Unstoppable: The Keystone XL Oil Pipeline and NAFTA

Photo Source tarsandsaction | CC BY 2.0

On Thursday, November 8, a federal court in Montana ordered a pause in the construction of the Keystone XL oil pipeline. Sounds like cause for celebration, doesn’t it?  It’s not. Nothing can stop Keystone XL, and the reason is NAFTA.

The order from Judge Brian Morris of the US District Court for the District of Montana came in a lawsuit brought by the Indigenous Environmental Network (IEN), North Coast Rivers Alliance, and other environmental and Native American groups.  Defendants are the US State Department, which approves trans-border oil pipelines, and TransCanada Corp., the Calgary-based corporation which is constructing KXL, a 1,179-mile long oil pipeline which will run from oil fields in Alberta, Canada to Nebraska, USA and from there via an already-existing pipeline to refineries in Texas.

In his 54-page order, Judge Morris held that the State Department had failed to take a “hard look” at the environmental consequences of approving TransCanada’s permit application, particularly the impact the KXL pipeline would have on global climate change.  KXL will transport Canadian tar sands oil, crude with a high carbon content.  Judge Morris ordered that work on the pipeline be suspended until the State Department could conduct further environmental studies.  Judge Morris’ serious treatment of global climate change places him in sharp contrast with President Donald Trump who dismisses climate change as a Chinese hoax.

Up until last year, Keystone XL seemed to be dead in the water, sent to the bottom in 2015 by Barack Obama.  At that point, TransCanada had already spent $2.5 billion on the project. Enter Donald Trump, stage far right. Candidate Trump had praised Keystone XL, tweeting that KXL would “create thousands of jobs” and that there was “no downside” to the project.  Once Trump took office things almost immediately started looking up for TransCanada.  On only his fourth full day in office, Trump invited TransCanada to resubmit its application for a permit to build the Keystone XL pipeline.  (Justin Trudeau, Canadian prime minister and heartthrob of American liberals, applauded Trump’s decision.)  Two days later, TransCanada resubmitted its application.  Trump’s State Department approved the permit for KXL in March 2017.

Given this history, it should be no surprise that Trump is furious over Judge Morris’ decision to suspend construction of Keystone XL.  On Thursday, Trump called the decision a “disgrace” which would cost 48,000 jobs.

Oh, by the way, Judge Morris is an Obama appointee.

Wrecking the Environment for Fun and Profit (Mostly Profit)

TransCanada lawyered up immediately upon President Barack Obama’s cancellation of its $8 billion Keystone XL project.  On January 6, 2016, TransCanada filed a federal lawsuit and a claim for arbitration under the North American Free Trade Agreement (NAFTA).

TransCanada’s NAFTA claim alleges that Obama’s cancellation of Keystone XL violated NAFTA’s Chapter 11.  TransCanada requested $15 billion in damages, including lost profits. TransCanada suspended its NAFTA claim after Trump came to power.  The big question now is whether Judge Morris’ decision on Thursday will make TransCanada renew its NAFTA challenge.

Neoliberalism regards tariffs, environmental protection, food safety rules, and the protection of workers’ rights as barriers to free trade.  Eliminating barriers to trade is central to NAFTA, WTO, the late TPP, and other multinational free trade agreements.  To that end, NAFTA and the TPP (described as “NAFTA on steroids”) allow corporations to directly challenge domestic laws through arbitration, a process known as Investor-State Dispute Settlement (ISDS).[1]  ISDS empowers private tribunals with corporate lawyers in the guise of judges.  These trade tribunals are not democratically accountable to the voters of any nation.

You may have read that these arbitral tribunals have the power to nullify national laws and regulations protecting the environment, labor rights, and food safety.  Strictly speaking, that isn’t true.  That’s the good news.  The bad news is it doesn’t matter.  On occasion, states have found it necessary to change their laws—even their constitutions—in order to comply with the dictates of NAFTA or the WTO.  In the Venezuela Gasdispute, the US had to change an EPA Rule after an arbitral tribunal found that the rule’s air pollution standards conflicted with the General Agreement on Tariffs and Trade (GATT), WTO’s predecessor.[2]

NAFTA’s Chapter 11 sets out a series of protections for foreign investors (typically large multinational corporations).  We begin with nondiscrimination.  States must treat foreign investors no worse than the state’s own investors (NAFTA Article 1102).  TransCanada accuses the Obama Administration of discrimination against it. The Obama Administration took seven years before finally denying TransCanada’s permit application.  The Administration took nowhere near that long to review permit applications from US pipeline companies.  Plus, during those seven years, the Obama Administration approved permit applications from US pipeline companies.[3]  TransCanada claims that the US used one set of standards to review US companies’ applications, and another set of standards to review TransCanada’s application. Notice of Intent ¶60.  TransCanada maintains that if the US had applied one, nondiscriminatory set of standards, Keystone XL would have been approved.

In addition to the obligation not to discriminate, NAFTA requires states to extend“fair and equitable treatment” to all investors (Article 1105).  In essence, states must not frustrate investors’ “reasonable expectations.”  TransCanada declares that it had “reasonable expectations” that its permit request would be approved.  Administration officials, including then-Secretary of State Hillary Clinton, had made favorable statements about KXL.  TransCanada had made changes to the project at the Administration’s behest, including rerouting a section of the pipeline.  The Obama Administration had approved similar pipelines.  And TransCanada knew of no instance when the US had everturned down an application to build a pipeline across an international border.  Notice of Intent ¶2, 3, 6, 20.

NAFTA allows states to be “sensitive to environmental concerns” (Article 1114).  This could defeat TransCanada’s claim.  The Obama Administration’s stated reason for turning down TransCanada’s permit application was concern about global climate change.  TransCanada says that’s baloney.  No fewer than 6 Administration reviews uniformly concluded that KXL would have a negligible impact on climate change.  TransCanada maintains that politics, not the merits of the application, was the real reason the permit was denied.  Notice of Intent ¶¶8, 43-49.  TransCanada notes that President Obama canceled Keystone XL two weeks before the Paris Climate Summit.  President Obama had said that he wanted to establish US leadership in fighting climate change.  It’s hard to do that if you’ve just approved a massive oil pipeline.

It will be fascinating to watch how TransCanada’s NAFTA challenge plays out if TransCanada decides to resume it.  And entertaining.  Trump wants TransCanada to prevail.  This means that Trump will have to root for NAFTA, an agreement he has derided. The rest of us will root for the future of our planet.  For the planet’s sake, it’s time to end the reign of King Carbon.  For the planet to win, neoliberalism must lose.


[1]  The WorldTrade Organization operates a little differently.  Only states can challenge other states in the WTO. A current example is China’s WTO challenge to Trump’s steel tariffs.  However, large corporations don’t find it too difficult to get their home state to bring a WTO challenge for them.

[2]  To his credit, Trumprepeatedly spoke out against NAFTA and the TPP on the campaign trail.  (Hillary Clinton, on the other hand, had championed TPP for years.)  If there is anything we have to thank Donald Trump for (granted, there’s not much) it is Trump’s withdrawing the US from the TPP. As for ISDS, it is cut back, but not entirely eliminated, in the new iteration of NAFTA unveiled in September.

[3]  See TransCanada’s Notice of Intent to Submit a Claim to Arbitration under Chapter 11 of the North American Free Trade Agreement (hereafter “Notice of Intent”), Jan. 6, 2016 ¶¶4, 20, 57.

Charles Pierson is a lawyer and a member of the Pittsburgh Anti-Drone Warfare Coalition. E-mail him at Chapierson@yahoo.com.