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NAFTA - Chapter 11 - Investment
Cases Filed Against the Government of Canada
United Parcel Service of America, Inc. v. Government of Canada
United Parcel Services (UPS) is a company incorporated in the State of Delaware in the United States. It provides courier and small package delivery services in numerous countries including in Canada through American and Canadian subsidiaries.
- 1102 (National Treatment)
- 1105 (Minimum Standard of Treatment)
- 1502 (Monopolies and State Enterprises)
- 1503 (State Enterprises)
$160 million USD.
On January 19, 2000 UPS served its Notice of Intent to Submit a Claim to Arbitration, and on April 19, 2000, UPS served a Notice of Arbitration on the Government of Canada. Canada challenged the jurisdiction of the arbitration tribunal to hear UPS’ claims. The Tribunal issued an award on jurisdiction on November 22, 2002 granting Canada’s challenge in part. On December 20, 2002, UPS filed a Revised Amended Statement of Claim. The hearing on the merits took place in Washington D.C. from December 12 to 17, 2005. The Tribunal released its award on the merits on June 11, 2007. The Tribunal, by a majority, dismissed all of UPS’ claims and ordered the disputing parties to bear the costs of the arbitration in equally.
Factual overview and nature of the claim
UPS offers courier services in Canada. One of its competitors in that market is Purolator, a courier service company owned by Canada Post Corporation (“Canada Post”). Canada Post is a Canadian state enterprise that has a monopoly on letter mail delivery services in Canada. In addition, Canada Post offer services in the competitive parcel delivery market itself as well as through Purolator. When they export letters and parcels to Canada, UPS, Canada Post and Purolator are subject to Canadian customs treatment. Canada operates two distinct customs treatment programs: the Courier/ Low Value Shipment program (“LVS Program”) which applies to Purolator, UPS and other courier companies and the Customs international mail processing system which applies to Canada Post.
Other measures at issue in this dispute were the Postal Import Agreement (“PIA”) which is an agreement between the Canada Border Service Agency (“CBSA”) and Canada Post regarding the customs treatment of Canada Post’s products and the Postal Assistance Program (“PAP”) which is a subsidy program for Canadian publications delivered by Canada Post.
UPS claimed that the Government of Canada breached its obligations under several articles of the NAFTA and put it at an unfair disadvantage compared to its competitors Canada Post and Purolator. More specifically, UPS alleged that:
- Canada breached NAFTA Article 1102 (National Treatment) because it provided to Canada Post more favorable treatment than to UPS through the PIA, the PAP and the Customs international mail processing system.
- Canada Post engaged in anti-competitive and unfair conduct, including predatory conduct, and the Government of Canada breached NAFTA Articles 1502 (Monopolies and State Enterprises) and 1503 (State Enterprises) by failing to prevent that conduct from occurring.
- Canada also breached NAFTA Article 1105 (Minimum Standard of Treatment) for the same reasons.
The Tribunal’s Awards
In its claim, UPS asserted that certain provisions of Chapter 15 (Competition Policy, Monopolies and State Enterprises) and Chapter 11 could be used as a basis upon which to claim damages for breaches of NAFTA that are not limited to breaches of the obligations contained in Chapter 11. Canada objected on the ground that any claim based on obligations beyond those contained in Chapter 11 fall beyond the jurisdiction of a Chapter 11 tribunal. In its award on jurisdiction, the Tribunal accepted Canada’s arguments with respect to the relationship between Chapter 11 and 15 and held that its jurisdiction was limited to “claimed failures to abide by the terms of Chapter 11A.” However, the Tribunal also found that facts that may be in violation of a Party’s obligation under NAFTA as a whole may also constitute a violation of Chapter 11. The fact that conduct is anticompetitive and falls within the scope of Chapter 15 is thus not dispositive of the issue if those same facts also constitute a violation of Chapter 11.
In its award on the merits, issued on June 11, 2007, the Tribunal dismissed the challenges brought against the PAP and the PIA. It held that Canada’s PAP is not subject to the disciplines of NAFTA Chapter 11 because the program falls within the scope of the exclusion for cultural industries in NAFTA Article 2106 and is therefore removed from the scope of the NAFTA. The Tribunal also found that even if the PAP were to be subject to the non-discrimination obligations of NAFTA Chapter 11, the treatment of UPS and Canada Post under the program could not be compared as the two enterprises are not “in like circumstances”. The Tribunal held that the goal of the program is to ensure the widest-possible distribution of Canadian publications and that Canada Post and UPS are not in like circumstances in this regard since UPS does not have the capacity to deliver publications door-to-door throughout Canada (contrary to Canada Post). With respect to the challenge brought against the PIA, the Tribunal found that the measure was covered by the exception for procurement contained in NAFTA article 1108(7) and was therefore not subject to Canada’s non-discrimination obligations contained in NAFTA Articles 1102 and 1103.
UPS also challenged Canada Post’s use of its monopoly infrastructure for its non-monopoly products under both the obligations found in NAFTA Chapter 11 (Investment) and Chapter 15 (Competition Policy, Monopolies and State Enterprises). The Tribunal ruled that Canada Post is not a Party to the NAFTA (and should be distinguished from the Canadian government) but rather a state enterprise of a Party to the NAFTA. Since Chapter 11 only imposes obligations on the Parties, the claims of UPS under this chapter failed. The Tribunal further held that, by allowing Purolator and its non-monopoly services to use its monopoly infrastructures, Canada Post was carrying on a commercial activity rather than exercising a delegated governmental authority. Since the provisions of Chapter 15 invoked by UPS only apply whenever the state enterprise or monopoly exercises a delegated governmental authority, its claims under this chapter also failed.
In Canada, goods imported as mail by Canada Post are processed under the Customs international mail processing system while most goods imported by couriers (such as UPS) are processed under the Courier/LVS program. UPS claimed that the Government of Canada, through CBSA, accords less favourable customs treatment to UPS than to Canada Post in breach of Canada’s national treatment obligation (NAFTA Article 1102). It is the differences between these two systems that was the object of UPS’ national treatment challenge. Canada prevailed in its defense of that challenge because the Tribunal, by a majority, held that UPS and Canada Post are not in like circumstances because of inherent distinctions between postal traffic and courier shipments.
The Tribunal listed six factors that led it to decide that the custom treatment of mail and courier shipments are not in like circumstances: 1) couriers provide detailed advance information on shipments, thus permitting CBSA to carry out risks assessments and other checks; 2) self-assessment in the Courier/LVS Program as contrasted to officer determinations in the postal process; 3) greater security of courier shipments through secure shipping routes and trade chain controls; 4) the need for expedited clearance by couriers to meet time-sensitive and time-definite delivery standards; 5) the existence of contractual relationships between couriers and their clients; and 6) the different roles performed by couriers such as brokerage and warehousing.
The Tribunal also based its decision on the fact that the World Customs Organization’s Kyoto Convention has a separate annex for postal traffic due to its unique nature and that the U.K. and U.S. custom authorities also treat mail traffic and couriers deliveries as two different streams. The Tribunal finally also observed that courier companies are commercial enterprises while Canada Post needs to fulfill its Universal Service Obligation mandate.
In his dissent, arbitrator Cass opposed the findings of the majority. He argued that, while UPS is not in like circumstances with Canada Post with respect to the distribution of letters and small parcels, it is in like circumstances with Canada Post’s non-monopoly products such as Xpresspost and Priority Courier since these products provide features similar to the ones offered by courier companies (e.g. tracking and time-definite delivery standards).
Legal Documents (all documents are in pdf)
This case is governed by the arbitral rules of the United Nations Commission on International Trade Law. Additional documents related to this case can be viewed at the website of the International Centre for Settlement of Investment Disputes.
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- ARCHIVED - Award on Jurisdiction (PDF Document - 1.20 MB) - November 22, 2002
- ARCHIVED - Merits Award (PDF Document - 1.52 MB) - June 11, 2007
- Date Modified: