Reform is Advanced, but 2004 Congress Site is in Doubt

Department of State Report on the Meeting of the Council of Administration of the Universal Postal Union (UPU) Bern, Switzerland, November 4-7, 2002

Released by the Bureau of International Organization Affairs
November 18, 2002

This document summarizes reporting by Department of State officers on the annual meeting of the 41-member Council of Administration (CA) of the Universal Postal Union (UPU), held in Bern, Switzerland, on November 4-7. Guozhong Huang of China is the Council chairman. This message also reports on a special UPU postal strategy conference, held in Geneva on October 29-31, just prior to the CA session. This report covers:

• enhanced UPU openness to the private sector

• UPU efforts to revise its system of terminal dues -- the process by which one country pays another for delivery of the mail -- and a challenge by Japan to the April 2002 decisions of the Postal Operations Council

• the growing phenomenon of "Extra-Territorial Offices of Exchange" (ETOEs), in which a postal administration of one country establishes a mail exchange office in another country in order to compete with the host country's postal administration

• UPU's relations with the World Trade Organization (WTO), in particular the potential relationship between the UPU terminal dues system and GATS

• the decision by Cote d'Ivoire to withdraw its offer to host the 2004 UPU Congress and the search for an alternate site

• postal security in a time of growing concerns about terrorism

• UPU negotiations with the World Customs Organization (WCO) over revisions to two postal customs declaration forms

• adoption of the UPU regular budget for 2003-04 at zero nominal growth

• and other financial and administrative issues.

The U.S. delegation to the CA was led by Donald Booth, Director of the Office of Technical and Specialized Agencies (IO/T) in the Department of State's Bureau of International Organization Affairs (IO), and included Neil Boyer of IO; Michael Regan, Director of International Postal Affairs of the U.S. Postal Service, and Lea Emerson and William Alvis of USPS; Commissioner Ruth Goldway of the Postal Rate Commission; Mary Townswick of U.S. Mission Geneva; and Susan Presti, a representative of the Air Couriers Conference of America (ACCA), an organization of private express delivery companies.

The U.S. delegation to the Geneva strategy conference was headed by R. Terrell Miller, IO Deputy Assistant Secretary, and included Deputy Postmaster General John Nolan, USPS vice presidents Mary Anne Gibbons and James Wade, Patricia Barnwell of USPS, as well as Boyer, Goldway, Regan, Emerson and Presti.

Since the UPU 1999 Congress in Beijing, it has been U.S. policy to promote more openness and transparency in UPU operations, which traditionally have been dominated by national postal administrations. It has been the U.S. view that UPU needed to adjust its methods of operation in order to recognize the dynamism in the postal and delivery markets -- the growth of private express delivery companies, alliances and acquisitions between those companies and postal administrations, the increasing use of ETOEs, and the steady increases in use of email and electronic commerce. U.S. delegations have argued that UPU meetings needed to be open to representatives of the mailers, postal customers, express delivery companies, postal equipment manufacturers, labor unions and other postal stakeholders if UPU was to be relevant to market realities.

U.S. diplomatic efforts paid dividends in several respects. The 1999 Congress created a private-sector "Advisory Group," consisting of international umbrella organizations and associations of postal stakeholders. In addition, following 11 meetings of a special High-Level Group studying reform of the UPU, the Council of Administration in October 2001 agreed that private-sector members of the new Advisory Group were welcome to participate in meetings of the plenary and committees of both the CA and the Postal Operations Council (POC), as well as in many of their working groups and project teams.

As a result of these decisions, members of the Advisory Group were invited to participate in the October 2002 UPU strategy conference and the meetings of the CA. In addition, the Advisory Group held its own one-day meeting, on October 28 in Geneva, the sixth such session since its creation in 1999. While a significant number of private-sector organizations and representatives attended the Geneva conference, it was notable and disappointing that none of them took advantage of the opportunity to participate in the CA meetings in Bern, and only five of the 27 registered Advisory Group member associations attended the Group's own meeting. Stakeholders said that the long duration of the UPU meetings -- actually spread over three weeks -- and the cost of travel and lodging were serious impediments to their participation. Delegates at the CA meeting agreed that all UPU members needed to increase efforts to promote private-sector involvement in the newly created structures.

One of the major tasks the Advisory Group has undertaken is the preparation of rules of procedure for the new private-sector Consultative Committee that will replace the Advisory Group if approval is given by the 2004 UPU Congress. A draft of these rules was presented for discussion four times during this period -- at the Advisory Group's own meeting, at the meeting of the CA Project Team on Management of the Work of the Union, at the meeting of the CA's Committee 1 and at the CA plenary. As in past discussions of private-sector involvement in UPU, these sessions generated some rear-guard reluctance to open up UPU meetings. Nevertheless, appropriate and mutually satisfactory adjustments were made to the draft rules, and the rules were approved by the CA. It was understood that many of these rules would be applied by the Advisory Group on a trial basis pending the approval of creation of the Consultative Committee in 2004. The rules can be read as enhancing still further private-sector involvement in UPU activities.

With the issue of rules of procedure now out of the way, Advisory Group meetings can henceforth be devoted primarily to substantive discussions. Participating stakeholders have complained that they were interested mainly in substantive issues -- terminal dues, relations with the WTO, the dynamism of the postal market -- and did not wish to be sidetracked into boring procedural discussions. At the Group's October 28 meeting, several of the participants publicly expressed great annoyance at what they considered stalling tactics by those insisting on further changes in the rules of procedure.

Two project teams of the CA made further progress on reform efforts during these sessions.

• One team, headed by USPS attorney William Alvis, is proposing to the 2004 Congress a revision of the "acts of the union" -- the constitution, convention and general regulations. Without changing the substantive content of the acts, the idea is to simplify the proceedings of the Congress by moving consideration of many technical postal issues to the Postal Operations Council. The CA has approved these proposals, which will be taken up at the beginning of the next Congress.

• The team also is examining the process by which member countries may introduce reservations to changes to the UPU convention that are approved by the UPU Congress. In recent years, many reservations have been introduced, sometimes followed by "counter-reservations" by countries disagreeing with the reservations. At the 1999 Congress, both reservations and counter-reservations were approved without discussion or vote. As a result, it has become very difficult to determine exactly what the convention means. While some delegates have wanted to abolish the system of reservations or make it harder to introduce them, The U.S. delegation has made clear that the right of countries to introduce reservations must be protected. In response to a proposal that the convention be signed by member states at the end of the Congress and reservations considered later, the U.S. delegation said the United States could not sign a convention if reservations had not previously been considered.

• Another project team is examining other steps to simplify each Congress and to decrease the cost that must be incurred by the host country. Rescheduling of time to permit discussion of reservations is one of the issues to be considered.

The 1999 Congress in Beijing accepted the invitation of the Cote d'Ivoire to host the 23rd UPU Congress in 2004 in Abidjan. However, Cote d'Ivoire Minister Patrick Achi told the strategy conference in Geneva that recent political events in his country made it necessary for Cote d'Ivoire to withdraw this offer.

UPU staff said they were hoping to find another site in Africa, since in its 125-year history, the UPU Congress has met in Africa only once, in Cairo. However, the task of hosting a Congress is onerous and expensive, with about 2,000 delegates expected for a meeting of three to four weeks, and it was not clear an alternate African host could quickly be found.

In the course of the CA meeting, Kenya said it was interested in hosting the 2004 Congress, but upcoming elections would have to be settled before it could make a firm offer, and that likely could not occur until at least mid-January 2003. UPU staff was exploring other possibilities, but the international conference center in Geneva, where space is available for three weeks in July 2004, could end up being the only place the Congress could be held. Holding the Congress in Geneva would not imply that Switzerland is the host, but conducting a Congress without the financial support of a host country would be problematic in light of the UPU's tight budget situation (see below).

UPU planned this special conference to fall approximately half-way between the 1999 and 2004 Congresses and to give postal and government officials an opportunity to meet and exchange views on the dynamism in the postal and delivery sector. No decisions were to be taken, and presentations were to focus on major policy issues.

UPU reported that more than 720 individuals, including 50 private-sector stakeholders, had attended the event, held in the Geneva international conference center on October 29-31. Deputy U.S. Postmaster General Nolan identified changes being made to transform USPS into a more effective organization, and in response to questions described efforts USPS had made to deal with the anthrax problem. U.S. delegate Boyer noted the importance of improving postal operations in developing countries and urged panelists to be more specific about steps these countries could take to gain assistance in this process.

Reactions to the three-day event were mixed. Some thought that highly valuable presentations had been stimulating to the audience, while other presentations were boring or simply not relevant to audience interests.

In a post-mortem review of the conference held by the CA in the following week, the U.S. delegation noted that the conference had been praised by a number of participants and even by a brief report presented by the UPU staff, but urged that -- given the costs and demands on time -- UPU decision-makers think hard before repeating such an event between the 2004 and 2008 Congresses. The U.S. delegation expressed the view that there had been too many speakers packed into a short time frame, too little opportunity for audience participation, and a skewing of presentations toward high-technology developments and market shifts in industrialized countries that were basically irrelevant to the postal realities in developing countries. Other CA members then joined in some of these comments, although at least one (Spain) was ready to propose that more such events be held in the future.

The Postal Operations Council undertook in April 2002 to meet the responsibility assigned it by the 1999 Congress to set terminal dues rates for industrialized countries for 2004 and 2005. The POC and related working groups consumed more than 50 hours of discussion time. There were multiple votes in the POC, and in the end the Council did not approve increases in the percentage of tariff or maximum rate for 2004 and 2005. Some delegations contended this was the wrong answer, that the Congress had expected an increase in terminal dues, not a decision for no change. Nevertheless, the POC directed its Terminal Dues Action Group (TDAG) to move on and to focus on the next task assigned by the 1999 Congress, that of developing a general terminal dues system applicable to all countries from 2006 and forward.

In order to explore options for 2006 and to persuade developing countries of the need for such a system, TDAG organized a three-day workshop on October 21-23. Nearly 70 countries participated, and three options were developed as offering serious possibilities for a new system. The project teams operating under TDAG were instructed to take these new options and apply updated cost information and other factors to them so that member countries would be able to see, by the time of the POC meeting in April 2003, exactly what would be the financial impact of these proposals on each country. The TDAG chairman said he would write to all UPU members shortly after the CA session to describe the options and the work that was being undertaken. The expectation is that a new model of terminal dues, to apply from 2006 forward, will be recommended by the POC in April 2003 and ultimately approved by the UPU Congress in 2004.

While the CA heard a report of this activity in the POC and in TDAG, its own project team on terminal dues met to consider policy approaches on this issue. At this meeting, Japan introduced a resolution that, if approved by the CA, would have asked the POC to reconsider its April decisions on terminal dues rates for industrialized countries for 2004 and 2005. Japan argued that the current system of terminal dues was inadequate to meet delivery costs in Japan and that the 1999 Congress had mandated an actual increase in terminal dues, not a position of "no change."

U.S. delegate Boyer said that the United States sympathized with Japan's position because the United States had desired and expected a gradual increase in terminal dues beginning in 2004, and had been disappointed at the result in the POC. However, the U.S. delegation said that the POC and TDAG had turned their attention to the new system applying to all countries for 2006 and forward, that there was very little time for this to be done, and that it was best for the POC to move on. Revisiting the decisions for 2004 and 2005 would almost certainly meet the same result, since the POC membership had not changed, and it would be a waste of time to go backwards.

Several other members of the project team supported the U.S. viewpoint. Others who agreed that the POC decisions should not be reopened said the reason was not that of expediency, or lack of time, but that the "no change" result was the best outcome. The project team chairman reported to the full Council of Administration that the team had recommended against adoption of the Japan resolution.

Nevertheless, Japan reintroduced the proposal in the plenary and much the same debate took place. The U.S. delegation said that, while the context of the Congress instruction to the POC had been that terminal dues should be increased, in fact the language of the instruction had not said the POC should "increase" the rates, only that it should "set" the rates, and it had done that. There was nothing illegal in what the POC had done. The U.S. delegation noted that no delegation had supported adoption of the Japan resolution and urged the chairman to declare a consensus that the resolution not be adopted, unless Japan wanted to call for a vote. Japan then said it would not call for a vote and the chairman said that the CA conclusion was simply that it would take note of the comments that had been made.

A Council project team devoted a considerable amount of time to the emerging concerns about postal administrations that establish offices of exchange (ETOEs) in the territories of other countries. Several papers and interventions were presented reflecting national viewpoints on the issue. The major concern was whether it was appropriate for an ETOE to try to introduce mail in another country using UPU terminal dues rates that are lower than the destination country's domestic rates. Some argued that UPU rates were intended to apply only to mail generated and entered in the sending country, not to what are essentially commercial operations operated outside the sending country. The representative of Deutsche Post (Germany) argued that while DP operated ETOEs in other countries, these operations were entirely legal and Germany was not taking advantage of arbitrage between the different UPU rates for developing and industrialized countries.

U.S. delegate Emerson described a paper that she had co-authored with attorney Anthony Alverno of USPS. This paper noted that USPS and several other postal administrations had declared that they would apply full domestic rates, and not UPU rates, on any in-bound ETOE traffic they discovered. This paper argued that such a position was not discrimination or a violation of WTO's General Agreement on Trade in Services (GATS), as some ETOE operators had contended. Further, it argued that since ETOEs and UPU universal service providers are not "like suppliers," any country that accepted ETOE items under lower UPU terminal dues rates risked a violation of GATS for discrimination in favor of ETOEs and against other private commercial mailing firms. A number of other delegates privately said they agreed with this interpretation.

A number of countries expressed concern that UPU needed to have an established policy in regard to ETOEs in order to guide its member states. The CA charged its working group on ETOEs to continue its studies and to make recommendations to the next meeting of the CA on a policy position on ETOEs that might be adopted by UPU.

The Postal Security Action Group (PSAG), headed by USPS Chief Inspector Lee Heath, discussed postal security operations in the United States in the midst of concern about potential terrorism in the mail. At the PSAG meeting, UPU and a senior officer of the International Atomic Energy Agency (IAEA) signed a memorandum of understanding pledging mutual cooperation in areas of common interest, in particular combating illicit trafficking in radioactive material. The group also discussed drugs in the mail, money laundering, and a recent scheme to defraud postal administrations through fraudulent registered mail loss claims.

Anthony Alverno of USPS, chairman of the CA's project team on relations with the World Trade Organization, convened a half-day seminar prior to the CA session for discussions of proposals before the WTO relating to the classification of postal, express and courier services under the General Agreement on Trade in Services (GATS). Bernard Ascher of the office of the U.S. Trade Representative, and trade officials of the European Union and Canada described proposals their trade agencies had made. Documents on these issues are available on the UPU website, under "What We Do," "Relations with the WTO." The project team also received briefings from representatives of the International Express Carriers Conference (IECC), PostEurop, China Post and the Communications Commission of Kenya.

The Postal Development Action Group (PDAG), headed by Richard Strasser, chief financial officer of USPS, heard a presentation by Isabelle Andress, senior postal policy specialist of the World Bank, on the Bank's role in postal sector reform. It also organized a panel discussion on postal sector reform. Speakers noted that postal reform is a long, continuous and complex process, and that its success depends to a large extent on initiatives by the individual developing countries to define projects and to seek support for them, although countries certainly would need assistance in proposing projects.

The Quality of Service Fund -- established through a surcharge on industrialized countries of 7.5 per cent of terminal dues owed to developing countries -- reported on its first year of operations. Some $13.5 million had been collected for the fund in 2001, and billing has already started for 2002 (possibly to reach $20 million). To date, 48 quality-of-service improvement projects had been approved, and about $1.5 million had been disbursed. Developing countries were urged to develop projects to propose for support from this Fund. Some delegations argued for changes in the Fund policies, since large amounts of money appeared to be available for the more developed of the developing countries, while the poorest and the neediest among them were getting very little. The amount of money credited to a developing country in the QSF is based upon the terminal dues owed to that country. If a developing country does not receive much mail, as is true of many of them, the terminal dues credits are not substantial.

The CA considered a number of financial and administrative questions:

Adoption of the Regular Budget for 2003-04. The new budget is at the same level as that of 2001-02, 71,400,000 Swiss francs over two years, or about $48,100,000. The budget is divided among UPU member countries according to "contribution units." The United States pays 50 contribution units, or 5.71 per cent of the budget. This amounts to about $1,300,000 per year.

UPU Director General Leavey said he was concerned about the adequacy of resources in the UPU Reserve Fund to cover a contribution to the expenses of the next Congress, to provide resources for the building maintenance fund, and to pay for a salary increase that the United Nations General Assembly is expected to approve for all UN system employees. The Reserve Fund currently stands at 3.3 million Swiss francs, while UPU said a more appropriate level would be 5 million francs. While UPU could live within the zero-nominal-growth (ZNG) budget for this biennium, he said, there is a strong possibility that UPU will need to seek a supplementary budget increase in 2003 to mandated salary increases.

Payment of arrears by member states would help to alleviate the need for a supplemental budget increase, Leavey said. Deputy DG Mazou urged countries that are in arrears to take advantage of the possibility that countries owing them terminal dues could, instead of paying the countries directly, pay those amounts instead to UPU in order to satisfy the arrears debt of the recipient countries. Mazou said this is a great idea, and he urged industrialized countries to use this system. However, some noted that there are pitfalls in this idea, such as the need to get the country in arrears to agree to a diversion of its terminal dues receipts to the UPU, and the increased accounting issues and costs that would be created for the industrialized countries.

A draft report from the budget committee, describing this situation, said that UPU "has reached the limits of its cost-cutting potential." U.S. delegate Booth challenged this statement and said it would be preferable if the report said that UPU would need to eliminate lower priority tasks in order to stay within its budget. After comments on this language by a number of delegations, the CA agreed the report should say "prioritization of tasks is essential" given budget constraints.

Reduction of Contribution Units. The CA was asked to take a decision regarding requests from two countries for a temporary reduction in contribution class, Guatemala from 3 units to 1 unit, and Vanuatu from 1 to 0.5. The chief of administration pointed out that the number of units accepted by countries had declined steadily, from 934.5 in 1995, to 877 in 2004. For that reason, the cost of a unit had gone up during that period from 34,420 Swiss francs to 39,360 francs.

The U.S. delegation said that the United States hoped that all countries would keep the commitments they had made at the Congress regarding the number of units they would pay, and pointed out that if the CA accepted a reduction in contribution units for these countries, the cost of a unit would go up and all UPU member states would have to pay more. The U.S. delegation said that, given the small amount of money in the Reserve Fund, it would not be possible to dip into that Fund to cover the amounts represented by the drop in the number of units. There is no free money. If the CA votes to reduce the units for these countries, everyone will need to pay. No one spoke to support the requested reduction, and the chairman declared that the requests had been rejected.

DG Leavey said that, at the 2004 Congress, he wanted to avoid a big drop in contribution units and hoped that countries would not seek reductions at that time. He hoped the CA would encourage maintenance of contribution unit levels, even increases. He wanted the budget to be transparent, with no waste. He said UPU was trying to cut, but he encouraged member states to make proposals for areas in which the budget could be reduced and the payment burden on member states alleviated. DDG Mazou said he wanted to propose that in 2004, the telematics and express mail service cooperatives become progressively autonomous so that they could be removed from the UPU regular budget.

Waivers of Interest. For payments of assessments after January 1 of each year, UPU charges interest. Four countries -- Comoros, Niger, Togo and Nicaragua -- said they would pay the principle but that the interest was onerous, and they asked for waivers of the interest. The chairman of the committee said he thought it appropriate that all of these requests be approved, and the CA agreed.

Report of the Internal Auditor. The internal auditor presented his second report to the Geneva Group and the plenary session of the Council of Administration. Because of the importance of his work, Leavey said that beginning in January 2003, the auditor would work four days a week rather than three.

The auditor had argued in his report for better ethics and accountability among the UPU staff, especially in relation to travel expenses. U.S. delegate Booth supported these comments and said there could be substantial savings if the rules were strictly applied, that UPU should show zero tolerance for deviations from the rules. Booth also asked that UPU provide the members with information on actions taken to implement the auditor's recommendations, a calculation of the savings achieved by such implementation, and a workplan for future auditor activities. Leavey agreed that these requests would be met.

Leavey said he believed that UPU is well run and that there are not frequent instances of fraud among the small staff in the smallest agency in the UN system. However, he agreed there should be zero tolerance of deviations from the rules and said UPU absolutely would follow up on any reports of fraud.

Geneva Group Meeting. The U.S. Mission in Geneva hosted a lunch on November 4 for members of the UPU's Geneva Group and UPU staff dealing with financial and personnel matters. DG Leavey, DDG Mazou, and the internal auditor also attended. The meeting was an opportunity for a frank exchange of views on budget and staff matters before these issues were discussed in the CA. Geneva Group members expressed satisfaction with the very clearly presented budget, which was broken down by objectives, and with the responsiveness of UPU staff to GG concerns. While GG members were also appreciative of the ZNG budget presented, they indicated they were aware that maintaining ZNG will become increasingly difficult and that priorities must be set.

The UPU staff had presented to the CA a proposal that it recommend approval by the UPU Congress of UPU accession to the 1986 "Vienna Convention on the Law of Treaties between States and International Organizations or between International Organizations." In 2001, the CA agreed to postpone action in order to allow member countries to consult their ministries of foreign affairs on the issue. However, in the 2002 meeting, UPU reported that no comments had been received. Therefore, the CA decided to recommend to the 2004 Congress accession to the convention.

A UPU working party met on November 6 to discuss revision of the customs declaration forms used by the post, in particular the forms CN 22 and CN 23. The World Customs Organization had proposed certain changes in the forms. While the UPU POC in April 2002 had agreed that changes should be made, it felt the proposals from the WCO would cause serious problems for postal customers, who would be unable to supply the requested information.

Between April and the CA meeting in November, there had been several rounds of negotiation, and the working party on November 6 attempted to finalize a UPU position on the forms. The chairman of the working party reported that new discussions would now be held with WCO, and he felt that any problems could be resolved over the coming weeks. If the governing bodies of the WCO and UPU could reach agreement on the revised forms in March and April 2003, the new forms could be put in use by January 2004.

DG Leavey is in his second five-year term and cannot succeed himself. He is currently the only American elected head of a UN system agency. The 2004 Congress will select a successor, and the CA meeting provided the opportunity for some early lobbying. (Given the decision henceforth to hold Congresses every four years, the new DG will have only a four-year term, renewable once.)

At the moment, the only announced candidate is Edouard Dayan, Director of European and International Affairs of La Poste, of France. During the CA session, the French ambassador to Switzerland hosted a large reception for all participants in the meeting and took the opportunity to praise Dayan. It is expected that Carlos Silva, of Portugual, chairman of the UPU Postal Operations Council, will also introduce his candidacy. Further, it is rumored that Guozhong Huang, of China, chairman of the CA, may run for the post of Deputy DG, which will also be filled by the next Congress. Other candidacies are expected. The deadline for applications is two months prior to the next UPU Congress. (The United States is not likely to take a public position on the election, at least until very close to the actual event.)

• The Postal Operations Council will meet in Bern from March 31 to April 11, 2003.

• The next meeting of the Council of Administration will be held on October 13-24, 2003.

• The private-sector Advisory Group will meet in April (probably in the week of April 7) and October 2003, adjacent to the POC and CA meetings.

• The CA Committee 1 project teams dealing with further reform will meet twice a year, also on a timetable coinciding with the POC and CA meetings.

• The 2004 Congress will be held at a site and time to be determined.

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