US investors have successfully used investor-state arbitration
under the NAFTA when they have thought themselves wronged by the
actions of governments in Canada or Mexico. But the United States
itself has never lost a NAFTA investment arbitration. The
United States' record in NAFTA claims decided on the merits or
on jurisdictional grounds is a perfect 9 wins and 0 losses. A
number of those claims were ill-conceived, but others featured
credible or even compelling claims (e.g., Loewen
A cynical but commonly-held view in arbitration circles is that
arbitrators understand that the United States must not lose
investment arbitrations because the political backlash, in
particular from Congress, would imperil the US investment treaty
program and possibly precipitate the demise of investment
arbitration worldwide. That view has had currency at least
since reports circulated of ex parte warnings by State
Department officials to the US-appointed arbitrator in the
TransCanada PipeLines has now given notice last week that it
intends to bring a NAFTA claim against the United States over
refusal to permit the construction of the Keystone XL pipeline.
This case has potential to fuel or put the lie to the cynicism that
the investment arbitration playing field is tilted in the US
There are compelling reasons to think that TransCanada's
claims might prevail. TransCanada contends that the Obama
Administration caved to political pressure because it wanted to be
seen as a leader on climate change. It therefore allegedly:
Disregarded its own findings that Keystone did not raise
significant health, safety or environmental concerns;
Unreasonably delayed and arbitrarily denied approval of the
Discriminated against TransCanada by applying different
criteria to Keystone XL than it had to pipeline projects by other
US and foreign investors in comparable circumstances.
TransCanada is represented by a top US law firm with a strong
record in investment arbitrations. Its Notice of Intent is a
well-crafted document that seems designed, among other things, to
pre-empt criticism that TransCanada is using NAFTA Chapter 11 to
circumvent environmental policy.
Keystone XL was already a lightning rod for controversy. The
arbitration, if it proceeds, will be based on the most prominent
and politicized events of any NAFTA case to date. At US$15 bilion,
it will also be one of the largest investment arbitrations to date
under any treaty. A ruling on the merits would require the
tribunal to confront difficult questions about how far a government
can go in basing regulatory decisions on starkly political
calculations regarding important but collateral policy objectives.
Likewise, the tribunal would also have to consider the extent to
which regulatory decision-making can be influenced by foreign
If the arbitration goes ahead, which could be as soon as May of
this year, it will be several years before an award is
rendered. Nevertheless, by issuing its Notice of Intent now,
TransCanada seems to be positioning itself to move ahead
quickly. If it does, it will be launching the most closely
scrutinized arbitration in NAFTA history, not only because of the
subject matter but also for whether US government conduct is held
to the same standards under NAFTA as that of its treaty partners
Canada and Mexico.
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While that agreement mandated export measures on Canadian softwood lumber exports destined for the United States, it also protected those lumber exports from the potential imposition of onerous import measures by the U.S.
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