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AbitibiBowater hearings get “philosophical” but facts still missing

A second day of hearings on Thursday into the $130-million NAFTA investment settlement with AbitibiBowater delved a little bit further into the muck. It’s becoming fairly obvious this was an abuse of process by the pulp and papermaker. It’s clear the company would have been compensated anyway under an agreement with the Newfoundland government, or if that were unsatisfactory through legal action in Canada. Instead AbibitiBowater went the extortionate NAFTA route, Harper caved, and the Canadian public is already out $160 million ($130 mil for the NAFTA settlement, $30 mil in severance paid by Newfoundland) with more to come. The company’s closed operations will need millions to clean up.

Scott Sinclair, senior trade researcher with the Canadian Centre for Policy Alternatives, was the first witness at Thursday’s trade committee hearings. Sinclair agreed with Steven Shrybman that the settlement set a bad precedent related to water and natural resources. He explained:

The province retains title to the land and the right to revoke licenses and permits, with or without compensation as it sees fit. Access to publicly owned natural resources (water, timber, minerals, oil and gas) is not a proprietary right; it is a contingent right, based on the understanding that the resource rights holder will develop them productively, in a manner that benefits the public. Unfortunately, AbitibiBowater was no longer willing or able to fulfill its part of that social contract.

Sinclair continued that the province was absolutely right to do what it did because:

In decisions concerning such resources, the interests of investors ought to be balanced against other legitimate interests, such as those of workers, local businesses, communities and the environment. Under Canadian constitutional law and the division of powers, these are clearly matters to be decided by the provincial legislature.

“By contrast,” he added, “the AbitibiBowater settlement embraces an open-ended, excessively broad conception of property rights which goes well beyond reasonable protections and Canadian legal norms.”

Sinclair pointed out the size of the settlement will undoubtedly encourage other investors to challenge governments to avoid regulation related to natural resources. The federal government thought only of the investor in the case, and not the workers (severance and pensions), local businesses and the environment, he said. Sinclair also has concerns with Prime Minister Harper’s promise to recover the cost of trade challenges from provincial governments in the future, telling committee “we are witnessing a constitutional crisis unfolding in slow motion.”

Sinclair concluded by summarizing his four main points:

– The Newfoundland and Labrador government’s actions in this matter were lawful, constitutional and, in my view, commendable.

– This settlement sets a troubling precedent that undermines public ownership and control of natural resources.

– Unfortunately, the federal government stepped in to compensate the investor while disregarding other legitimate interests.

– It sets the stage for future, unwarranted federal intrusions into important areas of provincial jurisdiction.

The next witness was Fred McMahon of the Fraser Institute, who told committee he was going to get “philosophical.” If by that he meant he would dwell on one point and avoid talking about the specifics of the AbitibiBowater case then bravo, he succeeded.

The Fraser Institute believes in fairness and the rule of law. Provinces and federal governments have the right to expropriate under international trade rules as long as they pay up, McMahon said. When an industry is based on the use of natural resources, to deprive that firm of resources is a violation of its property rights, he suggested. Canadian laws that forbid investors from owning water or timber or oil and gas are thankfully powerless before international trade regimes.

McMahon has a problem with sovereignty. He told the committee that one of “the greatest advances we’ve seen over the past hundred years is a reduction of state sovereignty.” Internally the individual is supreme, externally sovereignty is diminished through trade treaties and other international agreements, he explained. The case of AbitibiBowater is admitedly a reduction of sovereignty but binding trade rules are much better for our well being.

Liberal MP Scott Simms, who represents the riding of Bonavista-Gander-Grand Falls where AbitibiBowater’s mine shut down in 2008, said he’s concerned about the leftover environmental costs and who’s going to clean it up. He challenged McMahon’s view that investors should always come out on top in disputes over resource rights, describing the situation where a company gets a permit to explore or extract oil, for example, but sits on it for years without creating jobs or wealth in the province. Shouldn’t a government be allowed to take back that permission without having to compensate, he asked.

McMahon said absolutely you should have to compensate the company for the oil and gas they didn’t extract, or the timber and water rights they did not make use of. Don’t destabilize the rule of law or the agreements you make internationally, he said. That’s his philosophy (shared by Prime Minister Harper and his entourage, in particular former prof and election campaign manager Tom Flanagan). These people don’t pray with a bible in their hands but with an Ayn Rand hardcover.

Bloc MP Jean-Yves Laforest asked about the Canada-EU free trade negotiations, which will surely contain similar investment protections. He wondered how the provinces might be affected since they are at the table.

Sinclair replied that he does not know what the exact provisions in the EU treaty will be with regard to provincial compliance, but he cautioned that governments should be thinking very carefully about ensuring “that these broadly worded, open ended, vague notions of expropriation and other issues related with interpretation of rights by arbitral panels… have to be clarified and resolved prior to the provinces committing themselves.

“I think it’s a strong argument for not including the investment protections, or investor-state, in the CETA (Comprehensive Economic and Trade Agreement),” he said, adding later that the process allows companies to “roll the dice” in challenges against all manner of government policy, with potentially lucrative payoffs.

Liberal trade critic Martha Hall Findlay agreed “we need to maintain those ownership rights at the provincial level,” and proposed a much longer conversation was needed with respect to the constitutional issues surrounding investment arbitration. “We’ve heard there may be abuse of nationality,” she said, and “challenges with arbitral panel biases that need to be addressed.” Findlay proposed trying to fix the wording of investment chapters in trade agreements, for example CETA, to sort out these problems, though she is supportive of investment protections as they exist in these agreements.

McMahon of the Fraser Institute again said how important, vital in fact, investment protections and an automatic right to compensation are to resource extraction in Canada but he was corrected by Sinclair, who called this point of view “extremely exaggerated.” The Canadian natural resource economy has operated on the basis the underlying resources are public for over a century, he said.  “Companies and governments act reasonable to each other, with a mutual benefit to resource extraction,” said Sinclair. “It’s the open ended version of property rights under NAFTA that is beginning to undermine that statement.”

Dave Coles, president of the Communications, Energy and Paperworkers Union, spoke in the second part of the hearings. He told committee how the Grand Falls-Windsor workers “were robbed of their final rights that were properly negotiated in a contract — severance pay.” A month after the mill shut down the government issued an ultimatum to the company to pay up or face expropriation, said Coles. The company filed for bankruptcy protection instead and left the bill to the government.

The committee must now produce a report based on these hearings, which are clearly incomplete. There were no witnesses from AbitibiBowater, their lawyers, or the provincial government, which are still in court sorting out other matters. We don’t know why the federal government settled on $130-million, or how the company came up with the original $300 million and then $500 million figures.

We’re also left with little information on the actual effect of investment protections in trade agreements on promoting investment! If there is no noticeable difference in attracting foreign investment whether a country allows corporations to sue governments or not, then why put the process into trade agreements at all? This is not to say it is a good process as long as there are benefits through increased foreign investment. It’s to ask why the Government of Canada persists on including an investor-to-state dispute process that causes it so much grief (and costs so much money) at home, and which is increasingly used to challenge environmental, public health and resource-related disputes in Canada and by Canadian firms abroad.

The second unknown is whether Harper will seek a means to force provinces and territories to pay for NAFTA and other investment disputes against sub-national policies. Harper threatened he was going to do after he settled with AbitibiBowater last summer. As Sinclair said in his presentation, this would trigger an impressive constitutional battle between the feds and provinces over control of resources that may end badly.

I’ll write again on this once we see the report from trade committee.