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The Progressive Economics Forum

The New ABC: Abitibi Bowater Conservatives

As sometimes happens, I started writing a comment on Jim’s excellent post and then realized that there was enough material for a new post. I agree with Jim that Ottawa’s $130-million settlement with AbitibiBowater deserves more attention, but I have been waist-deep in potash.

I think that my initial take on Abitibi’s NAFTA challenge still holds up pretty well. But here are three further thoughts:

1.) Jim writes, “There is no constitutional way for Ottawa to force Newfoundland to pick up the tab.” Constitutionally, it would actually be quite easy for the federal government to deduct $130 million from its transfer payments to the provincial government. But that would be politically toxic.

2.) It is not unusual for governments to contribute to the restructuring of economically significant, but financially bankrupt, companies like Abitibi (which has many operations in other provinces). So, I wonder to what extent Harper is using the NAFTA challenge to characterize the $130 million as compliance with trade obligations rather than as a “bailout.”

Of course, an explicit federal bailout of Abitibi would be preferable because Ottawa could attach public-interest conditions to the money, obtain equity in the company, and not set such a rotten precedent for future NAFTA challenges. But as Jim notes, federal Conservatives probably view that precedent as “a desirable loss of sovereignty.”

3.) Harper has set another precedent: provincial governments can disregard NAFTA with impunity (although I am not convinced that Newfoundland really violated NAFTA in this case). If “foreign” investors challenge a provincial policy, Ottawa is left holding the bag.

I believe that is one of the federal government’s main motives for encouraging inter-provincial “free trade” deals like TILMA. The goal is not to remove unidentified inter-provincial trade barriers, but to have provincial governments directly commit to NAFTA-style rules.

PS – The old ABC was Premier Williams’ “Anything But Conservative.”

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