Delegates of the Universal Postal Union (UPU) approved a compromise September 25 to allow the U.S. Postal Service (USPS) to raise international rates on July 2020 to 70 percent of what USPS charges to process domestic parcels and mail. The compromise keeps the U.S. in the UPU, the 145-year-old organization that the U.S. threatened to withdraw from on Oct. 17 if global postal pricing wasn’t reformed.
Under the plan, USPS’ terminal dues (UPU lingo for what a destination post charges the origin post for processing, handling and delivery to addresses inside the country), can be raised by 1% a year until it hits a cap of 80% of domestic charges, subject to conditions. Foreign postal systems will set their own rates beginning in 2021 and extending through 2026. However, any 2021 increases cannot be more than 15% above 2020’s rates, and the 2022 rates cannot be 15% higher than the 2021 rates. Non-U.S. posts can move to what is known as a “self-declare” regime at any earlier time if they so choose. The phase-in was designed to minimize any disruption as posts transitioned from the terminal dues formula–which will eventually disappear–to an environment where each post will “declare” its own rate structure.
UPU delegates on Sept. 24 rejected an option where all countries would have abandoned the terminal dues system by next year in favor of “self-declared” pricing. That option, which would have allowed USPS and other posts to charge the same rates to foreign and domestic users for processing parcels and mail, was rejected by UPU delegates on September 24.
Still, the September 25 vote in Geneva means that international shipping rates to the U.S. will rise to levels comparable to those charged for domestic shipping. Under the terminal dues program in effect worldwide since 1969, the origin post office typically pays a minority of the costs of parcel and mail processing to the U.S. The USPS absorbs the remainder.
The rates that posts charge each other for handling parcels and mail was set by a UPU formula developed in 1969 and was based on how efficiently a postal system moved mail at the time. Posts in developing nations paid a relatively low rate to developed posts. The U.S., meanwhile, would pay a much higher rate to developing-market posts.
Amplifying the problem, critics said, is that the terminal dues scheme still regards countries like China as “developing” and thus entitled to lower rates often well below what USPS charges to handle a domestic move. For example, USPS charges less to process a parcel shipped from Beijing to Boston than from Detroit to Boston. The formula comes into play most prominently in the movement of millions of small, inexpensive parcels ordered online by U.S. consumers and fulfilled on Chinese websites.
The Trump administration has made no secret of its desire to reform postal pricing in general. But it has framed the dispute in the light of the U.S.-China trade war, citing the status quo as another example of how China has gamed the global commerce system to its advantage. The terminal dues scheme distorts the market, harms millions of businesses and consumers, and because it was formed 50 years ago does not reflect current global realities, according to critics.
Had the U.S. exited the multi-lateral body, it would have shifted to negotiating bilateral agreements with each country it wanted a postal relationship with. This could have created a chaotic situation as technically USPS would not be able to work with any country until the U.S. reached an agreement with that government. The U.S. handles roughly half the world’s mail.
In a statement, Postmaster General Megan J. Brennan lauded the administration for “helping us to negotiate the resolution of an intractable problem with the payment system… that has persisted over many years, and that has been extremely difficult to resolve.”
The U.S. Chamber of Commerce, the world’s largest business group with more than 3 million members, also applauded the outcome. “The administration deserves a tremendous amount of credit for their leadership in tackling an antiquated, market-distorting global pricing arrangement that for too long has seen the United States footing the bill to deliver the rest of the world’s mail,” said Sean Heather, the U.S. Chamber’s senior vice president for international regulatory affairs, “With this new arrangement, the United States is free to move to self-declared rates, while putting the rest of the world on a similar path.”
Just as important, Heather said, is that the U.S. remains in the UPU to continue the fight for additional reform initiatives.
Paul F. Steidler, senior fellow at The Lexington Institute, a think-tank that strongly advocated for the administration’s reform position, said that other countries will likely be pushing for additional reforms in the coming years, and that they are likely to have strong U.S. support especially if President Trump is re-elected. The ideal scenario would have been a uniform move to self-declared rates sooner rather than later, “but today’s action works well, especially over the coming years for the U.S.,” Steidler said.