'Canada's options for intervening in the Keystone XL CUSMA lawsuit: A briefing paper from the Trade and Investment Research Project', 28 June 2023

• TC Energy’s $15 billion (USD) Canada-U.S.-Mexico Agreement (CUSMA) lawsuit against the United States—for the Biden administration’s revocation of the Keystone XL pipeline permit—has attracted international condemnation while fuelling a backlash to investor-state dispute settlement (ISDS). Should the Canadian company prevail, it could add to the chilling effect of ISDS on global efforts to address the climate emergency.
• In its initial defence, the U.S. has proposed a novel and plausible interpretation of the CUSMA investment chapter. The U.S. claims that the treaty’s three-year extension of NAFTA’s ISDS rights for “legacy” investors, such as TC Energy, does not permit claims arising from government measures taken after July 2020, when NAFTA ceased to exist. The executive order revoking TC Energy’s permit for the Keystone XL project was signed in January 2021.
• At risk of annoying TC Energy, Canada should intervene in this CUSMA legacy ISDS dispute in support of the U.S. argument, which contests the arbitral tribunal’s jurisdiction to hear the case. Canada could do this through a non-party submission to the tribunal backing the U.S. position, or it could seek a binding interpretation of the treaty’s legacy provisions in Annex 14-C from the CUSMA Free Trade Commission. Ideally, Canada would do both.
• Canada and Mexico each face at least one multi-billion-dollar CUSMA legacy dispute that could be affected by the TC Energy tribunal’s decision on jurisdiction. Earlier this year, U.S. investor Ruby River Capital filed a $20 billion (USD) claim against Canada for the rejection, in 2022, of a proposed LNG project in Quebec. If the U.S. interpretation of Annex 14-C is vindicated, this Canadian case, and an equally controversial $3 billion (USD) CUSMA legacy case against Mexico, could be thrown out.