U.S., Mexico Attempt to Quell UPS Lawsuit

The governments of the United States and Mexico have lined up behind Canada in an attempt to throw out a $230-million suit brought by United Parcel Service over what it says are unfair business practices by Canada Post Corp. The three governments argue in filings before a NAFTA tribunal that UPS’s claim does not come under the scope of the trade agreement’s controversial Chapter 11, which allows firms to sue any of the three countries if they feel they have been hurt by government actions. UPS in turn accuses the governments of trying to rewrite the chapter without going through the national legislatures of the three countries as another NAFTA provision requires. The case has wider ramifications than just whether, as UPS alleges, Canada Post has cost it at least $230-million in damages by channelling monopoly revenue from the general postal service into subsidizing Canada Post courier products. ‘Should this tribunal allow the UPS claim to proceed in this respect, the intent of the parties to the NAFTA, an exhaustively negotiated and carefully prescribed agreement clearly limiting the scope of investor claims, will be frustrated,’ Ottawa warns in its submission. If UPS wins, the way will be cleared for many more Chapter 11 challenges, exactly what nationalist groups such as the Council of Canadians fear when they say NAFTA gives corporations the right to bully sovereign countries. If the tribunal upholds the governments’ argument, however, the signal will be sent that future cases will have to be filed on much narrower grounds, likely cutting them in number and making it more difficult for firms to use the chapter. A key question is whether a company can use Chapter 11 to sue over something outlawed in another chapter. NAFTA’s Chapter 15 says state-owned monopolies cannot subsidize subsidiaries in competition with the private sector. The governments argue only they can sue each other over breaches of other chapters, while companies are restricted to the terms of Chapter 11, which for instance insist on fair-market compensation if a government expropriates a business.