May 15, 2012

U.S. Postal Service Comments on Jim Campbell's Five Proposals Submitted to the FACA for Consideration

Most of our comments will focus on Proposal 1 which would totally revamp all terminal dues (TDs) provisions in the Convention and Letter Post Regulations, and would take a step backward by more than a decade to a terminal dues system set up at the 1999 Beijing Congress with different systems for Industrialized Countries and Developing Countries.

The private-sector major mailers’ industry provided input after that system was set up. Their position was to “Minimize the arbitrage system of differences for Industrialized Countries (ICs) and Developing Countries (DCs) and eliminate these differences over time.”

The 2004 UPU Congress in Bucharest set up a Target System to replace the Industrialized Country System, and the 2008 Congress moved 35 new countries into the more cost-based Target System.

Regarding cost-based terminal dues, the private sector mailers’ industry input was to continue to move toward “cost-recovery” while avoiding immediate and major increases in rates. Mr. Campbell’s proposal to base terminal dues on 100 percent of domestic postage rates would lead to U.S. outbound cost increases of some 96 percent, which would lead to immediate and substantial increases in international postage rates for U.S. outbound mailers, and substantial cost increases to the Postal Service.

More than a decade ago, in 2001, the PRC conducted a review of the terminal dues system at the request of the Congressional sub-committee under the Chairmanship of Representative John McHugh. The review consisted of a comparison of the terminal dues system in effect at that time with one based on 100 percent of domestic postage rates, both for ICs and DCs. Based on FY 2000 revenue numbers in the PRC report, the rate implications for U.S. outbound mail were substantial, leading to potential cost increases of 118 percent to industrial countries from the United States. The effects on U.S. mailers could be substantial, and the impact on universal service and U.S. commerce would need to be carefully considered.

The USPS responded to the report with the following facts on what the financial and operational impact would be:

  • 100 percent domestic rate referencing would be costly and impractical to implement since such a system would require rate referencing by weight steps. Such data is not available, and it would be administratively expensive to implement. It is also not known if foreign Designated Operators would be able to provide such data to the Postal Service, or whether the Postal Service could provide all such data to foreign Designated Operators, as there are more than 3,000 rate cells in our domestic rate regime.
  • No country at that time advocated using 100 percent domestic rates, and no country advocates that today. European operators reached consensus long ago that the cost of handling inbound international mail deliveries do not include some upstream costs (such as marketing and sales costs, collection, and retail window costs) that are specific to domestic mail only, and based their terminal dues rates on 80 percent of domestic rates, which has been reduced to 60 percent of rates in the last European REIMS agreement. The UPU also reached the same consensus and started with a terminal dues system based on 60 percent of domestic rates, and this has been increased to 70 percent in the last cycle.

The current proposal going forward to the Doha Congress does in fact already addresses many of the concerns raised by Mr. Campbell in his paper. Significant improvements to the two-decade old methodology of basing terminal dues on one 20-gram letter have just been approved by the UPU Councils – both the POC for the operational and commercial aspects and the CA for the principles and policy aspects, as provided in the UPU General Regulations. The new methodology uses a letter rate and a flat rate (which represents a “best-fit” linearization of 15 domestic rates collected for each country). This methodology will vastly improve the cost coverage on inbound international mail and eliminate the losses incurred by the Postal Service on inbound mail, thereby eliminating the so-called “subsidies to foreign mailers.”

In conclusion, the Postal Service does not believe that the UPU terminal dues system is anti-competitive or discriminatory, nor is it a price-fixing agreement. Rather, it is an important part of an inter-governmental treaty adopted by plenipotentiary representatives of UPU Member Country Governments at the UPU Congress to ensure universal service obligations (USO) of that treaty are fulfilled by operators designated by Member Country Governments to fulfill such USO obligations.

Regarding proposal 2, the Postal Service agrees with the comments of DHS on Customs provisions, and would add that it would be very difficult to distinguish between a “commercial” mail item and a non-commercial item.

With regard to Mr. Campbell’s concerns about antitrust laws, it is important to note that the antitrust laws do not apply to the vast majority of inbound (to US) lightweight letters. The Postal Accountability and Enhancement Act contains an explicit exception that the antitrust laws do not apply to monopoly letters (and inbound letters are subject to the monopoly). Hence, we see little value in engaging the Federal Trade Commission and the Antitrust Division to review the UPU Acts from an antitrust perspective.

Regarding proposals 3 through 5, the Postal Service would also agree with many of the comments made by USTR and Commerce, and would ask that the State Department Legal Affairs office provide input on the issues of primacy of one treaty (GATS) over another (UPU).

[This is a mobile copy of Comments by the U.S. Postal Service]