President Trump today signed executive actions to accelerate the Keystone XL and Dakota Access pipeline projects and to decree that American steel should be used for pipelines built in the United States.
I want to see the precise language of the requirement (should be available later today), but this looks like a probable violation of international trade agreements. I wrote about this issue a while back, when Congress considered a similar requirement:
Senator Al Franken recently sponsored an amendment to proposed legislation approving the Keystone pipeline that would require the pipeline be built with only American steel and other inputs. Specifically, the amendment stated:
"to the maximum extent consistent with the obligations of the United States under international trade agreements, none of the iron, steel, or manufactured goods used in the construction of the Keystone XL Pipeline and facilities approved by this Act may be produced outside of the United States."
(There were exceptions for situations where such goods are not produced in the United States, and where use of domestic goods would increase costs by more than 25 percent.)
The amendment was defeated, but nonetheless it has interesting U.S. law implications that I don't quite understand. It seems pretty clear that a law requiring a private company to use domestic inputs in this way violates GATT Article III:4. So what does it mean, under U.S. law, to qualify such a local content requirement with "to the maximum extent consistent with the obligations of the United States under international trade agreements"? If it is not in any way consistent with international obligations to require domestic content, does the domestic content requirement simply have no effect under U.S. law? How would a U.S. court evaluate whether such a requirement is consistent with international trade agreements?
Does whatever Trump signed today have a similar qualification related to international trade agreements? I suspect it might not. I'm also curious about the domestic law aspects of doing this by Executive action. Is it possible for Congress to step in here?
With regard to the international law considerations, is there any possible counter-argument to the Article III:4 violation? I can't think of a good one. Seems like a straightforward domestic content requirement.
Will Canada or other countries bring a WTO complaint? Does it depend on the actual impact of the measure? Whose steel was likely to be used in these pipelines in the absence of such a requirement? Even if it was to be U.S. steel anyway, there is a principle here. The U.S. has been challenging domestic content requirements in other countries for years now. If it tries to impose domestic content requirements of its own, someone is going to push back.
Then there is NAFTA Chapter 11. TransCanada may be so happy to get the pipeline approved that it decides to live with the domestic steel requirement, but it seems clear it has a good claim under this provision:
Article 1106: Performance Requirements
1. No Party may impose or enforce any of the following requirements, or enforce any commitment or undertaking, in connection with the establishment, acquisition, expansion, management, conduct or operation of an investment of an investor of a Party or of a non-Party in its territory:
...
(c) to purchase, use or accord a preference to goods produced or services provided in its territory, ...
There could be other claims as well, but this was the most obvious one.
It looks like Trump is going to test the world trading system right away. We have gone beyond words into actions. It will be interesting to see how other countries respond.
ADDED: Another issue might be, do you challenge the Executive action that was taken today? Or is it better to wait to bring the complaint until approval of an actual pipeline takes place? I sense some possible mandatory/discretionary issues here, but again, I want to see the language of the requirement.
UPDATE:
Having just seen the Presidential memo (no link yet here's the link), the situation is very different than what I understood from the initial press report. Here's the key language:
The Secretary of Commerce, in consultation with all relevant executive departments and agencies, shall develop a plan under which all new pipelines, as well as retrofitted, repaired, or expanded pipelines, inside the borders of the United States, including portions of pipelines, use materials and equipment produced in the United States, to the maximum extent possible and to the extent permitted by law. The Secretary shall submit the plan to the President within 180 days of the date of this memorandum.
So the action today calls for the Secretary of Commerce to "develop a plan" for the use of domestic steel in pipelines. That suggests there may not be a measure that can be challenged just yet.
Also, as the various departments and agencies consult on this, they are likely to have an internal debate about the precise scope of the requirement. One thing they will talk about is the qualification that the domestic steel requirement will only apply "to the extent permitted by law." If "law" here includes international trade agreements (or domestic implementing legislation), they are leaving themselves the discretion not to apply the requirement to countries with whom the U.S. has trade agreements. So, before judging the consistency of the domestic steel requirement announced today with trade agreements, we will have to await this future plan, and see how they have implemented the requirement.
