Unless Ms. Dunderdale agrees to change the regulation, Ottawa could end up paying Exxon's share of oil industry’s research spending for the foreseeable future –an amount the company estimated at $65-million – in addition to covering its past contributions.
The NAFTA dispute promises to be another irritant between the two governments. Ms. Dunderdale is miffed over proposed federal changes to the Employment Insurance system and over cuts to search-and-rescue operations in the province.
Mr. Harper was clearly unhappy two years ago when Ottawa had to pay AbitibiBowater $130-million in order to settle a NAFTA complaint after former premier Danny Williams’ decision to expropriate the company’s mill in the province.
Now, the two governments will have to decide how to respond to a ruling from a panel convened under the North American free-trade agreement that found the research spending rule contravenes the trade pact.
The Canada-Newfoundland and Labrador Offshore Petroleum Board, which issued the rule eight years ago, has no intention of changing course despite the NAFTA ruling, its chairman, Max Ruelokke, said in an interview from St. John’s.
“The guidelines will still apply and we have informed governments of that,” Mr. Ruelokke said.
He confirmed that it would take a directive from both governments to the board to change that decision. In absence of such a directive, Ottawa will not only likely have to repay Exxon for its past expenditures but cover any ongoing research spending the company is required to make by the Canada-Newfoundland and Labrador Offshore Petroleum Board.
“That’s something for the governments to figure out,” the board chairman said. “There might be some interesting discussions between the two governments.”
The offshore board itself has been a source of friction between Ottawa and St. John’s, as the two governments engaged in a public battle over their failure to agree on appointments.
A spokeswomen for provincial Natural Resources minister Jerome Kennedy said the government is still reviewing the NAFTA decision, while an official at the Foreign Affairs and International Trade said Ottawa is “assessing the final decision to determine the best way forward.”
When Ottawa settled with AbitibiBowater in 2010, Mr. Harper said he intended to “create a mechanism” under which Ottawa could reclaim money it was forced to pay out because a provincial action violated NAFTA.
But the Canada-Newfoundland and Labrador Offshore Petroleum Board argued its 2004 regulation was merely a clarification of long-existing legislation – approved by both Ottawa and Newfoundland – that companies operating off the East Coast provide industrial benefits to the province, including R&D spending.
Exxon and Murphy Oil Ltd., which owns 6.5 per cent of Hibernia, initially challenged the spending “guidelines” in Canadian court but lost a case that the Supreme Court of Canada refused to hear. The NAFTA ruling does not affect East Coast producers like Suncor Energy Corp. and Husky Energy Inc., both of Calgary, or Norway’s Statoil SA.
“It’s a messy situation,” said Wade Locke, an economist at Memorial University and expert on offshore oil business. “If one government pays, how is it going to get it back from another government?”
Industry typically now spends about $50-million on research in the province, including projects focusing on Arctic drilling and ice management.
Exxon argued the research spending requirement initially only covered activities directly associated with the construction of an offshore platform in treacherous waters, but that the board expanded that in 2004 to work that is unassociated with the Hibernia project, and imposed a spending requirement of 0.33 per cent of revenues.
Trade lawyer Lawrence Herman, of Cassels Brock, said he expects the two governments will work out an agreement to change the regulations and split the costs of the NAFTA ruling.
“Since the C-NLOPB is joint, I’m pretty sure Ottawa and the province will come to an agreement on how to respect the decision and how to split the bill,” Mr. Herman said. “Canada is respected for its commitment to and respect for NAFTA arbitration rulings.
Original Article
Source: the globe and mail
Author: SHAWN McCARTHY
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