Here’s the situation in a nutshell: the Nova Scotia government, in an effort to save a closing paper mill in Port Hawkesbury, N.S., provided the operation with funding to keep it ready for a new operator, and also provided money to its new owners over the next 10 years. In total, it was something like $160 million in support. (The same mill is also in a battle with U.S. trade regulators over whether it receives subsidized electrical rates, but that’s another story.)
The Port Hawkesbury mill makes glossy magazine paper: Resolute Forest Products also had a mill making that paper in Shawinigan, Que., which Resolute says it had to close because it could not compete with the subsidized Port Hawkesbury operation.
As a result, on Dec. 30, Resolute announced it would be going to a North American Free Trade Agreement (NAFTA) arbitration panel, arguing the Canadian government should pay it a minimum of $70 million for its Shawinigan losses. The company says the subsidy had the result of “depriving Resolute of its investment in that mill, and the value of other investments, in violation of the company's rights under NAFTA as a U.S. investor in Canada.” (Under NAFTA rules, the federal government assumes responsibility for the actions of provincial governments.)
This is, of course, not the first time Resolute Forest Products has gone to the NAFTA well looking for federal money.
Its corporate predecessor, AbitibiBowater, used a NAFTA arbitration panel ruling to winkle $130 million out of the federal government after then-Newfoundland and Labrador premier Danny Williams expropriated the company’s forestry assets (and, accidentally, its polluted mill site in Grand Falls-Windsor, as well).
AbitibiBowater, then in protection from its creditors, and the Canadian government reached a settlement agreement in that case, agreeing, in part, that the money would go to Resolute instead: “Payment made under this settlement agreement shall be made to the new company.” (No one has yet complained under NAFTA that having the money go to Resolute, instead of AbitibiBowater’s creditors, constituted unfair government investment. But wouldn’t that just be hilarious?)
All of this, of course, raises an interesting question: how much can international trade agreements be used to tie the hands of provincial governments looking to come to the aid of their constituents? Does a duly elected government get to say how it can properly spend money, or does that decision rest in the hands of trade agreement arbitration panels? Does that mean that there is one set of standards for companies that operate solely within their own nation, while there are better rules to protect the interests of multinationals?
Those are interesting questions, especially while we are looking down the pipeline at new trade deals, including one with European countries that’s currently being converted into legal text, and a new deal with Pacific nations.
Imagine that an Atlantic provincial government put money into a fishing or shipbuilding operation in its province. (I know — when has that ever happened?) Other competing companies in the region would just have to put up with the spending. But a foreign multinational has the trade tools to be a little more … resolute.
Hardly seems like a fair and even playing field.
Russell Wangersky is TC Media’s Atlantic regional columnist. He can be reached at email@example.com — Twitter: @Wangersky.