TransCanada Goes Legal On US Government Over The Rejection Of Keystone; Will It Wake Obama To The Problems Of Corporate Sovereignty?

from the wake-up dept

Over the last few years, there's been a big controversy over the Keystone XL pipeline project, a massive planned project to build an oil pipeline from Canada to the US that many folks had been protesting, and which (after years and years of debate), President Obama finally rejected a few months back. That's not a topic that we've really covered here, other than a single mention when we questioned why the FBI had spied on activists protesting the potential pipeline.

However, things got... interesting yesterday, as TransCanada initiated a corporate sovereignty claim against the US government over the rejection of the project. As we've been explaining, corporate sovereignty provisions in trade agreements (usually officially called "investor state dispute settlement" or "ISDS" -- in part because it's so boring many people ignore what it's really about) provide a way for foreign companies to effectively "sue" foreign governments over regulations they dislike -- including regulations that negatively impact "expected profits."

Even worse, it's not a real "court" that deals with these things, but a tribunal of folks, some of whom may have other dealings with the companies.

One of the most egregious examples of this is the ongoing corporate sovereignty claim made by drug maker Eli Lilly against the government of Canada, demanding $500 million, because Canadian patent laws rejected two Eli Lilly patents for not really doing anything new. Eli Lilly claimed that this "expropriated" its expected profit, and thus initiated a claim.

President Obama has been waving off concerns about corporate sovereignty/ISDS for a while now, noting that it's rarely been used against the US government, and that the US government had so far won all such claims. That's true. But, this is a big one -- and it might not end the same way. TransCanada is demanding $15 billion, claiming this is the "lost value" due to the rejection of the plan. And including these provisions in giant new agreements like the TPP (with Pacific rim countries) and TTIP (with Europe) will mean opening the floodgates.

Think about how crazy this is: Any time a company "invests" in plans to do something, that are later made impossible (or difficult) due to a regulatory decision, the (foreign) companies can basically demand payment. That puts a massive burden on any attempt to regulate anything in regards to how corporations act, even if new information has come to light, or people have recognized how existing regulations are problematic. These provisions will make it nearly impossible to even contemplate fixing copyright or patent laws, because companies will just make claims arguing that such changes destroy "expected" profits.

And now, big time champion of corporate sovereignty/ISDS, President Obama, is facing an ISDS claim that could cost American taxpayers $15 billion. Just for deciding that a giant oil pipeline isn't a good idea. Why would any country ever willingly submit itself to such conditions?
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Filed Under: corporate sovereignty, isds, keystone, keystone xl, nafta, tpp, ttip
Companies: transcanada


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  1. icon
    Hyth (profile), 14 Jan 2016 @ 6:31am

    Still Perplexed

    I'd like to address a few of the points made:

    - Is it "corporate sovereignty" or "government accountability"? I see little difference between enforcing government promises and those made by individuals or corporations.

    - That these agreements can make it expensive or difficult to democratically pass legislation or regulations is beside the point. The country, through its leaders, bound the government to a course of action. Why should it not pay for violating those promises?

    - We make the U.S. government pay for violating its promises (including most contractual promises) via the Administrative Procedures Act all the time. Or, similarly, what do you consider suing for violations of civil liberties?

    - "Expected profits" are the default form of damages in Anglo-American contract law. It is designed to put the party suffering from the breach of contract in the position she would be in absent the breach. This mode of calculations encourages "efficient breach" of contract.

    - Per above, if it efficient for the U.S. to "breach" a contract due to policy preferences/new information, it should do so. And can do so. If it pays for breaking its promises.

    - If the politicians are corrupt, having legislation or regulations overrode by international arbitration isn't counter-democratic but rather ambivalent to democracy.

    - Most attacks on international arbitration methodology apply to all treaties. Compare the power of an international commercial arbitration tribunal with the ICJ. Maybe you like neither.

    I've taken part in ICSID disputes. Protecting basic contract rights, and forcing the state (via taxpayers) to pay when breaching those contracts merely inflicts accountability on governments--much as we want in most other areas.

    Of course, if you think governments should be able to break contracts (what about the social contract?) with impunity, "corporate sovereignty" is indeed a problem.

    I'm not sure why Mike is on the other side of this policy item, although I see why one could hold the position.

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