UPS Slaps Canada With NAFTA SuitOTTAWA - The Canadian government has been hit with a $230 million legal action by United Parcel Services of America Inc. for allegedly failing to properly regulate Canada Post Corp.
In documents filed with federal officials in Ottawa, UPS accuses Canada Post of using revenue from its regular letter delivery service to subsidize its courier services, including Xpresspost, Priority Courier and Purolator Courier.
In an unprecedented move, UPS has lodged the suit under provisions of the North American Free Trade Agreement.
According to the trade deal's competition section, known as Chapter 15, governments are obligated to regulate government monopolies to ensure they don't engage in "anti-competitive practices in a non-monopolized market." The section makes specific reference to "cross-subsidization" and "predatory conduct."
A spokesperson for UPS said the suit's purpose isn't to force the Canadian government to exit the courier business, but to ensure that it doesn't run both its postal and courier services under the same roof.
A 1996 government-commissioned report into Canada Post, which found the post office was using revenues from its letter-delivery service to keep its courier services competitive, provides part of the ammunition for the suit.
"Canada Post openly admits," said the study, referred to as the Radwanski report, "that it does and will continue to leverage its existing network to achieve cost savings in the provision of all its product lines. It argues that this is merely efficient use of resources and sound business practice."
The study also found that "Canada Post is an unfair and inappropriately aggressive competitor in the courier industry," and urged the Crown corporation to exit the sector.
Rheal LeBlanc, a spokesman for Canada Post, dismissed the Radwanski report as having been thoroughly repudiated by both the federal Competition Bureau and the National Transportation Agency - "two quasi-judicial bodies that have since examined our practices and have cleared us on every occasion.
"The allegations that UPS is making have been around for some time. Despite the fact that we've been cleared in the past, they keep coming back."
Rheal said the suit is really an attempt by UPS to succeed in the market by any means possible. "This is a very lucrative sector, and, I guess, we're too successful for some of our competitors."
Regarding UPS' tactic of going around the traditional courts and fighting the battle through NAFTA, Rheal said: "Their efforts over the past seven years haven't born fruit, so they're taking another route. It will not change our response."
If UPS prevails in its action, however, Canada Post could ultimately be forced to get out of the courier business. Alternatively, it could get away with selling its 96 percent ownership in Purolator, or it could roll all its courier services into a separate company.
Canada Post purchased Purolator in 1993. The previously private company posted 1998 revenues of $893 million. It employs 12,000 and handles 500,000 parcels daily.
UPS claims that Canada Post, through Purolator and its other courier services, controls almost 50 percent of the Canadian courier market.
Private couriers cite Canada Post's sharing of trucks and planes among its various services as an example of the Crown corporation's unfair practices. They also claim attempts to get more information out of Canada Post are frequently rebuffed because the Crown is not subject to Access to Information Laws.
The UPS legal action also charges that Canada Customs and Revenue Service doesn't ensure that Canada Post collects all the tax due on transborder packages. This is another unfair advantage, UPS alleges, since private couriers are fined heavily if they fail to collect the appropriate taxes.
Canada Post's board of directors is appointed by the federal government. Alfonso Gagliano, the Minister of Public Works and Government Services, is also minister responsible for Canada Post.
UPS said it has lost Can$230 million in market share and goodwill since 1997.
The company also is using NAFTA's Chapter 11, the investor-state provision, to claim it has not received equitable treatment as an investor in Canada. Under Chapter 11, companies can sue if they feel one of the three signatory governments is not treating them the same as a domestic corporation.