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Trade committee begins hearings into AbitibiBowater NAFTA settlement

It was Day 1 today of two days’ worth of trade committee hearings into the AbitibiBowater NAFTA investment settlement — Canada’s largest under NAFTA, at an unsightly $130 million. The settlement with the sometimes Canadian, sometimes American pulp and paper giant last August raised eyebrows for how large it was, and for the fact a domestic firm was using foreign investment protections to challenge provincial policy. Harper capitulated. Perhaps most importantly, the government didn’t even bother to dispute the company’s stated claims to Newfoundland’s water and timber rights. It simply handed over briefcases full of public money to help AbitibiBowater leave Newfoundland, without having to clean up its environmental mess.

We learned a few things from the Department of Foreign Affairs and International Trade at today’s hearings, including that it has no idea where AbitibiBowater came up with its original $300 million claim, later expanded to $500 million. DFAIT also has no intention of explaining to the trade committee how it came up with its own figure of $130 million, which it claims represents “fair market value” for the assets and rights expropriated by the Newfoundland government in 2008. Committee then heard from three witnesses, including Council of Canadians board member Steven Shrybman.

I listened in using the government’s ParlVu servivce, and updated bits and pieces on Twitter with my @StuJT account. I’ll do the same on Thursday. We put an Action Alert out today demanding that Harper exempt resource management, including water management decisions, from all future NAFTA investment disputes. Click here to add your voice.

Here’s a rough summary of what went down today…

DFAIT representatives Don Stephenson, assistant deputy minister of trade policy and negotiations, and John O’Neill, director of investment trade policy, presented first. They gave an overview and history of the AbitibiBowater claim. The Government of Newfoundland chose to expropriate the company’s assets when it chose to close its mill in the province. There were discussions on appropriate compensation, with the principle points preventing an agreement being an evaluation of assets in light of the environmental costs of cleaning up other Abitibi properties operated over the last 100 years.

Most of the potential costs were related to those other than the subject of appropriation, and in April 2009, the company filed a notion of intent to file a dispute claim under NAFTA. AbitibiBowater claimed damages of at least $300 million. Stephenson said that NAFTA Chapter 11 doesn’t forbid countries from expropriating private assets for a public good, but requires “acceptable compensation.” Even if NAFTA didn’t contain an investor-to-state dispute process, he claimed, firms and investors can go through national courts to get a payment in case of expropriation. There is an international norm to give fair compensation even outside of NAFTA, claimed Stephenson.

Suddenly AbitibiBowater raised its complaint to $500 million (just to rub it in?), saying it was not getting the same treatment as other companies who had closed their plants in the province, and that this violated Most Favoured Nation, National Treatment and fair treatment clauses in NAFTA. Again, Stephenson said the company was only seeking compensation and not an overturning of the decision to expropriate assets, which is permitted under NAFTA.

By spring 2010, said Stephenson, it became evident the government could not get the company the money due to having to cleanup Abitibi’s other environmental messes across the province. The $130-million was determined by the federal government — who knows how — to represent the fair market value of AbitibiBowater’s assets, and a decision was made that settling with the firm was in the long-term economic interests of Canada. This was about respecting a rules-based business environment that facilitates free trade and encourages investment, he said, which would be echoed in comments by Brian Lee Crowley in his presentation to committee.

One MP whose name I missed asked Stephenson about the environmental cleanup costs Newfoundland needs help with, and the pension costs for Abitibi workers, but apparently the federal government didn’t concern itself with these important issues related to the investor lawsuit. Another asked how the company came up with the $300 and $500 million figures for compensation. Stephenson replied “it’s impossible for us to know exactly how they came to that final cost,” but that the government did its best to assess “fair market value.”

A Bloc MP asked why, if the company would have had recourse to investment arbitration even without NAFTA, we have a Chapter 11 at all? Because it protects Canadian investors abroad, said Stephenson. (A dubious claim when you consider that Canadian investment challenges to the U.S. have never succeeded, as Van Harten states in his presentation.) The same MP told committee the definition of expropriation is pretty wide, and it can be used by investors to challenge all types of social and environmental policy. Trade committee needs to revisit this, he said.

Peter Julian, NDP trade critic, said AbitibiBowater’s was a disturbing case, and asked about the NL government having to pay $30 million in severance that Abitibi should have paid. “This seems a poor use of taxpayers funds,” said Julian, considering the company projects profits over the next few years. The severance payment did not enter into the federal government’s $130-million settlement, responded Stephenson, though he said it may have entered into NL discussions and considerations when they decided not to participate in compensation to the firm.

Julian asked if there were other payments made by the provincial government to the firm. Stephenson replied in the negative, but said one of the considerations in their decision was the liability for environmental recovery costs down the road. Julian followed with a question about why a Canadian-based firm with headquarters in Montreal should be allowed to use NAFTA investment protections designed to protect foreign investment. The DFAIT reps jointly explained AbitibiBowater’s corporate structure. As a bi-national firm registered in Delaware, they had recourse to Chapter 11 of NAFTA.

Liberals on the committee were fine with the investor-to-state dispute process but concerned the money could have been better spent, for example in a deal with the company to cover some environmental remediation costs.


Gus Van Harten presented first following the DFAIT representatives. He made several points about the case as an example of the problems with investment arbitration in trade regimes. First, the system in NAFTA Chapter 11 clearly conflicts with the norms of constitutional democracy. The longstanding principle in common law that a parliament or a legislature is supreme and may rule on issues under its jurisdiction without having to compensate firms is challenged, he said. By ratifying NAFTA, the government determined it would be subordinate to investors.

There have been 28 cases under Chapter 11, a number of which did not go to tribunal, continued Van Harten. He cited the Dow Agroscience case against Quebec’s prohibitions on the cosmetic use of pesticides, the VG Gallo claim against Ontario legislation to end a scheme to dispose of garbage in an abandoned mine, the Centurion health claim against restrictions in BC on private health clinics, and the early Ethyl claim under NAFTA against restrictions on a gasoline additive, which was settled in a manner similar to AbitibiBowater’s case. All these involve legislative acts

Second, the case raises issues around the the division of powers between federal and provincial governments, said Van Harten, adding the feds can’t simply bind provincial and territorial governments to international trade agreements by signing them. He also warned against thinking of investment arbitration as taking place in “courts” because unlike our legal system, arbitrators lack safeguards such as tenure and freedom from bias, so “reasonable perceptions may arise that they are influenced by the financial needs of complainants,” as well as the major governments who have influence over including arbitration processes into new trade deals.

Finally, Canada’s experience with Chatper 11 in NAFTA has been average, with four wins and four losses, said Van Harten. But in cases brought by Canadian investors against the U.S. there are zero wins and 16 losses. How do we try to explain this, asked Harten. It could be bad lawyers, or it could be coincidence. More worrying, he suggested, is that there may be an understanding not to rule against the U.S. in the arbitration court centres of Paris, London, Washington, New York and The Hague. It needs greater attention, he concluded.

(In Q+A, Shrybman said that because tribunals are not independent, arbitrators depend on having cases brought to them. No arbitrator would rule in a case against the U.S. because they know the U.S. Congress would not stand by it, he said. The arbitrators also know that Canadian governments will put up that abuse. That explains the asymmetry in the cases brought against the U.S. versus Canada, he said.)

Shrybman went next on behalf of the Council of Canadians, though I’ll refer people to his presentation on our website. We believe the AbitibiBowater settlement offers irrefutable proof that water is not protected from NAFTA investment claims, and that the agreement should be amended, as the House of Commons voted to do in 2007, to exempt any investment claims related to water resource management.

Brian Lee Crowley went last. As Managing Director of the neoliberal Macdonald-Laurier Institute, he was there to convince the trade committee that Harper was right when he said the provinces should be forced to pay for NAFTA claims against their policies. He also suggested that instead of taking investor-to-state dispute mechanisms out of trade agreements, the government should use the renewed bilateral integration talks to develop more transparent institutions for handling Canada-U.S. investment and other disputes.

AbitibiBowater suffered horribly under the Newfoundland act to expropriate its assets, said Crowley. “The claim that no compensation should be forthcoming is a defence of the unprincipled belief that rights are hostage to governments,” he said. Paying compensation is a matter of basic fairness in international law, not just NAFTA. It’s entrenched in Canadian law outside the constitution, and it is “undisputed that individuals should not bear the costs by public policy” but that those costs should be born by government and taxpayers. “That’s good public policy,” he said.

Investment protections are not a barrier to democracy, continued Crowley, because Canadian democracy comes with the understanding that the majority is not always right. Minorities must be protected from unfair majority rule, he said, likening multinational corporations to repressed minority groups. Similarly, said Crowley, investment protections for Canadian mining activities in Peru, Mongolia, Jordan and elsewhere must be protected from less developed governments who more frequently abuse the rule of law, or even worse expropriate natural resource projects from foreign investors.

Crowley pointed an accusing finger at the provinces and territories, which he feels should pay the full cost of investment decisions against their policies. He said if provinces are at table in the Canada-EU free trade talks they should be forced to pay the costs of trade. He also called on the federal government to either in consultation with the provinces, or by force, make a legal framework to bind provinces to international investment decisions.

These are not just fancy statements from the libertarian right in Canada. Many trade committee members commented approvingly at the idea of forcing provincial governments to pay the price for international investment arbitration decisions, and agreed a “rules  based system” of dispute resolution with the U.S. was better than the power-politics alternative. What all these arguments ignore is that we have a rules-based system with the U.S. that is shunted in favour of power-politics.

Conservative MP Brad Trost had the last question — a good one — on whether the investment environment was more attractive in Canada and Mexico, where we lose investor-to-state claims, or the U.S., where they never do. It was such a good question, no one bothered to answer it.