure. “With a single press release, TransCanada has proven what concerned citizens have argued for decades — that the primary purpose of ISDS is to subvert democratic processes and the public interest, in the name of private profit,” said Carroll Muffett, president of the Center for International Environmental Law.

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ISDS claims can attack state and local governments, too. Billionaire oilman T. Boone Pickens has an active ISDS claim against Ontario, Canada over that province’s wind power auctions. He’s seeking $700 million. As ISDS grows with additional trade agreements, the smallest town’s decisions all the way up to the business of Congress could get scrutinized.

Prior to the TransCanada announcement, it was actually a pretty good week for the TPP. All the business trade groups endorsed the pact, from the U.S. Chamber of Commerce to the National Association of Manufacturers to the Business Roundtable. They joined the high-tech lobby, which endorsed it last month. A World Bank study of the agreement released this week found that all participants in the deal, particularly Vietnam, Japan and Malaysia, would benefit economically. The study is incredibly flawed — it doesn’t count the net economic harm from increased imports, looking only at exports — and the alleged U.S. benefit under that one-sided review is tiny, just 0.4 percent of GDP by 2030, the lowest of any party to the agreement. But any proof of economic aid from TPP, no matter how distorted, is helpful to the White House’s argument.

Despite this, Republicans are skeptical of TPP and have told the president not to send the agreement for approval to Congress until after the 2016 elections. That’s largely seen as a negotiating tactic — Mitch McConnell in particular wants better terms for the tobacco and pharmaceutical industries — but the implication is that vulnerable politicians either don’t want to have to take a controversial vote before their re-election or that the deal currently doesn’t have the required support.

TransCanada’s maneuver only raises the pressure, providing a model for the worst-case scenario of approving TPP. Politicians have even more reasons to duck the debate, or to line up against the deal, as everyone from Hillary Clinton to Donald Trump has done. Some executive at TransCanada, miffed by Obama’s rejection of their pipeline payday, must be smiling.