Kenney wants 'reprisals' for blocking Keystone — but what are Canada's options?

·6 min read

When U.S. President Joe Biden signed an executive order revoking the presidential permit enabling construction of the cross-border Keystone XL pipeline Wednesday afternoon, Alberta Premier Jason Kenney suggested the future of this project could still be up for negotiation, if only the federal government would get tough.

And if U.S. Democrats want to move on and not continue what Kenney called "a constructive and respectful dialogue" about the energy and environmental issues the project raises?

"Then it is clear that the government of Canada must impose meaningful trade and economic sanctions in response to defend our country's vital economic interests," he told reporters. "Not doing so would create a dangerous precedent."

In an interview Thursday with CBC News Network's Power & Politics, Kenney said he was worried about the precedent that could be set for other pipeline projects if the Americans start retroactively repealing permits.

"The Biden administration refuses to give this country sufficient respect to hear us out on this pipeline. In that policy context then, yes, there absolutely must be reprisals," he said. "We need to stand up for ourselves."

WATCH: Alberta Premier Jason Kenney says Ottawa 'folded' on Keystone

But what does Kenney mean by "reprisals"? What's legally possible? And what's wise, at this point in Canada's relationship with a new administration?

Let's start with the most obvious legal path: seeking damages under Chapter 11 of the original North American Free Trade Agreement.

New NAFTA protects 'legacy investments'

After the Obama administration blocked Keystone's permit, its owner — then called TransCanada — used NAFTA's investor-state dispute settlement (ISDS) process to seek $15 billion in damages.

The company later dropped its case when U.S. President Donald Trump reversed the decision.

Critics of Chapter 11 proceedings say governments should not be constrained in their ability to regulate in the public interest by the threat of lawsuits from corporate investors.

The new NAFTA tried to address this, with stronger measures on the environment and weaker investor protections.

Canada and the U.S. agreed, however, that their ISDS process would continue for three more years, offering "legacy investors" like TC Energy some continued protection.

Because of its $1.5 billion equity stake, the province of Alberta could join the company's action and try to recoup its own losses. Kenney told Power & Politics he believes Alberta's case is strong.

But it isn't a slam dunk. Both TC Energy and the Alberta government could have anticipated that Trump would lose the election and their permit could be revoked. Democratic pledges to block the pipeline should have factored into their investment risk calculations.

On the other hand, Biden wasn't deterred by the risk of re-igniting a legal case by re-revoking the permit.

"It does set an unfortunate precedent and possibly even has a cooling effect on this type of investment, so I do think Canada should fight hard for this," trade lawyer John Boscariol told CBC News.

A settlement that compensates for costs and future lost profits could be pricey for the American taxpayer, but it would not reverse Biden's decision.

Biden acted on 'climate imperatives'

Chapter 31 of the revised NAFTA also has a state-to-state dispute settlement process — for the times when one country feels another isn't keeping its commitments.

The U.S. recently initiated a Chapter 31 consultation on Canadian dairy import regulations. Could this executive order on Keystone trigger a Chapter 31 complaint by Canada?

When President Barack Obama made his move, TransCanada argued that Congress, not the president, has the proper constitutional authority to regulate pipeline projects.

Since Democrats will control both the Senate and the House for the next several years, it's not clear there's any point in reviving that argument now.

Patrick Doyle/The Canadian Press
Patrick Doyle/The Canadian Press

Has the U.S. violated anything in the new NAFTA? That's also unclear, especially since one of the goals of its do-over was to give governments more power to regulate or legislate in areas like the environment.

Biden's executive order said the pipeline "disserves the national interest" because the U.S. and the world are facing a climate crisis, and domestic efforts to reduce harmful emissions "must go hand in hand with U.S. diplomatic engagement" as it exercises "vigorous climate leadership."

"Leaving the Keystone XL permit in place would not be consistent with my administration's economic and climate imperatives," it said.

Reacting to the executive order, Prime Minister Justin Trudeau didn't mention any perceived violations of U.S. trade commitments and made no threats.

"While we welcome the president's commitment to fight climate change, we are disappointed but acknowledge the president's decision to fulfil his election campaign promise on Keystone XL," the prime minister said in his statement Wednesday evening.

International Trade Minister Mary Ng's office said Thursday that stands as the federal government's official response.

So what about 'sanctions'?

Punishing countries that threatened American industries was a feature of Trump's trade policy.

His administration's use of "national security" as justification for tariffs on sensitive global commodities like steel and aluminum was denounced as an abuse of measures intended only for emergency situations, such as wars.

Protecting domestic companies from harm may be important politically, but it's not "urgent" in a way global trading rules allow.

Retaliation is sanctioned as a remedy following the successful arbitration of a dispute. Even then, it's meant to be proportionate to the damage done.

When the Trump administration was lashing out with tariffs, Canada joined other countries in demanding a return to "rules-based trade."

Canada has tried to play a leadership role on reforms to make the World Trade Organization more effective in resolving disputes.

So it's difficult to imagine the Trudeau government striking back at Biden's order with sanctions, however strongly Alberta's premier insists on retaliation.

While Kenney may resent the fact that steel and auto workers were supported with retaliatory tariffs, while oil and gas workers apparently won't see the same, the United States' behaviour in the two cases isn't really comparable. The steel tariffs were condemned as illegal under global trading rules. Biden's executive order is not.

Any improvised tariffs Canada could consider now would amount to more taxes on Canadian consumers, at a time when the government wants the economy to grow, not recede further. Lashing out in some other tit-for-tat regulatory fashion to harm the U.S. would most certainly be called out and punished.

Trade wars are not — as Trump once famously suggested — easy to win. Particularly with a much-larger neighbour you need to work with on other files.

"We are going to focus on all of the areas of cooperation," Foreign Affairs Minister Marc Garneau told Power & Politics Wednesday. "When you develop a relationship with somebody, you take into consideration everything, and there are going to be areas where we have a difference of opinion."