Below are comments from the Postal Regulatory Commission in response to the State Department’s request for input from members of the Federal Advisory Committee on Postal and Delivery Services (FACA). The Postal Regulatory Commission welcomes this constructive contribution to the FACA dialogue in its advisory capacity to the Department of State as it implements Section 407(b)(1) of the Postal Accountability and Enhancement Act (PAEA) of 2006. The Commission is committed to working with the Department of State, other federal agencies, and all stakeholders to promote overall U.S. policy objectives as outlined in Section 407(a)(1) of the PAEA.
Mr. Campbell asks the State Department to consider submitting five proposals to the next Universal Postal Union (UPU) Congress that will take place in Doha, Qatar from September 24 to October 15, 2012. The proposals address terminal dues and inward land rates, customs clearance, the UPU Convention and its Regulations, the General Agreement on Trade and Services (GATS) of the World Trade Organization, and the UPU Postal Payment Services Agreement and its Regulations. His overarching concern is that the U.S. position be “consistent with national policies, law, and interests.”  Specifically he is concerned that the existing terminal dues system is inconsistent with U.S. anti-trust laws.
Below, the Commission discusses each of Mr. Campbell’s proposals and then his anti-trust concern.
Proposal 1: To establish just and reasonable pricing principles, instead of fixing specific prices, for delivery of postal items exchanged between industrialized countries
The Proposal. Currently, the UPU Convention contains two sets of terminal dues rates. One set applies to industrialized countries (ICs) and the other applies to developing countries (DCs). Mr. Campbell proposes to remove terminal dues rates for ICs from the Convention. Instead, he proposes to establish principles underlying terminal dues rates for ICs. Terminal dues rates for DCs would continue to be included in the Convention. Id. at 25. The practical ramification of his proposal would be that designated postal operators of all industrialized countries, including the U.S. Postal Service, would have to negotiate bilateral or multilateral terminal dues agreements with all other industrialized countries without having the UPU system as the default.
In support of his proposed principles, Mr. Campbell offers several arguments. He contends that the terminal dues system is inconsistent with U.S. postal law, which requires “that terminal dues rates conform to the same principles that govern domestic postal services.” Id. at 23. He also argues that competitors, including American companies, do not have access to the postal system network at the same low prices as foreign postal designated operators (DO). He concludes that this grants an undue and unreasonable preference to DOs. Id. Mr. Campbell further contends that the terminal dues system is incompatible with U.S. trade laws because it “fails to reduce or eliminate barriers to, or distortions of, international trade in services.” Id. He states that the terminal dues system encourages private carriers and DOs to bypass entering international mail in the normal streams in favor of entering mail in a country with cheaper terminal dues rates. To discourage this practice, he explains that the UPU has adopted rules which “preserve the market for outbound international mail in each country for the designated operator.” Id. at 24. Mr. Campbell characterizes these rules as market allocation measures which are anti-competitive and distortive. Id. He concludes that the best way to ensure that terminal dues rates are consistent with relevant U.S. laws is to charge the domestic prices for inbound international mail. According to him, these rates are cost based and are non-discriminatory since all entities accessing the postal network would pay the same price. Id.
Commission Comments. The Commission shares Mr. Campbell’s uneasiness with the current terminal dues system. It has a longstanding concern that terminal dues do not cover the cost of delivery of inbound international mail. In FY2010, the Postal Service lost nearly $54 million on inbound international letter mail that did not cover its costs. Similarly, the Commission has been concerned that foreign mailers are able to access the U.S. postal network at rates lower than U.S. domestic mailers, which means that U.S. rate payers are subsidizing foreign mailers. The same situation exists in many other countries where terminal dues do not cover the costs of delivery of inbound international mail.
In its Fiscal Year 2010 Annual Compliance Determination, the Commission acknowledged that terminal dues are set within the context of a United Nations system of one country, one vote. The Commission recommended that the Postal Service “continue efforts to negotiate more compensatory terminal dues rates in the UPU Terminal Dues Group and pursue adoption of the most compensatory rates possible at the 2012 UPU Congress.” The Commission has been working with the Postal Service in this regard. As the Department of State is responsible for setting the nation’s international postal policy, we would strongly urge the Department of State to actively pursue a more compensatory terminal dues system consistent with U.S. postal laws.
The situation has been improving slowly. The Commission itself, as part of its responsibilities under the PAEA, has dedicated staff to work with the Postal Service on the UPU Terminal Dues Group to develop a methodology that is more cost-based. The UPU is trying to move away from the current methodology that has been in place for over twenty years to more cost based rates based on domestic tariffs, but not equal to domestic tariffs. Nonetheless, terminal dues rates continue to be discriminatory towards private operators that are unable to access postal networks at similar rates and domestic mailers who in some countries must subsidize foreign mailers.
The UPU and its working groups require the full amount of time between Congresses to evaluate proposals because of the need to build consensus for change. Mr. Campbell’s proposal is worthy of consideration, but comes too late in the current cycle to give it sufficient study and build consensus. An acceptable approach might be to craft a resolution which would task the UPU with studying his proposal over the next cycle. The Commission would support this approach. However, the Commission is also open to considering alternatives and favors an approach which best suits U.S. interests. To this end, the Commission is willing to work with the inter-agency group to draft a proposal incorporating Mr. Campbell’s ideas or to consider alternatives.
In addition, traditionally, at least for terminal dues, principles are developed by the relevant Council of Administration and Postal Operations Council working groups to guide development of the future terminal dues system in the coming cycle. Such principles were included in 2008 Geneva Congress Resolution C43, which guided the work to develop a terminal dues system for 2014-2017, to be adopted at the Doha Congress. Similar principles have been under consideration by the Council of Administration Terminal Dues Governance Issues Project Group, most recently in UPU document CA C1 TDGIPG 2011.2–Doc 3, Principles governing the future terminal dues system – Update. As these principles are typically part of a resolution, Mr. Campbell’s proposal departs from that approach. By proposing that principles governing terminal dues and inward land rates be in the Convention, he is proposing to elevate the degree to which these principles must be reflected in the actual system of terminal dues and inward land rates. Therefore, in addition to the possible resolution proposed above with respect to studying the principles in Mr. Campbell’s proposal after Congress, the Commission suggests that consideration be given to putting forward a separate proposal at the Doha Congress to include high-level principles in the UPU Convention to guide development of the future terminal dues system. Such principles would be more similar to those found in UPU document CA C1 TDGIPG 2011.2-Doc.3, Principles governing the future terminal dues system-Update or even the US Strategic Plan for the UPU.
It is also noteworthy that Mr. Campbell uses the outdated term industrialized countries (IC) rather than the current UPU term “target” or “new target” countries.  A narrow reading of his proposal would lead to the conclusion that it would only apply to the 28 industrialized countries to which he refers, which were the original countries in the target system, rather than to all of the countries currently in the target and new target system. This needs to be clarified, but does not hamper consideration of his proposal from a conceptual perspective.
Proposal 2: To clarify the scope of the customs privileges conferred by the Convention and Regulations of the Postal Operations Council and to exclude commercial items unless conveyed by a reserved service in the origin country
The Proposal. Mr. Campbell proposes to limit current postal customs clearance procedures to non-commercial items handled by postal operators unless the conveyance of commercial items is reserved by national law for a provider of universal postal services in the country of origin. In addition, he proposes requiring all items handled by designated operators, no matter what the country of origin of the mail, to clear customs in the same manner.
According to Mr. Campbell, “customs and other border controls constitute the single most significant regulatory obstacle to development of international parcel and delivery services.” Id. at 27. In his paper, he describes the historical differences between customs clearance procedures used by postal and private operators. He highlights the simplified procedures developed in the 1920s for letters and small packets containing dutiable items as part of a universal service obligation, which was later extended to include postal parcels and express mail (EMS). In the 1980s and 1990s, private operators negotiated faster, more costly customs clearance procedures which granted immediate release of goods in exchange for the advance transmission of customs data, advance payment of duty and taxes, and other requirements.
Mr. Campbell sees these differences as no longer relevant as many postal operators move into more commercial areas. He believes that these differences in customs clearance procedures are no longer valid for competitive, or commercial, items that should be subject to the same customs clearance requirements. He cites the Postal Service’s growing competitive international mail revenues, which in 2010 comprised 62% of all of the Postal Service’s international mail products. Id at 31. He further cites the 2006 Postal Accountability and Enhancement Act (PAEA), which provides that “U.S. customs laws and all other import/export controls shall be applied in the same manner to all competitive services and that the Secretary of State shall exert best efforts to obtain non-discriminatory treatment for competitive services under foreign customs laws to the maximum extent practicable.” Id at 30. In Mr. Campbell’s view, the UPU Congress in Doha is an opportunity to “support equal application of customs (and other border control) procedures to competitive products and avoid agreements to apply border controls in a manner that will restrain competition in services outside the scope of a U.S. postal monopoly.” Id at 33. Furthermore, according to his paper, equal application of customs procedures to commercial items is a positive first step towards full equal application of customs laws to all items.
Mr. Campbell elaborates further by explaining that the UPU and World Customs Organization (WCO) should develop new customs clearance procedures for commercial items handled by postal operators and that the UPU and WCO should develop simplified, uniform, and non-discriminatory standards for the customs clearance of low-value commercial items.
Commission Comments. The Commission fully supports all steps to implement customs-related provisions of the PAEA, particularly with respect to equal application of customs laws to similar items handled by postal and other delivery service providers. We defer to U.S. Customs and Border Protection with respect to the feasibility of promoting these proposals at Congress. If elements of these proposals can be part of a study for the next Congress, we support drafting a resolution for this Congress outlining such a study.
Proposal 3: To ensure that the Convention provides a complete statement of principles established by governments to govern the exchange of documents to define and clarify the delegation of authority to the Postal Operations Council to adopt implementing Regulations
The Proposal. In his proposal, Mr. Campbell seeks to simplify the UPU Convention by limiting it to high-level principles only. He further seeks to ensure that it is clear that the Postal Operations Council only has authority to amend the Regulations on issues of an operational or technical nature, with oversight by the Council of Administration on policy matters. His proposal provides that the Regulations may not derogate from anything that is not expressly provided for in the Convention. Id at 27.
Mr. Campbell believes that at the UPU Congress governments must consider too many proposals. He therefore attempts to streamline decision making by governments and further separate decisions of a governmental and operational nature. By including only high-level principles in the Convention, governments would have less to decide when Congress meets every four years. This would allow the Regulations to be amended more frequently.
Commission Comments. The Commission generally supports the idea of reducing the number of proposals considered at the UPU Congress and further separation of operational and governmental responsibilities. A more detailed legal analysis of the impact of these changes by the State Department’s Office of the Legal Advisor would be desirable. In general, the Commission supports Council of Administration approval of any changes to Regulations involving policy matters. With respect to the primacy of national law and international treaties concerning trade and customs over the UPU Convention, input from the Department of State’s Office of the Legal Advisor would be most helpful.
Proposal 4: Final Protocol to the Convention Article XI, Relation to the General Agreement on Trade in Services
The Proposal. This proposal would clarify that the General Agreement on Trade in Services (GATS) of the World Trade Organization (WTO) would take precedence over the UPU Convention. Mr. Campbell indicates that this proposal would address a lack of clarity between the GATS and UPU Convention. He further cites a declaration that the European Union has filed with the UPU since the 1994 Seoul Congress, stating:
“The delegations of the member countries of the European Union declare that their countries will apply the Acts adopted by this Congress in accordance with their obligations pursuant to the Treaty establishing the European Community and the General Agreement on Trade in Services (GATS) of the World Trade Organization.” Id. at 38.
According to Mr. Campbell, “In light of the strong U.S. commitment to free trade in international services, it would be appropriate, both as a matter of law and policy, for the United States to join the EU and other countries in a similar declaration at the Doha Congress.” Mr. Campbell further states that “one can imagine going beyond the bare minimum requirements of the GATS and indicating the possibility, even the intention, of allowing full market access for competitive services in trade agreements negotiated within the GATS framework (including bilateral and multilateral free trade agreements). Id.
Commission Comments. The Commission defers to the State Department’s Office of the Legal Advisor and the Office of the U.S. Trade Representative for their comments in consultation with other agencies on the legal implications of this proposal.
Proposal 5: To ensure that the Postal Payment Services Agreement provides a complete statement of principles established by governments to govern the exchange of postal financial services and to define and clarify the delegation of authority to the Postal Operations Council to adopt Implementing Regulations
The Proposal. This proposal is similar to Proposal 3, except that it applies to the Regulations in the Postal Payment Services Agreement, rather than to the UPU Convention and its Regulations. This Agreement covers the exchange of paper and electronic money orders between postal administrations.
Commission Comments. Similar to comments made with respect to Proposal 3, the Commission generally supports the idea of reducing the number of proposals considered at the UPU Congress and further separation of operational and governmental functions within the organization. We would suggest a more detailed legal analysis of the impact of these changes by the Office of the Legal Advisor at the U.S. Department of State.
In general, the Commission supports Council of Administration approval of any changes to Regulations involving policy matters. With respect to the primacy of national law and international treaties concerning trade and customs over the UPU Convention, we would also seek input from the Department of State’s Office of the Legal Advisor.
Antitrust and Trade Law Concerns
Mr. Campbell argues that the UPU terminal dues system violates U.S. antitrust and trade laws. He argues that U.S. antitrust laws are violated because of terminal dues rates that are below domestic rates and not available to all delivery providers on a non-discriminatory basis. He also contends that U.S. trade laws are violated as the UPU Convention establishes barriers to international trade through discriminatory customs procedures. These concerns lead him to ask that the State Department request a review by the Department of Justice and the Federal Trade Commission of the UPU terminal dues system to determine if it is consistent with U.S. antitrust and trade laws.
The Commission encourages and supports a review of the UPU terminal dues system by the Department of Justice and Federal Trade Commission, the two Federal agencies primarily responsible for applying antitrust laws. However, it expects that such a review would be conducted in close collaboration through a small task force with the Department of State, Postal Regulatory Commission and Postal Service, who have the technical expertise in this area, as well as users and private providers. The Department of Justice Antitrust Division carried out such a review in 1988, but the UPU terminal dues system has changed dramatically since that time.
Target system countries are industrialized countries that belonged to the target system in 2008. New target countries are transition countries that joined the target system in 2010 and will join in 2012. Like all target countries, they pay per item and per kilogram rates versus only per kilogram rates, but they are lower than those paid by the original target countries. They also have a two-year grace period for full application of the quality of service link.