Financial Post | April 30, 2014
Ottawa mulls Keystone XL challenge under NAFTA after US dodges decision again
The federal government, acting alone or with Keystone XL proponent TransCanada Corp. and perhaps pipeline shippers, has legal grounds to challenge the U.S. administration’s handling of the pipeline, legal and trade experts said.
While U.S. President Barack Obama hoped to kick Keystone XL out of the way by delaying a decision ahead of mid-term elections, Ottawa is considering launching a challenge under the North American Free Trade Agreement (NAFTA).
The federal government, acting alone or with KXL proponent TransCanada Corp. and perhaps pipeline shippers, has legal grounds to challenge the U.S. administration’s handling of the pipeline, legal and trade experts said.
The option is being discussed and could be prepared as a contingency, but a decision hasn’t been made, according to Ottawa sources.
Former Canadian Prime Minister Brian Mulroney and his former chief of staff, Derek Burney, who played central roles in negotiations that led to the Canada-U.S. Free Trade Agreement and subsequently NAFTA, suggested in separate speeches in recent days that Obama’s persistent delays are offside the spirit of the agreement.
“A negative verdict by the U.S. government would contravene a major tenet of NAFTA under which the U.S. was guaranteed unfettered supply in exchange for unfettered access by Canadian exporters to its market,” Mr. Mulroney, now a senior partner at Norton Rose Fulbright LLP in Montreal, said April 9.
In a separate speech April 23, Mr. Burney said: “A negative verdict, based on dubious environmental concerns, would actually run counter to a central pillar of our NAFTA trade agreement in which we agreed to U.S. demands for open or unfettered access to energy supply from Canada including times of emergency. The quid pro quo of that bargain was that Canada would, in turn, have unfettered access to ship energy to the U.S.”
In an interview Tuesday, Mr. Burney, a strategic advisor at Norton Rose in Ottawa and a director of TransCanada but says his views are his own, said Canada would have a strong case if the pipeline were outright rejected.
So far, though, Obama’s delay strategy complicates a NAFTA challenge because the U.S. administration could argue that it’s following its processes, even though they have been used to dodge making a decision, he said.
“Regardless, I think there would be merit in our own government moving in the direction of doing an assessment of their own,” he said. “That move by itself may stir up some attention.”
The U.S. State Department said on Good Friday it would again delay a decision on the pipeline, despite nearly six years of review, until the Nebraska Supreme Court settles a dispute over what path the pipeline should take.
The State Department leads the approval process because the pipeline would cross the national border.
Foreign Affairs spokesperson Caitlin Workman said it would be “premature to speculate” on whether a NAFTA challenge is in the works.
“I can assure you that we will continue our efforts to secure U.S. approval of the Keystone XL pipeline, a project that will create tens of thousands of jobs on both sides of the border, will enhance the energy security of North America, has strong public support, and the U.S. State Department has, on multiple occasions, acknowledged it will be environmentally sound.”
Mr.Burney said it’s the Americans who were pushing for unfettered access to Canadian supplies during the trade negotiations because they were worried about being discriminated against under the National Energy Program.
Legal experts say the delays could be grounds for legal action on their own.
International trade lawyer Lawrence L. Herman, with Herman & Associates in Toronto, said TransCanada, as an investor, has rights under a section of NAFTA to “fair and equitable treatment.
“The more the file is politicized, the more there is an argument that they are not accorded the treatment that they are entitled to under the NAFTA,” he said in an interview.
Unlike other cross-border pipelines, whose approvals were given in a short time, TransCanada could make the case that Keystone is being treated differently than comparable pipeline applications, he said.
Calgary-based TransCanada has looked at a NAFTA challenge in the past, but wouldn’t say Tuesday whether that option remains on the table.
“We are extremely disappointed and frustrated with yet another delay but are continuing to work through the U.S. Department of State process,” spokesman Davis Sheremata said in an email.
The Obama administration’s delays could also be offside the process the State Department claims to be following to review Keystone, said a legal expert in Washington.
The process came into effect in 2004 under an executive order by former President George W. Bush and was intended to “expedite reviews of permits as necessary to accelerate the completion of energy production and transmission projects,” not delay them, the source said.
“The President is obviously cherry picking the parts of the EO he likes and discarding the inconvenient parts,” the source said. “Although such conduct may not be challengeable in the courts, anyone with a desire to see good government in the U.S. ought to be howling in protest over such conduct.”
A NAFTA challenge would involve filing a request for arbitration. The case would be reviewed by a bi-national panel and its decision would be binding.
Such challenges tend to be looked at against other options. In KXL’s case, they include continuing to lobby members of the U.S. Congress or a tit-for-tat response in another area.
They are also weighted against the impact on the bilateral relationship.
Mr.Burney, who also served as Canadian ambassador to the U.S., said the Keystone XL debacle has already soured the relationship, and it’s now in a state of “malign neglect.
“The best answer from Canada is to find another market for our energy,” Mr. Burney said. “That is the only issue that is going to get attention in Washington. As long as they have a monopoly position on our resource, they will behave as they are behaving.”
Financial Post, with files from John Ivison