Ottawa Settles Abitibi NAFTA Challenge of NL Asset Expropriation

When Abitibi-Bowater closed its paper mill in Grand Falls-Windsor, Newfoundland and Labrador, in 2008 the provincial legislature immediately enacted legislation to expropriate the company’s assets in the province.

The move was made in an effort to ensure that Abitibi-Bowater did not retain control of land, timber, water and hydro generation rights it had been provided with under a 100 year old agreement that allowed the company to supply its logging and paper making activities in the province.

The provincial government, under the leadership of Premier Danny Williams, as well as many citizens, viewed the move as a necessary one to ensure that Abitibi-Bowater could not simply close its doors, throwing hundreds out of work, while continuing to tie up valuable resources that might be of use to other industries, or to use its power generation facilities to sell power in direct competition with the provincially owned utility.

At the time of expropriation the provincial government said it would pay Abitibi-Bowater fair market value for its buildings and infrastructure but not for the resource rights, which government maintained were directly to the mill staying open. The province said it would assess the environmental impacts left behind by the company and reduce any payment by the amount required to perform cleanup activities.

Although Abitibi-Bowater is often thought of as a Canadian company, with its corporate headquarters in Montreal, the company is in fact incorporated in Delaware.

Almost immediately Abitibi-Bowater launched a NAFTA challenge, essentially saying the Province had no right under the North American Free Trade Agreement to expropriate the property of a foreign owned corporation and seeking $500 million in compensation.

While the expropriation was conducted by a provincial government, Canadian provinces are not signatories to the NAFTA agreement, meaning the challenge landed squarely in the federal government’s lap.

Today, after nearly 2 years, the federal government has reached a settlement with the company valued at $130 million which is to be paid out after the company’s restructuring activities are complete and it emerges from bankruptcy protection.

At this point there has been no formal comment from the Newfoundland and Labrador government beyond a short statement saying, “we are pleased the matter is settled”.

It isn’t known at this point whether or not the province will help foot the bill but it has no obligation to do so since NAFTA is a federal agreement. Any payment from the province is unlikely however in light of the deep divisions between the Provincial Premier and Prime Minister Stephen Harper.