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.

Williams Talks Tough on Canada / EU Trade Discussions

A press release was issued by Newfoundland and Labrador premier, Danny Williams, on Friday outlines his province’s concerns with plans for a new Canadian / EU Trade Agreement and withdraws his province’s support for upcoming negotiations by Ottawa.

The release states that, “While Newfoundland and Labrador fully supports improved trade with the European Union, any actions taken in that regard must address priority areas of concern for the province. In particular, the province is extremely hesitant to allow the Federal Government to head these negotiations, given past actions that question their commitment to issues of importance to the province.”

It goes on to say that "At this point, we are not willing to sign on to support the negotiation of a new and comprehensive economic agreement with the European Union.”

“This decision should not be confused with a lack of support for an improved trade relationship between Canada and Europe. Indeed, Newfoundland and Labrador values and respects its trade relations with Europe which have existed with the province for over 5 centuries…However, other concerns prevent the province from giving unqualified support for the Canadian Government’s process as it moves forward

"The Government of Newfoundland and Labrador is unable to support this at this time on the basis of very genuine concerns that our province’s issues may not be safeguarded or dealt with in an appropriate way by the Federal Government.”

“In particular, long standing issues such as custodial management of our fishery, a proposed ban on seal products into the EU and prohibitive tariffs on seafood products entering the EU represent significant issues of concern that have been left unaddressed by the Federal Government for far too long.

Newfoundland and Labrador has not received any assurances that a Canada-EU agreement would include protection for measures such as the Atlantic Accords and Fish Inspection Act. Additionally, a track record of a lack of substantive and inclusive consultation on federal-provincial issues gives Newfoundland and Labrador great cause for concern, particularly in light of the far reaching implications of a possible Canada-EU trade agreement."

The official press release comes at a time when Newfoundland and Labrador is being challenged under NAFTA for the expropriation of provincial timber and hydro leases once held by U.S. registered paper maker Abitibi-Bowater.

It’s difficult to determine whether the province’s position on Canada / EU trade carries any real weight in Ottawa or not since it is the federal government that is ultimately responsible for international trade agreements. However the position taken by the Province serves to highlight a number of important issues for the province on both the national and international stage.

While the federal government does not officially need provincial support to enter into international trade agreements, actually making them work without the support of all the provinces is a problem.

Any agreement signed by Ottawa cannot infringe on provincial jurisdiction or legislative abilities.
A clear example of this can be seen in the case of the Abitibi-Bowater expropriation itself.

Newfoundland and Labrador has the legal right to expropriate the resources in question. It is up to Ottawa to defend the action under the NAFTA agreement and, should Canada lose that challenge, it will ultimately be the federal government, not the province, which is required to pay any penalties imposed.