Ottawa claims UPS lawsuit under NAFTA has narrowed

One of the world’s largest courier companies will be allowed to continue its $230-million NAFTA case over what it says are unfair business practices by Canada Post Corp., but a tribunal threw out parts of the claim yesterday.

United Parcel Service says it will retool the complaint and keep the entire case alive, while government officials said they believe the tribunal decision significantly narrows the grounds on which UPS can proceed.

UPS says Canada Post unfairly cross-subsidizes its Priority Post and Purolator operations from the monopoly mail service, benefits from a sweetheart deal with Canada Customs unavailable to private competitors, and maintains a monopoly over courier services offered from privately operated Canada Post postal counters.

UPS argues Canada Post is breaking several NAFTA rules, among them that foreign competitors should be treated the same as Canadian companies. The federal government, fighting the case on behalf of Canada Post, says the postal carrier is doing nothing wrong.

“We are pleased that Canada was successful in prevailing in some of our key arguments,” a Canadian official said at a background briefing yesterday. “[The case] has been considerably reduced.”

Not so, said UPS spokeswoman Susan Webb. “Everything stands. Nothing is off the table,” she said. “All it really means to the case is we have some retooling to do.”

There is no doubt the tribunal rejected a UPS argument that could have opened the door to more aggressive use of NAFTA’s Chapter 11, under which corporations can sue one of the three NAFTA governments if capricious government actions harm their assets.

UPS argued companies could use Chapter 11 to sue over actions outlawed in other chapters of the agreement, such as Chapter 15, which deals with proper behaviour of state monopolies. The tribunal rejected that argument.

But Ms. Webb said the same argument can still be made under other provisions of Chapter 11.

“The main issue for us is all of our key issues are going forward,” she said, including allegations of anti-competitive practices, cross-subsidization, and using Canada Post trucks and planes to deliver courier products below cost in order to undercut rivals on price.

The government official said that part of the tribunal ruling sends a signal to other companies.

“This may help clarify the intent or scope of other claims that may come forward or be considered.”

And the official said the government was relieved another part of the decision that could have opened the Competition Bureau to scrutiny by Chapter 11 panels was also rejected.

“This had been a matter of some concern to us,” the official said.

The tribunal sidestepped another controversy over Chapter 11. Trade ministers from the three countries last year issued a letter saying there should be a narrow interpretation of how much protection foreign companies should have under the chapter.

Some trade lawyers say it is not up to the governments to limit the chapter but to the quasi-judicial tribunals that interpret it.

This tribunal said it will leave the matter aside.

Black & White Photo: Erik S. Lesser, Bloomberg News / UPS says the NAFTA suit merely needs retooling before continuing.

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