UPS suffered a significant and strategic defeat on Nov. 22, when a substantial part of its claim against Canada and Canada Post was dismissed by the international arbitration Tribunal. At stake are more than $250 million in damages UPS argues were caused by Canada's alleged failure to comply with its obligations under NAFTA.

The UPS suit was brought under NAFTA investment rules which allow foreign corporations to invoke international arbitration proceedings to claim damages against Canada or its NAFTA partners for violating the broad rights accorded foreign investors under the trade deal.

At the heart of the UPS suit, was a claim that Canada Post is engaged in anti-competitive practices that have hurt UPS profits. It argues, that by using Canada Post personnel, vehicles, offices and other infrastructure to deliver packages and courier products, Canada Post is competing unfairly with the private sector.

The implications of the UPS claim, were it to have succeeded, could have been devastating for all Canadian public services that in any way compete with private sector providers - from hospital services to water treatment. The UPS claim represented nothing less than a direct assault on the capacity of a Crown corporation, in this case Canada Post, to honour its mandate to provide universal services to all Canadians.

Unlike other NAFTA cases, which have most often challenged environmental regulations, the UPS suit represents the first attempt by a transnational corporation to use NAFTA to challenge the delivery of a public service.

Fortunately, the international tribunal established to decide the UPS claim, issued a ruling November 22, 2002 that UPS can not use NAFTA to challenge Canada's Post commercial practices, or Canadian competition policy. The Tribunal's decision is an important set-back for transnational corporations seeking to expand the framework of investor-State litigation under NAFTA. It also substantially reduces the risk of this NAFTA suit setting a precedent that could spell disaster for other vital public services in Canada.

While NAFTA investment rules remain a dangerous assault on sovereignty, our constitution and interests of civil society - the ruling of the UPS tribunal, and another recently made by a tribunal considering a claim by Methanex against US environmental laws, demonstrate that some limits will be imposed on the use of NAFTA remedies to punish governments who still believe they have a role to play.

It is noteworthy that in turning back these elements of the UPS claim, the tribunal accepted key arguments made by the CUPW and the Council of Canadians, even though it ruled several months ago that it wouldn't consider them. The groups had applied for standing to participate in the closed arbitral proceedings because the potential impact of the case on postal workers, and virtually every other Canadian.

The Tribunal ruled that it would not allow the Postal Workers or the Council to challenge the Tribunal's jurisdiction, or argue that the case be heard in Canada, instead of the United States. Under NAFTA, there is clearly one law for transnational corporations, and another for everyone else. It did however, leave the door open for participation once these issues were resolved.

While Canada dodged the biggest bullet in the UPS arsenal, it still has to face several other elements of the corporation's suit. These include allegations related to the UPS obligations to pay GST, the allocation of subsidies under Canada's Publication Assistance Program (PAP), and other claims of discriminatory treatment.

The use of NAFTA's draconian investment rules to challenge Canadian tax policy is very worrying. The PAP is an important Canadian cultural program that subsidizes distribution costs for Canadian books, magazines and other publications.

Another trade case, involving a challenge by the US under WTO rules, ruled against other measures Canada used for decades to support Canadian magazine publishers. The UPS attack could deal another blow to Canadian efforts to defend our cultural industries from being entirely swept away by the tsunami of cultural products emanating from US based media giants.

Canada unsuccessfully argued that subsidy for the PAP was exempt under NAFTA's cultural exemption clause, which is turning out to be worth considerably less than the paper it is written on.

The Council of Canadians and the Canadian Union of Postal Workers have initiated a constitutional challenge to NAFTA investor-State procedures. Their case will be heard by the Ontario Superior Court next year.