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U.S. Announces Withdrawal from Universal Postal Union

The U.S. government announced on 17 October that it plans to leave the Universal Postal Union (UPU), charging that the multi-lateral system that sets international mailing rates unfairly gives mainland China a competitive edge. The multi-lateral UPU was originally founded in 1874 and now covers 192 countries. Since 1969, developing countries — including mainland China — have been assessed lower rates than wealthier countries under this system. For example, the price for a two kilogramme package shipped from one U.S. state to another is typically US$19-$23, while China Post pays US$5 to ship a similar package anywhere in the United States, according to the U.S. Postal Service.

The rates charged by countries to finish delivery of small packages within their borders are called “terminal rates” or “terminal dues.”  A 2015 USPS report argued that having internationally determined terminal dues that often do not match the actual cost of shipping packages causes the USPS to cover much of the cost, and advocated for the United States to set its own rates for delivering incoming packages. The report’s executive summary noted that terminal dues create winners and losers, adding that in certain instances “low terminal dues benefit China Post and Chinese online retailers in the lightweight, low-value package segment at the expense of the U.S. Postal Service and American retailers.” While the report admitted this advantage is not as significant for heavier packages, it insisted that “terminal dues remain distortionary, and reform is a necessity.”

Mainland Chinese companies currently account for about 60 percent of all packages shipped by mail to the United States. Many websites offer free shipping from mainland China and e-commerce shippers would face much higher rates and potentially lose business if postage rates into the United States increase. A broker quoted in one press report observed that this could “lead to postal wars” among UPU members. “The end result could be a free-for-all, in which each country leaves and sets its own rates, which would be damaging for global postal services,” said the broker.

White House officials speaking on condition of anonymity said that tackling the economic distortions created by the UPU outweighed any potential concerns. They also decried security concerns associated with lower rates, which they said encouraged the shipment of drugs such as fentanyl and the proliferation of counterfeit products. Both chambers of Congress have passed separate fentanyl shipment-related legislation without referencing USPS terminal rates. Sen. Bill Cassidy (Republican-Louisiana) introduced legislation in April that would have ended the internationally determined terminal dues but his bill never made it out of committee. Cassidy praised the White House’s announcement, asserting that “President Trump is standing up for American workers and companies who are being hurt by this outdated, unfair international agreement on shipping rates.” U.S. congressional approval is not required to withdraw from the UPU because the last version was never voted on by Congress, according to the White House.

Peter Navarro, a White House trade advisor long considered to be a hawk on U.S. trade with mainland China, recently wrote an opinion piece in the Financial Times where he claimed that “these disparities have introduced a massive distortion in the eCommerce market”, adding that “it is often possible for a Chinese company to sell ‘knockoff’ products through online vendors, such as Amazon or Alibaba, to U.S. consumers for less than it costs for American mailers to ship authentic goods.”

U.S. State Department officials on 17 October planned to inform the relevant UPU officials in Bern, Switzerland, of the U.S. intention to withdraw. According to UPU rules, members have one year to renegotiate new terms before the withdrawal becomes permanent. White House officials indicated the United States would prefer to stay within the union if more favourable terms can be negotiated before the withdrawal takes effect, but said the United States could be setting its own rates as soon as six months from now. According to a White House press release, the president concurs with the Department of State’s recommendation to adopt self-declared rates for terminal dues as soon as practical and no later than 1 January 2020.

Content provided by Picture: HKTDC Research
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