Canadian Company Sues United States over Alleged NAFTA Violation

January 12, 2016International Tradeby EW News Desk Team

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TransCanada, the Canadian company synonymous with the Keystone XL pipeline, announced its intention to sue the United States under the North American Free Trade Agreement (NAFTA). The case will be filed in both an international tribunal and a U.S. Federal Court in Dallas. 

According to TransCanada, it "has been unjustly deprived of the value of its multi-billion dollar investment by the U.S. Administration's action." Per the company's recent press release, TransCanada hopes to recover $15 billion from the U.S. government as compensation for lost profits related to the government's denial of permits related to constructing the pipeline. The companion federal suit seeks declaratory relief, asking the court to decide that the permit denial was without legal merit and that the company can construct the pipeline without further approval. 

Although the lawsuits arise under NAFTA, the suits rely on a provision called Investor State Dispute Settlement (ISDS) to overcome the concept of sovereign immunity. Under sovereign immunity, governments are usually exempt from lawsuits when acting within the course of their ordinary duties. ISDS, however, allows corporations to sue foreign governments for damages. ISDS provisions have become increasingly common features in many trade agreements, and this has given a number of economic and environmental analysts reason to pause. 

According to Yes! magazine, ISDS originated in the mid-20th century during the cold war, when companies feared a revolutionary government ("a government with communist leanings") might nationalize certain industries, seizing the company's assets. The use of ISDS was to hold those governments accountable and to provide a means of redress for the injured companies.

However, in the wake of the end of the cold war, legal professionals and their clients have sought to test the limits of ISDS. This has led to lawsuits such as the one against the United States for refusing to allow the completion of a pipeline that many fear could have a negative impact on the environment. 

To environmental groups, like Sierra Club and Greenpeace, lawsuits like the one TransCanada brought represent the realization of a sort of nightmare situation. A private company, with more concern for profit than the long-term consequences its actions may have on the environment, now brings the most powerful nation on the planet to court because it did not get its way. This very situation is why these groups have become so outspoken against other trade agreements, like the Trans-Pacific Partnership (TPP).

They fear that ISDS provisions in those agreements could render laws and political movements aimed at improving the environment and reducing the effects of global climate change moot. After all, even the most powerful of nations may think twice about enforcing environmental regulations if it may face a costly international lawsuit at every turn. 

"The challenge is that we need to be clearing the path so all countries can put in place the most ambitious climate policies possible in order to meet and exceed those goals. But the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership, if put into law, would essentially put new roadblocks in the way that would threaten or slow the ability to make the changes our economy needs," said 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. In the trade negotiations, climate change is totally absent from the discussions," Solomon pointed out. "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."