International Trade Committee on March 10th, 2011

[David Coles, President, Communications, Energy and Paperworkers Union of Canada]

Thank you, sir.

Thank you to the panel as well. I appreciate the opportunity to tell our side from the workers' point of view.

I would like to give you a little bit of my background. It is a very unique position for a trade union leader to have had to spend most of the last two years in corporate boardrooms dealing with CCAA protection law issues, international trade law issues, and bankruptcy law issues.

I am not a lawyer; I'm a negotiator. However, I did chair the negotiations with AbitibiBowater to try to find—and in the end was successful—its way out of CCAA protection.

Once again, my name is Dave Coles. I am the president of the Communications, Energy and Paperworkers Union. We represent some 130,000 members, including about 60,000 members in the forest sector, of which 7,500 are current AbitibiBowater employees. There is also another group, about 20,000 former employees, who were our members and who are now retirees.

In March of 2009, AbitibiBowater closed the Grand Falls-Windsor paper mill in Newfoundland, and over 500 of our workers lost their jobs. We represented those proud workers, and they were confronted with the harsh choice between bowing to the company's demands—they had been bargaining—and giving major concessions. AbitibiBowater at the time was very much playing hardball with our members.

As it happens, the Grand Falls-Windsor workers had to confront the latter choice. They did so by being robbed of their final rights that were properly negotiated in a contract—their severance pay.

It is important to put the dispute between AbitibiBowater and Newfoundland and Labrador in a proper perspective. When Newfoundland and Labrador adopted Bill 75, which revoked AbitibiBowater's water and timber rights and expropriated the hydroelectric assets along with the mill, it did so because AbitibiBowater closed the Grand Falls mill and refused to pay severance packages owed to the mill workers.

On April 30, 2009, about a month after the mill shut down, Premier Danny Williams issued an ultimatum to AbitibiBowater, telling the company to respect its severance obligations to the workers or face expropriation. In saying so, the premier took a proactive step in favour of his citizens' right to obtain what was due to them.

Instead, the company was placed under the protection of the Companies' Creditors Arrangement Act, the CCAA. You should note that severance was to be paid 48 hours later, but the payments were circumvented by the company's filing for CCAA protection—a coincidence, some say.

Thus, the premier acted and the government then stepped in and paid more than $30 million in severance pay that was owed to the people who lost their jobs in Grand Falls. To my knowledge, it is unprecedented for any government in Canada to take such an action. I should add that I personally had to sign a $30 million promissory note—it was actually $33 million—with the premier, to ensure that if the union ever did win its cases before the courts, we would repay the $33 million. We didn't win, and I was relieved of that responsibility.

We also have to be clear about the terms of the expropriation. The water and timber rights granted by Newfoundland and Labrador to Grand Falls-Windsor mill owners back in 1905, originally the Anglo-Newfoundland Development Company, were conditional to the operation of the mill in the province. It is in section 3 of the 1905 charter, a lease between Newfoundland and the company, and you'll see in my report that it is stated there.

The 99-year lease was renewed in 2002, but only on the condition—a contractual condition—that the number 7 paper machine would stay open. If that weren't the case, the provincial legislation stated that the lease would be revoked and that timber and water rights would go back to the public.

That was the law.

The larger question is whether AbitibiBowater was using public resources to run the paper mill or to be a private power producer. Put another way, are the licences to use resources for economic development just another kind of private property that can be used, not used, or sold, regardless of public benefit?

As for the hydroelectric assets and the mill itself, Newfoundland and Labrador did announce their willingness to compensate AbitibiBowater. I was in the boardrooms when those discussions were taking place. The premier never did say--at least when I was around--that they weren't going to find a way to compensate AbitibiBowater, because they knew they had a contractual right to do so.

That wasn't good enough. The company then launched a $50-million NAFTA challenge. At the time I told the company they were making a mistake and, given the opportunity, we would challenge that. Rather than wait for an unelected trade tribunal to give the ruling that would have in all likelihood favoured Canada, as the 1905 charter lease was judicially strong, the federal government simply settled out of court for $130 million.

My knowledge of those assets is that they paid a fairly high price for a very low-valued operation. This was tantamount to saying to AbitibiBowater, “You were right. We were wrong. By the way, we acknowledge that the water and timber rights are yours, not the province's”. That goes back to the issue of law.

On Tuesday, Steven Shrybman made a strong case to the effect that instead of burying the problem under the rug, the out-of-court settlement might have very dark consequences for the status of Canadian resources. We endorse that. The rash decision of the federal government in this case might serve as jurisprudence that the company that is granted a permit or lease to use or exploit a resource, such as water or timber, might demand compensation if that permit or lease is revoked.

That was a startling and dangerous concession for the federal government to make. We disagree with chapter 11; the record's clear on that. We think it represents no less than a charter of rights for foreign investors that allows unelected trade tribunals to trump not only democratically elected governments but also the country's legitimate judicial process. However, the chapter 11 process is there, and while it is, there is a chance it may rule against the claimant, as it did in the UPS case, or minimize the claim for foreign investors, as it did in the S. D. Myers case, in which Canada only had to pay $850,000 out of a $20 million claim. However, everybody loses when the federal government simply pleads guilty and acknowledges a company's right to a resource that it did not own, but merely leased.

Our only consolation in this case is that thanks to Premier Williams, we were able to have the severance paid to our members.

Thank you.

[The Chair, Conservative, Lee Richardson]

We'll go now to our stand-in witnesses, if you will.

Mr. Woods, do you have an opening statement?

[Michael G. Woods, Partner, Trade and Competition Group, Heenan Blaikie, As an Individual]

My name is Michael Woods. I'm a trade lawyer at Heenan Blaikie just down the street here on Metcalfe. That's why I'm here--because I'm just down the street on Metcalfe. The person you really wanted to hear from, Professor Todd Weiler, my good friend, wasn't able to make it from London because of the weather. He sends his apology.

I won't make a real opening statement. I'm just here to explain that I'm pinch-hitting and that I wasn't involved in the case on either side. I can answer questions to the best of my ability. I haven't delved into the case in any great detail. We in the trade bar, of course, follow these different chapter 11 cases.

I'm very interested in the federal-provincial aspect. I'm very interested in the questions of how people perceive the NAFTA going forward. I'm very interested in the idea that we should not consider ourselves being at a fixed point. It's awfully hard to open trade agreements and amend them, and the danger of doing that—and we've had those discussions before about NAFTA—is that you could lose the whole agreement. I think there's a trade-off in terms of the NAFTA, and indeed NAFTA chapter 11, and it would be a bad day if we had to tear up the whole agreement or if it were to be de-liberalized, let's say.

That said, I think there's lots of scope and lots of room for administrative mechanisms and ways to approach trade as we're going forward.

I'm proud to say that my firm advises the Government of Quebec in the Canada-EU free trade negotiations, and in that context I believe we are seeing more involvement. I'm not directly involved in those discussions--it's Pierre Marc Johnson and Véronique Bastien of our Montreal office--but I see more and more interchange between the provinces and the federal government as we move forward with these trade agreements, because there's a recognition that the trade agreements affect provincial jurisdictions as well as federal and that there's a lot at stake.

It's not a one-way situation. The reason we have the aspects of chapter 11 and investor-state dispute settlement, which is the big issue, is that it's a mechanism that's 100 years old and has been protecting Canadian, European, and American investors all around the world. It's something we seek to protect our investments.

Trade works as a two-way street. Countries that were the developing countries that we wanted protection in are now countries like Brazil, which are investing huge amounts of money in Canada. The investment between the United States and Canada is huge. I don't have the statistics with me, but there's this added protection.

Obviously I have a vested interest. I've been counsel on NAFTA cases. I've been co-counsel with Todd Weiler, so I have that particular point of view, but I think that progress can and should be made on the federal-provincial aspects. It is possible and it's doable.

Finally I'd like to say that having just come in as a pinch-hitter and looked through the case very briefly, my view is.... I've worked at the trade law division. I was there when we negotiated the NAFTA. I was there when we negotiated the FTA. I was there during the Uruguay Round. I'm not that old, so I wasn't there during the Tokyo Round, but I've been there: I've acted on government teams defending and I've acted as claimant counsel.

The only documents I have are the claim for arbitration, the notice of intent, and the claim itself. I know the lawyers on both sides. I think the lawyers took a calculated view of the situation, and they came out with a settlement. I can't comment on the politics of the settlement and I can't comment on how the situation came to be where it was, but if I were sitting there as counsel on either side, I would think that the deal that was struck would be a reasonable one. If I were sitting with the trade law division going back to government, or if I were advising AbitibiBowater, I would say that there would be risks in going forward and that this is a settlement we can live with.

As to the other related elements, I don't have a clear picture of what was going on because I wasn't involved. Perhaps that allows me to speak more freely; I am speaking today as an individual. However, I can tell you this: if you have a hard question and you get two answers from two different lawyers, as you were saying, I have with me Alexandra Logvin, who joined the firm as a student working on a NAFTA chapter 11 case. She has great experience in international arbitration. She's worked with the federal government as well. She worked on the UPS case. She's worked with us and with Todd Weiler on claimants' cases.

That includes, I must tell you, for those of you who wonder about the balance of how the NAFTA could work, that I'm proud to say that we fought for the feedlot operators of Picture Butte and Lethbridge and so on when the border was shut because of BSE. We took a case forward for individual cattle lot operators, and we consolidated the case.

So it's not just about big corporations suing or making claims against the government; the tool can be used by anybody who has an investment. One of the problems, frankly, and one of the things that I would like to see would be more empowerment for individuals, for corporations, to be able to take on governments directly, at their own expense, and to find ways to set up tribunals so that they're less ad hoc and more cost-effective--and therefore less costly--for individuals who should be able to take on countries that are harming their investments or their trade rights, just as you can sue the government in Canada.

I said I wasn't going to make an opening statement, but if you put a lawyer in front of a mike, that's what happens.

[The Chair, Conservative, Lee Richardson]

Thank you for that. I appreciate your comments. It seemed very reasonable to me.

We'll conclude with a brief opening statement from Jean-Michel Laurin, vice-president of global business policy at Canadian Manufacturers and Exporters.

[Jean-Michel Laurin, Vice-President, Global Business Policy, Canadian Manufacturers and Exporters]

Thank you, Mr. Chair.

Good morning everyone.

Thank you for the opportunity to appear again before the committee this morning on behalf of Canadian Manufacturers and Exporters and to take part in your discussions.

Before I begin, I'd like to say a few words about Canadian Manufacturers and Exporters. CME is Canada's leading trade and industry association, and we're the voice of manufacturing and global business in Canada, as you know. Our association represents more than 10,000 leading companies nationwide, and more than 85% of our members are small and medium-sized manufacturing companies, representing every industrial and export sector of the Canadian economy.

As you know, manufacturing is an export-intensive business. More than half our industrial production is exported directly, and most of that is exported to or through the United States. Manufacturers also account for two-thirds of Canada's exports, a significant proportion of Canada's foreign direct investment, and foreign direct investment coming to Canada as well.

It's increasingly critical for Canadian manufacturers to succeed in global markets, as you know. As manufacturers increasingly invest in innovation and become more agile, specialized, and able to serve niche markets, their need to find new customers and business opportunities globally also increases. This leads many of our members to invest abroad or to seek to attract foreign investment to Canada. Our ability to attract foreign investment into Canada and our ability to invest abroad are both critical to our sector's competitiveness. A significant proportion of our members' operations are also the result of foreign direct investment coming to Canada that we've been able to attract and retain because of the good work our members have been doing.

These companies fight day in and day out to maintain production mandates and attract new investments to this country. Many are also looking to grow their business outside Canada and need to take advantage of foreign direct investment opportunities--for example, in the United States--to offset the impact of the high Canadian dollar we're seeing right now. What we hear from our members is that coming out of the recession there are tremendous investment opportunities in the United States, Mexico, and elsewhere, and it is critical for their businesses to grow their presence in these markets.

This is why CME supports foreign investor promotion and protection agreements, such as NAFTA's chapter 11 and other agreements that have been or are being negotiated by the Canadian government. We need to ensure that Canadian businesses investing abroad are not discriminated against in favour of domestic companies, and we also need to provide the same assurances to foreign companies that are investing in Canada, to the extent that we're getting reciprocal treatment in the other country.

The issue here is not to tie the hands of governments when it comes to issues like expropriation, but rather to provide a legal framework for doing so that is not discriminatory, that's predictable, and that's based on rules. Foreign investment protection agreements protect and promote foreign investment by providing legally binding rights and obligations to Canadian companies investing abroad while providing the same rights to foreign companies operating or investing in Canada.

I understand that Don Stephenson from the Department of Foreign Affairs and International Trade testified here earlier this week, so I won't go through the specifics of the case. I'm here to discuss the specifics, but I'm here especially to review the implications of this case for manufacturers and exporters throughout Canada. I think we've seen two major implications from this case.

First, I don't think the threat of expropriation was on the minds of many companies investing in Canada, especially not U.S. companies. It's not typically an issue that we would hear from our members. Some might argue that the AbitibiBowater case is unique and special, but regardless of whether or not that's the case, the perception now is that expropriation of assets does happen. There have been cases, and that perception is something we don't think is positive.

The case also sets a precedent and will lead investors to ask more questions in the future. That's certainly not something we view positively. We certainly don't want foreign investors thinking their assets can be up for grabs. Moreover, if their assets are being nationalized or expropriated, this needs to be done based on rules that apply to everyone. There needs to be a demonstration that this is done on grounds of public interest and there needs to be some assurance that investors will be compensated appropriately if that's the case.

I would say that the second main implication is that this specific case shows why we need investor protection agreements such as NAFTA's chapter 11: it's so that expropriations are done in a way that is rules-based and that provides adequate compensation based on fair market value. I won't actually read the text of the agreement for you, but if you do read it, you'll see that it's quite explicit in what it sets out in terms of principles and rights for investment. I think that when we consider this, we also need to look at the positive impact this is having on Canadian companies investing in the United States.

To conclude, I'll say that foreign investment protection agreements, including chapter 11, provide this rules-based framework that we need to protect and govern foreign investment. The AbitibiBowater case shows why it's critical to have such rules in place.

I'll end my comments there. I will be pleased to answer your questions.

Thank you.

[The Chair, Conservative, Lee Richardson]

Thank you, Monsieur Laurin.

We're going to start with Mr. Simms this time.

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

Thank you, Mr. Chair.

Thank you to our guests.

First of all--

[The Chair, Conservative, Lee Richardson]

Excuse me, Mr. Simms; I'll mention to everybody that we're going to try to keep to five minutes so that we can make sure everybody gets in. It will be five minutes for questions and answers.

Thank you.

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

Mr. Coles, thank you for your speech here today. You've cleared up a couple of issues that were brought up earlier about leases. Thank you for that. I'll get to you in just a moment.

Mr. Laurin, here is my opinion on this. I understand where you're coming from about rules-based situations so that everybody is clear about what the rules are when you invest. I have no problem with that whatsoever. You use chapter 11 as a pillar of an example of remedies being in place for expropriation measures, and Mr. Woods, in relation to a case in Alberta, talked about how individuals have a greater ability to do that. That's fine.

Let's look at the other side for a moment. For oil and gas, the North Sea is an incredibly intricate place to invest in. They have a very advanced system; I would even say, in my opinion, that it's the most advanced in the world. They have what is called fallow field legislation. In other words, you have a certain number of years to invest in a certain property. Once you do that, you can have your licence and you can carry on, but if you don't undertake any activity after two or three years, you have to explain why not.

The whole principle is that it doesn't belong to these companies. It's not theirs in perpetuity. It belongs to the people, to whom you have to be responsible. In this case, going back to Mr. Coles' evidence here, quite clearly you can call it perception or whatever, but in 1905 it was operational in the province. They got all these rights based on the simple fact that they had to provide employment, period. Now, you can say that it was over 100 years ago, but the principle was renewed in 1992. That was the whole principle of it.

A lot of us were being accused of expropriating for no apparent reason, and I believe Premier Williams was called “Danny Chavez” at one point. However, the thing about it is that he has a point: it's a two-way street.

I'll start with Mr. Laurin's comment on that. Mr. Coles, I'd like you to comment as well.

[Jean-Michel Laurin]

Obviously there are different countries and different jurisdictions that have different regimes when it comes to granting access to natural resources and managing that access to natural resources that they're providing to companies. My point on the specific case that happened in Newfoundland and Labrador--and it's certainly what our members are telling us--is that if you come up with policies and change the regime for accessing those natural resources, then it should be done in a way that's predictable, consistent, and in line with best regulatory practices--in other words, it applies to everybody.

In this specific case you're looking at right now, we weren't involved directly in those discussions in the way that David was, but my understanding is that our members want a predictable, rules-based system that applies fairly to everybody. I think that if Newfoundland and Labrador want to change the regime it's providing for accessing natural resources, including logging rights, that is certainly something that's within the rights of the province, but, again, there need to be rules around how--

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

Maybe there was a lack of rules. Take it at face value: in 1905, and as renewed recently, the idea was that if you provide jobs, you get the rights.

[Jean-Michel Laurin]

There was an agreement in place that governed the way that AbitibiBowater was operating in the province, and different provinces have different regimes. The point is that if you make changes to the way this regime is operating, you need to do it in a way that's consistent and treats everybody fairly and in equal fashion. That's the point we're trying to make.

When we're looking at attracting foreign investment to Canada, people want to know what the rules of the game are, and they want to make sure that the rules of the game won't be changed during the process.

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

Fair enough. I think governments would like to do the same. Maybe that was the whole point of Newfoundland's exercise. Maybe we learned from that.

Would you comment, Mr. Coles?

[David Coles]

I have two problems. One is the conflict in Canada between resource rights belonging to the province and international trade belonging to the federal government. It's a complex legal issue. If an employer makes a deal for you to operate, and then the employer changes or breaks that deal, in our view you have a legal right to respond to it.

For example, if the potash industry was all bought up in Saskatchewan, shut down for economic reasons, or sold to another country, I would argue that the citizens of Saskatchewan have a right to say, “Wait a minute; those are our resources. Start them back up. Take them over. Do something.”

This is all about the rights of corporations. Tell me who's defending the rights of the citizens of Canada or the provinces?

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

Did you ever speak to the Prime Minister about this?

[David Coles]

Yes, I did, a couple of times.

[The Chair, Conservative, Lee Richardson]

Thank you. We have to move on.

Go ahead, Mr. Laforest.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Thank you, Mr. Chair. I will start off, and my colleague will finish.

Good morning to all of you. It is a pleasure to meet with you.

Mr. Coles, I was especially struck by your presentation. I found it fascinating. There are a number of AbitibiBowater employees in my riding affiliated with your union. And I want to stress the fact that, in this whole situation, several injustices have been committed against the workers. That is a side of the issue we are discussing somewhat indirectly.

I think about what this company has done in recent years. In Quebec, in my riding, senior managers shut down the Belgo plant, they temporarily shut down the sawmills in La Tuque, and they just shut down the Dolbeau plant permanently.

Employees and unions do not understand the federal government's decision to pay out $130 million to a company like AbitibiBowater. People appreciate that the industry is in trouble, and they are even ready to make concessions. But people find AbitibiBowater's actions in Newfoundland Labrador unacceptable, not even giving workers severance pay, which the government had to do. Workers at the Grand-Mère plant recently agreed to another series of rollbacks in their working conditions, conditions that were hard-won over the years.

It is unacceptable for the company to collect $130 million and not pay a thing to its employees, while those at the top rake in big fat bonuses, to the tune of millions of dollars. The company's executives have received bonuses over the past few years. People find that outrageous. I appreciate that this is a NAFTA dispute, but workers sure have trouble understanding this process when they see themselves being cheated as the executives line their pockets.

I would like to know whether you have anything to say about that.

[David Coles]

The background for AbitibiBowater is extremely complicated. It was a cavalier move by two independent companies, Abitibi and Bowater, to run themselves into massive, incredible debts.

When the economic crisis of September-October of 2008 struck, the company had a $1.4 billion unfunded liability for its Canadian pension plans. They couldn't meet their fiduciary responsibilities along with their other debts and were forced into CCAA. Our members, in an effort to try to keep the company from being dismantled, accepted wage and benefit rollbacks of more than 17% so that the pensioners wouldn't be cut and the company could exit CCAA.

When the federal government gave the $130 million gift to AbitibiBowater, the workers who had lost their severance and taken a wage cut received none of that money. As you say, they don't get the complication of a set of laws, meaning bankruptcy protection, CCAA, and NAFTA; all they see is that they personally bear the brunt of this manoeuvre by Bay Street and Wall Street. They are out of pocket and they don't understand it. You're absolutely correct.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Thank you, Mr. Coles.

[The Chair, Conservative, Lee Richardson]

You have thirty seconds; go ahead.

[Claude Guimond, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Good morning everyone.

Mr. Coles, earlier you mentioned precedents and jurisprudence. Chapter 11 deals with private interests versus the public good. Those are very valid questions we should be asking ourselves, as parliamentarians. We do indeed get the sense we are seeing a negative trend here, and there is no denying how disturbing this all is. Just look at the situation before us.

My question will be brief. As elected officials, what can we do in the future to prevent this kind of trend and restore the balance, so as to bring about a situation that is more acceptable to all sides?

[David Coles]

I know I don't have any time, but as Mr. Woods said, the problem we're faced with is a quagmire of legal jurisdictions. I think we have to work towards rules-based situations, because to tell a province that it can't control its own resources is heading for a constitutional and economic disaster.

[The Chair, Conservative, Lee Richardson]

Go ahead, Mr. Julian.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thanks, Mr. Chair. Thank you to all of our witnesses.

I'd like to focus on you, Mr. Coles. It appears to me, just reading your testimony, that here we had a company that broke the original agreement, which was the 1905 conditional water and timber rights based on mill operation. It looks as though they also broke their obligations around the renewal in 2002. The lease was renewed, with the obligation that they would continue to operate the number 7 machine. They refused to honour their contractual commitments for severance pay, which was a negotiated agreement, as I understand it, that they then broke by going into CCAA.

In my part of the country, when somebody consistently breaks their agreements they are a deadbeat. Here's a corporate deadbeat that consistently refused to honour its obligations.

My questions will start off with this. Are we now setting a precedent that a corporate deadbeat can just go to the government and get tons of money for not respecting its obligations? I think that's something that completely flies in the face of what most Canadians believe should happen. Canadians believe individuals and businesses have to honour their commitments. Here is a case of a company that clearly didn't, so does this open the door to other corporate deadbeats using this device to get money out of the government?

I'd like to know how Abitibi got to this point over the course of the last few years.

My other concern is that the payment just seems so bizarre and irresponsible, given all of the evidence that we've had before committee. Was this some kind of ideological decision the government made? Were they trying to get back at Premier Williams? Why would the government just fork over $130 million, when clearly the company was not respecting its end of the bargain at any point and refused to negotiate with the Newfoundland-Labrador government for compensation for their real assets?