Publication
title
NAFTA Tribunal Dismisses UPS Claims Against Canada
DATE
August 16, 2007
EXPERTISE
An arbitral tribunal composed of Dean Ronald A. Cass, Yves Fortier, C.C., Q.C.* and Judge Kenneth Keith (as President) recently ruled on an investment dispute opposing United Parcel Service of America Inc. ("UPS") and the Government of Canada. The dispute concerned various claims brought by UPS under the North American Free Trade Agreement ("NAFTA"), all of which were rejected by the Tribunal. The final ruling was made by majority decision, with Dean Ronald A. Cass dissenting. Numerous issues were raised in the arbitration, most notably Canada's enforcement of its customs and procurement laws.
Reflecting customary NAFTA practice, the Tribunal was guided in its ruling by extensive submissions made by UPS and Canada, as well as briefs submitted on behalf of NAFTA's two other State parties, Mexico and the United States of America. The Canadian Union of Postal Workers and the Council of Canadians also filed submissions as amici curiae, as did the Chamber of Commerce of the United States of America.
THE NAFTA CHALLENGE
UPS's NAFTA challenge principally concerned the question of whether its investment in Canada was subjected to unfair treatment by Canada, contrary to the provisions of NAFTA's Chapter Eleven. A significant point of contention was UPS's allegation that Canada Post (a Crown corporation authorized to run the postal letter monopoly in Canada) improperly used its infrastructure to provide courier services in competition with similar services offered by UPS. This, according to UPS, constituted a breach of Canada's obligations under NAFTA, in particular its Article 1102 national treatment obligation.
THE RULING
Regarding Canada's national treatment obligation, the Tribunal emphasized that NAFTA Article 1102 obliges all NAFTA parties "to treat investors from other NAFTA parties and their investments as favorably as domestic investors and their investments." This obligation, the Tribunal ruled, was not breached by Canada. Citing overwhelming evidence, the Tribunal held that UPS and Canada Post are not in "like circumstances" in respect of the customs treatment of goods imported by mail and goods imported by courier.
The Tribunal also considered, among other issues, UPS's claim that Canada had breached its NAFTA obligations by subsidizing the delivery, by Canada Post, of Canadian magazines and periodicals under the terms of the so-called Publications Assistance Program ("PAP"). The Tribunal found that the delivery of eligible publications by Canada Post as required by the PAP is in essence a measure which assists the Canadian publishing industry. It accordingly falls within the scope of NAFTA's "cultural industries exception" and, for this reason, is not within the ambit of NAFTA national treatment protections.
THE DISSENTING OPINION
A dissent in the form of a Separate Statement was also delivered by Dean Ronald A. Cass. Dean Cass disagreed with the majority's conclusion that Canada had not violated its national treatment obligation under NAFTA Article 1102, referring in particular to (i) Canada's customs treatment of UPS relative to its treatment of Canada Post, (ii) Canada's PAP preference for distribution by Canada Post and (iii) Canada's "failure to prevent discrimination in treatment given to Purolator and UPS Canada, specifically Canada Post's decision to grant Purolator preferential access to its monopoly infrastructure."
While Dean Cass disagreed with the application of the "like circumstances" test used by the majority in connection with NAFTA Article 1102, he endorsed the majority's articulation of the test itself, which he summarized as follows:
"The most natural reading of NAFTA Article 1102, however, gives substantial weight to a showing of competition between a complaining investor and an investor of the respondent Party in respect of the matters at issue in a NAFTA dispute under Article 1102. Article 1102 focuses on protection of investors and investments against discriminatory treatment. A showing that there is a competitive relationship and that two investors or investments are similar in that respect establishes a prima facie case of like circumstances."
Dean Cass went on to conclude that "[o]nce the investor has established the competitive relationship between two investors or investments, the burden shifts to the respondent Party to explain why two competing enterprises are not in like circumstances". This burden, in his view, had not been discharged by Canada.
Renée Thériault
* Yves Fortier, C.C., Q.C. is Chairman of Ogilvy Renault LLP. He did not participate in the preparation of this document.
The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault LLP or any member of the firm on the points of law discussed.
© Ogilvy Renault LLP 2007 - All Rights Reserved
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