Democracy and Legitimacy in Investor-State Arbitration

Abstract

In January 2016, the Canadian infrastructure company TransCanada Corporation filed a notice of intent to sue the United States government in a North American Free Trade Agreement (NAFTA) Chapter 11 arbitration over the Keystone XL pipeline. At the center of this dispute is the State Department's refusal to permit the construction of an oil pipeline between Canada and Nebraska. TransCanada claims that the State Department ignored its own favorable environmental assessments of the pipeline multiple times and rejected the proposal to placate misinformed activists and foreign governments. The State Department acknowledges that it denied the permit to enhance the Obama Administration's credibility at the 2015 United Nations Climate Change Conference in Paris, with the long-term goal of reducing emissions through collective political action. This Essay situates the TransCanada arbitration within the history of investment arbitration, highlighting recent collisions between arbitral regimes and the modern regulatory state. After briefly discussing the history of investment arbitration, we discuss in depth the collision's most startling fallout so far- the Clayton v. Canada award on liability. Finally, we suggest how the TransCanada tribunal should view the Clayton award.