Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



"National Security" Twist in the MDA/Alliant Deal

An unusual situation is developing in the asset transaction between MacDonald Dettwiler and Associates Ltd. and Alliant Techsystems Inc. One of Canada's federal opposition parties is making it known that it may attempt to block (or delay) the sale of certain assets by seeking a judicial review of any decision by the Minister of Foreign Affairs and/or Minister of Industry should they approve the transfer under two different Canadian statutory regimes.

The assets at issue are the Radarsat-2 satellite (a remote-sensing satellite that can see through clouds and night-time cover) and its federally issued license.  The satellite allegedly allows the Canadian government to identify in Arctic waters the location of any vessel larger than three metres.

At the heart of the problem is (1) the unresolved dispute between Canada and the United States over parts of the Arctic, and (2) the fact that sometimes requirements under U.S. law and requirements under Canadian law do not align perfectly resulting in a catch-22 situation for corporations operating under both statutory regimes.  These two very difficult international legal issues do not have simple solutions.

However, the news reports concerning the New Democratic Party plans to block/delay the transfer have started to follow the "national security" path.  The words "national security" should be reserved for unique and special circumstances and should not be thrown into the mix without careful consideration of the ramifications. 

First, only a limited number of persons considered to be the Government should be making statements on what is and what is not in the "national security" interests of a country.  The reason is simple, the global community needs to ensure that "national security" has a clear meaning so that it does not become a protectionist and overused justification for disguised restrictions on trade. 

Many free trade agreements the GATT 1994 and the GATS and other multilateral agreements contain "national security exceptions".  There is little international jurisprudence on when the "national security exception" may be utilized to justify a breach on an international obligation by a Party to the agreement.  It is a slippery slope - Canada must be careful not to raise"national security" because it will not take much for its trading partners to "retaliate" by using the national security exception to justify a protectionist measure against Canada and other trading partners.  So far, countries are not overusing the "national security" rationale - but it will not take much for this to change and Canada must always be mindful of protecting the bargains for which Canadian negotiators have fought hard.

The parties in transaction at the centre of the current debate are a Canadian company and an American company.  The reality is that the United States has, since 9-11, has justified many measures that have negatively affected Canadian interests on the basis on national security.  Canada must be careful not to dilute the meaning of "national security".

Finally, Canada may have an "international dispute" with the United States and other nationals claiming rights to the Arctic - but Canada is not at war with these countries.  Some candidates for President are threatening to tear up NAFTA, but they are not threatening to invade Canada.  Canadian and American troops are cooperatively acting to protect North America.  In my opinion, the average Canadian does not believe that the United States threatens Canada's national security interests.

Trade Lawyers Blog will continue to monitor this transaction and hopes that discussion turns to the real international trade issues and that focus turns from "national security" to the faciliation of the resolution in a positive manner.

Below is an article from Canada's Globe & mail newpaper concerning the transaction -

NDP plans legal action to block satellite sale

New Democratic Party Leader Jack Layton said Sunday he was planning legal action to block the sale of part of Canada's leading aerospace company to a U.S. weapons and space contractor.

Mr. Layton said on the CTV program Question Period that he has been seeking legal advice on how to stop MacDonald Dettwiler and Associates Ltd. from selling valuable assets to the Minneapolis-based firm.

MDA, of Richmond, B.C., wants to sell its space business to weapons and aerospace giant Alliant Techsystems Inc. for $1.3-billion. That includes Radarsat-2, a remote-sensing satellite that can see through clouds and nighttime cover.

If the government approves the sale, the Remote Sensing Space Systems Act offers the best opportunity to challenge that decision in court, Mr. Layton told The Globe and Mail in a telephone interview.

Under that legislation, Foreign Affairs Minister Maxime Bernier has to approve the transfer of the licence for Radarsat-2.

MDA built Radarsat-2 with the help of about $400-million of taxpayers' money and Mr. Layton said selling it could pose a threat to national security.

The satellite allows the Canadian government to spot any vessel larger than three metres in Arctic waters, and some experts have said that selling it could put the country's sovereignty over the Arctic at risk.

Last week, MDA president Daniel Friedman told the House of Commons industry committee that Ottawa will retain legal control over the flow of data from the satellite no matter who owns the company.

The federal government will have access to all data created for it, and the law stipulates that nothing can be sent out of the country without its approval, Mr. Friedman said.

But a foreign policy group, the Rideau Institute, has argued that U.S. laws would require Alliant Techsystems to respond to national-security and defence demands of the U.S. government, even if they were in conflict with Canadian interests.

In the Arctic, for example, Canada considers the Northwest Passage to be an internal waterway, but the United States does not accept Canada's position.

Industry Minister Jim Prentice has until April 21 to block the sale under the Investment Canada Act, if he deems it is not in Canada's interests.

After that, Mr. Bernier can block transfer of the satellite under the Remote Sensing Space Systems Act, passed in 2005.

Mr. Friedman says that a company the size of MDA cannot survive without access to U.S. space and defence contracts, but many MPs, including Conservatives, have raised questions about Canada's largest space company being sold to U.S. interests.

Mr. Layton said many Canadians are worried Alliant Techsystems will not use the information it can get from Radarstat-2 in a peaceful way, and that the sale could lead to the weaponization of space.

It is a Canadian success story that the Canadian public has helped fund, he says. The division the company wants to sell also built the Canadarm, a robotic arm on the space shuttle and International Space Station.

“We think the courts are going to have to be drawn into it.”

For the full article, please click on the following link - http://www.theglobeandmail.com/servlet/story/RTGAM.20080406.wsatellite07/BNStory/National/home

Cyndee Todgham Cherniak is counsel at Lang Michener LLP, an adjunct professor at Case Western Reserve University School of Law, a consultant to the Asian Development Bank and the author of the 2007-2008 Niagara International Moot Competition Bench Brief, which considered the issue of the national security exception in NAFTA, GATT 1994 and GATS in the context of the Western Hemisphere Travel Inititiative and APHIS fees and a hypothetical export charge of fuel.

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