by Sam Fowles
Last week TransCanada, the company behind the Keystone XL pipeline, filed notice that it intends to sue the USA, demanding $15bn in compensation for President Obama’s decision not to grant a permit for the pipeline. But this is not just a piece of trade litigation on the other side of the Atlantic, the Keystone arbitration should serve as an indication of what we can expect if the Transatlantic Trade and Investment Partnership is passed un-reformed.
1. This is not just about protection for western investors in developing states
The Department for Business Innovation and Skills (BIS) tends to dismiss concerns about the treaty with the, somewhat airy, assertion that, despite being signed up to 93 similar treaties, the UK has never been successfully sued. Yet the more you increase your exposure, the more likely you are to get sued. When combined with the Comprehensive Economic and Trade Agreement (CETA – the equivalent deal between the EU and Canada) and the Trans-Pacific Partnership (TPP – the equivalent between the USA and pacific-rim states), TTIP will increase the coverage of trade with Investor State Dispute Settlement (ISDS) by over 300%. While most of the UK’s existing treaties are with states which provide little investment into the UK (thus minimal risk of action), TTIP will extend the same right to the top provider of investment into the UK.
Like the UK, the US has never lost a case in ISDS but the Keystone arbitration looks likely to end that streak. The North American Free Trade Agreement (NAFTA – the treaty on which TransCanada are basing their suit) prohibits discriminatory or arbitrary treatment of investors. TransCanada’s notice of action asserts that the Obama Administration rejected the Keystone permit despite awarding permits for almost exactly identical projects, that it ignored its own environmental impact reports and that Administration officials appear to have openly admitted that the decision was made for political rather than environmental reasons. If TransCanada’s lawyers can prove the truth of any of these assertions, the Administration will struggle to defend the suit.
2. TTIP isn’t just about nationalisation
When challenged in the EU Select Committee by Geraint Davies, Lord Maude claimed that investment protection provisions in TTIP would only apply to nationalisation without compensation. The Keystone arbitration shows his understanding is outdated. TransCanada claim that, in denying them permission to build the pipeline, the Obama Administration has deprived them of profits they may have made in the future. This isn’t an absurd claim in the context of ISDS. When a similar claim was made in Ethyl v Canada, the company won.
