Canada loses NAFTA court challenge, reviving environmental concerns

OTTAWA — The federal government has lost a court bid to overturn a NAFTA ruling involving a Nova Scotia quarry and marine terminal project, sparking renewed concerns about the trade deal’s effects on Canada’s environmental regime.

The U.S. firm that backed the proposed project welcomed the Federal Court of Canada decision, while environmental groups said it highlights how the North American Free Trade Agreement hamstrings Canada’s ability to protect its ecology.

In her decision, Federal Court Justice Anne Mactavish rejected federal arguments that a NAFTA tribunal inappropriately decided questions of Canadian law when it found problems with an environmental review panel process.

Sixteen years ago, American firm Bilcon planned to develop a basalt quarry, processing facility and marine terminal on the Bay of Fundy at Whites Point in southwestern Nova Scotia. The company hoped to ship 40,000 tons of stone to the United States each week for a period of 50 years.

The Nova Scotia and federal governments nixed the project in 2007 after a joint environmental assessment panel said it should not go ahead. The panel concluded the initiative would have a “significant adverse effect” on the surrounding communities, damaging the quality of life.

Bilcon, which had invested considerable time and money in the project, filed a NAFTA challenge under Chapter 11, alleging Canada’s environmental regulatory regime had been applied in an arbitrary, unfair and discriminatory manner.

The NAFTA tribunal found Nova Scotia authorities created expectations the project might proceed as long as federal and provincial environmental laws were respected. The tribunal ruled that the assessment panel indeed acted arbitrarily by effectively creating a new standard of assessment concerning “community core values,” without notice to Bilcon.

After winning at the tribunal, Bilcon said it would seek at least US$300 million in damages from Canada.

Ottawa took the matter to Federal Court, but Mactavish determined the NAFTA tribunal made no errors warranting a reversal of its ruling.

However, she said the tribunal’s decision “raises significant policy concerns,” including its effect on the ability of NAFTA parties to regulate environmental matters, the power of tribunals to properly assess whether foreign investors have been treated fairly, and the potential “chill” in the environmental assessment process that could result from the decision.

The Clayton family of New Jersey, principals of Bilcon, applauded the court decision, calling their experience a “cautionary tale” to both U.S. and Canadian investors who expect reciprocal and fair treatment in both countries.

“Bilcon, a family-owned company that has been in business for more than 50 years, believes the treatment it received was unbecoming of Canada’s reputation as a reliable jurisdiction in which to do business.”

Environmental groups that intervened in the case expressed disappointment and even alarm.

Lisa Mitchell, executive director of East Coast Environmental Law, said the court judgment means that even when the Canadian government makes good decisions to protect the environment, “there’s a chance a NAFTA tribunal could swoop in, decide our environmental laws are ‘unfair,’ and force Canada to pay hundreds of millions of dollars — leaving Canadian taxpayers on the hook and the environment at risk.”

Given that Canada is renegotiating NAFTA and Parliament is evaluating legislation to revamp environmental assessments, the court decision comes at a critical moment, said Gretchen Fitzgerald, Sierra Club Canada’s national programs director.

“Canada must now look to fix NAFTA to protect the environment and the right of Canadians to reject damaging projects by getting rid of Chapter 11.”

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