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Millstone around the right to water?

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The struggles around water have taken many forms over the past decades. They have shifted among organizing, protesting, and campaigning against displacement and submergence from large dams, multi-national led privatization resulting in rate hikes, deterioration in the quality of drinking water and sanitation services, as well as increases in toxic pollution from mining and industry. In addition, many campaigns1,2,3 have focused on keeping water out of global trade deals like the World Trade Organization (WTO) or agreements such as the EU-Canada Comprehensive Economic and Trade Agreement (CETA). Other ongoing, multi-country efforts strive to reclaim public water.4 All these strands came together in the proactive, decade-long campaign to ensure that the right to water is recognized as a fundamental human right, along with right to food and right to health.

There have also been some important victories in establishing the right to water in national laws and even in constitutions. Yet, we are now at a juncture in which authoritarian regimes use nationalistic rhetoric to push policies that are detrimental to people’s right to clean, safe, water. Nowhere it is as evident as in Trump’s America, where a recent regulation to improve water quality has already been rolled back in the name of supposed over-regulation.5

Many people in the United States, and indeed around the world, are struggling to make sense of the actions by this new administration. But one thing is clear: President Trump wants to appear to be delivering on his promises, and one of his major campaign promises was on trade agreements. He vowed to reject the Trans-Pacific Partnership (TPP), and to renegotiate the North American Free Trade Agreement (NAFTA). The U.S. has already abandoned the TPP, and the Trump administration is in the process of revisiting NAFTA. In these changed circumstances, our responsibility is to ask: what would be some elements of a post-TPP U.S. trade and investment policy that will protect not only the workers, farmers, consumers and the environment in the U.S., but also in other countries that the U.S. trades with and invests in?

Those debates should include a central focus on Investor-State Dispute Settlement (ISDS), a provision common to many Bilateral Investment Treaties (BITs)6 and agreements such as NAFTA that cover both trade and investment. ISDS gives foreign investors the right to demand compensation for environmental, public interest, and other laws that undermine their anticipated profits. Cases are decided by unaccountable panels of trade lawyers, who might have conflicts of interest. This provision, initially put in place to ensure investors’ rights against nationalizations or expropriations (the latter especially in countries with shaky legal systems), has evolved to become a tool for corporations to tie up governments in long and expensive legal cases, with chilling effects on public interest rules around the world.

In fact, it is this ISDS provision that allowed the Canadian company TransCanada to sue the U.S. government over the Keystone XL (KXL) Pipeline, where it specifically claimed breach of “fair and equitable treatment/ minimum standard treatment” of foreign investors.7,8 As this example shows, no nation is powerful enough to be safe from the overreach of ISDS, whether it is trying to protect national interest or even if an administration is simply trying to fulfill a campaign promise. Because this provision allows foreign companies to use unaccountable and opaque arbitration processes, it compromises host governments’ ability to take specific actions.

The Keystone pipeline brings tar sands oil from Alberta in Canada to the United States. TransCanada proposed an expansion of the pipeline in 2008, known as the Keystone XL, to bring oil directly down from Canada into Montana and from there to Nebraska, a route that goes through fragile environments such as eastern Sand Hills and over the Ogallala aquifer in the U.S.9 The Canadian tar sands development itself has been an extremely controversial project from an environmental perspective, and several water-related impacts have been observed since the project became operational. Clearly, there are serious implications for water and farmland in the United States as well. (See box "Keystone XL and the Right to Water").

In 2015, President Obama had determined that building Keystone XL pipeline was not in the national interest, and decided not to give approval. Despite an oil leak in April, 2016 that vindicated this decision, TransCanada retaliated in June, 2016 by suing the U.S.10 for US$15 billion under NAFTA’s ISDS provisions, which allows foreign companies to challenge domestic laws in front of international arbitration panels, such as the International Centre for Settlement of Investment Disputes (ICSID) housed at the World Bank.11

During his campaign, Mr. Trump promised to streamline the approval of Keystone pipeline. Within days of assuming office, President Trump issued a memorandum permitting the construction of the controversial pipeline.12 This was followed by another presidential memorandum (issued to the Secretary of Commerce on January 24), asking to “develop a plan under which all new pipelines, as well as retrofitted, repaired, or expanded pipelines, inside the borders of the United States, including portions of pipelines, use materials and equipment produced in the United States, to the maximum extent possible and to the extent permitted by law.”13 While this requirement to use domestic steel likely violates international trade rules,14 it was an opportunity for Trump to show that he keeps his campaign promises.

Keystone XL and the right to water

Perhaps in response to this second memorandum, TransCanada announced in mid-February that it would continue to pursue its claims under the ISDS.30 Even as TransCanada continued to hold out the threat of the ISDS claim, it proceeded to file an application with the Public Service Commission of Nebraska, seeking approval for the proposed route for Keystone XL pipeline,31 a legal requirement in Nebraska, if the presidential approval for the pipeline was to come through at any point.

And as TransCanada decided to move forward with its ISDS claim, the Trump administration agreed to make an exception in the case of the Keystone XL project.32 Despite his statement to the Congress the very next day about his “new directive that new American pipelines be made with American steel,”33 it seemed that “buy American rules” […] “won’t apply to the high-profile Keystone project.”34 Meanwhile, on February 27 TransCanada agreed to suspend its ISDS claim for one month.35

On March 23, the State Department issued a Presidential permit to TransCanada Keystone Pipeline, L.P., authorizing it to construct, connect, operate, and maintain pipeline facilities at the U.S.-Canadian border in Phillips County, Montana for the importation of crude oil.36 The very same day, March 23, TransCanada filed a request with ICSID to discontinue the proceedings and dropped the lawsuit.37

In short, the ISDS clause in NAFTA allowed this Canadian multinational to craft a win-win scenario. Either it could have pursued the ISDS claim for the US$15 billion from the United States, or it could have used the threat of ISDS claim to get around the new “buy American rules” [especially if it did not want to go through a lengthy WTO dispute settlement body citing this rule as violation of international trade rules].

The TransCanada case is not an exception. Experiences over the last three decades show that this ISDS provision is increasingly being misused by transnational corporations not only to avoid culpability but also to seek to extort public money by suing host governments. Below, I look at how ISDS mechanism has emerged as an increasingly integral part of investment agreements, and examine how this provision protects corporations even when they violate something as basic as right to water.

Continue reading the paper.

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