AbitibiBowater, Danny Williams, NAFTA, and the Future of Canadian Federalism

25 02 2010

The Grand Falls Pulp and Paper Mill as it Appeared in the 1950s

The inside of the mill

AbitibiBowater has filed a $500-million free trade complaint over the expropriation of some of its resource assets by the Newfoundland and Labrador government. In 2008, the company announced it was shutting down a pulp and paper mill in Grand Falls. Newfoundland’s Premier, Danny Williams then announced that it was going to nationalize the mill. Danny Williams was then dubbed Danny Chavez by the media, a somewhat inaccurate comparison with the leftwing and anti-American leader of Venezuela, Hugo Chavez.

Danny Williams

The company, which was incorporated in Delaware, announced that it was going to sue the provincial government under a provision of NAFTA that protects the property rights of American and Mexican firms in Canada. For the benefit of US readers, I should point out that Canada’s constitution does not protect property rights. In Canada, the theory is that all property is the gift of the Crown (i.e., the government) and can be taken back if needs be.

To make the politics of this case even more complex, the government of Quebec is now considering buying a stake in AbitibiBowater, which is now bankrupt and in court protection. The governments of Newfoundland and Quebec have never been able to get along. There is bad blood going back to a border dispute in Labrador.

I don’t think that Williams was right to expropriate AbitibiBowater’s assets without fair compensation. Seizing the asset in this way may discourage future foreign investment in the province. However, one thing about this story really disturbs me as a constitutional historian. The federal government, which had nothing to do with the provincial government’s seizure of the mill, yet it is Ottawa rather than the provincial government is being sued by the company.

The apparent thinking is that the federal government has a responsibility to foreign nations to control sub-national units. The problem with this is that management of Crown land and property and civil rights are clearly a matter of provincial jurisdiction. If the federal government can gain control over matters of provincial jurisdiction simply by signing a treaty with a foreign power, the authority of the province’s will be eroded. This is a case with momentous implications for Canadian federalism.

In the late 1930s, the JCPC, which was then Canada’s highest court of appeal was called upon to rule on the constitutionality of the Bennett New Deal, a package of federal legislation that dealt with matters previously considered to be provincial. Louis St-Laurent (see left), the future Prime Minister who was the federal government’s lawyer in this case argued that the federal government had acquired the right to legislate in this field by virtue of Canada being a member of the League of Nations, an organization that had set standards regarding working conditions. St-Laurent concocted an argument based on section 132 of the British North America Act, which gives the federal parliament authority to implement imperial treaties, in this case the labour aspects of the 1919 Treaty of Versailles.

In 1937, this argument was, essentially laughed out of court by the law lords of the Privy Council. Actually, what Lord Atkin said was that the mere assumption by Ottawa of an international obligation under a treaty did not alter the distribution of powers in the Constitution. Atkin said : “While the ship of state now sails on larger ventures and into foreign waters she still retains the watertight compartments which are an essential part of her original structure.” For the ruling see here.

One wonders how the Supreme Court of Canada would rule on a case in which the federal government claimed authority over a provincial matter by virtue of the NAFTA treaty.

As far as I can tell, no observer in the media has commented on the possible implications of this case for the constitutionality of federal policy under a future climate-change treaty. However, the connection between s. 132 of the constitution and the Kyoto Accord has been discussed by Chris Kukucha, a political science professor in Alberta.  Many in Alberta have argued that Canada’s decision to sign the Kyoto Protocol was unconstitutional because only the provinces have the power to limit greenhouse gas emissions and to sign agreements related to them.


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