On November 6, 2015, after years of controversy, President Obama rejected the Keystone XL Pipeline, bitterly opposed by environmentalists. That would seem to be the end of the story. However, on January 5 of this year, TransCanada, the company behind the pipeline, used a provision in the North American Free Trade Agreement (NAFTA) to file a claim for $15 billion in compensation for profits lost.
Stopping the pipeline had been a key priority of environmentalists because it delivers oil from the Alberta Tar Sands, which emits substantially more climate-change gases than conventional oil. Drilling in Alberta has also destroyed forests and likely contaminated water and ecosystems.
Environmentalists have long argued that treaties such as NAFTA allow corporations to sue when government takes steps to protect the environment. This is due to Investor-State Dispute Settlement clauses that allow businesses to take action if they feel they are being materially harmed, as happened with Keystone XL.
Environmental groups including the Sierra Club, 350.org, and Greenpeace, along with labor groups, therefore oppose the massive Trans-Pacific Partnership (TPP), recently negotiated between 12 countries, from Australia to Mexico to Singapore, but not yet signed. (Full disclosure: I have advocated for my local Sierra Club on transit issues and have written several blog posts about the TPP.)
The TPP does have an Investor-State Dispute mechanism similar to NAFTA. Environmental groups now worry that it will open the gate to a slew of new claims against countries that try to institute rules protecting the environment.
Stopping Keystone XL was “a victory for the environment,” says Martin Wagner, an attorney for EarthJustice. “We—the planet, the human culture—are in a situation where we need to do everything we can to slow emissions in the atmosphere.” Now, the United States might have to pay for this environmental victory.
“This is exactly the kind of case that those of us against the TPP are concerned about,” says Wagner. “Governments need to make decisions to protect the environment and human health.” Wagner believes that the mere threat of action will have a chilling effect on government efforts to protect the environment.
Such concerns are overblown to Scott Miller, a trade dispute expert at the Center for Strategic and International Studies. “Except in rare circumstances, normal regulation in the public interest does not give rise” to arbitration claims, he says. Miller explains that two thirds of such claims are dismissed. “The U.S. in NAFTA Chapter 11 has never settled a case and never lost a case,” he says.
Wagner, however, points to several international cases in which companies have filed claims asking compensation of governments that institute environmental actions. In one, a Canadian province banned fracking and a U.S. company challenged that decision. Elsewhere, when California tried to phase out the gasoline additive MBTE, a Canadian company filed a multimillion dollar claim.
In yet another case, Ecuador required Chevron to pay “for mass contamination in the Amazon for its oil activities,” says Wagner. Now Chevron “is using an investment tribunal to argue that it should be paid by the Ecuadorian government.” The number of such cases, says Wagner, is snowballing, with “more and more challenges to government actions.”
Because the arbitration panels consist of three international lawyers and cannot be overturned, critics contend that they remove power from governments. Wagner believes that the “entire global trade system is set up to make it easier for corporations to profit and harder for governments to challenge.” Rather than an interstate tribunal, “If a government takes an action that is not a legal or legitimate environmental action, the first place the company should go are the courts of that country,” he says.
Miller, however, argues that the panels take out the “political dimension to what’s primarily a commercial dispute.” He adds that “treaty obligations are a check on government actions which interfere with legitimate investments.”
TPP supporters also argue that the treaty includes forceful provisions protecting the environment. President Obama has stated that it “includes the strongest environmental standards in history.”
Miller describes a progressive improvement since NAFTA was originally signed in 1996. At that date, environmental protection was “essentially a side agreement, with no binding obligation,” he says. “Since that time there has been steady improvement, both in labor and environmental standards.”
Miller points to TPP language enforcing the Convention on International Trade and Endangered Species (CITES) as an example of a multilateral environmental agreement designed to protect the environment.
The Sierra Club document “A Dirty Deal,” however, argues that the TPP fails to protect six other international agreements protecting the environment, merely suggesting that countries live up to them but not including viable enforcement mechanisms. In addition, the Sierra Club explains that “the United States has never once brought a trade case against another country for failing to live up to its environmental commitments in trade agreements.”
Asked about this, Miller responded “that there have been relatively few disputes of any kind with our recent Free Trade Agreement partners.” He adds, “One conclusion would be that our partners are living up to their obligations.”
Another key issue brought up by the Sierra Club is whether the TPP will boost manufacturing in countries with weak environmental regulations, such as Vietnam, where production “is more than four times as carbon-intensive” as the United States. However, Miller asks “what stops [companies] from moving now,” when the average tariff is just 1.4% and points out that “a lot of products from Vietnam are currently sold in the U.S.”
Still, countries with lower environmental and labor standards might gain a competitive edge. Wagner argues, “what happens with open borders is that manufacturing moves to where cost is lowest.” One question is how to “safely dispose of manufactured waste—dumping in the river is cheap.”
He adds that manufacturing in China and other countries with high greenhouse emissions only adds to climate change. However, because Americans buy these inexpensive products, “in so many ways we are responsible for the vast amount emitted in China.”
China, however, is not a signature to any treaty such as NAFTA and will not be part of the TPP (at least initially). When I pointed this out to Wagner, he explained that China operates under the World Trade Organization, which is designed “to promote free trade and limit governmental ability to place restrictions.” In this view, the deck is stacked against environmental protection in a systematic series of free trade organizations and agreements.
Whether the $15 billion TransCanada claim will affect passage of the TPP remains an open question. “I can’t imagine that it wouldn’t,” says Wagner. Certainly, stopping the Keystone XL has long been a central issue in the fight against climate change. For the United States to have to pay for this would therefore shock the environmental community.
Yet Miller believes that the case will affect the TPP “probably not at all.” He explains that “it will now take about a year to agree on forum for the dispute, name arbitrators, and establish a jurisdiction.” Even then, it will likely be several more years before the case is decided, and by that time the Congressional vote on the TPP will be long over.
Still, the TransCanada claim, and the Investor-State Dispute Settlement mechanism, remain a shadow hanging over the TPP. Just how heavy a shadow—just how much it affects passage of the TPP—remains to be seen.