The federal government intends to ensure it will never again have to foot a hefty bill if a province's actions force Ottawa to compensate foreign investors under international trade agreements, Prime Minister Stephen Harper says.
Under terms of a deal announced Tuesday, Ottawa will compensate forestry giant AbitibiBowater Inc. $130-million to settle a claim under the North American free-trade agreement that the company's assets were illegally seized by Newfoundland and Labrador.
Newfoundland Premier Danny Williams spearheaded the controversial expropriation of AbitibiBowater's water and timber rights in late 2008, after the Delaware-incorporated company shut its mill in Grand Falls-Windsor, putting about 800 employees out of work. On Wednesday, the Premier expressed no regret for the move and confirmed that his government won't reimburse the $130-million.
Under Chapter 11 of the NAFTA, foreign companies and investors can file compensation claims when they feel a government measure - such as legislation or expropriation - is unfair and discriminatory. Even if the allegedly unfair actions are taken by a province, it is Ottawa that is on the hook if an international trade tribunal determines that compensation must be made or if an out-of-court settlement is struck.
In Tuktoyaktuk on Thursday, Mr. Harper said the federal government had taken legal advice "that this would be the best settlement that we could get, that we were not likely to get a good settlement through the tribunal process."
He added: "I do not intend to get back the monies expended in this case from the government of Newfoundland and Labrador. But I have indicated that in future, should provincial actions cause significant legal obligations for the government of Canada, the government of Canada will create a mechanism so that it can reclaim monies lost through international trade processes."
Mr. Harper said the proposed settlement represents "fair value of the expropriated assets."
The deal must still win approval next month from the U.S. bankruptcy courts, where AbitibiBowater is nearing completion of a sweeping restructuring under bankruptcy protection.
International trade lawyer Riyaz Dattu welcomed Mr. Harper's decision to set up a mechanism to reclaim money from the provinces.
It's only reasonable the provinces should be held liable for actions taken, even under the terms of international agreements, said Mr. Dattu, of Osler, Hoskin & Harcourt LLP in Toronto.
Provinces might think twice before taking on foreign investors if they were held financially accountable for any payouts that result, he said.
"Provincial governments should not feel they can flout the law and then have the Canadian taxpayer pick up the tab," he said.
In the case of Newfoundland and Labrador, the province benefits from the asset expropriation but it's Canadian taxpayers who get stuck with the bill, Mr. Dattu said. "This doesn't help Canada's reputation as a place to invest. It makes us look like a Third World country."
The quotable Premier
"[W] cannot as a government allow a company that no longer operates in this province to maintain ownership of our resources." - Danny Williams in December, 2008, announcing the seizure of Abibiti's water and timber rights after the shutdown of a mill.
"As a result of the expropriation, we have the timber assets, the land assets, the hydro assets and now the mill." - Danny Williams in May, 2010, after conceding a bureaucratic foul-up led to the accidental seizure of the Abibiti paper mill itself.
"When I look back, of the many things that I've done during the terms that I've been in government, this is probably one of the actions that I'm the most proud of." - Danny Williams on August 25, 2010.
Bertrand Marotte
John Ibbitson