EXPROPRIATION OF ABITIBIBOW ATER INC. INVESTMENTS

IN CANADA

PRESS CLIPPINGS OF INTEREST

JANUARY 13, 2008

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Will Danny's resource power grab pay off? Premier seizes AbitibiBowater's hydro assets and cutting rights after company plans mill closure, a move that may sour business investment in the province The Globe and Mail December 17, 2008 Konrad Y akabuski

Just when you thought the Danny Chavez gibes were getting tired, the Rock's irrepressible strongman strikes - no, more like bludgeons - once again.

Danny Williams's move to unilaterally seize the Newfoundland hydro assets and timber cutting rights of paper giant AbitibiBowater Inc. after the company announced it would close its adjacent newsprint mill is the kind of self-inflicted wound that will sour any sensible business person with an eye on investing in the province. If the government rips up duly negotiated agreements just when it feels like it, what's the point in signing them in the first place?

At least Hugo Chavez, Venezuela's nationalization-happy President, has the decency to call himself a socialist. Mr. Williams just acts like one.

Yet, every small-town Canadian who has experienced first-hand the roughshod tactics ofthe multinationals entrusted over the decades to "develop" this country's resources will deep down be just a little bit grateful for Danny Boy's penchant to go rogue.

"How will this be viewed by Newfoundlanders? Positive," said Scott Simms, the Liberal MP for Grand Falls-Windsor, where Mr. Williams is expropriating Abitibi's assets. "How will it be viewed by the outside world? I bet some people will say: 'Hey, there's someone who actually believes resources belong to the people.' "

Generous incentives given to businesses, sometimes more than a century ago, were the basis of Canada's economic development. Over the decades, governments gave (mostly) foreign companies the right to raze forests, harness rivers and drill for oil in exchange for jobs and investment.

"It was a totally rational policy," explained Joe Martin, director of business history at the University of Toronto's Rotman School of Management. "Canada leaped ahead because we did not have the capital to do it on our own."

So, what happens when one party to the deal decides it's no longer in its interest to maintain the mill jobs? Should it get to keep all the other goodies granted by past governments and be able to auction them to the highest bidder?

We know what Mr. Williams's answer is. No other government in Canada has been as bold, or reckless, as Newfoundland's nominally Progressive Conservative Premier. Even Quebec, which nationalized its vast hydroelectricity industry in 1962, spared the hydro assets owned by Abitibi

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and aluminum giant Alcan. The companies' decades-old generating stations have been the source of fantastically cheap power to feed their mills and spawned a lucrative side business selling surplus electricity back to the provinces - usually at a hefty premium.

Alcan has an even more profitable arrangement in British Columbia. Its five-decade-old smelter in Kitimat is on its last legs, but its nearby Kemano hydro station sells huge surpluses at a big markup to government-owned BC Hydro. Last week, Alcan's debt-strapped new owner, British-based Rio Tin to PLC, postponed a long-promised investment in a new Kitimat smelter. Even if it is eventually built, it will employ 500 fewer workers than the current facility. Yet Alcan will continue to enjoy full ownership of and profits from the hydro stations, which employ only a handful of people. B.C. Premier Gordon Campbell is evidently no Danny Williams.

But after staring down Big Oil over the Hebron offshore development and bodychecking Stephen "Steve" Harper over a perceived slight on equalization payments that he no longer needs, Mr. Williams had to erect a new bogeyman he could stand up to. Enter Abitibi.

The history of the Grand Falls-Windsor mill that Abitibi will shutter in March could be a template for that of almost any other in Canada. It was built early last century by Britain's Harmsworth family to feed its London Daily Mail with newsprint.

A 1905 Charter Lease from Newfoundland, then still a British colony, granted the Harmsworth's Anglo-Newfoundland Development Co. Ltd. the right to "have, use and enjoy" timber and water rights to produce hydro power. In exchange, the company built the entire town, splurging on an avant-garde design inspired by the Garden City Movement of the era.

Ownership of the Grand Falls mill and the hydro assets eventually fell to AbitibiBowater, whose creation in 2007 is itself the culmination of so many mergers that anyone who has worked in the Eastern Canadian forest industry has probably worked for it or one of the companies it swallowed. But many of those mergers were a sign of the forest industry's distress and not a vote of confidence in its future.

The Grand Falls mill could not survive without either massive government subsidies or major concessions from its unions. It is true Abitibi has been so stingy with new capital that the mill might have been doomed by its obsolescence. But the hydro assets are still valuable. Abitibi had been counting on them to ease its own financial difficulties.

Mr. Williams has decided otherwise. The expropriation bill tabled yesterday- with its 37-word-long title - is chilling in its language. Those 1905 rights are simply "revoked." The bill says there will be compensation for Abitibi. It's just that Mr. Williams's government will decide itself how much.

Here's one thing Danny Chavez should keep in mind as he gets out the calculator: The fishery may have provided better folklore, but the forest industry provided a fair share of Newfoundland's wealth over the decades. Grand Falls, and chapters of the province's history, wouldn't exist without it. What's that worth?

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Will expropriation backfire? Advertiser (Grand Falls-Windsor, NL) December 18, 2008 David N ewell

The public relations machine that is the Danny Williams government rolled into - and out of-Grand Falls-Windsor yesterday.

He stopped by to collect the accolades of fellow politicians, union leaders and small business people after stripping timber and water rights out from underneath AbitibiBowater.

The expropriation of those rights, at first glance, is a great thing for this province. Those natural resources belong to the people of central Newfoundland and these are the peopl who should benefit from their development with employment and a healthy and successful economy.

Because of this bold move- a term, by the way, which seems to follow the AbitibiBowater fiasco - Premier Williams is being lauded as a hero. Members ofthe House of Assembly were reportedly lining up to autograph the legislation, since they wanted to be remembered as supporting the law.

One hopes the expropriation actually benefits central Newfoundland, though. It seems that the provincial government have been a step behind in the AbitibiBowater situation from the beginning. Perhaps they have been making good use of their time, but it has seldom appeared so.

Might things have turned out differently if they had facilitated talks between the company and unions? Did the government suggest to the unions that they consider job cuts in order to save the industry in this region? Was there any thought given to the fact that the federal government may be considering assistance for the forest industry and that might have helped the Grand Falls mill?

The Williams government watched from the sidelines as AbitibiBowater followed through on the only option they felt they had if the facility in Grand Falls-Windsor remained status quo.

On Dec. 4, Premier Williams did not pass comment on the closure announcement, but deferred questions to his deputy and Minister ofNatural Resources, Kathy Dunderdale. Apparently, the demise of a century-old industry in the central region of the island was not important enough for him to talk about.

Yesterday he was available, though.

It seems sentiment on the expropriation is polarized - people hate AbitibiBowater and love the government. In the area in-between there is a huge amount of space, most of it filled with people watching from afar. Some of those people are potential investors in industries we need here. Will they look at the government's move to "take ball their ball and go home" as one that encourages them to put their money in this province?

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Yes, we have to look out for our own and that includes generations ofNewfoundlanders and Labradorians to come.

In order to do that, the province must be attractive to investors. Let's hope the legislation passed this week doesn't scare big business away. Goodness knows we need it.

High-risk delusions in Newfoundland National Post- Sat, Dec 20- Financial section editorial Terence Corcoran

In a letter yesterday to Newfoundland Premier Danny Williams, the CEO of AbitibiBowater, David Paterson, said Mr. Williams' plan to expropriate the company's assets in the province is "without precedent in Canada, and is reminiscent of decrees emanating from jurisdictions with less democratic traditions." He said it "shocks common sensibility."

True enough, but Mr. Paterson is being too polite. This is Danny Williams we're talking about, the Premier of Newfoundland and Labrador, a man now routinely referred to as a North American version of South American semi-despot Hugo Chavez. Hugo Williams and Danny Chavez have almost become official nick-names. What else is there left to say? We're out of political epithets.

As it stands today, the nationalizing, expropriating, demagogic Mr. Williams doesn't appear to think Venezuela is an inappropriate model for a Canadian province. He even writes his own self-incriminating hatchet jobs, sending out speeches, news releases and legislation that leave no doubt that Mr. Williams marches to a Third-World drummer who has little respect for the traditional rights and principles of a constitutional democracy.

And so it was when Mr. Williams brought in legislation on Tuesday to expropriate perhaps more than $lOO-million worth of local assets owned by international paper giant Abitibi-Bowater Inc. In a manipulative and disingenuous speech in

the Newfoundland House of Assembly, Mr. Williams said the expropriating legislation-- taking over the company's timber and water rights and its electricity-generating facilities without compensation -- "is very simply about trees and water -- the most basic of all natural resources."

Well, no, it isn't. While water and trees are on the surface of the expropriation move, the seizure of AbitibiBowater's assets is about plug-headed, delusional unions and manipulative provincial leadership. It is also, more deeply, about the risks Mr. Williams is taking with the Newfoundland economy, which is already on a Chavezian collision course with deficits and disaster.

The hope for Newfoundlanders and Labradorians must be that Mr. Williams will come to a more reasonable accommodation with economic reality, of which AbitibiBowater is but one part. Two years from now, with the price of oil being what it is, Mr. Williams may not have the cash on hand for the whopping compensation settlement he will need to pay to get Newfoundland out of the NAFTA mess he has created. As Mr. Paterson emphatically puts it, these actions are "clearly

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and unequivocally illegal."

A good entry point into the complex AbitibiBowater affair is through the mind of the delusional union leadership that for more than two years has been resisting restructuring plans at Abitibi's Grand Falls-Windsor newsprint mill. After the latest failure to negotiate a new labour agreement, the company announced two weeks ago that the Grand Falls mill would be closed on March 28, putting more than 700 people out of work.

As part of a company-wide restructuring, Abitibi also announced planned shut downs in Tennessee and Alabama. In Newfoundland, the company planned to close the mill permanently and then gradually exit the province. That exit would include selling parts of its water and timber rights, along with its power facilities.

The union, under the leadership of George Macdonald, president of the Communications, Energy and Paperworkers (CEP) union local, seems to think the whole episide is part of a negotiating gambit on the part of the company. He thinks the company, now the target of expropriation, will be willing to get talks going again.

Mr. Macdonald's version of events, as he described them on CBC Radio yesterday (see below), is that the mill at Grand Falls is profitable, but that the company simply wants to become an electric power company because it requires fewer people. He also seems to see the strategy as part of a blackmail effort. "No paper, no power," implying that the union and the government are confiscating Abitibi's power and water resources to force them to keep the mill open.

Mr. Paterson, in an interview yesterday, said the time for negotiating is long past. The company has made a final decision to withdraw from Newfoundland. "We're a paper company, not a power company." It has already signed an agreement to sell its minority interest in one of the power plants to an Italian power company, ENEL, which owns majority interest. The price is about $20-million. ENEL's assets also appear to have been expropriated.

The union and the government appear to have misjudged the company's intentions, or they are playing hard ball to force the company do what it does not want to do.

It's a dangerous game for Mr. Williams. Newfoundland isn't exactly a fiscal powerhouse. Its latest financial update shows that if the price of oil is at $60 a barrel, the province "could be facing a deficit of several hundred million dollars next year, and could potentially be facing deficits in the years to come."

At the same time, the province is paying lavish wage increases to unionized civil servants of 20% over four years. This is a formula for fiscal disaster down the road. And if the province also has to pay out big dollars to settle a NAFTA case, along with suffering a hit to its reputation as the Venezuela of the North, the outlook is even bleaker.

Mr. Paterson said yesterday he is hopeful Mr. Williams will get back to negotiating over the company's assets, rather than seize them. Might be a good idea.- For a copy ofDavid Paterson's letter to Danny Williams, visit financialpost.com/fpcomment.

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AbitibiBowater fires back at Newfoundland Premier Letter argues province violated trade law National Post- Sat, Dec 20 Paul Vieira

AbitibiBowater Inc. says the Newfoundland and Labrador government, led by Premier Danny Williams, violated international trade law by expropriating the company's timber, water and hydroelectric assets, and it is "determined" to pursue its rights through the courts.

"Failing an agreed resolution or full and timely compensation, AbitibiBowater is determined to pursue its rights against the government of Newfoundland and Labrador to the fullest extent available in connection with the serious and unlawful infringement of its rights," David Paterson, the newsprint maker's chief executive, said in a scathing letter sent yesterday to Mr. Williams.

"These confiscatory and hostile actions do no good for the people of Newfoundland and Labrador, their communities, their province or the country as a whole."

Ironically, should the Mont-real company follow through on its legal threat, it would be up to the federal Conservative government to defend the province against allegations that NAFT A rules were violated. Mr. Williams and Stephen Harper, the Prime Minister, have had a tumultuous relationship, although things appear to be improving between St. John's and Ottawa.

Mr. Williams, who has a history of confrontational approaches with companies, moved to revoke Abitibi-Bowater's natural resource rights and put its power plants under the control of the province. The move was in response to AbitibiBowater's decision to shut down its pulp-and-paper mill in Grand Falls-Windsor, effective March 28.

"This is a very hard-hitting letter and there is much here to be taken seriously," said Lawrence Herman, an international trade lawyer at Cassels Brock and Blackwell, who said earlier this week that it was "virtually certain" that the dispute would result in a NAFTA claim.

"Obviously, the company is not going to take this without a long and aggressive fight, judging from the tone ofthe letter."

Mr. Paterson informed the Newfoundland Premier that the company had retained "prominent" lawyers, among them experts in constitutional and trade law, to defend its interests. "We have been advised that these actions clearly and unequivocally are illegal."

Chapter 11 under NAFTA allows companies to invoke binding arbitration against countries that violate investors' rights. It provides for direct actions against governments, with enforceable awards and no right of appeal. Moreover, Mr. Herman said, the provision gives numerous advantages to an aggrieved investor.

In the letter, Mr. Paterson said that the company's rights were violated, and that it is eligible for compensation, equivalent to the fair market value of the assets expropriated. Further, it is alleged Mr. Williams' actions, as outlined in a bill passed by the provincial legislature, discriminate against the company -- prohibited under rules governing NAFTA.

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Meanwhile, in an unrelated development, AbitibiBowater said it was looking to refinance a US$347-million term loan next month before the debt comes due in March.

The company is trying to sell assets to raise cash amid looming debt maturities and declining North American newsprint demand. The company, which has US$6.2-billion in total debt, is "considering

Williams's tough talk could damage province Ottawa Citizen (Canada) December 20, 2008 Peter Hadekel

MONTREAL- Newfoundland and Labrador's move to strip Montreal-based AbitibiBowater Inc. of rights and assets in the province didn't come out of the blue. Sabre-rattling against corporate and political interests in the rest of Canada is a sport played with relish by a long line ofNewfoundland politicians.

The province tried to tear up the bad deal Joey Smallwood negotiated in the mid-1960s with Hydro-Quebec over the Churchill Falls power project. That case went all the way to the Supreme Court before Newfoundland lost its bid to take back the electricity it had signed over to Quebec at rock bottom prices until 2041.

Then came the public squabble between former premier Brian Tobin and the mining company seeking to develop the giant Voisey's Bay property in Labrador. Tobin wanted commitments that the minerals extracted there would be refined in Newfoundland and Labrador.

Current Premier Danny Williams has fought with the oil industry and with the Harper government over the benefits that flow to Newfoundland and Labrador from development of its offshore oil and gas deposits.

All this because, as Williams once put it: "Our history has been marked by the development and harvesting of some of our most precious resources for the benefit of others.'

Now, here comes Williams with the latest act of political bravado: Legislation that strips newsprint giant AbitibiBowater of its timber and water rights and of its interest in hydro facilities in the province.

The company's sin? Announcing it will close its Grand Falls mill in March, putting more than 700 people out ofwork, as part of a plan to cut production and costs.

Williams said only some unspecified payment might be made for the power facilities.

AbitibiBowater was "surprised" by the unilateral action. It had recommended that a joint group be set up to address the closing and to 'discuss the the disposal of our assets and rights in an orderly manner.'

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In his province, the political cost to Williams may be minimal. Newfoundlanders like his tough talk, and when he does this kind of thing, his approval ratings usually soar.

But the economic bill could be substantial ifNewfoundland is viewed as nationalizing a company's business assets.

While the province may be within its constitutional rights to reclaim publicly owned natural resources, its actions could trigger a challenge under the North American Free Trade Agreement, experts say.

AbitibiBowater, although headquartered in Montreal, is incorporated in the U.S. and could take full advantage ofNAFTA's Chapter 11 to sue Canada. Jan Jorgensen, associate professor at McGill University's Desautels Faculty of Management, noted that the NAFTA clause guarantees fair compensation for actions that amount to nationalization.

A ruling in the company's favour could have "interesting" implications for future business investment in Newfoundland, he said.

Some will cheer Williams for putting the boots to a company that had access to cheap power and timber for decades before pulling up stakes.

But other parties bear some of the blame. The union at the high-cost Grand Falls mill twice voted down company requests for wage concessions. And the Newfoundland government could have avoided a damaging public confrontation by negotiating terms of the company's exit.

Instead, the firebrand premier will be painted as an anti-business leader with little awareness of the economic crisis unfolding around him. Right now, every government is looking to create jobs and investment. This is hardly the time to be sending signals that scare away capital.

Williams has developed a reputation. He's already been labeled as a northern version ofHugo Chavez, the socialist and nationalist who runs Venezuela. The comparison may be over the top, but Williams has raised eyebrows with his tireless and tiresome campaign to defeat the Harper government. And he's shown little understanding of the crisis in which the forest products industry now finds itself.

Consumption of newsprint is declining at about 12 per cent as year as publishers lose ads to the Internet. Companies across North America are cutting back. Soon, the premier will have an empty mill on his hands. But what company would want to do business with Danny Williams? all options," Mr. Paterson told Bloomberg News.

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Williams versus Big Paper: Why Ottawa is wary The Chronicle-Herald December 22, 2008 Dan Leger

IF THAT ROAR from the northeast sounds familiar, don't be surprised. It's just the latest eruption of Newfoundland and Labrador's volcanic premier over another attempt by outsiders to loot his province's resources.

On the surface, ifs a one-on-one scrap between the government and a big paper company. But it threatens to drag in the federal government and create yet another political crisis between the two capitals.

This time, Danny Williarns has trained his guns on AbitibiBowater. The company plans to close its ancient newsprint mill in Grand Falls next March, citing high production costs, overcapacity at a time of falling demand and a worldwide slump in the paper industry.

The shutdown announcement follows more than three years of jousting between AbitibiBowater and the Williarns administration.

It started when the company cut production in 2005, sparking a warning from the premier that closing the mill would have dire consequences, including loss of timber rights.

The company went ahead anyway; now it will be up to the courts and possibly a NAFTA panel to sort it out. And thafs where the feds come in, just at a time when trade issues look to be delicate with a protectionist new Congress and administration arriving in Washington.

Grand Falls' story is familiar. It's an isolated mill town far from everything and with few other economic options. The mill itself is a museum piece and transportation costs are crippling.

The mill has a longstanding workforce, which twice refused the company's requests for concessions to keep it open. I can't help but wonder whether Williarns' threats and bluster made the workers think they'd be protected if they rebuffed the company's demands.

In any case, the company made its decision and Williams wasted no time ramming a bill through the legislature stripping AbitibiBowater's timber rights on Crown lands, its water rights and expropriating three small hydro-electric plants.

The company says it was shocked at the government's actions. But that's hard to understand since Williarns has been threatening expropriation since the summer of 2005 when the company shut one of the plant's paper machines.

Surprised or not, AbitibiBowater has little choice but to fight the seizure or it will look like a pushover wherever it operates in Canada, the U.S. and Britain. It also wants to develop hydro-electric potential in central Newfoundland, but hot places will freeze over before Williarns will

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stand for that.

The company will certainly go to court, but it also has the option to challenge the expropriation under the NAFTA treaty provisions protecting corporate interests from unreasonable expropriation.

If that happens, look for a renewed war of words between once-and-future enemies Williams and Prime Minister Stephen Harper.

The province can defend itself perfectly well in the Canadian courts. But there's no way the NAFT A process can be invoked by AbitibiBowater without Ottawa getting dragged into it. Treaties are signed by sovereign states, not provinces.

The Harper government doesn't want to get involved and, really, it can't win. If it sides with the company, Williams will accuse Harper of acting against Newfoundland's interests and favouring foreign investors. Another hot war of words will no doubt follow.

Yet AbitibiBowater is officially an American company, and seizing the assets of its shareholders will clash mightily with Harper's free-trade, pro-corporate worldview.

The prime minister certainly doesn't owe Williams anything after the premier's vitriolic and personal attacks on him over the Atlantic accord. Harper won't forget that Williams campaigned against Conservative candidates last October and defeated them all.

Williams won't back down. But he should be careful.

The forestry, mining and petroleum interests powering the Newfoundland economy must be watching the AbititiBowater situation with great apprehension. Expropriation of resource rights and corporate property, even with compensation, is a good way to kill new investment.

Williams is a Newfoundland hero for standing up to big money. But his actions must be provoking angst in Ottawa and in mill towns across Canada.

You have to wonder whether people in other besieged communities in Ontario, Quebec and even Nova Scotia will demand the same from their leaders, none of whom seems to have the fire or resolution of the bombastic King of the Rock.

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Williams's Abitibi bill could raise NAFTA questions Ottawa could be on the hook for 'significant' money company says it will seek for loss of its assets

OLIVER MOORE Globe and Mail - December 27

Premier Danny Williams has taken on prime ministers and oil executives. He's bulldozed his way through each conflict, helping bolster his staggering popularity in Newfoundland and Labrador.

But his latest gambit - rushing through legislation to seize many of AbitibiBowater's assets in the province after the paper giant announced its mill would close - promises to have effects that reverberate far beyond Newfoundland.

A spokesman for AbitibiBowater said the company would be seeking "a very, very significant sum of money" for its assets, money for which Ottawa could be responsible as signatory to the North American free-trade agreement.

And observers say the case may raise the constitutional question of whether Ottawa can sign treaties binding provinces without their consent.

None of that seems to matter locally. Public opinion in the province has rallied behind Mr. Williams. Callers to a talk-radio show were near-unanimous in favour after his government introduced the legislation expropriating the company's resource rights and hydroelectric facilities.

"It was the lift-up this province needed at the moment," said Brian Madore, assistant news director at VOCM in St. John's. "It was, 'Take that, Abitibi.' "

The company isn't backing down in the face of public opinion, though, and is claiming breaches ofNAFTA's Chapter 11 provisions on expropriation and compensation, minimum standard of treatment and non-discrimination.

If the dispute cannot be resolved within six months, the company can bring its argument before a NAFT A panel to determine its legal rights.

Compensation is clearly an important issue for AbitibiBowater, which acknowledges that it is going through hard times. Company officials say they would like to arrive at a satisfactory figure through negotiation, but warn they will "do everything necessary" to protect their shareholders.

"They're not going to settle the compensation in six months, I just don't think that could be done," predicted Lawrence Hennan, international-trade counsel at Cassels Brock & Blackwell LLP.

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The province's position is that AbitibiBowater's resource rights were contingent on the company keeping the mill open. Only their physical assets warrant compensation, according to the legislation, which also gives cabinet authority to set the amount.

The company has challenged the validity of that approach.

Mr. Williams's belief he can determine the level of compensation "is completely illegal," said Seth Kursman, vice-president of communications and government relations for AbitibiBowater. "NAFTA is unequivocally clear on that, they must provide us with fair market value."

And in a recent letter signed by CEO David Paterson, the company makes clear that it believes the NAFT A breaches include the loss of its resource rights.

"Investment is very broadly defined in Chapter 11 and it would include a licence," noted Michael Robinson, ofFasken Martineau.

"If you have a licence to cut timber, that has a value," he added. "Whatever licence they have is an investment with value, and fair market value has to be paid if you take it away."

Chapter 11 ofNAFTA takes a broad view of fair market value, stipulating it must include "going concern value, asset value including declared tax value of tangible property, and other criteria, as appropriate." Compensation also must be paid "without delay" and must include interest from the date of expropriation.

A nonbinding agreement that AbitibiBowater announced this week to sell hydro assets in Ontario offers a possible hint at the value of what was seized in Newfoundland. Under that deal, the company will receive $197 .5-million, before expenses, and the buyer will also assume $250-million in term debt held by a company 75-per-cent owned by Abitibi.

'

The assets in Ontario had a combined capacity of about 137 megawatts. The company's hydro assets in central Newfoundland had a combined capacity of about 116 megawatts.

Mr. Kursman wouldn't speculate on the overall compensation figure Abitibi will seek.

If the dispute goes to a NAFTA panel and is decided in favour ofthe company, penalties will be assigned to Ottawa. With relations between St. John's and Ottawa so sour, and Newfoundland not having ratified the treaty, some are wondering if it will refuse to pay back the money.

The validity of that position is raising debate. Under the 1933 Labour Conventions decision by the British Privy Council, then the highest court in the land, provinces have to agree to international treaties that affect their exclusive jurisdiction.

"This could result in a very important test of the constitutional competence of the Parliament of Canada to ratify international treaties," Mr. Herman said.

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"If that authority was overturned, it would affect Canada in a major way. Because it would mean that the federal government would basically lose the authority to enter into free-trade agreements with other countries."

But Mr. Herman said that attempts by the province to claim it is not bound by NAFTA would be unlikely to fly.

"The stronger view, by far, is that in matters of national importance and in matters of trade and commerce, the federal government has the power both to sign and enforce international agreements."

That opinion was backed by Jacob Ziegel, a professor in the faculty oflaw at the University of Toronto. He said the 1933 case "really doesn't have much bearing" on this situation: "In my view, the federal government should have more than adequate jurisdiction in international agreements."

But Mr. Robinson is not so sure and called the constitutional issue a "sleeping giant."

He advised Canada on the 1989 free-trade agreement and remembers then-Ontario premier David Peterson commissioning legal opinions saying it was unconstitutional for Ottawa to purport to bind the provinces.

Various provinces, including Ontario, ultimately cut deals involving "adjustment payments" from the federal government, he said. And when NAFTA was being brought in, Ottawa gave the provinces the right to exclude their laws that didn't comply with it.

They all did, but none of the provinces formally agreed to be bound by this treaty either.

"The constitutional case never arose," Mr. Robinson said. "Many academics and others have been waiting for it to come up again. We predicted that Chapter 11 would do that. A province would breach NAFTA and argue that it isn't bound by it, among other defences. So this Newfoundland expropriation is that case."

Does he predict a constitutional dust-up? Probably not. He thinks the Supreme Court wouldn't uphold the Labour Conventions decision, but also thinks this dispute won't make it there.

"I am betting that we will do it again the 'Canadian way' and cut deals, despite the truculence of Danny," he said.

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Stop it, Danny- By Michael Walker- National Post Editor- January 5 By revoking Abitibi-Price's timber and water rights, Danny Williams is sacrificing his province's future

I arrived back in Newfoundland on New Year's Eve. I knew immediately that the normal jauntiness of my fellow Newfoundlanders was kicked up a notch. Why, I asked? Was I, a CF A (Come From Away) or something? Didn't I know that the Rock was a have province now? And even a little more in the have since Danny - everyone calls him that - had stuffed the water rights contract and timber rights agreement up the nose of Abitibi-Price for shutting down the hundred-year-old pulp mill in Grand Falls.

"We are sick and tired of the CF As taking advantage of us and our Danny is just the boy to set them straight," the taxi driver confided in me as a fellow sufferer. This exploitation motif explains the popularity of Premier William's legislation to seize the timber and water rights that stem from the original 1905 agreement between the then-colonial government and the Anglo Newfoundland Development Company, which built the original mill and infrastructure. And there is no question but that Newfoundlanders have been exploited.

In a brilliant paper some 20 years ago, Newfoundland historian Peter Neary documented how Newfoundlanders have been ill-served by their governments. In fact, due to the rapacious conduct of its governments during the pre-Confederation period, Newfoundland had been bankrupt. Not once, not twice, but three times its politicians had managed to contrive a system of corruption and patronage which would have brought tears of envy to the eyes of the most acquisitive of tin pot dictators. And, government going broke didn't end with Confederation, as Premier Joey Smallwood led the province into penury at the head of a parade of the most shameful sort of policies concocted by himself and his federal government enablers.

With that as background, let us ask whose interest Mr. Williams is really serving. He is tearing up a contract that gave a property right in Newfoundland timber and water to the company. It is a contract of the kind about which Mr. Williams has some knowledge. He made his fortune in cable television, where the license to provide the service is a monopoly conveyed by the Canadian government to those with the political connections and other attributes to get it.

Under the terms of the monopoly that Mr. Williams eventually abandoned- in return, reportedly, for a couple hundred million dollars- Newfoundlanders in his area were compelled by force of federal law to use no other television delivery system than the one that Mr. Williams provided. Satellite dishes which brought "illegal" television signals to their owners also brought the RCMP to seize the illegal dishes and charge the owners. Now, presumably Mr. Williams would claim that he owned the license to exploit Newfoundlanders in this way and he had every right to sell it. In fact, he would probably agree that if there had not been a system of laws ensuring him of his right to sell the right to exploit he would not have invested the money in the monopoly in the first place. "To attract capital investment in such activities, governments have to create the rule of law to make the environment attractive for the investors," he would have had to agree.

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That was then. Then Mr. Williams was himself a filthy capitalist crony of the federal government exploiting Newfoundland television watchers. Now he is taking advantage of a different attribute of his subjects- their susceptibility to the myth, historical evidence to the contrary, that their governments are there to help them and protect them against the exploiters. They see him as a saviour only because they don't know what Premier Danny knows quite well- that while it tightens his grip on power, this act of his government could poison the well of future investment.

Would Danny Williams have invested his own money in a jurisdiction that did not respect property rights conveyed by a past government? One which said, well you have invested your money to provide the television cable system to people but if you personally don't want to be in cable vision any more then we are going to "fight tooth and nail in the courts" to take the right from you and sell it to the highest bidder. After all, why should Newfoundlanders allow their watching of television to be bought and sold like that? It is their television watching time after all.

Just like it is their water and their timber rights which, Mr. Williams now says, well, urn ... er ... that he will "fight tooth and nail in the courts" to take away from Abitibi-Price.

Premier Williams, for the sake of the people ofNewfoundland for whom you have a deep affection, stop willfully destroying the province's property rights reputation. The Survey of Mining Companies, which assesses the global environment for mining investment (published by the Fraser Institute) shows that British Columbia is still paying reputationally for its government's seizure of mining industry assets nearly 20 years ago. You know better than to follow this course and create this sort of legacy for the province - and for yourself.

National Post- Wed Jan 7 J. Michael Robinson

The expropriation by Newfoundland and Labrador of rights and assets of AbitibiBowater has revived debate on the oft-criticized Chapter 11 ofNAFTA. Some misunderstandings have appeared and a "sleeping giant" constitutional issue seems to have been overlooked.

First, let's review Ch. 11 and its place in the world of investment promotion and protection agreements. In the 1960s, to stimulate foreign investment, chiefly in developing countries, the United States pioneered such agreements, commonly called BITs (bilateral investment treaties). In 1966, the World Bank created a facility for resolving disputes under them: the International Centre for the Settlement oflnvestment Disputes (ICSID). The convention establishing ICSID currently has 143 country members (Canada has a constitutional problem that still prevents it from joining; more on that later).

There are currently approximately 2,400 BITs worldwide. Canada has 23 of them and is seeking more, with China and India for example.

Most disputes claiming mistreatment of a foreign investor protected by a BIT are dealt with in binding international arbitration at ICSID: 151 cases since 1966 with 124 pending. So clearly Ch.

Page 15 of18

000016

11 is neither novel nor unusual. Hundreds of countries offer protections to foreign investors and are sued when they breach them.

Neither NAFTA nor these 2,400 BITs forbids expropriation, contrary to popular misunderstanding; rather, they condition it. Expropriation must be for;:~. public purpose, done with due process, without discrimination and accompanied by prompt payment of fair market value compensation.

Who responds to a claim of illegal expropriation by a province? Only Canada. NAFTA neither holds the province liable nor creates any method for Canada to recoup damages awarded by the arbitral tribunal. That's Canada's problem.

Does the provincial expropriation bill (made into law --an Act-- in one day) violate Ch. 11? This observer says it clearly does.

Consider due process. Our parliamentary traditions require that a bill be studied in committee, allowing input from the House members, press and public.

What about compensation? This act says that the government (read Premier Danny Williams) will determine compensation in its discretion. The act also says " ... a person is not entitled to compensation from the Crown [Newfoundland and Labrador government] or a minister, employee or agent of the Crown arising from, resulting from or incidental to the operation of this Act" (s. 10 (1)).

But international treaties override domestic laws so NAFTA trumps the act. Ch. 11 also contains general obligations to give investors from the three NAFTA countries "national" and "fair and equitable" treatment under international law, and it is solely international law which applies to NAFTA.

Does the Canadian charter of Rights and Freedoms say anything about this? The Charter protects personal rights only and does nothing for property or corporate rights.

So does the above analysis mean that foreign investors have better protection from unfair or arbitrary parliaments and legislatures than Canadians? Yes, they do.

Recall, for example, the affair of Toronto's Pearson airport terminal one. Then-prime minister Jean Chretien tore up the signed contract with a private group to build and operate it in a public/private partnership, claiming former Prime Minister Brian Mulroney had awarded it to Tory cronies. The bill of cancellation gave the private investors only their actual out-of-pocket costs, minus any for "consulting" (read lobbying).

However, Mr. Chretien seemed to have forgotten, or chose to ignore, that there was a large U. S. investor in the group. The bill was legal respecting Canadians -- because Parliament is supreme, save for the Charter (see above) -- but it was clearly illegal under NAFTA Ch. 11. The bill was withdrawn and a complex buy-out of the private investors in terminal three (most also being those in terminal one) was finally substituted.

Page 16 of18

000017

Let's hope this current mess gets sorted during the six-month cooling off and negotiation period before a Ch. 11 claim can be filed. Negotiations should be three-way to succeed, involving the investor and the two governments.

There is a constitutional position Mr. Williams could take. To paraphrase: "You Feds signed NAFTA and the law of Canada says provinces aren't bound by international agreements affecting their exclusive Constitutional rights, unless they accept them too." The case is Labour Conventions decided by the English Privy Council, then Canada's final appeal court, in the 1930s and legislating "property and civil rights within the province" is clearly an exclusive provincial power. Canada's Supreme Court has never reversed that decision.

So Mr. Williams could say: "Canada, defend my expropriation for me and pay the damages if (when) you lose." That stance is unlikely to assist our often-fraught federal-provincial relations, particularly with that province.

One hopes for a traditional Canadian solution: The three parties cut a deal so everybody "wins," or at least saves face and stays out of the constitutional court and a binding international arbitral tribunal.

I am not alone in fearing that Canada could join Venezuela, Bolivia, Argentina and other countries which attract foreign investors with international investor protection agreements but ignore them when it suits their needs, hurts and wants. That stain on our international reputation and ability to attract much-needed foreign investment must somehow be finessed. Carry on Canada (and Danny Williams)!- J. Michael Robinson is Counsel, Fasken Martineau Dumoulin LLP, and Adjunct Faculty, University of Western Ontario Faculty of Law.

Page 17 of18

000018

Pages 19 to I a 20 are withheld pursuant to section

sont retenues en vertu de l'article

21(1)(c)

of the Access to Information Act

de la Acces a l'information

ABITIBIBOWATER BACKGROUND

AbitibiBowater, headquartered in Montreal and incorporated in Delaware. Abitibi Inc. and Bowater Inc. merged in 2007 to become AbitibiBowater. lThe company owns or operates,?2 pulp and paper facilities and 27 wood products facilities located in the u.'s., Canada and South Kore~AbitibiBowater Press release Feb.2010) It is also amongst the world's largest recyclers of newspapers and magazines and has third party certification of all of its managed forest lands.

Similar to other forest industry companies, AbitibiBowater faced a number of challenges including the cyclical nature of the forest products industry; collapsing demand for newsprint in North America, its principal product; weak paper markets; capital-intensive nature of its operations; weakened global economy; and cost pressures resulting from the volatility of currency exchange rates and costs for fibre and energy. AbitibiBowater took steps to address theses issues by curtailing its production, such as permanent closures or indefinite idling, divesting non-core assets and implementing cost reductions.

However, it was unable to address debt maturities and liquidity needs. Hence, AbitibiBowater and its subsidiaries filed for court protection in the U.S. and in Canada under CCAA on April16, 2009. Today, the company continues operations under bankruptcy protection.

Other issues:

1\ Pension plans:fiiension plans are unfunded by~.3 billio1 To spare more than(i:"7,000 Canadian 41}-retirees from losing kbout a quarter of their pensions, he union has proposed a plan to shift the money backing retirees pensions to a separate trust fund. ccording to news sources, the Company has reached

[two tentative deals with uniocifone with Communications, Energy and Paperworkers Union of Canada (CEP) (on March 7, 2010) affecting about 4,500 workers at 12 mills in Eastern Canada (and about 8,000 retirees), the other with the Quebec Fe'deration of Labour (March 13, 2010) which will affect about 1,000 workers at 4 mills in Quebec.

Newfoundland and Labrador: Feb.25, 2010: AbitibiBowater filed a Notice of Arbitration under NAFTA with regards to the expropriation of its assets and rights by the government of Newfoundland and Labrador, on February 25, 2010, claiming CDN$500 million in damages. April 06, 2010: The province's environmental claims ($200 million) against insolvent AbitibiBowater have been dismissed by a Quebec judge. The province was seeking, through bankruptcy proceedings, to have the company pay for the clean-up of several of its former.

Government assistance received: Credits for C$ 33.3 M from Pulp & Paper Green Transformation Program, managed by NRCan. Sept 23: Bowater Mersey Paper Co Ltd. (subsidiary of AbitibiBowater) received Can$ 2.5 M from

the Nova Scotia Government through the Community Development Trust Fund. r May 09: The Courts approved a US$100 million loan guarantee from the Government of Quebec to l L AbitibiBowater.

000021

Annex

Operations: (Ref: Feb 25, 2010 Press release): AbitibiBowater owns or operates 22 pulp and paper mills in the United States, Canada, and South Korea, and 27 wood products facilities located in Canada. Most Canadian operations are in Quebec and Ontario.

Employees: (Ref: SEC filing: Form 10-K, for 2009, filed March 31, 2010) AbitibiBowaterhas 12,100 employees of whom about 8,800 were represented by bargaining units. In Canada unionized employees are represented predominantly by the Communications, Energy and Paperworkers: CEPI'anada has over 8500 employees of which over 5400 are in Quebe~ Markets: 90 countries around the globe

Products:($): 48% Newsprint; 37% Coated and Specialty Papers; 9% Market Pulp; 6% Wood Products

Distribution of sales: (based on 2008 Annual Report)

Newsprint: 48% United States; 8% Canada; 3% Asia; 12% Europe; 17% Latin America; 2% Other countries Coated and Specialty Papers: 83% United States; 11% Canada; 2% Asia; 2% Europe; 2% Latin America Wood Products: 42% United States; 58% Canada Market Pulp: 60% United States; 3% Canada; 6% Asia; 19% Europe; 12% Latin America

Financial figures:( Ref: SEC filing: Form 10-K, for 2009, filed March 31, 2010)

Overview of Financial data 2007-2009 (ending Dec 31 81)

(In millions, except per share amounts or otherwise indicated)

Observations: Positive cash flow in 2009 in operating activites. Decrease in total sales by 36% and employees by 24 % ( since 2008)

% change efrom

2009 2008 2008

Large decrease in long-term debt and total debt (75% decrease from 2008). Increase in total liabilities by 8% from 2008.

2007

In general, average decrease by 113 in sales, which Abitibi states is due to poor shipment volumes and lower transaction prices from industry and market downturn.

Biggest decrease in sales in core business of newsprint (44% decrease, near 2007levels).

1 Under the Creditor Protection Proceedings. For more information, see "Total Debt" p.111 of SEC filing, Form 1 0-K AbibitiBowater, March 31st 2010. 2 Including pre-petition and post-petition liabilities.

000022

AbitibiBowater Company Profile Apri/12, 2010 Note: bracketed numbers denote idle capacity.

Mill Name Products Capacity Employees Status

Pulp&Paper 715 000 t [288 000 t] 1804 {353] Ontario Newsprint 905 000 t

Lumber 250MMjbm lroquois Falls Pulp & Paper 40 000 t 380 Active

Newsprint 245 000 t

Fort Frances Pulp & Paper 331 000 t [73 000 t] 604 [?] Active

Fort William Pulp &Paper [215 000 t] [353] Sold

Thoro Id Newsprint 410 000 t 350 Active

Pulp & Paper 344 000 t Thunder Bay Newsprint 250 000 t 470 Active

Lumber 250MMfbm Pulp& Paper 921 000 t [456 000 t] 3382 {648]

Quebec Newsprint 1474 000 t Lumber 2221 MMjbm >2057

Alma Pulp & Paper 351 OOOt 545 Active

Petit-Paris Lumber 80 lOO

Petit-Saguenay Lumber 40 20

Roberval Lumber lOO 170

Saint-Fulgence Lumber 130 135

Saint- Fulgence Lumber 170 135

Saint- Felicien Lumber 100

Saint- Hilarion Lumber 50

Saint- Prime Lumber 83 120

Saint- Thomas Lumber 90

Senneterre Lumber 85 115

NovaScotia Newsprint 253 000 t 269 Lumber 151MMjbm 125

Liverpool Newsprint 253 000 t 269 Active 151 MMtbm 125 Oakhill Lumber 151 MMtbm 125

British Columbia Lumber 500MMjbm 309

Mackenzie Lumber 500 MMtbm 309

United States Pulp& Paper 1 776 000 t Newsprint 1 633 000 t [292 000 t] 3027[170]

Augusta (GA) Newsprint 464 000 t 380 Active

Calhoun (TN) Pulp & Paper 485 000 t 847 Active Newsprint 243 000 t

Catawba (SC) Pulp & Paper 1 010 000 t 918 Active

Claibome (AL) Newsprint [292 000 t] [170] Idle (Dec 2008)

Coosa Pines (AL) Pulp & Paper 281 000 t Newsprint 364 000 t 503 Active

Grenada (MA) Newsprint 279 000 t 185 Active

Usk (WA) Newsprint 283 000 t 194 Active

Rest of World Newsprint 258 000 t/220 000 t] 211[350]

Mokpo (South Korea) Newsprint 258 000 t 211 Active (for sale)

Bridgewater (UK) Newsprint [220 000 t] [350] Idle

000024

Message Page 1 of3

Vanstone, Melanie

From: Will, Jonathan Sent: December 18, 2008 9:57AM To: Flowers, William; Bordeleau, Annik Subject: FW: AbitibiBowater- Newfoundland

-----Original Message-----From: Paquette, Jacques Sent: Thursday, December 18, 2008 7:55 AM To: Will, Jonathan Cc: Diego, Brigitte Subject: FW: AbitibiBowater - Newfoundland

-----Original Message-----From: Levin, Matthew Sent: Wednesday, December 17, 2008 3:55PM To: Paquette,Jacques Cc: Diego, Brigitte; Carriere, Claude; Venner, Gordon; Whittaker, Robyn Subject: FW: AbitibiBowater - Newfoundland

From: Stephenson, Don -TPC Sent: December 17, 2008 2:43 PM To: Burney, Ian -TPX; Ready, Robert -TBI; Robertson, Paul -TPN; Feldman, Elaine -GNM; Levesque, Louis -DMT; Bossenmaier, Greta -DMA ' Cc: Shapardanov, Chris -USS; Kamarianakis, Emmanuel -DMT; Sharma, Vikas -DMA; Lyons, Deborah -GND; Levin, Matthew -PCO/BCP; Watson, Lynda -GNB; Saint-Jacques, Guy -WSHDC -DHOM; Harper, Susan -WSHDC-TD; Moen, Martin -TNN Subject: RE: AbitibiBowater - Newfoundland

I just took a call from AbitibiBowater. He asked what the federal government's position was 8 "19(1) on the action taken by Newfoundland. I indicated that we had insufficient information to determine whether trade obligations were violated by the action. I asked what he could send me to help understand the issues: what assets are we talking about; the ownership of those assets (they have cutting rights on public lands but also own land and - presumably -the timber rights; they also own hydroelectric facilities on public waterways); the legal basis of their access to public land timb~r and water, and the terms, if any, of termination of such access; their understanding of the legal basis for the Government of Newfoundland's action; and AbitibiBowater's counter arguments. promised to get me something as soon as possible. His remarks were, otherwise, s.21 (1 )(b) focussed on their efforts to work constructively with the Province and their complete surprise at the action taken by the Premier.

2010-10-28

000025

Message Page 2 of3

Don Stephenson Assistant Deputy Minister, Trade Policy & Negotiations I Sous ministre adjoint, Politique et negociations commerciales Foreign Affairs & International Trade Canada I Affaires etrangeres et Commerce international Canada 111 Sussex Drive, 8th floor, Sussex Pavillion I 111, promenade Sussex. Bieme etage, Pavilion Sussex Ottawa, Ontario, Canada, K1N 1J1 Tel.+ 613 992-0293 5 .16(2) Fax+ 613 996-1667

From: Robertson, Paul -TPN Sent: December 17, 2008 2:02PM To: Feldman, Elaine -GNM; Ll~vesque, Louis -DMT; Bossenmaier, Greta -DMA Cc: Shapardanov, Chris -USS; Kamarianakis, Emmanuel -DMT; Sharma, Vikas -DMA; Stephenson, Don -TPC; Lyons, Deborah -GND; Levin, Matthew -PCO/BCP; Watson, Lynda -GNB; Ready, Robert -TBI; Saint-Jacques, Guy -WSHDC -DHOM; Harper, Susan -WSHDC -TD; Moen, Martin -TNN 5.19(1) Subject: Re: AbitibiBowater - Newfoundland

Message Sent from a Blackberry device: PauiRobertson, TPN

From: Feldman, Elaine -GNM To: Levesque, Louis -DMT; Bossenmaier, Greta -DMA Cc: Shapardanov, Chris -USS; Kamarianakis, Emmanuel -DMT; Sharma, Vikas -DMA; Stephenson, Don -TPC; Lyons, Deborah -GND; Levin, Matthew -PCO/BCP; Watson, Lynda -GNB; Robertson, Paul -TPN Sent: Wed Dec 17 12:15:20 2008 Subject: FW: AbitibiBowater - Newfoundland

FYI. Note reference to Abitibi Bowater CEO speaking to Canadian Ministers, as well as US officials.

Elaine Feldman Assistant Deputy Minister, North America/Sous-ministre adjointe, Amerique du Nord Foreign Affairs and International Trade Canada/Affaires etrangeres et Commerce international Canada Tel/tel: 613-944-6183 fax/telecopieur: 613-944-0561 E-mail/courriel: elaine.feldman@international.gc.ca

From: [mailto:1 Sent: Ut:!C:t:!moer 1.1, uuo J.:11 PM To: Stephenson, Don -TPC Cc: Feldman, Elaine -GNM Subject: AbitibiBowater - Newfoundland

Bonjour Don,

2010-10-28

5.21 (1 )(b)

5.19(1)

000026

Message Page 3 of3

As you are aware, Abitibi Bowater is the largest forest products company in Canada employing over 12,000 people. They are headquartered in Montreal and have mills in NS, QC, ON and BC. They are the third largest North American company in the sector and largest newsprint manufacturer in the world. This week, the Newfoundland government passed legislation effectively expropriating their property in that province as a reaction to their announcement that they are closing the mill in Grand Falls.

2010-10-28

5.19(1) 5.20(1 )(b)

000027

Message

Vanstone, Melanie

From: Sent: To: Subject:

Will, Jonathan December 18, 2008 3:14 PM Flowers, William; Bordeleau, Annik FW: Abitibi Bowater

Importance: High Attachments:

-----Original Message-----From: Levin, Matthew Sent: Thursday, December 18, 2008 12:34 PM To: Will, Jonathan Cc: Whittaker, Robyn Subject: FW: Abitibi Bowater Importance: High

Matthew

-----Original Message-----From: paul.robertson@international.gc.ca [mailto:paul.robertson@international.gc.ca] Sent: Thursday, December 18, 2008 11:38 AM To: Levin, Matthew Subject: FW: Abitibi Bowater Importance: High

Good talking to you Matthew. Here are the most recent products. Paul

From: Ready, Robert -TBI Sent: December 18, 2008 11:13 AM To: Robertson, Paui-TPN Subject: Abitibi Bowater Importance: High

2010-10-28

s.21 (1 )(b)

Page 1 of2

s.21 (1 )(b)

000028

Message Page 2 of2

I have cut into this email the piece that I flipped to you and Don this morning that provides some context on the federal role in NAFT A Chapter 11 cases.

+++++++++++++++++++++++++++++++++++++++++++

The NAFTA is a trilateral agreement to which the Governments of Canada, the United States and Mexico are the sole Parties. Chapter 11 of the NAFTA allows for a private right of action by an individual investor against a Party before an arbitral tribunal for actions taken by federal, provincial or state and local governments in violation of its provisions. As the federal government is the party pursuant to the NAFTA, it is therefore the respondent to Chapter 11 cases, including any cases that are brought forward as a result of provincial measures. The Government of Canada is responsible for provincial measures based on NAFTA Article 105.

Currently, there are seven cases at varying stages of arbitration that involve provincial measures (Greiner-Quebec; Bishop- Quebec; Dow- Quebec; Galla- Ontario; G.L. Farms- Ontario; Centurion- British Columbia; and Bilcon - Nova Scotia). An additional case, Merrill & Ring, asserts claims against federal measures only, but the investor has now included provincial measures.

The Government of Canada leads the defence of all NAFTA Chapter 11 litigation. Although there is an existing practice regarding the defense of cases involving provincial measures, it is not codified or consistent. Perhaps more importantly, there has never been formal consideration of financial responsibility for settlements or awards arising from NAFT A Chapter 11 claims.

2010-10-28

5.14

000029

1+1

[TO: ISSUE:

Foreign Affairs and International Trade Canada

Affaires etrangeres et : Commerce international Canada'- -

CLASSIFICATION

P~?6~~?99~L . _MEM()RAN[)UM_FOR_INF()RMATI()I>J_

.. The Minister of lnternati_on(ll Trade _ Government of Newfoundland and Labrador - Legislation regarding AbitibiBowater operations in the province

21 (1 )(b):"'";;:::;, -S,- ....... ,,,,,

SUMMARY:

The Government of Newfoundland and Labrador yesterday introduced, and the legislature passed, a bill that takes control of important assets of AbitibiBowater in the province.

The assets in question are hydro rights, including hydro, power stations, and timber rights that were granted to the company in 1905.

The Government of Newfoundland and Labrador has indicated that they are taking control of these assets as a result of AbitibiBowater's decision to cease its operations in the province. The company has recently announced that it will be closing its plant in Grand Fall in March 2009.

AbitibiBowater has reacted in the media to say that they are reviewing all legal options and that the measures taken by the Newfoundland and Labrador government open the door to some potential U.S.-Canada trade issues.

We are advised that company executives intend to speak with US Administration officials (Commerce Secretary and USTR). The U.S. Embassy in Ottawa has also expressed an interest in the situation and is following the issue closely. Company executives may also be seeking to contact Canadian Ministers to discuss the situation.

This memorandum provides you with initial speaking points should you be approached on the issue. We have also shared them with officials in Natural Resources Canada who indicate that their Minister is interested in this issuE;.

lL()Ui!l Le11esque ..... ___ . _. . ___ . _______ . _ .. Deputy Minister of International Trade

000030

5.21 (1 )(b) -2- CLASSIFICATION

BACKGROUND:

1. tT-~~~G~Y~f!"!rD_~f!~_qf_N~~~~n~t~-~~-~n~-~-~Rr~_fJS?LY_~~t~r~~y-~~Jrq9_~-~~~-~-~~-c;l-~h~-- ______________ ..... rl legislature passed, a bill that takes control of important assets of AbitibiBowater in the province. This action, to "repatriate to the province" the natural resources of the province, has the effect of taking control over AbitibiBowater rights to hydro, power plants and timber rights. The action has been justified as a result of decisions by the company to cease operations in Newfoundland and Labrador in March 2009.

2. AbitibiBowater has reacted in the media to say that they are reviewing all legal options and that the measures taken by the Newfoundland and Labrador government open the door to some potential U.S.-Canada trade issues. lt is important to note that this issue would not fall under the Softwood Lumber Agreement. However, obligations related to the NAFT A might be relevant.

3. NAFT A Chapter 11 (Investment) describes several obligations with respect to the treatment that, in the case of Canada, must be accorded to US and Mexican investors and their investments in Canada. An alleged breach of these obligations can lead to claim before an

internatior~al arbitration tribunal with a view to receiving financial compensation for losses incurred.

4. Although AbitibiBowater's headquaners and executive office are locat~d in Montreal, the company is incorporated in Delaware. lt is very likely that the company would be considered a US-owned and controlled enterprise and meet the definition of an "investor of a Party" under Chapter 11. The legal rights, facilities, etc. that it owns in Newfoundland would also meet the definition of "investment".

5. Provisions of particular interest in this c3se are the Minimum Standard of Treatment (Article 11 05) and the Expropriation (Article 111 0) obligations. The Expropriation Article sets out that the only expropriations permitted are those that are for a public purpose, non-discriminatory, in accordance with due process of law and on payment of compensation equal to the fair market value. The Minimum Standard of Treatment Article provides that a Party like Canada must treat investments of US and Mexican investors in accordance with international law, including fair and equitable treatment and full protection and security.

6. The Department was not been consulted by Newfoundland and Labrador on this matter and the only information we have at the present time is Premier William's statement to the legislature and media reports. We have contacted Newfoundland and Labrador officials to obtain additional information so that we can conduct a preliminary assessment of the way in which our trade obligations may be implicated in this matter.

7. A '\bitibiBowater, ;ontacted the Assistant Deputy Minister's office, Don Stephenson, to understand me Teaeral government's position on the action taken by Newfoundland and Labrador. ADM Stephenson indicated that we had insufficient information to determine whether trade obligations were violated by the action of Newfoundland and Labrador and asked for further information on the company assets and rights as well as their understanding of the legal basis for the Government of Newfoundland's action. remarks seem to focus on the company's efforts to work constructively with the Province and their complete surprise at the action taken oy the Premier.

5.19(1)

000031

-3- CLASSIFICATION

8. Media lines which could also serve as your talking points are attached.

000032

1+1 Foreign Affair$ and lntemationalTradeCanada

Measures taken by the Government of Newfoundland and Labrador concerning AbitibiBowater

ISSUE:

The Government of Newfoundland and Labrador passed legislation on December 16, 2008 to take control of AbitibiBowater Inc.'s main assets in the province.

MEDIA LINES:

The government of Canada is gathering information on the circumstances leading to the government of Newfoundland and Labrador's recent decision relating to Abitibi Bowater's assets located in its province and the measures they had taken.

No direct allegations by the company have been made with respect to Canada possibly violating any international trade obligations.

lt is premature to raise concerns in regards of Canada's international trade obligations since the government of Newfoundland and Labrador and AbitibiBowater Inc. are reportedly set to enter into negotiations over compensation

Canada

000033

Questions and Answers Responsive only

1. Was the Government of Canada aware of the measures the government of Newfoundland and Labrador was planning to take?

Government of Canada was not aware of the measures adopted on December 16, 2008 by the Government of Newfoundland and Labrador.

Canada is consulting with the province to gather information on the province's recent decision.

2. Do the measures taken by the Government of Newfoundland and Labrador violate Canada's obligations under NAFTA Chapter 11?

lt is premature to consider possible violation of Canada's international trade obligations.

1

000034

Additional Background Information

The Government of Newfoundland and Labrador yesterday introduced, and the legislature passed, a bill that takes control of important assets of Abitibi-Bowater in the province, with the exception of the mill in Grand Falls-Windsor. This action, to "repatriate to the province" the natural resources of the province has the effect of taking control over Abitibi-Bowater rights to hydro, power plants and timber rights. The action has been justified as a result of decisions by the company to cease operations in Newfoundland and Labrador in March 2009.

Abitibi-Bowater has reacted in the media to say that they are reviewing all legal options and that the measures taken by the Government of Newfoundland and Labrador open the door to some potential U.S.-Canada trade issues. While there have been no formal allegations of a breach of NAFTA that have been made to date the company has noted that obligations related to the NAFTA might be relevant.

The department was not consulted by Newfoundland and Labrador on this matter and the only information we have at the present time is Premier William's statement to the legislature and media reports. We have contacted Newfoundland and Labrador officials to obtain additional information so that we can conduct a preliminary assessment of the way in which our trade obligations may be implicated in this matter.

Media calls to be directed to DFAIT Trade Media Relations Office

Foreign Affairs and International Trade Canada (613) 996-2000

2

000035

Abitibi-Bowater Issues

The Government of Newfoundland and Labrador introduced, and the legislature passed, on December 16, 2008 a bill that takes control of important assets of AbitibiBowater in the province. The assets in question are hydro rights, including hydro-power stations, and timber rights. The Act also has an impact on the investment of another foreign company, ENEL, a major energy company in Italy, as the government is also seizing rights of AbitibiBowater's joint-venture, Star Lake Hydro Partnership.

The Government of Newfoundland and Labrador has indicated that they are taking control of these assets as a result of AbitibiBowater's decision to cease its operations in the province. The company has recently announced that it will be closing its plant in Grand Falls in March 2009.

5.14 5.15(1) 5.21 (1 )(a) 5.21 (1 )(b)

000036

Page 37 is withheld pursuant to sections

est retenue en vertu des articles

14, 15(1 ), 21 (1 )(a), 21 (1 )(b)

of the Access to Information Act

de la Acces a l'information

Vanstone, Melanie

From: Sent: To: Subject: Importance:

Bordeleau, Annik December 19, 2008 11:29 AM Vanstone, Melanie FW: URGENT - NFLD/Abitibi

High

Another e-mail I forgot to forward you. The note is coming soon.

Thanks!

-----Original Message-----From: Will, Jonathan Sent: Thursday, December 18, 2008 12:26 PM To: Flowers, William; Bordeleau, Annik Subject: FW: URGENT - NFLDIAbitibi Importance: High

-----Original Message-----From: Behboodi, Rambod Sent: Thursday, December 18, 2008 11:53 AM To: Will, Jonathan Cc: Mondou, Isabelle Subject: FW: URGENT - NFLDIAbitibi Importance: High

Jonathan

R

Rambod Behboodi Legal Operations I Operations juridiques Privy Council Office I Bureau du Conseil prive 806-C, 90 rue Sparks Street Ottawa, Ontario K1A OA3 Canada +1 613 948 6676

+1 613 957 5032 (fax) 5.16(2)

1

5.23

000038

rambod.behboodi@pco-bcp.gc.ca 5.16(2)

Ce courriel pourrait contenir des renseignements confidentiels ou privilegies. Si vous n'etes pas le veritable destinataire, veuillez nous en aviser immediatement. Merci. This e-rnail may contain confidential or privileged information. If you are not the intended recipient, please notify us immediately. Thank you.

-----Original Message-----From: Eric.Leroux@international.gc.ca [mailto:Eric.Leroux@international.gc.ca) Sent: Thursday, December 18, 2008 11:41 AM To: Behboodi, Rarnbod Subject: FW: URGENT - NFLDIAbitibi

E

Eric H. Leroux Deputy Director I Directeur adjoint Senior Counsel I Avocat-conseil Trade Law Bureau I Direction du droit commercial international Tel.: (613) 944-8006; Fax: (613) 944-0027 Eric.Leroux@international.gc.ca

This message is subject to solicitor-client privilege.

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Vanstone, Melanie

From: Sent: To: Cc: Subject:

Hi Joe,

Vanstone, Melanie December 19, 2008 4:24PM Sambol, Joseph Bordeleau, Annik RE: Urgent policy check: AbitibiBowater

I am fine with these lines except the last one.

I've cc'd Annik who is the lead on the file in case she has any further comments.

-----Original Message-----From: Sambol, Joseph Sent: Friday, December 19, 2008 4:18 PM To: Vanstone, Melanie Subject: Urgent policy check: AbitibiBowater Melanie, Are you ok with these lines regarding this issue? I must admit I'm not familiar with these terms I language.

Measures taken by the Government of Newfoundland and Labrador concerning AbitibiBowater (updated Dec. 19)

ISSUE:

The Government of Newfoundland and Labrador passed legislation on December 16, 2008 to take control of AbitibiBowater Inc.'s main assets in the province.

MEDIA LINES:

Canadian governments have the authority to regulate the economy within their jurisdiction. Such regulation can, from time to time, affect the assets of private companies, including, in some limited circumstances, by way of expropriations

Canada's international trade obligations recognize the right to regulate, including to expropriate, provided that the expropriation is for a public purpose, not discriminatory, performed according to due process and accompanied by fair market value compensation.

The measures that have been taken with respect to AbitibiBowater are measures of the Government of Newfoundland and Labrador. The Government of Canada is in the process of gathering information on these measures.

----- Original Message From: Sambol, Joseph To: Vanstone, Melanie

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Sent: Fri Dec 19 15:59:54 2008 Subject: AbitibiBowater Melanie, Please see wire story. Lines are with MinO now and should come along later today.

s.68(a)

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Sawmill exports to US

Gilbert, Anne

From: Sent: To:

Paul Parsons [Paui.Parsons@acoa-apeca.gc.ca] December 19, 2008 1 :30 PM Gilbert, Anne

Subject: Sawmill exports

Total for 2007: $6.0 million

Source: Canadian Trade Date Online - Statistics Canada

Paul

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Thank you.

**

L'information contenue dans ce courriel peut etre de nature confidentielle et elle est destinee a une personne precise dans un but precis. L'information est privee et protegee par la loi. Si vous n'etes pas le destinataire du message, vous etes, par la presente, avise que toute divulgation, reproduction, distribution ou action prise en s'appuyant sur cette information sont strictement interdites. Si vous avez re9u ce message par erreur, veuillez en informer l'expediteur sur-le-champ, par telephone ou par courriel.

Merci.

--------------------------------------------------------------------------------

2008-12-19

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NATIONAL POST Dec 20,2008 Edition: National Section: Financial Post Page:

AbitibiBowater fires back at Newfoundland Premier; Letter argues province violated trade law Paul Vieira

Black & White Photo: Daniel Acker, Bloomberg News I David Paterson, chief executive of AbitibiBowater Inc. After Newfoundland and Labrador expropriated the company's timber, water and hydroelectric assets, a letter was sent to the Premier threatening legal action against the province. ; Black & White Photo: Greg Locke, Reuters Files I Premier Danny Williams: Move could lead to NAFTA claim by AbitibiBowater.;

OTTAWA- AbitibiBowater Inc. says the Newfoundland and Labrador government, led by Premier Danny Williams, violated international trade law by expropriating the company's timber, water and hydroelectric assets, and it is "determined" to pursue its rights through the courts.

"Failing an agreed resolution or full and timely compensation, AbitibiBowater is determined to pursue its rights against the government of Newfoundland and Labrador to the fullest extent available in connection with the serious and unlawful infringement of its rights," David Paterson, the newsprint maker's chief executive, said in a scathing letter sent yesterday to Mr. Williams.

"These confiscatory and hostile actions do no good for the people of Newfoundland and Labrador, their communities, their province or the country as a whole."

Ironically, should the Mont-real company follow through on its legal threat, it would be up to the federal Conservative government to defend the province against allegations that NAFTA rules were violated. Mr. Williams and Stephen Harper, the Prime Minister, have had a tumultuous relationship, although things appear to be improving between St. John's and Ottawa.

Mr. Williams, who has a history of confrontational approaches with companies, moved to revoke Abitibi-Bowater's natural resource rights and put its power plants under the control of the province. The move was in response to AbitibiBowater's decision to shut down its pulp-and-paper mill in Grand Falls-Windsor, effective March 28.

"This is a very hard-hitting letter and there is much here to be taken seriously," said Lawrence an international trade lawyer at Cassels Brock and Blackwell, who said earlier this week that it was "virtually certain" that the dispute would result in a NAFTA claim.

"Obviously, the company is not going to take this without a long and aggressive fight, judging from the tone of the letter."

Mr. Paterson informed the Newfoundland Premier that the company had retained "prominent" lawyers, among them experts in constitutional and trade law, to defend its interests. "We have been advised that these actions clearly and unequivocally are illegal."

Chapter 11 under NAFTA allows companies to invoke binding arbitration against countries that violate investors' rights. lt provides for direct actions against governments, with enforceable awards and no right of appeal. Moreover, Mr. Herman said, the provision gives numerous advantages to an aggrieved investor.

In the letter, Mr. Paterson said that the company's rights were violated, and that it is eligible for compensation, equivalent to the fair market value of the assets expropriated. Further, it is alleged Mr. Williams' actions, as outlined in a bill passed by the provincial legislature, discriminate against the company -- prohibited under rules governing NAFTA.

Meanwhile, in an unrelated development, AbitibiBowater said it was looking to refinance a US$347-million term loan next month before the debt comes due in March.

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The company is trying to sell assets to raise cash amid looming debt maturities and declining North American newsprint demand. The company, which has US$6.2-billion in total debt, is "considering all options," Mr. Paterson told Bloomberg News.

pvieira@nationalpost.com

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Vanstone, Melanie

From: Sent: To:

Paquette, Jacques December 22, 2008 12:52 PM Caron, Tiffany

Cc: Subject:

Van~tnnA MAI;miA rlinnn Briaitte Bordeleau_ Annik: Will. Jonathan FW:

Attachments:

pic20888.jpg (18 KB)

-----Original Message-----From: Jean, Daniel

s.13(1) s.14

Sent: Monday, December 22, 2008 11:58 AM To: Paquette, Jacques Cc: Carriere, C1aude; Morin, Marie-Lucie Subject: FW:

Jacques pour le suivi du dossier.

pic20888.jpg

s.19(1)

s.19(1)

Claude et Marie-Lucie, pour votre info. Premiere note qui parte sur les faits est maintenant avec Greffier. Deuxieme notre sur strategie est en preparation.

Daniel

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Pages 46 to I a 50 are withheld pursuant to section

sont retenues en vertu de l'article

13(1)

of the Access to Information Act

de la Acces a l'information

Activity to Date

Dec 4, 2008

Dec 16,2008

Dec20

Abitibi Bowater Timelines

AbitibiBowater (AB) announces closure of newsprint plant in Grand Falls-Windsor to take place in March 2009

Call to DFAIT from re: NAFTA Implications Legislation regarding Abitibi-Bowater passed in Nfld/Lab House of Assembly

MINT speaks

MINT discussed the circumstances surrounding the initiation of legislation. Apparently the prov considers it made some kind of offer on the Friday and that the company turned it down on the Monday.

also considers that he gave plenty of signalling to the company in the context of scrums with media as this situation unfolded.

indicated he had been in touch with the Italian company to reassure them that they were welcome in NFLD.

is open to sitting down with company again.

MINT raised the NAFT A issue and noted that in any litigation Canada would be respondent and that therefore we have an abiding interest in being aware of developments and in the resolution of the issue. understands that.

The file is being run out of premier's office-will try to contact him to get a working level contact for us to liaise

with.

MINT will likely be back in touch with the company to relay the fact that is open to meet.

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Future Events/Possible NAFT A Timelines

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December 2009

Fall-Spring 2010/2011 Summer/Fall 2011 Winter 2012

Appointment of Arbitrators Both Parties have 90 days to appoint their arbitrator.

Written Memorials

Tribunal holds hearings

Arbitral Award

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NATIONAL POST Jan 07,2009 Edition: National Section: FP Comment Page: FP15

Danny's NAFTA mess; Canada could join other countries, like Bolivia, which attract foreign investors and then ignore their rights J. Michael Robinson

The expropriation by Newfoundland and Labrador of rights and assets of AbitibiBowater has revived debate on the oft-criticized Chapter 11 of NAFTA. Some misunderstandings have appeared and a "sleeping giant" constitutional issue seems to have been overlooked.

First, let's review Ch. 11 and its place in the world of investment promotion and protection agreements. In the 1960s, to stimulate foreign investment, chiefly in developing countries, the United States pioneered such agreements, commonly called BITs (bilateral investment treaties). In 1966, the World Bank created a facility for resolving disputes under them: the International Centre for the Settlement of Investment Disputes (ICSID). The convention establishing ICSID currently has 143 country members (Canada has a constitutional problem that still prevents it from joining; more on that later).

There are currently approximately 2,400 BITs worldwide. Canada has 23 of them and is seeking more, with China and India for example.

Most disputes claiming mistreatment of a foreign investor protected by a BIT are dealt with in binding international arbitration at ICSID: 151 cases since 1966 with 124 pending. So clearly Ch. 11 is neither novel nor unusual. Hundreds of countries offer protections to foreign investors and are sued when they breach them.

Neither NAFT A nor these 2,400 BITs forbids expropriation, contrary to popular misunderstanding; rather, they condition it. Expropriation must be for a public purpose, done with due process, without discrimination and accompanied by prompt payment of fair market value compensation.

Who responds to a claim of illegal expropriation by a province? Only Canada. NAFTA neither holds the province liable nor creates any method for Canada to recoup damages awarded by the arbitral tribunal. That's Canada's problem.

Does the provincial expropriation bill (made into law --an Act-- in one day) violate Ch. 11? This observer says it clearly does.

Consider due process. Our parliamentary traditions require that a bill be studied in committee, allowing input from the House members, press and public.

What about compensation? This act says that the government (read Premier Danny Williams) will determine compensation in its discretion. The act also says" ... a person is not entitled to compensation from the Crown [Newfoundland and Labrador government] or a minister, employee or agent of the Crown arising from, resulting from or incidental to the operation of this Act" ( s. 10 ( 1) ).

But international treaties override domestic laws so NAFT A trumps the act. Ch. 11 also contains general obligations to give investors from the three NAFTA countries "national" and "fair and equitable" treatment under international law, and it is solely international law which applies to NAFT A.

Does the Canadian charter of Rights and Freedoms say anything about this? The Charter protects personal rights only and does nothing for property or corporate rights.

So does the above analysis mean that foreign investors have better protection from unfair or arbitrary parliaments and legislatures than Canadians? Yes, they do.

Recall, for example, the affair of Toronto's Pearson airport terminal one. Then-prime minister Jean Chretien tore up the signed contract with a private group to build and operate it in a public/private partnership, claiming former Prime Minister Brian Mulroney had awarded it to Tory cronies. The bill of cancellation gave the private investors

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only their actual out-of-pocket costs, minus any for "consulting" (read lobbying).

However, Mr. Chretien seemed to have forgotten, or chose to ignore, that there was a large U. S. investor in the group. The bill was legal respecting Canadians-- because Parliament is supreme, save for the Charter (see above)-- but it was clearly illegal under NAFTA Ch. 11. The bill was withdrawn and a complex buy-out of the private investors in terminal three (most also being those in terminal one) was finally substituted.

Let's hope this current mess gets sorted during the six-month cooling off and negotiation period before a Ch. 11 claim can be filed. Negotiations should be three-way to succeed, involving the investor and the two governments.

There is a constitutional position Mr. Williams could take. To paraphrase: "You Feds signed NAFTA and the law of Canada says provinces aren't bound by international agreements affecting their exclusive Constitutional rights, unless they accept them too." The case is Labour Conventions decided by the English Privy Council, then Canada's final appeal court, in the 1930s and legislating "property and civil rights within the province" is clearly an exclusive provincial power. Canada's Supreme Court has never reversed that decision.

So Mr. Williams could say: "Canada, defend my expropriation for me and pay the damages if (when) you lose." That stance is unlikely to assist our often-fraught federal-provincial relations, particularly with that province.

One hopes for a traditional Canadian solution: The three parties cut a deal so everybody "wins," or at least saves face and stays out of the constitutional court and a binding international arbitral tribunal.

I am not alone in fearing that Canada could join Venezuela, Bolivia, Argentina and other countries which attract foreign investors with international investor protection agreements but ignore them when it suits their needs, hurts and wants. That stain on our international reputation and ability to attract