Canada loses NAFTA ruling over research spending in Newfoundland offshore

OTTAWA – Two U.S. oil companies have won their complaint against the province of Newfoundland and Labrador over spending obligations related to their participation in an offshore oil play.

A Canadian trade official confirmed Friday that Canada had lost the case after unofficial reports from a U.S. website broke the news that Exxon Mobil Oil and Murphy Oil won a 2-1 decision by a panel under the North American Free Trade Agreement.

“Our government is disappointed by the tribunal’s ruling,” said Me’shel Gulliver Belanger, a spokesperson for the department of international trade in Ottawa.

“The ruling is extremely technical and requires careful review. We are currently assessing the final decision to determine the best way forward.”

The report said Canada and the U.S. were advised on May 22 that the obligations for research and development spending imposed on the oil firms by the province breached Article 1106 of NAFTA prohibiting governments from applying performance requirements as conditions of investment.

The panel is seeking additional information before assessing a penalty, but the parties originally sought over $50 million in compensation.

Lawrence Herman, a trade lawyer with Cassels Brock, said the ruling was not an “unqualified victory” for the oil companies since the tribunal apparently rejected a second claim that the firms were denied fair and equal treatment.

And he speculated that given the split decision on the panel, the penalty may be less than the demand.

“Beyond that, this award illustrates that more and more provincial measures – as opposed to federal ones – are coming under NAFTA (challenges),” he said.