Rethinking Trade - Season 1 Episode 35: NAFTA Keystone XL Pipeline $15B ISDS Attack

Within hours of taking office, President Biden revoked the permit for the controversial Keystone XL pipeline. The project, which would worsen the climate crisis, also posed major health and safety risks to indigenous people whose land it crossed. Now the Canadian corporation that wanted to build the pipeline is using a NAFTA Investor-State Dispute System (ISDS) tribunal to demand $15 billion from U.S. taxpayers.

ISDS allows multinational corporations to sue governments before a panel of three corporate lawyers, who can award unlimited sums to be paid by taxpayers, including for the loss of expected future profits. A years-long civil society and labor campaign got the original ISDS rules whacked out of the revised NAFTA. But that fix is phased-in over three years. This means legacy cases like TC Energy’s can be launched until 2023.

In this episode, we look at the Keystone XL NAFTA ISDS case, the new rules governing investor rights in North America, and the future of the ISDS regime.

Learn more at rethinktrade.org.

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Music: Groove Grove by Kevin MacLeod. 

Link: https://incompetech.filmmusic.io/song/3831-groove-grove. 

License: http://creativecommons.org/licenses/by/4.0/

Transcribed by Sally King

 

Ryan 

Welcome back to Rethinking Trade where we don't just talk about trade policy, we fight to change it. I'm Ryan and I'm joined once again by our in-house trade expert, Lori Wallach. Lori, earlier this month, a Canadian company called TC Energy filed a claim for $15 billion in compensation from the US government for allegedly violating the terms of the North American Free Trade Agreement's Investor State Dispute Settlement system by revoking the permits for the infamous Keystone XL pipeline. Now in our last episode, we looked at the revised NAFTA, now the USMCA, one year after it went into effect. One of the big victories in the fight around the USMCA was the gutting of ISDS. But before we get deeper into what ISDS is, how it works and how a case is being launched, even after the USMC went into effect, can you just tell us about what this case looks like and what it could mean for the US and for US taxpayers.

Lori Wallach 

So as you said, this corporation is demanding $15 billion with a "b" in US taxpayers money to compensate them for the denial of their special rights as foreign investors under NAFTA, because they are claiming that the future expected profits that would accrue from this XL pipeline had it gone forward, with some up to $15 billion, and that they have a right as a foreign investor to be able to complete this project. And if any US government action stops it, we taxpayers have to compensate them. That is the infamous Investor State Dispute Settlement system, which grants rights to foreign corporations to sue the US Mexican or Canadian government. Before a panel of three corporate lawyers. The lawyers can award the corporations on limited songs to be paid by American taxpayers or Canadian taxpayers or Mexican taxpayers, including for the loss of their expected future profits. And he's from corporations only need to convince the lawyers that a law or a safety regulation or in this case, a permit for a dangerous pipeline violates their NAFTA rights. The decisions are not subject to appeal, and the amount awarded has no limit. And this part of NAFTA was largely eliminated with respect to Canada, it was simply ended. And with respect to Mexico, the worst features were eliminated. However, those new rules phased in over three years. So this is what is called a legacy case, we are one year into the new phase and two more years to go. So this case can still go forward.

Ryan 

And for the listeners, we covered a lot about ISDS. In our 10th episode of the podcast, when there were lawsuits being threatened to keep factories open during the early days of the pandemic, I would encourage you to go back and listen to that episode. But Lori, let's get a little deeper into the ISDS system. And then also let's talk about how it was gutted from the old NAFTA, we can talk a bit about the campaign. And then you already introduced us to the legacy cases. But maybe you could explain a little bit more about what a legacy case is and what the phasing looks like.

Lori Wallach 

So legacy case just means that a corporation still has a certain number of years as the investor state Dispute Settlement system phases out of NAFTA, to be able to still bring cases and it's three years one year down. So legacy cases, basically using the old NAFTA provisions before they phase out. And the process basically, as a corporation gives notice from an intent to file what is officially in arbitration. Only the corporations can start these cases governments can't sue the corporations for bad behavior. The rights are only for investors to attack governments and their regulations. And once an investor starts a case, if it's within the three-year phase-out, even after ISDS phases out the case goes forward. So it is a very pernicious facet of NAFTA. And it's a from our perspective, too long of a transition and getting rid of those terms. There are questions about the standing for this case and there will be legal fights about whether or not particular rights were denied. The problem is the decisions get made. by three ad hoc, appointed just for the case billing by the hour corporate lawyers, and these mainly men make their money by serving on these tribunals. And only the corporations can start the cases. So there's a deep financial incentive to rule for the corporations because the corporation's get to pick one of the judges, the three of them, the corporation picks one, the government picks one, and then those two have a third. So it's a club where you're likely get picked by the corporation and the corporation's one that starts the cases if you rule for corporations. So very few of the people, the corporate lawyers who specialize in these kinds of cases, and by the way, they built like $800 an hour. So even if they're going to eventually dismiss a case, it's in their interest for it to go for a long time, which is why on average, even in the cases, they're dismissed, governments pay between five and $8 million in legal fees, that's when they win. So it's a real scam. And it can't go away fast enough.

Ryan 

For many countries. I mean, for the US, the US can afford to enter the legal process around this lawsuit. But for many countries, much poorer countries, even the threat of one of these cases, might as well be one of the cases, right, like companies can often get what they want, simply by suggesting that they could launch a case.

Lori Wallach 

ISDS works as a threat because historically, so many of the tribunals and the corporate lawyers rule in favor of the governments. And for a lot of particularly developing countries, if they figure they're going to have to pay any way. They don't want to spend the extra millions fighting the case along the way. They'd just rather try and settle it pay off the corporation roll back the long question. And it's now developing countries that do that there's an infamous case where Canada reversed an environmental regulation banning a toxic substance. So that us Corporation, the Ethyl Corporation would end their lawsuits and part of the settlement was that Canada had to publish in newspapers around the world that this chemical is perfectly safe, and as well as long to be sold again in Canada. So it's a rough form of corporate bargaining, where the sword of Damocles is basically hung of the prospect of not just a lot of money and damages to have to be paid off by taxpayers, but years of litigation and millions of dollars in legal fees. It is, you know, a really outrageous and pernicious system.

Ryan 

And so there's two big things at play regarding ISDS in North America, specifically in the USMCA and the first of those legacy cases, which you described earlier. The second is the carve-out in the USMCA that maintains ISDS rules for a narrow but fairly important sector of industries. Can you talk about this carve out and what we need to be on the lookout for.

Lori Wallach 

So the carve out is an exclusion to the termination of the old NAFTA investor state. And it applies the old ISDS rules to contracts that currently seven us oil and gas companies have it's 13 contracts that were made under the old NAFTA that are specifically with one particular Mexican government agency that has to do with oil and gas exploration. And the rule is, as long as Mexico keeps Investor State Dispute Settlement, the old times with other countries whose firms have those kinds of contracts, then this carve out allows the US companies to have access to the same extreme corporate rights that their competitor other foreign investors in Mexico's oil and gas sector have. And it was, you know, that one of the, you know, really disappointing things that ended up marring what would have otherwise been incredible victory and ISDS. So when activists look at this rollback of ISDS, which NAFTA was the first agreement into which ISDS first trade agreement into which ISDS was inserted. So to have the United States which has been a great proponent, shoving ISDS in other countries and being a big benefactor and defendor have it, to have the United States say we're ending it with this country, and we're cutting it back enormously with this other country, symbolically around the world and powers a lot of other countries who are trying to exit this outrageous regime. But the sour aftertaste was that this carve-out meant with respect to those contracts and those companies indefinitely until Mexico actually decides to get out of ISDS which would be a very smart thing, then these us firms keep the legacy of the old NAFTA,

Ryan 

Sort of, as you were just alluding to Lori, there was a lot of hope when the USMCA was passed regarding the future of ISDS, not just within the context of the USMCA, but throughout the world. Obviously, NAFTA was not the only deal. It was the first, but not the only to have ISDS rules. What are some of the big fights ahead and confronting and continuing to dismantle ISDS globally?

Lori Wallach 

So a lot of very important developing countries have shown leadership and getting out of ISDS. South Africa started the trend. And then Indonesia joined in, Brazil has never had ISDS agreements. Bolivia and Ecuador both got out heartbreakingly now the right-wing government Ecuador is trying to get back in a lot of countries looked to those countries in the renegotiated its agreements to get rid of most of the pernicious elements. So when the US joined in as a main proponent, benefactor and defender of ISDS, and also a developed country, it was a super important impact worldwide where lots of countries want to get out of their investor agreements and/or if not get out of them altogether to roll them back to something more like the Mexico model. That is in the USMCA which, you know, like the India revised model requires a corporation to use up all of its domestic enforcement options before I can even contemplate going to a panel and then only allows direct exposure creation compensation as compared to all the fancy, silly made up rights, the corporation is jammed into deals like NAFTA and others. And so I think that with the Trump administration, which is you know, basically Donald Trump, a wholly owned corporate subsidiary, with right-wing tendencies, in addition, to make clear that even they thought ISDS was a bridge too far made it such that with a democrat Biden saying his trade agreements wouldn't have ISDS it's now become really the US position, that that old regime is no longer acceptable, tolerable, and that's good for us, that's good for the countries with whom the US would have trade agreements, but also opens up space for the many countries around the world that are smaller countries or developing countries to basically take the cover of the US taking that action with NAFTA.

Ryan 

Rethinking Trade is produced by Public Citizen's Global Trade Watch. To learn more you can visit rethinktrade.org. You can also visit tradewatch.org. Stay tuned for more and thank you for listening.

Rethinking Trade - Season 1 Episode 34: The USMCA, A Year in Review

On July 1, 2020, following a lengthy campaign by unions, civil society groups and congressional Democrats to win key improvements, the revised North American Free Trade Agreement, or United States Mexico Canada Agreement (USMCA), went into effect.

Unlike the original NAFTA, the USMCA requires its signatory countries to respect workers’ rights. And it has a special Rapid Response Labor Enforcement Mechanism. The revised deal largely gutted the disastrous Investor-State Dispute Settlement (ISDS) system. But recently-filed labor enforcement complaints and a “legacy” ISDS case with the corporation behind the XL pipeline demanding $15 billion from U.S. taxpayers provide a stark warning that if and how the USMCA improves life and work in North America will depend on activism in all three nations.

See Public Citizen’s analysis of the delayed phase-in of Mexico’s new labor justice system here: http://bitly.ws/dRnT

Music: Groove Grove by Kevin MacLeod. Link: https://incompetech.filmmusic.io/song/3831-groove-grove. License: http://creativecommons.org/licenses/by/4.0/

Transcribed by Sally King

 

Ryan 

Welcome back to rethinking trade where we don't just talk about trade policy, we fight to change it. I'm Ryan and I'm joined once again by our in house trade expert, Lori Wallach. In our recent episodes, we've been speaking a lot about COVID-19 and the world trade organizations intellectual property barriers, but today we're going to talk about the revised North American Free Trade Agreement, or the USMCA because it went into effect exactly one year ago. In addition to having Lori with us today, we're also joined by global trade watches Research Director, Daniel Rangel. Daniel has been leading a lot of our work around USMCA related labor and workers rights issues, specifically around the implementation of the new labor rights obligations in Mexico. Daniel is one of the lawyers who filed one of the first labor violations cases. Lori, why don't you start us off with a general overview of the labor rules that activists fought for during the Replace NAFTA campaign. And then Daniel, let's talk about the trade next case and the report you recently authored regarding labor reforms and implementation in Mexico.

Lori Wallach 

So one of the biggest changes between the original NAFTA and the revised deal was that Democrats in Congress forced Donald Trump to renegotiate his renegotiated NAFTA, to add a thing called the rapid response labor enforcement mechanism. And what that did is it allowed for actions to be started through petitions by unions or activists that the governments have to respond to that allow enforcement against a particular company with respect to certain specific violations. And the violations relate to obligations each country was required to implement, to, for instance, guarantee basic fundamental union rights to organize to collectively bargain to be able to have, for instance, Mexico's implementation required being able to have votes on your union contract and see it in advance or being able to elect your own officers of your union to make sure they actually represent you. And what this was focused on was the combination of the original NAFTA, having no real labor standards, there was a side agreement, it wasn't enforceable in any way. And the standards themselves were enforce your own laws. So Mexico's laws and the books were pretty good. The problem was they had been enforced for literally decades, such that what were called protection unions, were the vast mass majority of unions in Mexico and in protection union is one that protects the boss. So it's a union that basically the workers don't vote for. They don't elect that union or its officers, it signs contracts with the bosses that are intended to qualify for Mexican labor law requirements that you have a union contract, but the workers never approve it. Some of them don't even know there is a union. And then these so called unions make a lot of money off of getting deductions from the workers wages, to basically be partners with the bosses in keeping wages down. And that horrible collusion, which was just basically reinforced by NAFTA and all the investment protections that helped big US multinationals move down to Mexico to use that kind of exploited labor. That combination is a big part of why, you know, 25 years after NAFTA not only had Mexican wages not risen as NAFTA as original boosters promised, but in fact, they were slightly down, and certainly they were considerably lower than manufacturing wages in China. That was one of the things that had to be tackled, that was both horribly unfair to work as in Mexico, we're making world class products for global companies, and also as a contributing factor to over a million US jobs having been certified as having been offshored to Mexico under NAFTA. So the deal was stronger labor standards guaranteed of independent unions, and for the first time, some real enforcement, but what you have on paper you never know if you have in reality and that is why one year after that all went to a fact the real question, is it changing people's lives.

Ryan 

One of the situations that Lorijust described one of the specific examples of it is something if you listen to our show you've heard about before, which is the case at the Tridonex plant in Matamoros and You know, the situation regarding the labor lawyer who's been representing the independent union there, Susana preeto. Daniel, tell us about what has been happening at the Tridonex factory and also the case that you have lead regarding the violations of labor rights at the Tridonex factory.

Daniel 

Sure. Thank you for having me, Ryan. So basically, this all started in early 2019, when the President of Mexico and then Manuel Lopez Obrador decided to rise the wages across Mexico a 20% increase of the minimum wage. And when the workers in the northern part of Mexico wanted to have that increase for the wages, that was a right that they want decades ago, because that was a provision that was already in much of the collective bargaining agreements that were prevalent in Tamaulipas, when they decided that they want to ask for this increase. They faced repression and violence, not only from companies but also from the local authorities in Tamaulipas, specifically. So one of the ways in which workers decided to claim for the new rights was organizing through a dependent union that's called MOVIMIENTO 2032 that was born out of this struggle. Workers from many factories affiliated to this union, specifically, workers from Tridonex, who played an important role in the initial uprising. When the workers tried to organize independently, they faced a lot of repression, not only from Tridonex to company management, but also the management was parked by the local authorities that in Mexico are called conciliation and arbitration boards, and those are the authorities that Lori was mentioning before that have been colluding with for decades to repress workers and to undermine the rights. So what we have done, along with our partners in labor, both in Mexico, and in the United States, is to help them present a case before the US government arguing why this has been a violation of the labor rights that are recognized by NAFTA, by the new NAFTA, and consequently, making both the Mexican government and the US government to cooperate to try to find a solution. And if it is not possible to impose sanctions on Tridonex because it has been violating labor rights.

Ryan 

And how does this case tie into? You know, I know that there are now a few other cases as well raising the issue of labor violations under the new rules. There's also the issue of the phase implementation of the rules in Mexico. Why don't you talk about the report that you recently authored looking at the status of the labor reforms and implementation in Mexico and how those kind of relate to the Tridonex case,

Daniel 

The Tridonex case is a good parting point to explain why the stage implementation of the labor reform is worrisome. And is because a good deal of the labor reform in Mexico is related to the creation of new labor courts that will deal with the cases that are filed by unions and workers to fight for their rights. The problem is that in Tamaulipas, that is the state where treatment plans are located. This has been the state that is labeled as phase three estate. What this means is that there are not gonna be any labor courts and the new labor courts in this state until May, 2022. So workers will have to go to the old corrupt labor bodies that already exists, and that are not granting them the rights until at least May 2022, for an additional year. This is not only for Tamaulipas, but it's all for all three states that, together, they have half of the manufacturing output of Mexico, half of the labor conflicts that the country registers every year, and an overwhelming number of strikes per year. And that's the problem that we identified in our report on that we're trying to put the spotlight on so that authorities both in Mexico and in the US look for policy solutions to redress this.

Ryan 

And you can see that report at the link in the summary of this episode. Moving on from that, you know, another one of the big victories during the Replace NAFTA campaign, aside from the labor rights and implementation improvements, was the gutting of Investor State Dispute Settlement rules. While this was a huge moment in the fight For better trade policies, there are still ISDS threats looming across North America. I wanted to talk a bit about both trade deals under the ISDS rules and the situation regarding the gutting of ISDS under the USMCA. Lori, maybe you could tell us a bit about ISDS policies in general and how significant the USMCA is in the context of the ISDS status quo.

Lori Wallach 

So I want to start by reminding folks what Investor State Dispute Settlement or ISDS is, it is a system that empowers multinational corporations, to skirt domestic courts and sue governments for unlimited payments of taxpayer funds over any domestic law or policy or regulation court decision that a corporation thinks violates their special investor rights in a trade agreement or an investor treaty. And these cases are decided by tribunals have three corporate attorneys whose decisions are not subject to appeal, and the amounts they can order taxpayers to pay the corporations have no limits. So the North American Free Trade Agreement, NAFTA, which went into effect in 1994, was the first trade agreement that had this extreme system embedded into it. It basically was a mechanism under which corporations could threaten and or literally extract funds from countries for implementing laws that treat foreign and domestic firms the same. And under NAFTA, almost $400 million were paid out in attacks, on environmental policies, and on totally non trade related policies like bands of toxic substances and land use policies, and water and timber policies. And that system was really one of the most pernicious elements that corporate power rigging was one of the most pernicious elements of NAFTA, it also made an incentive to outsource jobs. Because if you took off and you went to any of the other NAFTA countries, you had more of an opportunity to behave badly. And if the government did anything about it, it was like having basically investor insurance, you could go raid the Public Treasury, if they if the government said follow labor law, follow environmental law, really the wrongheaded way of of having global policy. So the really exciting thing about the revised NAFTA, is that with respect to the US and Canada, that system was simply phased out. So we are now 1/3, of the way to the end of Investor State Dispute Settlement in North America, between the US and Canada. And so July 1 is, you know, we're heading down the road, it's really important because an enormous number of the cases where US corporations attacking Canada's better environmental laws. And when US-Canada, investor state goes away, that means that literally 90% of us investor state liability goes with it. So big improvement. With respect to the US and Mexico, the old ISDS system was replaced by a system that includes most of the reforms progressives have asked for, that, among other things, requires a corporation to actually use up all of its remedies that are available in domestic law and spend a bunch of years trying before they could even use the system. But more importantly, it replaces the old substantive rules where you could get money for almost anything, to literally compensation for actual taking of a property without compensation. And that is not what these cases are about, these cases are about a regulation that changes the use and undermines the expectations. And the way the compensation works, it's the difference between what a company thought they would make their expected profits and what they really make. So it's a big honkin deal. There is one big problem with that fix, which is there was an exception with respect to existing contracts in the petrochemical sector. So oil and gas, if a US company has contracts with Mexico, then if Mexico keeps this full investor state system with any other country that has companies with contracts, then there's a grandfathering of the old outrageous rights with respect to those legacy contracts. And that's super problematic, of course, because those kinds of companies are often the biggest players, some of the biggest money grabs a famous agreement under a US-Ecuador treaty is why the largest ones were oil company is the one that is attacking Ecuador and getting literally more than a billion dollars. So it's a it's a problematic exception, but relatively speaking, almost all the cases actually Have all the cases have happened to the old NAFTA couldn't happen under this new regime. However, three years to phase it in, and as much as we can celebrate, that means there's still three years for bad cases. And already in this first year, some of them have been filed. So there have been some, what we can call legacy cases, phase in period cases. So these corporations are scrambling to use these old corporate rights before they go away. And that's a problem.

Ryan 

You know, Lori, some of the things you just said about the existing ISDS rules under the USMCA what was good, but also the carve out and you know, the the phase in and how that presents these kinds of problems. And Daniel, you were talking about some of the phase in problems under the labor rules. When when the USMCA was passed, some, some are celebrating it as a model for future trade deals, and even a, quote gold standard. But I know Public Citizen, we saw it as progress to be built upon, but far short of a model agreement. We're going to ask you both how is the USMCA looking now after a year? And what does it taught us about the future of US trade policy?

Lori Wallach 

What the whole renegotiation of NAFTA told us is that the old US trade model, which was made worse and worse and worse, until you saw the Trans Pacific Partnership, which was horrific, NAFTA on steroids, is nothing sacrosanct. It is just one version. And it was a version that was not very widely supported. And so after all, the damage it did, it got replaced. Yet, the other thing that told us was, this is an ongoing process. This ain't the gold standard. This isn't the fix. The revised NAFTA is not the model. It was important steps in the right direction. And it fix some things and it tests out some important improvements. But there's a long way to go to get a trade agreement that is really worker centered, that is one that works first for people and the planet. And the whole fight over renegotiating NAFTA is basically from going in a way from NAFTA, which was like five layers below hell we got ourselves up to the surface, which is good. But we aint in any way in trade heaven yet. So there's a lot more work to be done. And we will see how well the changes and improvements in the revised NAFTA actually work because those are things from which we can build. But there's plenty of bad stuff that's still from the original NAFTA and some new bad stuff like rules that help big tech escape, being decent to workers, or that can trash our privacy, all that stuff get added in. So there's a lot further to go. But one very big thing I think this whole episode taught is that the old trade authority system, the so called fast track system, is just a total myth. Because the revised NAFTA was negotiated under so called fast-track. And ultimately, when it came back to Congress, and there simply wasn't a majority that was going to pass that agreement, fast-track or no fast-track, they made the administration go back and renegotiate renegotiate the deal. And it ultimately passed with such a huge supermajority you didn't need fast-track. So the theory of fast-track is you have to put handcuffs on Congress. Well, that didn't work because Congress made them renegotiate it. And then the second theory of fast-track is you'll never get an agreement through Congress unless you have fast track, and no one can have any amendments and debates are limited. Except the thing got the biggest majority of any trade agreement in the 35 years I've been working on trade. Why? Because when you actually include a broad set of interests and make an agreement that actually might work for working people, you have a broad set of members of Congress that are willing to give it a try and support it. So long way to go. Fast-track is not part of the plan going forward. And some improvements that need to be built on is the lesson for me.

Daniel 

As for me, I like to say that USMCA provides hints of what a pro-worker pro-environment trade agreement could look like. At the same time, it has worrisome elements as the ones that Lori was mentioned regarding digital governance that is dying, the states to conduct certain kinds of policies are very much still debated and in there. So now, I think that it is for activists and proposal makers to build up from the good terms that we got from USMCA and not go back to the day that corporate globalization model that has repeatedly shown its shortcomings over the last decades.

Ryan 

As this episode was going live. The company behind the notorious Keystone XL pipeline launched a new attack against the US under the USMCA is legacy ISDS terms. The company TC energy claims is due $15 billion in US taxpayer money because the US government rejected the proposed 875 mile pipeline that would have transported 830,000 barrels of highly polluting crude oil across indigenous communities and more than 1000 rivers, streams and wetlands. We're going to talk a lot more about that in the next episode, so stay tuned. Rethinking Trade is produced by Public Citizen's Global Trade Watch. To learn more you can visit rethinktrade.org, you can also visit tradewatch.org. Stay tuned for more and thank you for listening.