Tribunal decides for the Government of Canada in NAFTA arbitration brought by UPS On 11 June 2007, a tribunal constituted under the investor-state dispute settlement procedures of NAFTA (North American Free Trade Area) Chapter 11 ruled 2-1 against the United Parcel Service of America (“UPS”) in its long-running arbitration against Canada. It dismissed UPS’s claims for damages of US$160 million. UPS alleged that Canada violated its national treatment obligation by according undue privileges to Canada Post as a government-owned corporation. In particular, UPS claimed that:

  • Canada’s enforcement of customs law discriminates against UPS Canada in comparison to Canada Post; 
  • Canada Post provides preferential access to its monopoly infrastructure to its subsidiary, Purolator Courier Ltd, which is Canada’s largest courier company and competes in the market with UPS; 
  • Canada Post’s pricing policies give Canada Post’s products an unfair advantage; and 
  • Canada’s use of the Publications Assistance Program violates Canada’s national treatment obligation by requiring publishers to use Canada Post in order to receive a subsidy.

The majority tribunal dismissed all of UPS’s claims, holding that UPS and Canada Post were not “in like circumstances” in that they did not compete in respect of customs treatment and pricing of goods. The decisions of Canada Post relating to the use of its infrastructure by Purolator were held to be commercial decisions rather than decisions made in the exercise of “governmental authority” such that Canada Post was not subject to an obligation to exercise national treatment or a minimum standard of treatment towards UPS. They also decided that the Canadian Heritage Publications Assistance Program fell within NAFTA’s “cultural industries exception”. In so doing, they rejected UPS’s argument that the cultural exemption applied only to cultural industries themselves, rather than to their delivery mechanism. Interestingly, UPS’s appointed arbitrator, Ronald Cass, a US national, issued a strong dissenting opinion covering each substantive finding of the tribunal. He argued, in particular, that a competitive relationship did exist between UPS and Canada Post, and that Canada Post had been accorded more favourable treatment, which was sufficient to find a national treatment violation. In his view, the national treatment obligation “commands an effective parity of foreign and domestic investors and investments”.

Opinion is divided as to whether the dismissal of UPS’s claims is essentially based on the particular way in which Canada Post operates, or whether the tribunal’s conclusions on a number of issues will have wider implications for investment treaty claims. In any event, the tribunal’s finding that Canada is not responsible for the actions of Canada Post is somewhat surprising in the light of recent cases in which state responsibility for the conduct of wholly-owned corporate entities has been construed broadly. The decision may stem the tide of claims against states for the actions of state entities, making investors more wary of bringing such claims in the future