Ottawa's $130 million out-of-court settlement with forestry giant AbitibiBowater has created a precedent undermining provincial ownership and control of resources under Canada's constitution, an international trade policy expert says.
"This is a decision that should concern all Canadian provincial governments, in terms of regulating and developing their publicly owned resources, and concern all Canadians," says Scott Sinclair, a former senior trade policy adviser with the B.C. government, now a senior research fellow with the Canadian Centre for Policy Alternatives.
Under Canadian law, water and timber rights belong to the Crown in the name of the people and provinces of Canada, he says "and are not considered compensable rights under Canadian law. These are publicly owned resources so how can there be an expropriation if the company doesn't even own them?"
Last February, AbitibiBowater launched a $500-million lawsuit against Newfoundland and Labrador under the North American Free Trade Agreement's notorious Chapter 11 "investor rights" clause. Premier Danny Williams had expropriated the Delaware-incorporated but Montreal-based company's assets and returned its water and timber rights to the Crown after the company put 800 people out of work by closing its mill in Grand Falls-Windsor and the two sides failed to reach a settlement.
The Newfoundland legislation compensated AbitibiBowater for the fair value of its real property (land, buildings, dams, etc.) but denied it compensation for the loss of its timber and water rights.
The premier's action unleashed a torrent of criticism from business and taxpayer groups and business-friendly media and commentators. Williams was even compared to Venezuelan dictator Hugo Chavez. But the premier's action was widely popular at home. "Of the many things that I've done in government, this is probably one of the actions I am most proud of," he said.
Williams, who always stresses the "progressive" side of his Progressive Conservative party name, has long been a thorn in the side of Prime Minister Stephen Harper's much more conservative Conservatives.
Sinclair expects the federal government's move will trigger a wave of corporate claims to Canadian natural resources using NAFTA's Chapter 11. Provincial ownership and control of oil, gas, potash, minerals and hydro plus federal and provincial control over water could all be at risk.
NAFTA's Chapter 11 stems from U.S., not Canadian, law. The American constitution enshrines property rights; Canada's does not. The Harper Conservatives make no secret of the fact they believe private property rights should be in the Canadian Constitution.
Some of the government's critics, including Canadian Auto Workers economist Jim Stanford, believe the prime minister welcomed paying the bill to underline his free trade agenda and encourage other Canadian companies to use closed NAFTA tribunals rather than Canadian courts to fight Crown ownership of resources if governments refuse to bow to investors.
Since NAFTA's inception in 1994, Canada has paid $157 million in damages to corporations under Chapter 11. Mexico's Chapter 11 tab is $187 million. The U.S. wrote the rules, has never lost a case and has paid nothing.
Sinclair suspects there may be a bias in the Chapter 11 process. "They (arbitrators) may know if the U.S. loses a case to an important state like California, it could jeopardize the continuation of this commercial arbitration system under NAFTA. Also, unlike Canada, the U.S. policy is to fight, to defend, every claim vigorously."
This is the second time Canada has not even defended itself against a Chapter 11 claim. In 1997, the Liberal government paid U.S. chemical giant Ethyl Corporation $19.5 million and repealed its ban on the gasoline additive MMT, a suspected neurotoxin.
Sinclair says that surrender triggered a wave of Chapter 11 lawsuits challenging environmental regulation and he suspects the Harper government's capitulation will lead to a similar rash of claims over rights to natural resources.
"It establishes this very worrisome and radical notion that natural resources are private property rights, that when access to publicly owned resources is withdrawn, then governments are liable to compensate investors and that has clearly not been the case under Canadian law. We kept property rights out of our constitution."
The Harper government's support for what it calls "a rules-based business environment that facilitates free trade and encourages investment" was underlined in its announcement of the AbitibiBowater deal Aug. 24.
"The Government of Canada has resolved this dispute for the benefit of Canada's long-term economic interests," is "moving forward on an ambitious free trade and investment agenda" and will "continue to stand up for Canadian business at home and abroad by securing greater access to the North American marketplace."
Frances Russell is a Winnipeg author and political commentator. This story first appeared in The Winnipeg Free Press.
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