The Universal Postal Union Lives to Mail Another Day

Q1: What is the Universal Postal Union?

A1: The Universal Postal Union (UPU) was established in 1874 under the Treaty of Bern and has been a specialized agency of the United Nations since 1948. The UPU was initially established to coordinate the worldwide postal system and regulate postal costs. The system under the UPU runs smoothly and allows mail to move efficiently between countries. It was created with the aim of allowing for the freer flow of information, when the primary form of communication was letters. Prior to the UPU, countries negotiated individual treaties and set their own rates for postal services. Under the UPU, those rates and fees, including terminal dues, are standardized across the 192 members in groups based on the strength of each economy. Countries primarily pay terminal dues, which are the fees set by the UPU that the country responsible for sending an item pays to the country, receiving it to compensate processing costs. The rates are set by the Universal Postal Congress, which convenes every four years to examine proposals to amend the UPU and discuss a broad range of issues regarding international postage.

Q2: Why did the United States threaten to withdraw from the UPU?

A2: The Trump administration announced its intention to withdraw from the UPU on October 17 absent changes to its terminal rate structure. Under the UPU’s terminal rate structure, developing countries pay discounted rates to send items to developed countries. The list of developing countries was negotiated in the 1960s and includes many manufacturing-heavy countries in Asia, such as China. The United States has grown critical of this system due to the rise of e-commerce and the growth of China’s manufacturing sector in particular. Countries like China (which is the main target of the United States’ recent threat) are able to ship items to the United States for lower costs than the United States can send items to China. The terminal dues paid by China typically do not cover the cost for the United States to process and finish the shipment of the item. In some cases, the cost of shipping from China to the United States is lower even than the cost of shipping items between two U.S. locations. This discrepancy in rates primarily impacts small parcels under 4.4 pounds, which could fit high-value items such as mobile phones or parts and pharmaceuticals.

The U.S. government argues that U.S. manufacturers are at a disadvantage due to these shipping rates. The United States claims that the current system benefits other countries through artificially low reimbursement rates. The current system means the United States effectively subsidizes cheap foreign shipping, costing the United States as much as $300 million per year in revenue, according to administration officials.

The United States Postal Service (USPS) is also hurt by the reduced shipping rates. A 2017 Government Accountability Office (GAO) report found that rates for inbound international mail do not cover the costs for delivering that mail in the United States. In part because of this discrepancy, USPS losses doubled between 2012 and 2016.

Q3: What changes did the UPU consider and ultimately agree to at its most recent meeting?

A3 : Delegates met in Geneva this week for the third UPU Extraordinary Congress. The central bone of contention for the United States was its desire to independently declare its own postal rates. Proposed reforms to the UPU allowed USPS and other shipping operators to gain full reimbursement from overseas shippers. The White House considered the ability to set its own rates as necessary to realize its goal of “unrestricted and undistorted competition.”

Of the three options that the UPU Extraordinary Congress considered at the beginning of this week, the United States supported two. “Option A” was a non-starter in Washington; it calls for minor adjustments to terminal dues rates in 2020. “Option B” permitted all UPU members to impose self-declared rates effective immediately, transferring sovereignty away from the UPU and towards each member state. On the other hand, “Option C” promoted a “multispeed” approach, where the United States would be the only country allowed to immediately institute rate changes; all other states must phase in their adjustments at a rate determined by the Congress, a process that could take several years.

According to White House trade and economic adviser Peter Navarro, one thing was certain at the outset of negotiations: “the U.S. will start self-declaring its rates soon after October 17 one way or the other.”

Fortunately, the UPU voted unanimously on Thursday to approve “Option V.” The United States will remain in the Union. This option will allow the United States to declare its own rates starting in July 2020, with countries receiving more than 75,000 metric tons of letter-post mail able to opt-in to independent rate setting in January 2021. The threshold protects developing countries with low mail volume, which would have been hit hard by sweeping rate adjustments. UPU Director General Bishar Hussein called the decision “the most remarkable day in the history of the union,” and Mr. Navarro heralded it as “a victory for millions of American workers and businesses.”

Q4: How would each proposal—and the final agreement— impact postal commerce?

A4 : At the beginning of the Congress, the proposed changes promised few good outcomes in the short term. All the proposed resolutions could increase the complexity of the international postal system and cause disruptions to global supply chains. Option A seemed dead in the water without United States backing. Option C would leave the standard terminal dues rate for most countries unchanged in the short term but would still generate some uncertainty about future rates. Option B represented the largest departure from the status quo and would have functionally done away with the multilateral arrangement without any phase-in period. A U.S. withdrawal would be similarly disruptive, as other aggrieved countries, such as Brazil and Canada, would look to follow its lead. Many countries agree with the United States that the UPU desperately requires long-awaited reform but are anxious about Washington’s ultimatum. The United States has historically been an institutional leader at the UPU, and members worry about the UPU’s future without U.S. influence.

The recent decision allays concerns about what could have been a chaotic scenario. Without a stable UPU, customs departments would have struggled to deal with international mail, causing backups and delays. Complications would threaten e-commerce during the upcoming holiday shopping season, as postal operators and shipping companies scramble to handle the new landscape. Few companies had been willing to sound the alarm publicly, but eBay warned of “service disruptions and dramatically increased costs for shipping through the U.S. Postal Service.” Commerce aside, U.S. citizens living abroad would have had their ability to vote put in jeopardy. It may have required unpredictable amounts of time and exorbitant courier rates to mail ballots, putting the voting rights of three million people at risk during next spring’s presidential primaries.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Jack Caporal is an associate fellow with the CSIS Scholl Chair. Jonathan Lesh and Lydia Murray are interns with the CSIS Scholl Chair.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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