What does the UPS NAFTA decision mean?

UPS cannot destroy our public post office through the back door of NAFTA.

So far so good.

Postal workers and the public were concerned when United Parcel Service (UPS) launched its lawsuit in 2000 against the Government of Canada, under the North American Free Trade Agreement (NAFTA). We had good reasons to be concerned. UPS’s suit was the first of its kind to argue that the delivery of public-sector services, in this case by Canada Post, represented unfair competition for private companies providing similar services. It was also the first suit to target a government cultural program, the Publications Assistance Program. Last but not least, it was the first time a foreign corporation had attempted to sue over a breach of workers’ rights - for all the wrong reasons.

UPS demanded $160 million US in damages under NAFTA, but its lawsuit was about much more than money. UPS hoped to increase its business by undermining our public post office through the back door of a trade agreement.

Fortunately, the NAFTA tribunal considering UPS’s case has rejected the courier company’s allegations on all accounts. The tribunal issued its decision on May 24, 2007, roughly six and a half years after UPS launched its challenge relating to Canada Post.

A few highlights

Postal network:

NAFTA’s Chapter 11 allows foreign corporations like UPS to challenge governments if they think their investments are restricted by government measures. UPS had claimed that its investments were being restricted by Canada’s publicly-funded postal network, which it argued, gave Canada Post an unfair advantage when delivering courier services that are in competition with private courier services. It had also claimed that Purolator’s access to the network was unfair.

The tribunal did not examine the allegation that Canada Post was cross subsidizing its courier and express services by using the postal network. It rejected UPS’s claims based on the wording in Chapters 11 and 15 of NAFTA. The tribunal noted that these chapters draw a clear distinction between the “parties” (or governments that are party to the agreement) on the one hand, and monopolies and state enterprises (i.e. Crown corporations like Canada Post) on the other hand.

Under Chapter 11, an investor such as UPS, may only make claims relating to two parts of the chapter on competition policy, monopolies and state enterprises - 1502(3)(a) and 1503(2). That is, investors may challenge the activities of state enterprises and monopolies only when they are conducted in the exercise of delegated governmental authority. The tribunal found Canada Post was not in violation of 1502(3)(a) and 1503(2) because it does not exercise any regulatory, administrative or other governmental authority that affects UPS.

As a result, UPS failed in its bid to expand the grounds on which foreign corporations are allowed to sue under NAFTA.

Federal Government’s Publications Assistants Program (PAP)

UPS had alleged that Canada had failed to give UPS national treatment (NAFTA article 1102) by providing the magazine industry, under the PAP, with a mailing subsidy that is delivered through Canada Post only.

• Tribunal says no to UPS’s bid to expand the grounds on which foreign corporations can sue governments under NAFTA.
• Tribunal says the federal government’s Publications Assistance Program as a whole is covered by NAFTA’s cultural exemption.
• Tribunal emphasizes Canada Post’s public policy functions, including its universal service obligations.
• Tribunal says UPS failed to pursue its claim over pension and labour law issues.
• The tribunal’s decision is good news for the public and for postal workers, but the US government might be able to win the case that UPS lost (see So Far So Good)

UPS had argued that Canada Post receives preferential treatment because publishers must use the corporation to get the subsidy. The tribunal ruled that the PAP was not a breach of national treatment (i.e. treatment no less favourable than that it accords, in like circumstances, to its own investors). In making its ruling, the tribunal emphasized Canada Post’s public policy functions, including its universal service obligation. It noted that UPS is not interested in providing the same service or the same contribution as Canada Post under the Program – and in fact, it is not capable of doing so. It concluded that UPS Canada was not in like circumstances to Canada Post.

UPS also argued that the cultural industries exception did not apply to the “delivery” of a cultural program, but only to the program itself. The tribunal concluded the PAP as a whole fell within the scope of NAFTA’s cultural exemption.

Workers rights

UPS also claimed that Canada was in breach of the national treatment article of NAFTA (1102) over pension issues as well as the minimum standard of treatment article (1105: treatment in accordance with international law) over labour law issues.

The tribunal’s decision dismissed UPS’s allegations, saying that it had demonstrated no sufficient interest to justify its pursuit of the…claims nor any substantive ground which could begin to show a breach.

This bulletin will deal with labour law issues only. UPS had initially claimed that the government of Canada had violated an international convention which includes the right to bargain collectively. It said that Canada was giving preferential treatment to Canada Post (see section 13(5) of the Canada Post Corporation Act) by overriding the collective bargaining rights that dependent contractors normally have under the Canada Labour Code. Rural and suburban mail carriers were dependent contractors when UPS launched its NAFTA suit, not unionized employees like they are now. As a result, they did not have the right to bargain collectively.

UPS claimed it had been harmed by this treatment and it should be compensated for having to respect worker rights when Canada Post was relieved of this obligation.

As indicated earlier, UPS initially raised this issue as well as the pension issue but did not end up pursuing these matters before the tribunal. CUPW and the Council of Canadians had been allowed to make a submission that dealt with the pension and labour law concerns. It may be that UPS thought better than to proceed with its claims in light of the extensive attention they received in our submission.

 

So far so good

The tribunal’s decision is good news for both the public and postal workers. A decision in favour of UPS could have opened the floodgates to similar complaints against state-owned enterprises. It would almost certainly have harmed postal workers and public postal service.

If UPS had won its case:

• The Canadian government would probably have asked Canada Post to stop providing courier service. This move would have prevented UPS from suing for millions in ongoing damages.
• UPS would have been able to increase its business if Canada Post had been forced out, destroying post office jobs.
• Rural service would have dramatically declined as private courier companies like UPS cut delivery or raised rates to make a profit in rural areas.

UPS says it is disappointed with the tribunal’s ruling. The courier company has not yet exhausted its options under NAFTA. It could seek judicial review of the decision. It could also attempt to convince the US government to make a state-to-state claim under NAFTA.

The US government might be able to win the case that UPS lost, using NAFTA Chapter 15 provisions that investors cannot use. NAFTA allows state-to-state claims for violations of the agreement as a whole. As indicated earlier, an investor (i.e. foreign corporation) may make claims relating to two parts of the chapter on competition policy - 1502(3)(a) and 1503(2).

The government has posted the UPS NAFTA decision on its website, including the dissent by UPS’s nominee on the tribunal:
www.international.gc.ca/tna-nac/documents/MeritsAward24May2007.pdf

The decision is only available in the language in which it was written, which is English. You can obtain a summary of the decision from your local or the union’s website: www.cupw-sttp.org.