TORONTO - Canada Post rejected its union's latest contract proposal on Tuesday, saying the offer would increase the Crown corporation's labour costs by $1.4 billion, but made a counter proposal that may get negotiations back on track.

The Canadian Union of Postal Workers said late Tuesday that Canada Post had dropped some demands and amended others. It also said statements from the employer's chief negotiator "appear to justify" a return to intensive negotiations at the three sub-tables.

"In this context the CUPW National Executive Board has decided not to submit a 72 hour strike notice today. Consequently there will be no strike activity on May 28th," the union said.

CUPW said it was analyzing the latest offer and would provide a further response Wednesday. But it also took issue with Canada Post's assertion that the union's proposal would cost the corporation $1.4 billion over four years.

"There was no explanation of these figures. Exaggerating the cost of union demands is a tactic that has been used by CPC in all previous rounds of bargaining to distract attention from the real issues and justify taking a hard line during negotiations, " the union said.

The Crown corporation said earlier Tuesday that the CUPW proposal would require a 15 per cent increase in postage rates or government support to offset the expense and "provides no compromises to address the challenges facing the company"

Among those challenges, Canada Post said it has experienced a double-digit drop in the volume of mail in the last decade due to the emergence of electronic alternatives and has a pension deficit of $3 billion.

"This round of labour negotiations is critically important to the future of Canada Post and the Crown corporation's ability to provide affordable postal services to Canadians without becoming a burden on taxpayers."

Canada Post said Tuesday it hasn't initiated a 72-hour notice for a lockout, the employer's equivalent to a labour strike.

Catherine Swift of the Canadian Federation of Independent Business said even though there are electronic and other alternatives for businesses, that accepting the union's offer would increase costs for businesses.

"Certainly, it's not like it used to be but there's still a reliance on mail," said Swift, president and CEO of the organization which has more than 108,000 members.

"Obviously, things like couriers have to be considered, things like postponing getting in touch with suppliers because payments still come via the mail. It could affect cash flow very negatively if payments were held up from customers and suppliers and basically increase costs," Swift said from Toronto.

"It's a big nuisance, to put it mildly."

An earlier agreement covering some 50,000 employees expired on Jan. 31, and talks on a new deal began last fall. Last week, Canada Post reached an agreement with the union to bring in volunteer postal workers in some provinces to deliver cheques to pensioners and those on social assistance should a labour disruption occur.

Federal Labour Minister Lisa Raitt urged both sides late last week to reach a deal to avert a potential disruption of the country's mail service.