An international trade tribunal has ordered Ottawa to pay ExxonMobil and another oil company $17.3 million, following a complaint that the companies were required to spend money in Newfoundland and Labrador on research and development.
The oil companies fought the federal government in a trade challenge brought under the North American Free Trade Agreement (NAFTA).
The International Centre for Settlement of Investment Disputes made the decision through a recent tribunal, about three years after the two U.S. companies had successfully argued their NAFTA challenge, reported a trade dispute journal Investment Arbitration Reporter. The text of the decision has not yet been made public.
Under the terms of the Atlantic Accord, a federal-provincial agreement on oil development first negotiated in 1985, oil companies are required to support petroleum-focused research and development in Newfoundland and Labrador, as part of its local benefits package.
ExxonMobil is the operator of the Hibernia project, the first oilfield off eastern Newfoundland to go into production. Murphy Oil owns a minority stake in the project.
Scott Sinclair, a senior research fellow with the Canadian Centre of Policy Alternatives, thought little of the NAFTA challenge.
"I think it's a story of corporate bullying," he told CBC News.
"You have one of the most powerful and profitable corporations in the world, ExxonMobil, using NAFTA to defeat the purpose of a fairly modest and sensible regional economic development measure put in place by the Government of Newfoundland and Labrador."
But veteran Toronto-based trade lawyer Lawrence Herman said the case sends a clear message.
"It means governments have to be very sensitive to the need to avoid giving benefits to local providers of goods and services in one way or another," he said.
Unless the governments of Canada and Newfoundland and Labrador agree to change the R&D legislation, Ottawa could be on the hook for continued damages. The federal government is responsible because NAFTA is an agreement between sovereign nations.