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The Progressive Economics Forum

Harper’s $130 Million Chapter 11 Giveaway

            Canada’s federal government made an important announcement this week.  It was kept deliberately quiet: with a news release issued at 4:45 pm on a calm Tuesday in the middle of the late-summer news “dead zone.”  But it should set alarm bells ringing for anyone concerned with the anti-democratic direction of global trade law.

            Prime Minister Stephen Harper’s Conservative government reached a $130 million out-of-court settlement with the bankruptcy trustees overseeing the restructuring of AbitibiBowater Inc., a failed forestry and paper giant.  The settlement relates to a claim that Abitibi brought against Canada under NAFTA’s notorious Chapter 11 process.  This process is a bizarre kangaroo court in which investors from one NAFTA partner (and only investors – normal people aren’t allowed in) can sue another NAFTA government for actions which are deemed to break NAFTA’s broad investment rights provisions.  If a Chapter 11 tribunal rules against the offending government, it can order damages be paid to the aggrieved investor.

            In its 15 years in existence, the court has interpreted those investor rights clauses very expansively.  Not just outright expropriation is prohibited and subject to penalty.  Any measure which is seen to impose an unfair or unjustified burden on the profitability of a company (whether it has anything to do with the nationality of the investor or not) can be considered “tantamount to expropriation,” and hence subject to penalty.

            In the AbitibiBowater case, the provincial government of Newfoundland and Labrador (led by feisty Premier Danny Williams, a Conservative) took back Abitibi’s timber and water rights in 2008 when that company abandoned its mill that processed wood from that tract.  The company laid off 800 people and destroyed the isolated community of Grand Falls in the process.  Williams’ move was both morally and economically justified: he said if AbitibiBowater wasn’t going to productively use those rights, someone else should have access to them.  The Newfoundland government offered to pay fair value for the real assets (including the plant’s hydro dam) caught up in the action, minus expenses for worker severance and environmental clean-up of the company’s abandoned facility.

            Indeed, today Williams stands by his audacious act, which was hugely popular in Newfoundland.  He recently said, “Of the many things that I’ve done … in government, this is probably one of the actions that I’m the most proud of.”  But Abitibi, predictably, raised a hue and cry.  But they didn’t complain to a Canadian court of law: what Williams’ government did was unusual, but hardly illegal.  Instead, they went straight to NAFTA’s kangaroo court.

            Since NAFTA is an international treaty, it is the federal government who speaks for Canada – even when the claim is directed against a provincial government.  Usually these Chapter 11 cases drag on for years.  Amazingly, however, Canada’s federal officials settled the case out of court this week.  They agreed to pay damages of $130 million, only 6 months after Abitibi formally filed its NAFTA complaint.

            There was no “national treatment” aspect to the seizure of Abitibi’s rights (it was Abitibi’s socially irresponsible actions, not its nationality, that sparked the Newfoundland action).  Indeed, Abitibi is functionally headquartered in Montreal, Canada, and is, for most intents and purposes, a Canadian company (its U.S. “identity” merely reflects a Delaware incorporation – no doubt for tax avoidance reasons).  This makes it all the more bizarre that it could use the NAFTA process (rather than normal courts) to sue its own government.  There should have been plenty of grounds to fight the case as a dramatic over-reaching of NAFTA’s rules (which in theory are supposed to protect one country from discriminating against investors from another country on the basis of their nationality).  Even if Canada eventually lost, it could clearly stretch the process out for years.

            So how do we understand the federal government’s utter and premature surrender, not even bothering to try to defend the Newfoundland actions?  Canada’s strange jurisdictional division of responsibilities comes into play here: it’s the federal government’s responsibility to defend Chapter 11 cases, and even foot the bills.  There is no constitutional way for Ottawa to force Newfoundland to pick up the tab – although Harper threatened this week to try to pass the buck to the provinces for any future Chapter 11 judgements against them.

            The federal government’s expensive white flag will certainly come back to haunt Canada in future Chapter 11 actions.  After all, more claims have been launched against Canada under Chapter 11 than any other NAFTA partner: 28 at last count, claiming total cumulative damages in excess of $14 billion.  (Mexico and the U.S. have each been hit with 19 cases, so far.)  The Abitibi settlement ranks as the largest Chapter 11 payout ever made by any North American government.  Ottawa’s capitulation will clearly encourage more companies to take aggressive action through the NAFTA kangaroo court, over any government action (nationally prejudicial or otherwise) seen to hurt business profits and the interests of any investors, whatever their nationality.

            The only conclusion we can come to is that the hard-line neoliberal Harper government actually wanted to pay this bill, and that’s why they didn’t bother fighting the case.  Naturally they hate the idea of governments taking economic matters into their own hands, like Danny Williams did.  They claim to want to send a signal to global investors that Canada is truly “open for business.”  (Unfortunately in my view, even Williams’ actions haven’t scared off the foreign mining speculators snapping up Canadian resource properties – the latest being the $40 billion takeover war for Potash Corp.)  And they don’t want the Abitibi squabble to interfere with their rush to sign new free trade deals with the EU, Korea, and others.

            Through Harper’s lens, then, $130 million is a small price to pay to reinforce Canada’s full commitment to free trade rules, and free trade ideology.  (So much for this government’s supposed preoccupation with reducing its deficit, at all costs!)  But for Canadians, the bill will only get bigger.  It will get bigger with every new, more aggressive Chapter 11 challenge filed.  With every potential legislation killed by the chilling effect of Chapter 11 (“We can’t do that, we’ll get sued under NAFTA.”).  And with every community that closes down because profit-maximizing foreign conglomerates have no compulsion to consider the social or environmental costs of their decisions – just the way the free trade architects want it.

            Canada should renounce Chapter 11 as an anti-democratic, distortionary, rent-seeking divergence from the genuine processes of trade and investment.  Canadians should be outraged at Ottawa’s $130 million giveaway.  If Abitibi had a genuine complaint, they should take it to a Canadian court (not this unaccountable, shadowy tribunal).  And instead of paying $130 million of taxpayers’ money to a bankrupt company with no promises whatsoever that it will ever create another job in Canada, here are just a few things the Harper government could have done with the money:

  • funded the renovation and retrofit of 5,000 units of low-cost public housing – creating hundreds of construction jobs and alleviating the crisis of under-housing.
  • funded 370,000 weeks of regular Employment Insurance benefits for Canadian workers (including forestry workers in Newfoundland) who are being thrown off the EI system every week when their benefits expire.
  • funded 25,000 child care spaces for a year, creating 3000 or more full-time jobs for child care workers.

Pick your own way that a supposedly cash-strapped government should spend $130 million.  You’d be hard-pressed to imagine one more damaging to Canada’s democracy, independence, and long-run economic security than this one.

P.S.  For a full listing of cases filed under NAFTA’s Chapter 11, and decisions rendered, please see the excellent compilation prepared by Scott Sinclair of the Canadian Centre for Policy Alternatives.

http://www.policyalternatives.ca/sites/default/files/uploads/publications/National_Office_Pubs/2008/NAFTA_Dispute_Table.pdf

Scott is working on an update of this table (which currently includes all cases filed up to 2008), which will be published this fall.

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Comments

Comment from Kelsey Kirkland
Time: August 27, 2010, 1:18 pm

Jim, I applaud you for taking on Harper’s give away. Unfortunately, Harper government has a well established record of fast tracking those cases which involve Hefty compensation from taxpayers case in point the Indian School residential cases, Air India inquiry, Chinese Head tax…..other various issues going back nearly a century. Your concerns of Abitibi $130 million settlement by Harper government without a serious contest in the courts by Harper government sets a dangerous precedent. It is ironical that Harper portrays himself as guardian of Arctic sovereignty by challenging boisterously, phantom threats from Russia with, while NAFTA is the real enemy of Canadian Sovereignty.

Perhaps what Gwyn Morgan, the Reform/Conservative insider said in one of his op-ed columns:

“In the midst of today’s gloom we might wish to turn the clock back, but could we have lived with ever-increasing food and energy prices and yielding the West’s economic sovereignty to Russia and the Middle East? I think not.”

http://www.canadafreepress.com/index.php/article/8059

The Neo-Con ideology of maintaining Economic Sovereignty is not by implementing safe guards from predatory global firms at home but rather by subjugating foreign sovereign nations by force. Oh yes, because I don’t have a car, I will scratch my neighbours Porsche!

Harper is protecting us from Russia(he thinks it is Soviet Union) with new $9 billion with offense equipment while handing over taxpayers funds to Abitibi Corporation.

Just like Harper’s love for hockey blossomed when he became Prime Minister ( I have not seen any evidence of him being a fan before that), their commitment to Canada and Canadians is just as phony and recent.

Comment from Paul Tulloch
Time: August 27, 2010, 8:05 pm

I am currently involved with a group in a similar fight against CAFTA, in which a Canadian mining speculation company- Pacific Rim, (which opened up an office in Nevada to make use of CAFTA’s kangaroo court), is trying to sue the government of El Salvador for nearly $120 million. I did not think the case would go much further than a preliminary fact finding stage and be thrown out, but sadly, Pacific Rim under CEO Thomas Shrake (who is an American and is from Nevada), won the first round and now the CAFTA hearings will actually proceed.

This despite the fact that Pacific Rim is nothing more than a speculator, and does not even have a mining asset located in El Salvador. Not sure how PAcific Rim got the CAFTA ruling through the first round. However given all the accusations against PAC Rim for a supposed involvement of the death and torture of two local activists, one would think a Canadian Company would cease and desist. However without any legislation to curtail Canadian or foreign executives you can be assured of one thing- Harper has opened the doorway for his corporate buddies into using these undemocratic institutions to rape and pillage. I cannot believe the tribunal within CAFTA allowed the Pacific Rim case to proceed.

Time for some good old fashion activism to step up and fight for either Bill-300 or a much better bill in the work that MP Peter Julian has proposed that goes much further than Bill 300 and the window dressing it proposes.

About the only people upset at Abitibi/Biowater are the lawyers as the case should have went on a lot longer than it did. Damn I can’t even get my health card replaced faster than Abitibi got itself a $130 million pay cheque and for what???

Gees Harper sure is bent on destroying the country in such miraculous means- from census destruction to corporate welfare. Potentially this is being fun3ed by the Economic Plan funding!?

Comment from Lana Payne
Time: August 28, 2010, 4:57 am

Jim,

I just wanted to thank you for this post. In Newfoundland and Labrador, the vast majority of us supported the decision by the Williams government to take back our natural resources. It was the absolute right decision. It also exposed what many progressives have been saying about trade agreements for a long time.

The Harper decision to pay Abitibi $130 million no doubt covers off a number of political bases for this federal government:

1. A warning to other provinces not to take similar actions even though the provinces had nothing to do with NAFTA and were not party to the deal.
2. An attempt to give Danny Williams a setdown as many Canadians applauded the decision to expropriate the people’s resources and as we all know there is no love lost between Williams and Harper.
3. And as Jim highlighted so well, this is about giving into the corporate interest, rather than standing up for the interests of the citizens of Canada.

Once again, thank you for shining a more thoughtful light on this issue.

Lana Payne
President NL Federation of Labour

Comment from Andrew Jackson
Time: August 28, 2010, 8:24 am

Here’s a letter to the National Post in response to their temper tantrum about Danny

http://www.nationalpost.com/todays-paper/Danny+Williams/3453767/story.html

Comment from Tory Russell
Time: August 29, 2010, 10:14 am

I am looking for comment on something I read in an article by Cris Best (http://www.thecourt.ca/2010/08/27/canada-settles-abitibibowaters-nafta-claim/): that one consequence of Newfoundland’s Abitibi-Consolidated Rights and Assets Act, S.N.L. 2008, c. A-1.01 (“Abitibi Act”) was that it “blocked Abitibi’s access to Newfoundland’s courts.”

I don`t know how to gage the significance of Abitibi being blocked access to provincial courts.

In terms of learning from this case, with all the trade deals Canada is part of, how can jurisdictions (provinces / municipalities) retain sovereignty over their resources?

Comment from Hanna Barbera
Time: March 11, 2011, 1:02 am

There actually is no such thing as a “NAFTA Court”.

It seems to me that if a lawyer can be aware of what pareto optimality means, surely an economist could take a moment to learn that NAFTA claims proceed by way of ad hoc international arbitration.

Just throw me a bone here…

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