Interesting issue is Obama Administration’s need to address perceptions of USA as committed to fighting climate change – Kronby
When President Barack Obama rejected TransCanada Corp.’s Keystone XL pipeline proposal last year, he probably expected some sort of backlash from the company. On June 26 TransCanada filed a NAFTA application seeking $15 billion in expenses and damages.
TransCanada submitted a notice for an arbitration claim in January and had then tried to negotiate with the U.S. government to “reach an amicable settlement,” the company said in files posted on the pipeline’s website. Keystone XL was designed to link existing pipeline networks in Canada and the United States to bring crude from Alberta and North Dakota to refineries in Illinois and, eventually, the Gulf of Mexico coast.
North American Energy News spoke with Matthew Kronby, partner responsible for international trade, investment and foreign business transactions in the Toronto office of international law firm Bennett Jones, about the strength of TransCanada’s NAFTA case. Kronby says the pipeline operator is accusing the US government of breaching four provisions of NAFTA chapter 11, which establishes obligations on governments, and how they treat foreign investors and their investments from the other NAFTA countries.
This interview has been edited for brevity and clarity.
Markham: Please give me your take on whether or not this is likely to be a successful application?
Kronby: I don’t know whether it’s likely going to be successful. I’d say, certainly, the claim makes a credible case on behalf of the investors.
Markham: What have they argued that makes it credible?
Kronby: Well, the treatment that they describe in their claim, and remember we’ve only heard one side of the story at this point, but the treatment they describe in their claim arguably does amount to discriminatory treatment and arguably does amount to a denial of fair and equitable treatment and indirect expropriation of their investment. Now, that said, these are relatively complex issues – the US has never lost a NAFTA arbitration. So, I don’t think anyone would tell you that this case is a sure thing, but I can certainly say that from what I’ve seen, it is a credible case and it’s being brought by a very capable and experienced US law firm on behalf of TransCanada. Not all claims that get this far are credible, but this one is.
Markham: Do you think there might be different responses depending on whether Democrat Hillary Clinton or Republican Donald Trump wins the Nov. presidential election?
Kronby: Regardless of who’s in charge of the next US administration, they will defend this claim. Even if NAFTA does go away, this claim doesn’t go away. Most investment treaties or free trade agreements provide that claims that are brought while the treaty is enforced can be maintained even if the treaty has been terminated. So, even if somewhere down the road Trump were to decide to terminate the NAFTA, the claim would survive the termination. If you terminated it before the claim was brought, that’s another thing.
Markham: Let’s talk about some of the specifics that make this a credible claim.
Kronby: Okay well, I mean fundamentally what they’re saying is that the delays and ultimately the decision not to issue the permit was done for symbolic and political reasons rather than to address genuine environment impacts or public environmental concerns. Therefore it was even contrary to the United States’ own policy. And that the delay in the application and the new and arbitrary criteria that the administration imposed in considering the application discriminated against TransCanada because it was not required of other investors in seeking pipeline approvals. So, the conduct was arbitrary and discriminatory, for example, and that that could be a basis for claims under some of the four provisions that they have identified.
Markham: Could it be argued that the rise in Canadian exports of oil sands crude to the American market that has taken place since the rejection of the Keystone XL application is further proof and support of TransCanada’s argument?
Kronby: That’s certainly one way of looking at it. You might say that that was support for the State Department’s own findings, which are cited repeatedly in the claim. TransCanada says the State Department on five different occasions concluded that the environmental impacts of the permit approval for the pipeline would be negligible and I think that one of the reasons for that conclusion was precisely that, that the pipeline approval wouldn’t change the amount of oil sands oil that was being exported to the US. It might simply change the means in which it got there.
Markham: Could you give me one other example of a good argument that TransCanada is making in its application?
Kronby: Another issue that is always a tricky is the damages claim. I assume that the $15 billion reflects significantly more than their outlays to date. So, quite aside from whether the claim will succeed on the merits, there’s a separate issue of even if the claim does succeed, what is the appropriate measure of damages? And that too, I expect, would be contested.
Markham: Are there any issues that we should’ve talked about that we haven’t addressed yet?
Kronby: I think one of the interesting questions was really that the Obama administration needed to address perceptions of the United States as committed to fighting climate change. And that this was an important foreign policy consideration and was really the basis for rejecting the pipeline. The extent to which a tribunal will be prepared to consider that kind of justification in assessing the merits of TransCanada’s claim. That’s likely to be a significant issue here.