Todd Weiler is an independent barrister who specializes in investment treaty arbitration.
Over the past couple of months, U.S. President Barack Obama has made it abundantly clear that he is not a fan of the Keystone XL pipeline. It's probably not personal. If he has to disappoint somebody, he would apparently prefer that it be Canadians, rather than any of the Democratic Party's most generous campaign donors, such as billionaire environmental activist Tom Steyer.
The fact that Mr. Obama has few legacy achievements for his six-plus years in office may also be a factor – it may not be too late for him to be remembered as the first green president. Of course, not many presidents are remembered for their having been staunch friends of Canada, anyway.
Keystone XL opponents had every reason to celebrate last week. The same President who had been increasingly voicing skepticism about TransCanada Corp.'s application to complete its pipeline project – although not pipelines in general – came through for them with his veto. Some now believe that the only hope for Keystone XL's completion would be regime change at 1600 Pennsylvania Ave.
To be fair, Mr. Obama probably did not enjoy exercising his veto power. His staff will spin it as a small victory for procedural fairness. They will also keep insisting that he hasn't made up his mind yet. And they will also continue ignoring the fact that it is not normal for the leader of the free world to devote himself to making a personal decision on whether or where a tiny proportion of his country's pipeline network ought to be built.
With every end comes a new beginning, however. TransCanada may soon decide that it has no choice but to serve notice of its intent to launch a multibillion-dollar NAFTA claim against the United States for seeing its project frustrated without a fair hearing. The Alberta-based company has already invested more than $2.3-billion in the project. Costs have also skyrocketed since it first made what should have been treated as a routine application to build the portion of its pipeline slated to cross the Canada-U.S. border.
TransCanada has been carrying the costs of this massive investment for a number of years now. A time may come when the project is no longer feasible, in spite of the fact that it could have been a valuable, productive asset had it been built on schedule. Indeed, even if Keystone XL were eventually completed, TransCanada would still have a case for some compensation arising from the shoddy treatment it has received.
Is this all just bitter Canadian bluster? The U.S. government apparently doesn't think so. In 2012, the administration transferred a State Department lawyer from the Office of the Legal Adviser, where he had been defending the government against claims under the North American free trade agreement for more than three years, to the unit responsible for the Keystone XL application, the Bureau of Oceans and International Environmental and Scientific Affairs.
Under NAFTA, the U.S. government is not allowed to treat Canadian investors less favourably than its own investors or investors from another country. Washington has approved numerous pipeline projects over the years, many of which involved circumstances similar to those of Keystone XL. It typically takes 500 to 600 days to obtain project approval. Keystone XL will have passed the 2,500-day mark before year's end. Filing a NAFTA claim permits TransCanada to force the government to either provide a cogent explanation for this manifest difference in treatment to an independent, impartial tribunal, or pay compensation for the harm it has caused.
NAFTA also requires the U.S. government to provide Canadian investors with "fair and equitable treatment," which includes a prohibition against exercising legitimate regulatory authority for an improper purpose. For example, a government official cannot use her authority to reject or approve a pipeline proposal to curry favour with campaign donors. Pipeline construction and maintenance is governed by comprehensive standards with which an applicant like TransCanada must comply. Under NAFTA, TransCanada is entitled to have its application judged on its merits, based on those standards – rather than on the basis of partisan political exigency.
It is also due to partisanship that the President may not be able to run out the clock on this one. The Republican-controlled Congress has forced his hand, neutralizing the effectiveness of the President's delay-based stratagem. Unless a bipartisan super-majority of U.S. senators can be mustered to override his veto, the administration could have a big NAFTA problem on its hands.
The President probably planned to depart the scene before the cheque came, leaving it for his successor to pay. Assuming that a claim is launched later this year, there is enough time remaining for the claimant's lawyers to pose awkward discovery questions of the current administration, and to demand documents, not only from the State Department but from the West Wing. Refusal to fully comply with such demands can be construed as an admission of the facts in the claimant's case.
That's not all. Rumour has it that Canadian Prime Minister Stephen Harper and his cabinet might have entertained the option of pursuing a claim against the United States last spring. There is nothing preventing both TransCanada and Ottawa from pursuing claims simultaneously. TransCanada would focus on breaches of Chapter 11 (on investment) and Ottawa could focus on breaches of Chapter 11 and Chapter 6 (on the energy sector).
Patience might be a virtue, but now is the time to consider moving – before the current occupants of the West Wing have a chance to escape some much deserved attention.