February 8, 2009

UPU Geneva Conference Proposals:_Potential Implications for U.S. Consumers and Markets

Remarks by Don Soifer, Lexington Institute
Before the Department of State
Advisory Committee on International Postal and Delivery Services
July 10, 2008

I know that some of you have already put in a great many hours analyzing over 400 proposals and documents for the Universal Postal Union Congress in Geneva that begins later this month. I am grateful to Dennis Delehanty and the State Department for their valuable work in this area, and for leading this Advisory Committee. When I learned that the State Department’s briefing to this panel would be focused on just the U.S. initiatives, I requested that the agenda include a briefing of those proposals, all proposals, likely to produce significant implications for postal consumers and markets here in the United States. And in the true spirit of the voluntary service that drives this Committee, I was, of course, pleased when Dennis, in turn, asked me to give this brief presentation on that very topic.

Our friends at the United States Postal Service tell us that American households sent and received some 15 billion pieces of correspondence in 2006. Older and wealthier Americans send and receive more correspondence than younger and poorer households, but as a nation it’s clear that we’re not quite done writing letters yet. A report published by Pitney Bowes earlier this year showed that in both the United States and in Europe, per capita mail overall has held steady over the past few years, even with the sharp rise in e-mail.

So what are the potential implications of these UPU proposals for us, as monopoly consumers of mail in the United States?

The UPU is a specialized agency of the United Nations, and its current leadership clearly has its eye on broadening the 130-year-old organization’s mandate beyond just the postal sector. Elements of this agenda have been evident now in UPU actions and statements for some time, and can be clearly identified in many of the proposals before the Geneva Congress.

I will focus my comments this afternoon on those proposals that would expand the UPU’s mission beyond the postal sector, into areas including trade, development, financial services and logistics, where the implications can be seen to be unlikely to produce positive results, and could, in fact, prove quite harmful.

UPU and Trade

Remarks in recent years by both UPU Director General Edouard Dayan and World Trade Organization Director General Pascal Lamy indicate that both see potential for expanding UPU’s purpose to include expanding global trade. The UPU played an active role in the WTO’s November 2007 “Aid for Trade” initiative, and numerous statements by the UPU seem to seek to redefine the relationship between the organizations.

A push by the UPU toward increased parity with the World Trade Organization is sought with an urgency that cannot be seen to benefit U.S. consumers and markets. For that reason, the United States’ proposed amendment (3) to Proposal 47 would clarify that cooperation between these bodies is “beneficial” rather than “necessary,” and that compatibility between the decisionmaking mechanisms of the two organizations be examined, rather than sought.
Meanwhile, many proposals seek to expand UPU’s mission into areas including financial services development.

Development

UPU Proposal 39 would "assign at least 60 percent of the resources available in the Union's regular budget for development cooperation to assistance projects for developing countries." While this portion of the overall UPU budget is relatively small – roughly $3 million – certain factors will determine the implications for U.S. consumers.

First is defining which are the “developing countries” designated to receive the assistance funding. Second, as of this week, there are five countries on the State Department’s list of State Sponsors of Terrorism: Cuba, Iran, North Korea, Sudan and Syria. For these to receive UPU development funding creates a conflict with U.S. interests and with the Foreign Assistance Act. Third, this appears to fall under a broader UPU strategy to refocus funding for regional advisors, a move likely to meet with resistance in Congress, but one with broader operational than policy implications.

Financial Services

According to one 2008 UPU publication, 69 percent of the world’s permanent or mobile post offices offer financial services. That same report also touted how Botswana’s post offices, “are now developing financial services…. to become like mini-banks.” Funding initiatives that would provide advantages for state postal monopolies to enter sectors already served by the private sector, such as financial services, would not benefit U.S. consumers and markets. They also place monopoly consumers at increased peril of being overcharged to finance such new ventures.

As discussed in the U.S. Strategic Plan for the UPU presented at this Committee’s meeting in March, it is a primary goal that the UPU “promote and encourage unrestricted and undistorted competition in the provision of international postal … and delivery services.”

Several proposals and documents discuss an expanded involvement for the UPU into the financial services sector, an expansion the United States should view with considerable concern. These include:

  • The Postal Operations Council Report, Document 23, puts forward a definition of the postal sector including a financial dimension, specifically discussing credit cards, savings products and pension payments.
  • UPU Proposal 10, "Postal Financial Services Development" instructs the Postal Operations Council and the International Bureau to "meet the demands of the changing environment" by, among other things, "promoting anti-money-laundering activities" and "recommending the introduction of new financial services which could be offered via the worldwide postal network." According to the U.S. Strategic Plan for the UPU, it should be ensured that policies comply with U.S. anti-money laundering policies and other regulatory requirements. It is my understanding that the U.S. Trade Representative expects to raise objections to the proposed new roles for the UPU, out of concern that the expansion of the agency’s mandate into these areas could prove harmful.
  • Document 27A, Council of Administration Report, discusses the “Connect the World” initiative proposed to be completed by 2015. As described, the initiative would develop postal financial services, and in particular money transfers, through partnerships between governments, the private sector and international organizations.

Other Sectors

The Postal Operations Council report discusses other areas, such as parcels, express and logistics services, each with an articulated future role for the UPU, particularly in developing markets and business development.

For instance, it cites logistics, and specifically the “strong growth area” of outsourced warehouse-to-customer logistics functions. In 28 percent of UPU member countries, national posts currently offer logistics services, according to the UPU. “Issues of corporate freedom and competencies to develop these services [by national posts] will be limiting factors, unless they are suitably addressed,” the report states.

Proposal 28 concerns climate change and sustainable development and includes the producing publications for postal administrations on the subject and, “developing Socially Responsible Investing products, microcredits for postal administrations that carry out banking activities, and reliable, affordable fund transfer services for migrant workers and their families.” It then outlines a future role for the UPU as an active contributor to market development, undertaking robust market analysis while working with all stakeholder groups.

Proposal 37 from the Postal Operations Council seeks to advance postal market development goals. It would specifically instruct the council to “facilitate the growth of letter post, parcels and postal financial services markets, as well as business services, logistics and E-business, including hybrid mail, E-shopping, electronic postal certification and dot.post.” It also instructs the council to increase capabilities and create or maintain business relationships and partnerships to facilitate such growth.”

Terminal Dues

Proposal 45 regarding the UPU Global Monitoring System, which will form the basis for the new terminal dues by which rates are set for sorting, transporting and delivering inbound mail, instructs the development and implementation of a pilot program. The terms of the new Terminal Dues schedule to be debated in Geneva, intended to expand their use of actual costs and quality of service measurements, could either prove good or bad for U.S. consumers and markets, depending on how various details are resolved.

Certainly the inclusion of service performance as a factor in pricing can be seen as a positive one for consumers, provided other factors, such as a level playing field between state and private-sector providers, are upheld. To this extent, the provisions of Proposal 31, to include the adoption of a customer service charter, customer satisfaction surveys and a code for customer service and complaints management, can be seen as beneficial to consumers, including in the United States.

The Postal Accountability and Enhancement Act signed in 2006 explicitly divides U.S. Postal Service products into two categories: market-dominant and competitive, and defines pricing and classification terms for each. Market-dominant products include single-piece international mail as well as first-class letters and sealed parcels, first-class cards, periodicals, standard mail, single-piece parcel post, media mail, bound printed matter, and library mail. Competitive products include bulk international mail, priority mail, expedited mail, bulk parcel post and mailgrams.

The Act charges the Postal Regulatory Commission with establishing a system of setting rates and classes for market-dominant products, and to ensure that cross-subsidization between the categories does not occur. You have heard the Commission’s views today on the proposed new system for terminal dues. Once resolved by the Geneva Congress, it will be up to the PRC to determine any constraints the new system may impose on its statutory requirements under the PAEA.

Resolution 58, proposing the creation of a UPU Customs Group with the World Customs Organization, appears to present a similar dilemma for U.S. consumers and markets. The UPU and the WCO signed a cooperation agreement in 2007 agreeing to work together to coordinate and modernize procedures. Promoting this cooperation is a goal of the U.S. Strategic Plan, provided it remains consistent with the PAEA.

The State Department, in its June 27 letter to Commission Chairman Dan Blair, communicated serious concerns over apparent conflicts between PRC regulations and U.S. obligations under the UPU regarding rates and customs clearance for inbound mail. As the UPU Convention is seen as the principal multilateral treaty governing the exchange of international mail for the United States, and will expire at the end of 2009, the best interests of U.S. consumers must be protected from potential harms as the details of the plan are worked through in Geneva in the coming weeks.

I would like to thank the staffs of the State Department, the U.S. Trade Representative, and the Postal Regulatory Commission for their assistance.