Called it

Yesterday, TransCanada launched a NAFTA claim against the US. Four years ago, I called it.

I’m pretty sure that I am the first person to suggest that the Keystone XL issue was a good candidate for investor-state dispute settlement (ISDS). Dateline: 1/19/2012.

As I’m thumbing through the company’s legal filings, I’m even more convinced that the claim has legal merit. Here’s some things you never want to do if you want to avoid a legal claim in general, let alone an ISDS claim:

  • Say that your decision-making was motivated by politics, as Obama did in his official statement announcing rejection of the Keystone XL decision.
  • Allow an approval process for a foreign investor to drag on five times longer than the average wait time.
  • Make a decision that runs against your all of your own on-the-record scientific assessments.
  • Grant permits to carry the same product from the same place during the same period you are stalling the permit consideration in question.
  • Approve other cross-border pipeline applications by US investors and investors of third countries.
  • Allow domestic production of oil sands.
  • Suggest that only proposed pipelines with enough already sunk costs will be considered, and then go back on that word.
  • Help the company manage its political and legal relationships with subfederal officials.
  • Signal at the highest level (Sec. Clinton) a predisposition to approve something that has not gone through standard regulatory process.
  • Suggest – as Obama did – that decision will only be motivated by carbon emission considerations, before then moving goal post and evaluation metrics to more diffuse “national interest”.
  • Make excuses for delays that lack credibility.
  • Add layers to review not strictly required by law.
  • Allow lots of variance in between what you (White House) say and subfederal officials say, what you say and Congress says, or what you  and your agencies say.
  • In sum, don’t allow an investor to develop anything like “reasonable expectations” of things going their way, if things aren’t going to go their way.

I may be mis-characterizing some parts of the claim or underlying issues – let me know if I am. But from a quick read, it seems like these are the grievances as TransCanada perceives them.

Whether it’s reasonable to expect states to navigate politically tricky waters in pristine ways is a broader question – one I’ll address in future posts. But as a legal matter, the US behavior seems to clearly implicate issues under NAFTA’s provisions on national treatment, most-favored nation treatment, and fair and equitable treatment. (The expropriation claim – TransCanada’s fourth – seems weakest.)

From FOIA materials I’ve gotten over the years, I know that USTR weighs in on the NAFTA/WTO compatibility of proposed regulations. I find it impossible to believe that they did not do so with the Keystone case over 2008-2015, especially since prominent legal blogs raised the issue consistently after I first did. The above ham-fisted moves suggest that USTR’s advice was not being followed, that it wasn’t solicited/offered (unlikely), or that the political cover of an adverse legal ruling might have been desirable. This last scenario effectively passes the buck for a politically tough decision to unelected adjudicators.

One can imagine a different path. Obama could have stopped the process much earlier, and not sent mixed signals to the pipeline operator. That would have been a better protection, although not airtight. After all, consistency in policy-making is a near article-of-faith in the arbitration community, and the Bush administration had already put out a favorable tone it its relation to the Keystone issue. Obama might have paid a price for reversal, no matter how early.

I’ll have more to say about the politics of this latest TransCanada move in future posts.

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