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The Beer Store seems to be arguing that the 10-year licensing deal it signed with the former Liberal government in Ontario gives it the right to claim potentially huge damages from the province.COLE BURSTON/The Canadian Press

Ontario Premier Doug Ford may have found a Machiavellian way to stick it to Ottawa with his plan to kill the Beer Store.

The provincial government tabled a bill this week that would scrap what it calls a “sweetheart” 2015 deal that gives the Beer Store’s 450 outlets a near-monopoly in beer sales across Ontario.

The problem is that the Beer Store is indirectly controlled by three large beer multinationals – Molson Coors, Anheuser-Busch InBev and Sapporo.

Of those, Denver-based Molson Coors, which owns roughly half of the Beer Store, could have a very strong case for compensation under the investor protection provisions of the North American free-trade agreement, according to several trade lawyers.

You can’t just go around expropriating another NAFTA country’s businesses in Canada. And you can’t trample on their rights as foreign investors.

Here’s where it gets interesting. It’s not Ontario who would pay a successful NAFTA claim; it’s the federal government. That’s the way the investor-state rules work.

Since NAFTA went into effect in 1994, Canada has lost more of these cases than either the United States or Mexico. Ottawa has paid out nearly $400-million in claims and settlements, often for violations of the trade deal committed by the provinces.

“The Ontario government may have engaged in a public policy gaffe of epic proportions,” said Barry Appleton, a Toronto trade lawyer who specializes in investor claims. “There might be several public policy approaches to address greater public access to beer and malt beverages, but the Ontario government appears to have selected one of the worst ways.”

There is a “significant risk of very large NAFTA damages being awarded” if Ontario was found to have violated NAFTA rules on expropriation or “fair and equitable treatment” of a foreign investor, Mr. Appleton explained.

“This case looks pretty bad – or good, from the potential claimants’ perspective,” agreed Toronto trade lawyer Todd Weiler, another expert in investor claims.

Even the looming end of the old NAFTA would not save Ottawa from a big payout down the road.

The new U.S.-Mexico-Canada Agreement (USMCA), which will eventually replace NAFTA, does away with investor claims between Canada and the U.S. But U.S. companies with existing investments here are grandfathered and can continue to use investment arbitration for three years after the USMCA comes into force. Mr. Weiler pointed out that the clock doesn’t start ticking on the phase-out until the agreement becomes law in all three countries.

And who knows what will happen to the USMCA in the short term. The prospect of imminent passage in the U.S. Congress looks bleak given the standoff between the Trump administration and the Democratic-held House of Representatives.

For the moment, the Beer Store seems to be arguing that the 10-year licensing deal it signed with the former Liberal government in Ontario gives it the right to claim potentially huge damages from the province. In a letter to the government, it warned that it’s facing “billions of dollars in damages” and may sue in Canadian courts to collect.

But Ontario has sweeping powers to pass new legislation, declaring any contract void, and escape its obligation to pay compensation. What Ontario can’t do is legislate away Canada’s NAFTA obligations. One hitch is that Molson Coors can’t simultaneously make a NAFTA arbitration claim and sue in Canadian courts.

“NAFTA doesn’t allow a double kick at the can,” trade lawyer Lawrence Herman said.

Mr. Ford and his Progressive Conservatives are flirting with extreme legal danger in pursuit of a populist kick at an easy foe.

Finance Minister Vic Fedeli says Ontarians are being “held hostage” by three foreign multinationals. He’s right. Ontario’s Soviet-style beer-distribution system – with its long lineups, noisy conveyor belts and cases of beer stacked on pallets in dank warehouses – is an anachronism.

But it’s the system successive Liberal, NDP and Progressive Conservative governments embraced.

The rational way forward for the province is to wait another six years for its Beer Store deal to expire, and then throw the market wide open to all grocery and convenience stores.

Instead, Ontario is exposing Canadian taxpayers to the risk of billions of dollars in compensation and years of costly litigation to score cheap political points.

Bottoms up, Mr. Ford.