AbitibiBowater has filed a $500-million free trade complaint over the expropriation of some of its resource assets by the Newfoundland and Labrador government.

A crowd gathers outside the AbitibiBowater paper mill in Grand Falls-Windsor, N.L., after the company shut down production in February 2009. (Tara Brautigam/Canadian Press)

Even though Abitibi is upset with the provincial government, the NAFTA arbitration request is focused on the federal government. The company hopes to reach a negotiated settlement with Ottawa.

"This is one of the largest claims ever filed against Canada under NAFTA," AbitibiBowater said in a release. "Under international law, the Canadian federal government is responsible for the actions of Newfoundland and Labrador in violation of the investment protection provisions of NAFTA."

The action stems from the company's announcement in late 2008 that it was closing the paper mill in Grand Falls-Windsor in central Newfoundland. The Danny Williams government retaliated by passing a law that allowed it to expropriate the company's timber and water resources.

At the time, the company said the provincial government's action was illegal under the North American Free Trade Agreement, and that it would file a complaint.

A release from the company Thursday referred to the expropriation as "arbitrary, discriminatory and illegal under international law." It said under international law, the federal government is responsible for the actions of the province.

The company argues that the expropriation of its assets breaches NAFTA for a number of reasons, including:

The N.L. government did not meet the criteria for lawful expropriation.

• The company didn't receive fair compensation for the fair market value of its assets.
• The legislation to expropriate was "arbitrary, irrational and discriminatory."
• The legislation strips away Abitibi's right to fight the expropriation through the courts.

"The expropriation was detrimental to the financial position of our company," Abitibi president David Paterson said in the release. "After operating in Newfoundland and Labrador for more than a century and contributing significantly to the region's economic, social and sustainable development, the nationalization of AbitibiBowater's assets was unexpected and unnecessary."

'The company has no choice but to file a formal claim under NAFTA.'

— David Paterson, AbitibiBowater president

Paterson said the company has tried to reach a "fair and equitable settlement and avoid a protracted NAFTA case," but he said that wasn't possible.

Seth Kursman, the company's vice-president of communications, said Ottawa has tried to help find a solution, but those efforts failed.

"The federal government has been very engaged, very supportive," he told CBC News. "It's quite unfortunate that we have to proceed along these lines with the federal government because, of course, the NAFTA agreement is between the United States, Mexico and Canada, and so, if you're going to file a NAFTA claim, Chapter 11 claim, you have to do it against Canada."

Chapter 11 of the NAFTA agreement spells out the rules and obligations for settling disputes that involve investments and provides details of how an impartial tribunal is to handle the complaints.

Kursman said the complaint would likely take years to resolve, but he said the company is still open to negotiating a solution.

CBC News requested an interview with Kathy Dunderdale, the province's natural resources minister. A member of her communications staff instead emailed a statement from the minister.

The statement said the government would "review the document and assess AbitibiBowater's allegations." It also said that the federal and provincial governments are following the processes put in place by NAFTA and are working co-operatively to resolve issues with AbitibiBowater.

"NAFTA falls under the responsibility of the Government of Canada. As a result, the province will allow the established legal process to unfold and will provide no further comment at this time," the statement read.

AbitibiBowater is currently operating under bankruptcy protection.