The path to passage of the Trans-Pacific Partnership agreement between the United States and 11 other Asia-Pacific countries just became more complicated.
The Obama administration clearly hopes to gain congressional approval of the TPP agreement before President Barack Obama leaves office. U.S. trade representative Michael Froman traveled to New Zealand for a Feb. 4 signing ceremony with his counterparts from other TPP countries. As of this writing, Obama plans to sign the agreement Feb. 5 and submit it to Congress in March, starting the official clock for a vote later this year.
A monkey wrench was thrown into the administration’s plans on Jan. 6, however. On that day, TransCanada Corp. announced it will sue the Obama administration in federal court and in an international arbitration body under NAFTA’s investor-state dispute settlement rules, in response to the administration’s denial of the XL pipeline to carry Canadian tar sands oil to U.S. refineries.
In its federal lawsuit filed in Houston, TransCanada alleges that the “president’s decision to deny construction of Keystone XL exceeded his power under the U.S. Constitution” by interfering with Congress’ power to regulate interstate and international commerce. The company notes that both chambers of Congress passed legislation approving construction of the pipeline, which was vetoed by the president.
The company’s NAFTA case alleges the administration treated its XL pipeline application in a discriminatory fashion when it denied a permit, even though TransCanada’s application was similar to other applications approved by this and previous administrations, and even though the State Department determined the pipeline would not substantially increase global greenhouse gas emissions.
TransCanada is seeking $15 billion in costs and damages from the U.S. Government in its NAFTA case.
The NAFTA dispute shines a spotlight on controversial provisions in NAFTA and TPP which allow foreign corporations – but not domestic ones – to sue for damages in international arbitration bodies, over and above any relief they may seek in domestic courts. Under these international proceedings, three appointed arbiters rule on the merits of cases, with no appeal of their decisions allowed and no requirement that they respect precedents set in other similar cases.
The United States so far has won all cases brought against it by foreign investors in international arbitration bodies – 13 in all. But past is not always prologue. In this case, attorneys for TransCanada present evidence of past pipeline approvals, including some from the same tar sands and involving the same companies. They also cite public statements from senior administration officials noting the politicized nature of the pipeline application. Of course, the administration will respond with arguments of its own.
This case could not have come at a worse time for Obama. Under the timetable set by NAFTA, TransCanada may formally submit its claim to international arbitration 90 days after its Jan. 6 notice, or in April at the earliest. It’s impossible to predict the outcome, which could take years to resolve. But the case certainly will sharpen criticism of TPP by its opponents.
The TPP faces an uphill climb in Congress, even without the latest complication. Legislation to speed its consideration in Congress passed by a narrow vote – and even failed in the House before ultimately passing. All leading presidential candidates oppose the agreement. And the administration is taking a big risk by asking Congress to vote on a trade agreement in an election year, the most sensitive time for members facing reelection.
Moreover, the United States isn’t alone in facing new challenges to domestic approval of TPP. Japan’s economy minister, who led negotiations on the politically charged agreement for Japan, recently resigned under allegations of bribery unrelated to TPP. His departure from Prime Minister Abe’s cabinet seriously complicates the path to passage in Japan as well.
Despite the controversies surrounding some aspects of TPP, the agreement would open markets in Asia and Latin America to U.S. exports of agricultural products, manufactured goods, and services. That explains why Montana’s stock growers and leading agricultural producers support the pact. Of course, if Japan fails to approve the agreement, some of the hoped-for benefits for U.S. exporters would be reduced.
Failure to pass TPP would be a blow to U.S. leadership in trade matters. But I argued some months ago (Missoulian May 3, 2015) that Congress and the administration would be well advised to drop investor-state dispute settlement provisions in order to increase chances of TPP’s passage in Congress and its adoption in other countries.
TransCanada’s lawsuits may force much-needed rethinking of this increasingly controversial feature of U.S. trade and investment agreements.
Joanna Shelton was deputy secretary general of the Organization for Economic Cooperation and Development in Paris; held senior positions in the executive branch and Congress in Washington, D.C.; and teaches at the University of Montana. You can reach her through her website, joannashelton.com.