Why should a provincial government be punished for doing the right thing?

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That's a question the citizens of Newfoundland and Labrador -- and of resource-rich British Columbia -- should be asking themselves in the aftermath of last summer's decision by the Harper government to pay AbitibiBowater $130 million to settle a NAFTA lawsuit.

Recently, the Commons Standing Committee on International Trade held hearings into the NAFTA settlement. Property rights advocates loudly complained that Ottawa shouldn't have to foot the bill for the "irresponsible actions" of the Danny Williams government.

Yet the Newfoundland and Labrador government's actions in this matter were lawful, constitutional and commendable. The same can't be said for the conduct of the federal government.

Timber was property of the people

The settlement compensated the forestry giant for the loss of water and timber rights on public lands, which are not normally considered compensable rights under Canadian law. Meanwhile, Ottawa and AbitibiBowater left a host of problems on the doorstep of the provincial government. The costs of severance packages and pensions for workers, the bills owing to local businesses and the environmental remediation of mill and mine sites were dumped on the provincial government and its citizens.

The provincial legislation had provided for the government to compensate AbitibiBowater for its expropriated assets (land, buildings, equipment, etc.). The legislation, however, appropriately denied compensation for the loss of timber and water rights, which were returned to the Crown.

Such natural resources are the property of the people of Newfoundland and Labrador. Access to publicly owned natural resources (water, timber, minerals, oil and gas) is not an ownership right; it is a contingent right, based on the understanding that the resource rights holder will develop the resources productively, in a manner that benefits the public. After it closed its last mill in the province, AbitibiBowater could no longer fulfill its part of that social contract.

Unfortunately for Canadians, the company found a sympathetic forum in NAFTA investor-state arbitration. Even more problematic was the response of the Harper government.

Ducking a worthy fight

Ottawa settled the case without defending the province's rights. While the Harper government has pledged it will not try to recover the costs of this settlement from the Newfoundland and Labrador government, it has put provincial and territorial governments on notice that it intends to hold them liable for future NAFTA-related damages with respect to provincial measures.

This sets the stage for a federal-provincial constitutional dust-up.

The Commons committee heard from a variety of groups and experts that the federal government's intervention to settle the NAFTA Chapter 11 claim sets a troubling precedent that undermines public ownership and control of natural resources.

Future federal-provincial conflict over NAFTA Chapter 11 is far from a hypothetical issue. There have been 28 NAFTA claims against Canada. Canada has already lost four cases and paid damages of over $157 million.

Six of the seven active claims involve an alleged breach by a provincial or territorial government of NAFTA Chapter 11. The disputes concern Ontario's blocking of a scheme to dispose of Toronto's garbage in an abandoned mine, Quebec's restrictions on the use of cosmetic pesticides, Newfoundland and Labrador's requirements that offshore oil companies invest in research and development within the province, Nova Scotia's decision to block a controversial basalt quarry as recommended by a federal-provincial environmental assessment and conservation measures related to Atlantic salmon and northern caribou.

Crashing the Constitution

We are witnessing a constitutional train wreck in slow motion. While Ottawa has the undisputed power to negotiate international treaties, it can't use this power to impose broadly worded investor rights that constrain the ability of provincial and territorial governments to legislate and regulate on behalf of their citizens in areas of exclusive provincial jurisdiction.

The settlement reinforces the view that NAFTA Chapter 11 confers rights on foreign investors without taking into account their responsibilities. In future, British Columbia could easily find itself on the receiving end of NAFTA's rough justice.

This becomes even more worrisome with a federal government in power that seems to agree wholeheartedly that this is acceptable, even desirable. Resource communities, workers, small business owners and taxpayers -- indeed, all Canadians with a social conscience, would disagree.