Will the US Blockade Newfoundland?

By Steven Shrybman

The St. John's Telegram (January 8, 2009) reports that, "The U.S. State Department says it has been in contact with the Newfoundland and Labrador government about plans to expropriate AbitibiBowater's hydro and timber assets in the province."  U.S. officials are not saying much about their conversation with Danny Williams' government, but the State Department says it is "always concerned whenever U.S. companies operating overseas encounter difficulties, whether commercial or legal, and ... [that it is] following closely the action that the provincial government appears to have taken in this case..."

At issue is the Province's response to a decision by AbitibiBowater to close its pulp and paper mill in Grand Falls-Windsor, Newfoundland.  Once the mill is closed, the company would no longer need the land and water rights required to operate it, so it has announced that it plans to sell those rights to the highest bidder.  

The Province accuses AbitibiBowater of reneging on commitments to continue its pulp and paper operations as a condition of the right to exploit provincial forestry and water resources. Like many provinces, Newfoundland requires companies to invest in value-added manufacturing, such as pulp and paper production, if they want to obtain and keep forest, fish and water licenses. Such requirements have been a feature of Canadian resource policy for more than a hundred years and without them, Canadians would be nothing more than hewers of wood and drawers of water.  

If AbitibiBowater wasn't going to exploit Newfoundland's publicly owned resources for the benefit of the people of the Province, then Premier Williams said he would take them back to their rightful owners, and the government moved quickly to pass Bill 75 to do just that.  The Bill allows for, but does not commit the Province to paying any particular level of compensation for the rights, lands and assets being reclaimed or expropriated from the Company.  

In response, the Company has threatened to file a claim under NAFTA investment rules. While little known, these NAFTA rules have been successfully invoked by US investors to discourage and roll back a variety of public policy and regulatory measures, from toxic substance regulations to public auto insurance.

If AbitibiBowater carries through with its threat, the case will raise fundamental issues that may profoundly affect Canadian constitutional values and sovereignty over natural resources, including water.  This is because the case will determine whether U.S. style constitutional protection for private property rights will trump Canadian norms that give priority to human rights and the public interest when conflicts arise with private interests.

In 1982, Canada explicitly rejected entrenching property rights in the Constitution, thereby preserving the right of governments to interfere with private rights where the public interest warranted, including for such diverse purposes as environmental protection, resource conservation, or the delivery of universal services, such as health care. But mirroring US norms, NAFTA prohibits such interference with private property rights.

However, the most profound potential consequences of the case would follow from its treatment of AbitibiBowater's water licenses. The question a NAFTA tribunal will answer is whether private and foreign investors can acquire a proprietary interest in this vital natural resource. No other NAFTA investment case has so clearly put the principle of water as a public trust on such a direct collision course with treaty-based corporate and commercial rights.

If AbitibiBowater were to prevail with such a claim, water would become a mere commodity to be bought, sold, exported, and exploited by the highest bidder. The obligation of governments to treat water as a public trust essential to both human well- being and biodiversity would then have to give way to commercial and private interests. The result would dramatically curtail policy and regulatory options concerning water, whether used for resource extraction such as in the tar sands, for power generation, or for any other commercial purpose including water bottling.

In addition to invoking NAFTA, AbitibiBowater circumstances appear to have also prompted the US State Department to take the unusual step of directly contacting a provincial government to raise its concerns. It seems the US is now having problems with more than one of its island neighbours, as it has long protested the appropriation of assets formerly owned by US investors in Cuba. We can only hope that it does not attempt to blockade Newfoundland if Williams is unwilling to cede his government's sovereign right to determine the terms on which private investors will have the right to exploit public natural resources.  

Steven Shrybman is a partner in the law firm Sack Goldblatt Mitchell and a board member at the Council of Canadians. He practices international and public interest law in Ottawa and Toronto.