Canada Post NAFTA win sets precedent

Globe and Mail, Toronto

Canada Post NAFTA win sets precedent

UPS claim of unfair competition rejected; private enterprise restricted in challenges to government corporations

By Steven Chase

14 June 2007

Ottawa — A landmark NAFTA decision this week dismissing allegations that Canada Post is competing unfairly has significantly restricted the rights of foreign investors to elbow their way into markets served by Crown corporations and other government enterprises.

It will also avert a potential flood of similar lawsuits from foreigners complaining about unfair competition from government-operated services, including water treatment, highway operation and border crossings, trade experts said yesterday.

The precedent-setting ruling caps a seven-year legal battle by United Parcel Service Inc., which sought $160-million (U.S.) under the North American free-trade agreement.

It first filed the claim against Canada in 2000 under NAFTA’s controversial Chapter 11 section, which allows investors in Canada, the United States and Mexico to sue each other’s governments for actions that hurt their businesses.

Chapter 11 was controversial from NAFTA’s inception because critics charged it would allow foreign investors to challenge, and alter, government policies and measures.

But as the UPS decision shows, the arbitrators hired to solve NAFTA disputes are narrowing — not expanding — the rights of foreign investors under the 1992 trade deal between the three countries.

"Had UPS won, I think it would have opened the floodgates to claims [against] a whole range of services provided by Crown corporations or state enterprises by [outside] investors," said Lawrence Herman, a Toronto trade lawyer with Cassels Brock & Blackwell LLP.

"I think a collective sigh of relief is being expressed in all three capitals: Mexico City, Washington and Ottawa."

UPS has said it will respect the decision, but did not immediately respond to a request for more comment yesterday.

UPS had argued that it suffered because of unfair competition from Canada Post, and claimed that Ottawa had unfairly permitted the Crown corporation to expand far beyond its government-protected mail delivery business into new ventures, where it undercuts prices offered by UPS and other competitors.

Had UPS won, trade-law experts say, foreign investors could have made claims that a broad array of government-operated services were discriminating against their own private businesses.

For instance, they say, the U.S. owner of the bridge at the Canada-U.S. border in Windsor might have been able to argue that a new crossing, paid for by Canadian governments, was discriminatory. Or a toll-road operator could have argued that public highways were infringing on their business.

But the conclusion drawn from the NAFTA ruling is that state-owned enterprises or government-provided services are beyond the scope of the deal’s Chapter 11 rights.

"It essentially restricts the scope of Chapter 11 and limits the kinds of cases that investors can pursue against [NAFTA] governments in the future," Mr. Herman said.

"I think this will undoubtedly have a further dampening effect on the enthusiasm of investors to challenge states" under NAFTA.

The total legal bill for arbitrating the dispute was $950,000 and the two parties, Canada and UPS, were ordered to jointly pay it.

There but for NAFTA: Some examples of what the NAFTA panel decision on UPS will avert

Water treatment

A U.S. company specializing in water filtration could have claimed that its bid to provide water treatment services to a city was jeopardized by unfair competition from municipally funded operations.

Border crossings

A business such as the private owner of the Detroit-Windsor Ambassador bridge could have argued a new border crossing built by Canadian governments was unfairly competing with its own service.

Public highways

A foreign investor who owned a toll-operated route such as Highway 407 in Ontario could have claimed that new public highways were unfairly competing with its business.

Garbage collection

A cartage company could have argued that publicly operated garbage collection services unfairly competed with its own service.