Keystone Pipeline Lawsuit Portends Anti-Democratic Decisions
By Paul Rosenberg, Senior Editor
On Jan. 7, TransCanada, the company behind the recently-rejected Keystone XL pipeline, filed two lawsuits—one in federal court, the other seeking $15 billion in damages under the North American Free Trade Agreement’s Investor-State Dispute Settlement provisions.
“A powerful legal tool designed to protect foreign investors could undermine commitments made in Paris last month to reign in climate warming emissions,” wrote Brian Bienkowski for The Daily Climate. “The tool [Investor-State Dispute Settlement] is tucked into two pending trade deals President [Barack] Obama wants to finalize this year…. The language is de rigueur for trade agreements and is designed to protect against what’s known as ‘loss of expected profits.’”
TransCanada’s lawsuit exposed a fundamental contradiction between Obama’s global warming activism and the trade agenda he continues to pursue. This despite intense opposition from environmentalists, labor activists and others in the Democratic Party, who’ve opposed similar deals all the way back to NAFTA in 1993.
Environmentalists’ condemnations came quickly.
“This isn’t going to get the pipeline built, and it is going to remind Americans how many of our rights these agreements give away,” said Bill McKibben, co-founder of 350.org, the leading organizer of the global grassroots climate change movement.
“These destructive provisions that wrongly empower corporations to attack our safeguards show exactly why NAFTA was wrong and why the dangerous and far-reaching Trans-Pacific Partnership (TPP) is worse and must be stopped in its tracks,” added Sierra Club Executive Director Michael Brune.
“This case, hopefully, is like the canary in the coal mine letting us know what we’d be getting into,” Public Citizen’s Lori Wallach said on Democracy Now! “The TPP would give 9,500 more companies—big multinationals from Japan, in banking, in manufacturing, mining firms from Australia—the right to do this.”
Although various commentators offered different assessments, the $15 billion claim is objectively dubious. Plummeting oil prices could render the entire project unprofitable (Shell recently gave up on Arctic exploration, taking a $7 billion loss after nine years, partly because of this). At best, it’s much less certain than originally expected. (Prices peaked at more than $140 per barrel in 2008, and were still more than $100 as recently as May 2014, but are now under $30 per barrel.) Objective reality has almost nothing to do with the trade deal framework, which operates in a world of its own.
The federal lawsuit seems far-fetched according to reporting by Reuters, which noted TransCanada’s claim that the decision was “unconstitutional.” In contrast, they cited James Rubin, an environmental regulatory lawyer with Dorsey & Whitney, who called the federal suit “challenging.” Reuters explained, “He noted that courts have considered cross-border pipeline decisions before and have generally found they fall within the president’s discretion.
But international trade law is radically different—Sharia law for CEOs, crafted in secret for years by governments and corporations, with no public input at all, until hasty up-or-down votes on final bills. The NAFTA suit will be heard by a secret, private 3-person arbitration panel of the exact same kind that’s included in the Trans-Pacific Partnership, TPP. Win or lose in the long run—expected to take years—the lawsuit’s filing drew sharp attention to how the TPP could effectively cripple efforts to cut greenhouse gas emissions, just weeks after a landmark international agreement of almost 200 countries seemed to have signaled a new era of serious commitment to fight climate change.
“There was nothing unusual about the proposed pipeline or the oil it was intended to carry,” TransCanada argued in its NAFTA compliant, pointing to earlier pipeline permits that had been granted, before grassroots opposition gained traction. “Environmental activists, however, turned opposition to the Keystone XL Pipeline into a litmus test for politicians—including U.S. President Barack Obama—to prove their environmental credentials…. The activists’ strategy succeeded.”
Thus, TransCanada’s claim is that democratic responsiveness violates NAFTA—and, by extension TPP. But it also ignores how falling oil prices and other factors may have changed the assessment. It’s now widely realized that vast fossil fuel reserves must be left in the ground, in order to protect our future. This wasn’t yet recognized when the Keystone proposal was submitted in 2008. As with terminal building and expansion projects locally, the default practice of piecemeal analysis, neglecting or minimizing cumulative impacts, may well be “traditional,” but does not reflect reality, nor protect public health and welfare. In this instance, if rejecting Keystone were vital to securing widespread buy-in by other countries reducing carbon emissions, the cumulative impact of the project would be far larger than originally assumed. Thus, the Obama administration decision to reject the pipeline would be very sound public policy—but could still be seriously attacked under NAFTA, or the proposed TPP.
“The idea that some trade agreement should force us to overheat the planet’s atmosphere is, quite simply, insane,” McKibben commented.
But it wouldn’t be the first time an Investor-State Dispute Settlement provision has been used to protect life-threatening corporate behavior, as it’s already being used to fight a cigarette packaging law in Australia under a similar system. Here in the United States, a meat-packaging law, passed partly in response to mad cow disease, was recently repealed after the World Trade Organization ruled against it, authorizing retaliatory tariffs of more than $1 billion.
Despite the clear threat signaled by the lawsuit, the following Tuesday, Jan. 12, Obama pushed for passage of the TPP in his State of the Union speech, calling it “the right thing to do,” just two paragraphs before touting “the most ambitious agreement in history to fight climate change” that it threatens to undermine.
The disconnect in Obama’s speech is not new in Democratic Party politics, but it also reflects a deep disconnect in the much broader global policy world, as well, pointed out by Ilana Solomon, head of the Sierra Club’s Responsible Trade Program.
“In the halls of power where the [Paris] deal was being crafted there was very little discussion of trade and there’s a real challenge that these two issues—climate and trade—are operating in separate silos,” Solomon said. “In the trade negotiations, climate change is totally absent from the discussions…. If we’re really serious about taking on the climate crisis, we have to stop entering into trade agreements that constrain our ability to do so.”
Philip Morris Asia (headquartered in Hong Kong) used a similar Investor-State Dispute Settlement provision to try to block a 2012 Australian law which required cigarettes to be sold in plain, logo-free brown packages, with prominent health warnings. After losing in Australian court, the tobacco giant turned to Investor-State Dispute Settlement provisions under a 1993 trade agreement between Australia and Hong Kong. The case is still pending.
“I.S.D.S. provisions have been a common part of trade agreements for 50 years, and they were originally intended to protect companies against foreign governments expropriating their assets or discriminating against them in favor of domestic competitors,” James Surowiecki explained in the New Yorker this past October.
But the once-rare Investor-State Dispute Settlement lawsuits have become increasingly common, and with expanded reach “against regulations they perceive as unfair” such as Australia’s cigarette packaging law. And Surowiecki also pointed out that “Canada was successfully sued for not granting a permit to a mining company on environmental grounds.”
Which is one reason the TPP is so worrying. It actually includes a carve-out provision barring tobacco companies from suing under its Investor-State Dispute Settlement provisions, “unquestionably a good thing,” as Surowiecki noted. “But creating a carve-out only for tobacco underscores the basic problem with I.S.D.S.”
If it’s a bad idea to let tobacco companies wield that weapon against the common good, it’s even worse to let fossil fuel companies do the same. Tobacco companies kill hundreds of thousands of people every year. Fossil fuel companies threaten modern society as we know it, putting hundreds of millions, if not billions of lives at risk in the decades ahead. Investor-State Dispute Settlement provisions are a powerful weapon for them to use in blocking governments from acting to help save us.
This past May, speaking at Nike in Beaverton, Oregon, Obama flat-out denied the existence of any such threat.
“Critics warn that parts of this deal would undermine American regulation, food safety, worker safety, even financial regulations,” Obama said. “This—they’re making this stuff up…. This is just not true. No trade agreement is going to force us to change our laws.”
But that very same month, that’s exactly what happened—or at least started to. The World Trade Organization ruled against a U.S. appeal to keep its country-of-origin labeling regulation for imported cuts of beef and pork.
“It took 50 years for us consumer groups to actually get mandatory country-of-origin labeling for meat,” Lori Wallach of Public Citizen’s Global Trade Watch told Amy Goodman on Democracy Now! on Jan. 7.
It finally became law in 2008, a belated response to the mad cow flare-up in the early 2000s.
“The polling shows 90 percent of Americans love that law,” Wallach said.
Domestic courts in Canada and the United States refused to strike it down, but then industry groups brought it to the World Trade Organization—and won.
Industry groups “cheered the ruling” according to a report by The Hill, which covers Congress, which quoted a press release from the North American Meat Institute, saying, “If there ever was any question that mandatory country-of-origin labeling is a trade barrier that violates our international agreements, the WTO ruling against the United States today should lay those doubts to rest.”
The Hill went on to report that “NAMI said it will work with Congress to repeal COOL once and for all.”
Then, in early December, the World Trade Organization ruled that Canada and Mexico could impose retaliatory tariffs of $1.1 billion (Canadian) and $227.8 million (United States), respectively. Shortly after that, Congress repealed the regu- lation.
But Obama’s claim that no trade agreement would force a change in U.S. laws wasn’t the only questionable thing he said at Nike that day. He also sought to discredit critics of TPP who point to disastrous results of NAFTA:
When you ask folks, specifically, “What do you oppose about this trade deal?” they just say, “NAFTA.” NAFTA was passed 20 years ago. That was a different agreement. And in fact, this agreement fixes some of what was wrong with NAFTA by making labor and environmental provisions actually enforceable.
But far less has changed than Obama then claimed, now that TPP’s text has been released.
“The actual language that TransCanada is using in this case, because they filed a brief, is the same language that, word for word, is replicated in TPP,” Walloch said. “There are bells and whistles that have been changed” between NAFTA and TPP, but, “In many ways, actually, TPP expands investor-state [claims]. It allows more kinds of challenges.”
It’s not the first time Obama promised to improve on NAFTA, and failed to deliver. He promised to renegotiate NAFTA several different times during the 2008 election campaign, but changed his mind after the election. On Aug. 11, 2009, Democracy Now! reported on Obama’s first summit meeting with leaders from NAFTA partners Canada and Mexico, where he gave the following excuse for reversing himself:
At a time when the economy has been shrinking drastically and trade has been shrinking around the world … we probably want to make the economy more stabilized in the coming months before we have a long discussion around further trade negotiations.
But the unspoken premise here is that NAFTA is good for the economy, and disrupting it would be risky. Nothing could be further from the truth. A detailed analysis from the Economic Policy Institute in May 2011, found that “As of 2010, U.S. trade deficits with Mexico totaling $97.2 billion had displaced 682,900 U.S. jobs.”
The report broke down job losses by state and congressional district. Instead of trade surpluses and job growth promised when NAFTA was passed, the U.S. trade balance had gone from a slight surplus ($1.6 billion) to the aforementioned $97.2 billion deficit. Most of the displaced jobs (60.8 percent—415,000 jobs) were in manufacturing industries, with computer and electronic parts (22 percent—150,300 jobs) and motor vehicles and parts (15.8 percent—108,000 jobs) leading the way.
Two years after Economic Policy Institute’s report, as NAFTA turned 20, Economic Policy Institute co-founder Jeff Faux wrote a critical overview, published by Foreign Policy In Focus, in which he called NAFTA “a template for neoliberal globalization,” that impacted American workers in four main ways:
First, it caused the loss of some 700,000 jobs as companies moved their production to Mexico, where labor was cheaper…
Second, NAFTA strengthened the ability of U.S. employers to force workers to accept lower wages and benefits…
Third, NAFTA drove several million Mexican workers and their families out of the agriculture and small business sectors, which could not compete with the flood of products—often subsidized—from U.S. producers. This dislocation was a major cause of the dramatic increase of undocumented workers in the United States…
Fourth, and ultimately most importantly, NAFTA created a template for the rules of the emerging global economy, in which the benefits would flow to capital and the costs to labor. Among other things, NAFTA granted corporations extraordinary protections against national labor laws that might threaten profits…
The same corporate protections block consumer and environmental-protection laws. Since workers are also consumers, who live in the environment, they suffer a triple blow under NAFTA and all later agreements based on the NAFTA template.
“In U.S. politics, the passage of NAFTA under President Bill Clinton signaled that the elites of the Democratic Party—the ‘progressive’ major party—had accepted the reactionary economic ideology of Ronald Reagan,” Faux wrote.
Although Faux didn’t mention it, the consequences were dire. NAFTA passed the Senate 61-38, and passed the House 234-200. But Republicans supported it roughly 3-1 in both chambers, while Democrats split 27-26 in the Senate, and rejected it strongly in the House, 156-102. (Bernie Sanders, the sole independent, voted against it.) Intense White House lobbying was crucial to its passage in the House. Yet, this effort was a major contributor to the Democrats landslide losses in 1994. It turned Perot and his voters against the Democrats, while also helping to depress the Democratic base vote.
The story is told in detail in Three’s A Crowd: The Dynamic of Third Parties, Ross Perot, and Republican Resurgence by Ronald Rapoport and Walter Stone, but political elites are in deep denial over such matters, blaming a wide range of other things instead.
Perhaps that helps explain why Obama remains firmly committed to trying to pass TPP, but as a candidate, Hillary Clinton is much more wary about repeating her husband’s mistake, and she’s joined Bernie Sanders and Martin O’Malley in a united front of Democratic candidates opposed to the deal. While the media now has largely chosen to ignore TransCanada’s suit, the underlying issue is a ticking time bomb as we head toward the election in November.