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TransCanada Corporation & TransCanada PipeLines Limited v. The Government of the United States of America (Keystone XL crude oil pipeline)

In June 2016, the TransCanada Corporation launched an Investor-State Dispute Settlement (ISDS) case under the 1994 North American Free Trade Agreement (NAFTA) demanding $15 billion in compensation from U.S. taxpayers because the corporation’s bid to build a pipeline was rejected by the U.S. government.  

ISDS empowers foreign corporations to sue the U.S. government before a panel of three corporate lawyers. The lawyers can award the corporations unlimited sums to be paid by America’s taxpayers, including for the loss of expected future profits. Corporations need only convince the lawyers that a U.S. law or government action violates their NAFTA rights. Decisions are not subject to outside appeal. The revised NAFTA phases out much of the ISDS regime, but allows legacy claims to be filed until 2023. TransCanada demanded five times the amount ($3.1 billion) that it invested in the pipeline based on expected profits had the pipeline been allowed. 

During Donald Trump’s first week as president, he signed an executive order inviting TransCanada to resubmit for approval. In February 2017, the company suspended its ISDS case for 30 days, which coincided precisely with the date by which the State Department was to make a final decision on the new permit application. During that 30 day period, the administration clarified that a previous Trump executive order calling for pipelines to be built with American-made steel and pipe would not apply to the Keystone XL. Shortly thereafter, the State Department issued the permit and TransCanada announced that it would discontinue its ISDS case. Given ISDS would have allowed TransCanada to win U.S. taxpayer compensation for delays in pipeline construction, some suspected the exception allowing non-U.S. steel/pipe was the “settlement” price extracted from the Trump administration by TransCanada for dropping its NAFTA claim. 

The proposed 875-mile pipeline in question – called the Keystone XL – would transport to the U.S. Gulf Coast up to 830,000 barrels per day of highly-corrosive crude oil extracted from tar sands in Alberta, Canada. The pipeline would transport one of the dirtiest fossil fuels on the planet across more than a thousand rivers, streams, lakes and wetlands as it traverses six U.S. states.

The pipeline raises significant concerns with respect to its climate impacts. If the pipeline were completed, it would create new demand for intensified carbon-intensive tar sands extraction and processing as the purpose of the pipeline was to transport the tar-sands oil to U.S. Gulf Coast refineries for processing so finished product could be exported into the global market. Indigenous leaders, farmers, and ranchers in the path of the project additionally oppose it because a spill from the pipeline would threaten their health, lands and livelihoods. Their concerns were bolstered by health and environmental who provided evidence during the course of various federal and state reviews of the project about how tar sands oil development in Alberta, Canada already has devastated the land and water of Canadian First Nations communities, released toxic chemicals that poisoned and sickened these communities and threatened local species of fish and wildlife. 

The November 2015 decision by the U.S. government not to approve the pipeline project came after tens of thousands of citizens in the states that would be affected and by environmental activists nationwide had worked for six years to demonstrate that the pipeline was not in the national interest and would pose serious health and environmental risks. 

In January 2016, just two months after the U.S. government’s decision to reject the pipeline, TransCanada filed notice of intent to start an ISDS case under NAFTA using the World Bank’s International Centre for Settlement of Investment Disputes regime. In its ISDS notice of arbitration, TransCanada claimed the United States had violated four different investor rights provided by NAFTA. First, it claimed that the U.S. government violated the “minimum standard of treatment” standard, arguing that the U.S. government-led TransCanada to develop “reasonable expectations” that the Obama administration would approve the pipeline, only to ultimately reject it. The company noted that, while in 2010 the U.S. State Department was “inclined” to approve the project, subsequently “politicians and environmental activists … continued to assert that the pipeline would have dire environmental consequences,” which ultimately led the Obama administration to reject it for “symbolic reasons, not because of the merits.” TransCanada also alleged that disapproval of the project violated the NAFTA investor protection against “indirect expropriation,” arguing that the pipeline “substantially deprived” the company of its investment in the project.” Beyond arguing that NAFTA’s investor rights conferred a right for a Canadian firm to build and operate a pipeline in the United States, TransCanada also claimed violations of NAFTA’s “national treatment” standard, arguing that it had been treated less favorably than U.S. firms. It also alleged a violation of NAFTA’s  “most-favored-nation” standard, arguing that it as a Canadian firm had been treated worse than other international pipeline firms.

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