Did a provincial government aid package eight years ago that helped restart a paper mill in Port Hawkesbury, N.S., violate the old North American Free Trade Agreement?

That is the question before an international trade arbitration panel that opened hearings on Monday.

Resolute Forest Products is seeking $100 million in damages from Canada, alleging $124 million in assistance from Nova Scotia’s then-NDP government in 2012 transformed a failed operation into a market leader at Resolute’s expense.

The new Canada-U.S.-Mexico Agreement on trade does away with investor arbitration cases such as this one, but the Resolute claim, filed in 2015, was grandfathered.

“It took an ensemble of measures to make Port Hawkesbury the super-calendered paper market’s lowest-cost producer,” Resolute lawyer Michael Snarr told the Permanent Court of Arbitration, which is based in The Hague.

“Collectively, it crossed the line. Nova Scotia knew that its measures would harm Resolute’s SC paper investments. It was the largest producer in the market and Nova Scotia intended to make Port Hawkesbury super-competitive in relation to Resolute and the other producers,” he said.

Claims it could not compete

Headquartered in Delaware, Resolute said it could not compete with the low-cost glossy paper coming from Port Hawkesbury Paper after new owners — Pacific West Commercial Corporation — restarted the mill, which had been placed in creditor protection in 2011.

Resolute alleges the “extraordinary” and “unprecedented” level of financial assistance from the provincial government of Darrell Dexter amounted to discrimination against a foreign investor in Canada.

The company blamed Port Hawkesbury Paper for Resolute’s decision to close its Laurentide mill in Shawinigan, Que.

Canada says the case is groundless

Lawyers for Canada dismissed the claim as “hyperbole and mischaracterizations intended to provoke a sense of outrage.”

“There has been no breach of NAFTA Chapter 11,” said Global Affairs trade lawyer Mark Luz, referring to the section guaranteeing equal treatment of investors.

Luz said the province was entitled to respond with loans, land deals, and labour training to make the mill more efficient.

“Nova Scotia’s support for Port Hawkesbury is typical of what many governments around the world do when faced with the potential closure of a major industrial player in an economically vulnerable region that could leave thousands jobless and inflict hundreds of millions of dollars in damage to the economy,” Luz said.

A deal to provide Port Hawkesbury Paper with lower power rates was made not by the province, he said, but between two private companies and approved by an independent regulator.

Six days have been set aside for the hearing.

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