NAFTA’s Shadow of Obstruction

Investor rights in the expired North American Free Trade Agreement continue to undermine democratic decision-making and climate policy in Mexico, Canada, and the United States.
February 7, 2023
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This report was written by members of the Trade and Investment Research Project, and was originally published by the Rosa Luxemburg Stiftung—New York. 

International investment treaties and investor-state dispute settlement (ISDS) play increasingly prominent roles in debates about the climate crisis and government efforts to mitigate greenhouse gas emissions. Around the world, states and international governance bodies are warming to the understanding that investment treaties threaten progress on decarbonization, sustainable development, and the achievement of human rights. Even in places where countries have taken steps to roll back ISDS, as in North America with the passage of the US-Mexico-Canada Agreement (USCMA), corporate lawsuits against democratically enacted energy and climate policies continue to put a chill on government action.

This report looks at three such cases launched in the past two years against Canada, the United States, and Mexico under the expiring ISDS process in the North American Free Trade Agreement (NAFTA). These disparate cases include: TC Energy’s $15 billion challenge to the Biden administration’s cancellation of the Keystone XL tar sands pipeline; a dispute from Koch Industries involving the cancellation of cap-and-trade in the Canadian province of Ontario; and about a half dozen energy- and mining-related ISDS cases from Canadian and US firms against Mexico, of which we will highlight the Finley Resources case.

What unites these ISDS cases, besides their links to energy and climate policy, is that they should not have been possible to begin with. They can only move forward because of a “legacy” provision that temporarily extended NAFTA’s Chapter 11 investment provisions in the replacement USMCA.

As such, these cases—and the Keystone XL dispute in particular—provide a lesson for countries seeking to exit investment treaties and free trade agreements containing ISDS: unless unreasonable sunset periods are rolled back or canceled alongside ISDS, the threat of investment arbitration to climate action will linger.