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

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.

Andif U.S. Democrats wantto move onand not continue whatKenney called"a constructive and respectful dialogue" about the energy and environmental issues the projectraises?

"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 wouldcreate 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 contextthen, 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

'The government of Canada told us they supported this until they folded': Kenney

4 years ago

Duration 2:14

Alberta Premier Jason Kenney says the federal government 'folded' in response to U.S President Joe Biden's decision to revoke the Keystone XL pipeline.

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: seekingdamages under Chapter 11 of the original North American Free Trade Agreement.

New NAFTA protects 'legacy investments'

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

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

Critics of Chapter 11 proceedings say governments should not be constrained in their ability to regulatein 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 actionand try to recoup its own losses. Kenney told Power & Politics he believes Alberta'scase is strong.

But it isn't a slam dunk. Both TC Energy and the Alberta government could have anticipatedthat 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, Bidenwasn't deterred by the risk of re-igniting alegal 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 priceyfor the American taxpayer, but itwould not reverse Biden's decision.

Biden actedon 'climate imperatives'

Chapter 31 of the revised NAFTAalso has a state-to-state dispute settlement process for the times whenone country feels another isn't keepingits commitments.

The U.S.recently initiated a Chapter 31 consultationonCanadiandairy import regulations.Could thisexecutive order on Keystonetrigger a Chapter 31complaint byCanada?

When President BarackObama 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 notclear there's any point in reviving that argument now.

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

Biden's executive order saidthepipeline "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 MinisterJustin 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 hisstatement Wednesday evening.

International Trade Minister Mary Ng's office said Thursday thatstands as the federal government's officialresponse.

So what about 'sanctions'?

Punishing countries that threatenedAmerican industrieswas 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 onlyfor 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 sanctionedas a remedy followingthe successful arbitration of a dispute. Even then, it's meantto beproportionate to the damage done.

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

Canadahas tried to play a leadership role onreforms to make the World Trade Organization more effective in resolving disputes.

So it's difficult to imaginethe 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 withretaliatory tariffs, whileoil and gas workers apparently won't see the same, the United States' behaviour in thetwo 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 tomore 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."