UPS delivers a threat to Canadian business via NAFTA

By Donald Mazankowski
The Globe and Mail Thursday, February 8, 2001

As people across the Americas look forward to a discussion of a new free-trade area, a wrinkle in the North American free-trade agreement is threatening the future of some businesses that
perform important functions in Canada. The U.S.-based courier company United Parcel Service is pursuing a NAFTA case that could undermine Canada Post and other legitimate Canadian businesses like it. When NAFTA was signed in 1992, it included under Chapter 11 provisions designed to protect foreign companies from unfair government intervention. These allow investors from one NAFTA country to sue the government of another NAFTA country for any commercial losses they suffer as a result of having their assets expropriated, or for not being treated the same as domestic companies.

The provisions were included at the insistence of the United States, largely because of its fear of foreign governments expropriating the property of U.S.-based companies. While the signatories agreed to include some form of investor protection, they also understood that it must have limits.
The UPS challenge to Canada Post constitutes an effort by a company to stretch Chapter 11 well beyond the limits envisaged in 1992. UPS is suing the Government of Canada for $230-million, claiming that Canada Post's involvement in parcel delivery violates the investor-state provisions of
NAFTA. The crux of the UPS argument is that it is wrong for a Crown corporation, such as Canada Post, to courier parcels (which the post office has been doing for more than 120 years), if UPS or another courier company is providing that service.

Not only does this miss the point of Chapter 11, it also fails to recognize the reality that Crown corporations have operated as legitimate businesses in Canada since Confederation.By any measure, Canada has treated UPS with an even hand: UPS is not denied access to the Canadian courier market. The company is subject to the same competition laws as every other company in the courier and parcel business -- including Canada Post.

No additional taxes or duties are levied against U.S. firms, including UPS, that are not paid by similar Canadian companies. Like privately owned companies, Canada Post has been a taxable entity since 1994 and has not received taxpayer support for more than a decade. In fact, it has paid out more than $300-million in dividends and other payments to the government over the same period.

The only argument left to UPS is to complain that, because of its size and public ownership, Canada Post is involved in cross-subsidization and anticompetitive practices. This has been rejected categorically by Canadian regulatory authorities.In 1993 and 1998, the Competition Bureau thoroughly reviewed similar allegations and concluded that there is no evidence that Canada Post cross-subsidizes its competitive products with revenue from standard mail service.

It's no secret that UPS has long wanted to eliminate competition from Canada Post in the parcel and courier business. In fact, the company has engaged in a similarly aggressive campaign in Europe and the United States, in an effort to persuade governments to impose strict limitations on their national postal authorities. (Ironically, UPS cannot use the investor-state provisions against the U.S. Postal Service because NAFTA's Chapter 11 does not allow a company to sue its own government.) UPS is seeking to strengthen its competitive position. Given this goal, the company would be better served by meeting the competition with better service and price than its competitors -- not by trying to distort a legitimate provision of NAFTA and, thereby, dictate the kind of commercial enterprises that may operate in this country.

Donald Mazankowski is a director at several companies and a former minister of finance and deputy prime minister of Canada.