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TransCanada’s claim for arbitration under NAFTA over the U.S.’s rejection of the Keystone XL pipeline comes at a tough time for the trade deal, which has had no real defenders during the presidential campaign.Alex Panetta/The Canadian Press

TransCanada Corp.'s $15-billion (U.S.) claim to a NAFTA panel over Keystone XL is a clear and controversial example of how such agreements work, launched at a moment of an intense political criticism of free trade in the United States and at a time of expanding economic liberalization in Mexico.

Prime Minister Justin Trudeau will host U.S. President Barack Obama and Mexico's Enrique Pena Nieto at a summit in Ottawa where the leaders will extol the virtues of continental free trade. TransCanada's claim for arbitration under the North American free-trade agreement will serve as a weapon in the hands of opponents of such deals – whether NAFTA or the pending Trans-Pacific Partnership (TPP) deal.

"The top-line reading of this is that it is just another indictment of NAFTA," Laura Dawson, director of the Canada Institute at the Washington-based Wilson Center, said Monday.

"But I'm certain it's not the only reading," she said. Ms. Dawson noted that the United States has long demanded the inclusion in trade deals of dispute settlement mechanisms that give corporations the right to win compensation for discriminatory treatment from arbitrators, adding that the United States has never lost a NAFTA arbitration case. (Canada, on the other hand, has lost several.)

Ms. Dawson said the bigger lesson from the Keystone XL fight is that the American cross-border permitting system "definitely needs to be overhauled."

Giving foreign corporations better access seems to run contrary to the current mood in the United States. During the lengthy presidential campaign, the 22-year-old NAFTA deal has had many detractors and no real defenders.

The Republican Party's presumptive nominee Donald Trump has built his enormously successful, populist campaign on an "America First" platform that blatantly promotes heavy-handed discrimination against foreign interests. He pledges to kill NAFTA and, while he supports Keystone XL, he has promised to extract "a big, big chunk of the profits" for the United States from its foreign owner, TransCanada.

The Democrats' standard-bearer Hillary Clinton was long seen as more supportive of trade deals – her husband, Bill, concluded the North American pact, and she previously promoted the 12-nation Trans-Pacific Partnership that President Obama negotiated but has not been able to get ratified. However, Ms. Clinton was forced to the left during the nomination campaign by radical firebrand Bernie Sanders, and she now vows to renegotiate both agreements.

In a teleconference Monday, Keystone XL opponents slammed TransCanada's arbitration claim but seemed to almost welcome it as a case study that will prove their argument that free-trade deals erode environmental protection. They make that claim even though TransCanada has merely filed a suit and has a long road before a decision.

They urged NAFTA leaders to reject the investor-state provisions of trade agreements, which they characterized as undemocratic, secretive and typically favouring foreign corporate interests over domestic ones.

"TransCanada has done an enormously good job in illuminating all the problems with our current trade policy," said Bill McKibben, executive director of 350.org, which led many of the anti-Keystone XL protests. "You couldn't have asked for a better illustration or a more timely one of why people have a bitter taste in their mouth about NAFTA, and why huge numbers of people in both political parties are in some form of revolt over the prospect of a TPP pact."

TransCanada is also sending a message to Mexico, where the government is aggressively courting foreign investment to modernize the country's previously closed energy industry. The Calgary-based company is investing $5-billion in several natural gas pipelines in Mexico, including a 62-per-cent interest in the $2.1-billion Sur de Texas-Tuxpan project that was awarded earlier this month.

Having invited the foreign investors to the party, Mexico would have a tough time pulling away the punch bowl should some future government decide the liberalization was a mistake.

With liberalization, "Mexico will be increasingly subject to provisions of Chapter 11 [the investor-state chapter] of NAFTA," said Duncan Wood, director of the Wilson Center's Mexico Institute. "Folks in the energy sector will look at this [TransCanada's NAFTA challenge] and say there is real danger in not following due process."

However, Mr. Wood said the Mexican government is eager for more capital and is unlikely to do anything that would damage its reputation or scare away foreign investors.