Rethinking Trade - Season 1 Episode 35
Within hours of taking office, President Biden revoked the permit for the controversial Keystone XL pipeline. The project, which would worsen the climate crisis, also posed major health and safety risks to indigenous people whose land it crossed. Now the Canadian corporation that wanted to build the pipeline is using a NAFTA Investor-State Dispute System (ISDS) tribunal to demand $15 billion from U.S. taxpayers.
ISDS allows multinational corporations to sue governments before a panel of three corporate lawyers, who can award unlimited sums to be paid by taxpayers, including for the loss of expected future profits. A years-long civil society and labor campaign got the original ISDS rules whacked out of the revised NAFTA. But that fix is phased-in over three years. This means legacy cases like TC Energy’s can be launched until 2023.
In this episode, we look at the Keystone XL NAFTA ISDS case, the new rules governing investor rights in North America, and the future of the ISDS regime.
Learn more at rethinktrade.org.
Music: Groove Grove by Kevin MacLeod.
Transcribed by Sally King
Welcome back to Rethinking Trade where we don’t just talk about trade policy, we fight to change it. I’m Ryan and I’m joined once again by our in-house trade expert, Lori Wallach. Lori, earlier this month, a Canadian company called TC Energy filed a claim for $15 billion in compensation from the US government for allegedly violating the terms of the North American Free Trade Agreement’s Investor State Dispute Settlement system by revoking the permits for the infamous Keystone XL pipeline. Now in our last episode, we looked at the revised NAFTA, now the USMCA, one year after it went into effect. One of the big victories in the fight around the USMCA was the gutting of ISDS. But before we get deeper into what ISDS is, how it works and how a case is being launched, even after the USMC went into effect, can you just tell us about what this case looks like and what it could mean for the US and for US taxpayers.
So as you said, this corporation is demanding $15 billion with a “b” in US taxpayers money to compensate them for the denial of their special rights as foreign investors under NAFTA, because they are claiming that the future expected profits that would accrue from this XL pipeline had it gone forward, with some up to $15 billion, and that they have a right as a foreign investor to be able to complete this project. And if any US government action stops it, we taxpayers have to compensate them. That is the infamous Investor State Dispute Settlement system, which grants rights to foreign corporations to sue the US Mexican or Canadian government. Before a panel of three corporate lawyers. The lawyers can award the corporations on limited songs to be paid by American taxpayers or Canadian taxpayers or Mexican taxpayers, including for the loss of their expected future profits. And he’s from corporations only need to convince the lawyers that a law or a safety regulation or in this case, a permit for a dangerous pipeline violates their NAFTA rights. The decisions are not subject to appeal, and the amount awarded has no limit. And this part of NAFTA was largely eliminated with respect to Canada, it was simply ended. And with respect to Mexico, the worst features were eliminated. However, those new rules phased in over three years. So this is what is called a legacy case, we are one year into the new phase and two more years to go. So this case can still go forward.
And for the listeners, we covered a lot about ISDS. In our 10th episode of the podcast, when there were lawsuits being threatened to keep factories open during the early days of the pandemic, I would encourage you to go back and listen to that episode. But Lori, let’s get a little deeper into the ISDS system. And then also let’s talk about how it was gutted from the old NAFTA, we can talk a bit about the campaign. And then you already introduced us to the legacy cases. But maybe you could explain a little bit more about what a legacy case is and what the phasing looks like.
So legacy case just means that a corporation still has a certain number of years as the investor state Dispute Settlement system phases out of NAFTA, to be able to still bring cases and it’s three years one year down. So legacy cases, basically using the old NAFTA provisions before they phase out. And the process basically, as a corporation gives notice from an intent to file what is officially in arbitration. Only the corporations can start these cases governments can’t sue the corporations for bad behavior. The rights are only for investors to attack governments and their regulations. And once an investor starts a case, if it’s within the three-year phase-out, even after ISDS phases out the case goes forward. So it is a very pernicious facet of NAFTA. And it’s a from our perspective, too long of a transition and getting rid of those terms. There are questions about the standing for this case and there will be legal fights about whether or not particular rights were denied. The problem is the decisions get made. by three ad hoc, appointed just for the case billing by the hour corporate lawyers, and these mainly men make their money by serving on these tribunals. And only the corporations can start the cases. So there’s a deep financial incentive to rule for the corporations because the corporation’s get to pick one of the judges, the three of them, the corporation picks one, the government picks one, and then those two have a third. So it’s a club where you’re likely get picked by the corporation and the corporation’s one that starts the cases if you rule for corporations. So very few of the people, the corporate lawyers who specialize in these kinds of cases, and by the way, they built like $800 an hour. So even if they’re going to eventually dismiss a case, it’s in their interest for it to go for a long time, which is why on average, even in the cases, they’re dismissed, governments pay between five and $8 million in legal fees, that’s when they win. So it’s a real scam. And it can’t go away fast enough.
For many countries. I mean, for the US, the US can afford to enter the legal process around this lawsuit. But for many countries, much poorer countries, even the threat of one of these cases, might as well be one of the cases, right, like companies can often get what they want, simply by suggesting that they could launch a case.
ISDS works as a threat because historically, so many of the tribunals and the corporate lawyers rule in favor of the governments. And for a lot of particularly developing countries, if they figure they’re going to have to pay any way. They don’t want to spend the extra millions fighting the case along the way. They’d just rather try and settle it pay off the corporation roll back the long question. And it’s now developing countries that do that there’s an infamous case where Canada reversed an environmental regulation banning a toxic substance. So that us Corporation, the Ethyl Corporation would end their lawsuits and part of the settlement was that Canada had to publish in newspapers around the world that this chemical is perfectly safe, and as well as long to be sold again in Canada. So it’s a rough form of corporate bargaining, where the sword of Damocles is basically hung of the prospect of not just a lot of money and damages to have to be paid off by taxpayers, but years of litigation and millions of dollars in legal fees. It is, you know, a really outrageous and pernicious system.
And so there’s two big things at play regarding ISDS in North America, specifically in the USMCA and the first of those legacy cases, which you described earlier. The second is the carve-out in the USMCA that maintains ISDS rules for a narrow but fairly important sector of industries. Can you talk about this carve out and what we need to be on the lookout for.
So the carve out is an exclusion to the termination of the old NAFTA investor state. And it applies the old ISDS rules to contracts that currently seven us oil and gas companies have it’s 13 contracts that were made under the old NAFTA that are specifically with one particular Mexican government agency that has to do with oil and gas exploration. And the rule is, as long as Mexico keeps Investor State Dispute Settlement, the old times with other countries whose firms have those kinds of contracts, then this carve out allows the US companies to have access to the same extreme corporate rights that their competitor other foreign investors in Mexico’s oil and gas sector have. And it was, you know, that one of the, you know, really disappointing things that ended up marring what would have otherwise been incredible victory and ISDS. So when activists look at this rollback of ISDS, which NAFTA was the first agreement into which ISDS first trade agreement into which ISDS was inserted. So to have the United States which has been a great proponent, shoving ISDS in other countries and being a big benefactor and defendor have it, to have the United States say we’re ending it with this country, and we’re cutting it back enormously with this other country, symbolically around the world and powers a lot of other countries who are trying to exit this outrageous regime. But the sour aftertaste was that this carve-out meant with respect to those contracts and those companies indefinitely until Mexico actually decides to get out of ISDS which would be a very smart thing, then these us firms keep the legacy of the old NAFTA,
Sort of, as you were just alluding to Lori, there was a lot of hope when the USMCA was passed regarding the future of ISDS, not just within the context of the USMCA, but throughout the world. Obviously, NAFTA was not the only deal. It was the first, but not the only to have ISDS rules. What are some of the big fights ahead and confronting and continuing to dismantle ISDS globally?
So a lot of very important developing countries have shown leadership and getting out of ISDS. South Africa started the trend. And then Indonesia joined in, Brazil has never had ISDS agreements. Bolivia and Ecuador both got out heartbreakingly now the right-wing government Ecuador is trying to get back in a lot of countries looked to those countries in the renegotiated its agreements to get rid of most of the pernicious elements. So when the US joined in as a main proponent, benefactor and defender of ISDS, and also a developed country, it was a super important impact worldwide where lots of countries want to get out of their investor agreements and/or if not get out of them altogether to roll them back to something more like the Mexico model. That is in the USMCA which, you know, like the India revised model requires a corporation to use up all of its domestic enforcement options before I can even contemplate going to a panel and then only allows direct exposure creation compensation as compared to all the fancy, silly made up rights, the corporation is jammed into deals like NAFTA and others. And so I think that with the Trump administration, which is you know, basically Donald Trump, a wholly owned corporate subsidiary, with right-wing tendencies, in addition, to make clear that even they thought ISDS was a bridge too far made it such that with a democrat Biden saying his trade agreements wouldn’t have ISDS it’s now become really the US position, that that old regime is no longer acceptable, tolerable, and that’s good for us, that’s good for the countries with whom the US would have trade agreements, but also opens up space for the many countries around the world that are smaller countries or developing countries to basically take the cover of the US taking that action with NAFTA.
Rethinking Trade is produced by Public Citizen’s Global Trade Watch. To learn more you can visit rethinktrade.org. You can also visit tradewatch.org. Stay tuned for more and thank you for listening.