Public Briefing of December 18, 2003, on UPU Issues

December 18, 2003

A public briefing on current Universal Postal Union (UPU) issues was held at the Department of State on December 18, 2003. The meeting was chaired by Terry Miller, Deputy Assistant Secretary of State for International Organization Affairs. Don Booth, Director of the Office of Technical and Specialized Agencies in the Bureau of International Organization Affairs, led the briefing.

The primary purpose of the meeting was to provide a briefing on the results of the October 2003 session of the Council of Administration and concurrent Postal Operations Council; Advisory Group issues and proposals to create UPU Consultative Committee; publication of a study on remail provisions in the UPU Convention (Article 43); customs issues; major issues to be taken up at the February 2004 Council of Administration and Postal Operations Council; and U.S. preparations for the Bucharest UPU Congress. Representatives of the private sector and U.S. government agencies participated in the briefing.

Results of October 2003 Council of Administration and Postal Operations Council meetings

Don Booth summarized developments at the annual session of the UPU Council of Administration and the Postal Operations Council meetings in Bern, Switzerland in October 2003. Results of special note were decisions regarding extra-territorial offices of exchange (ETOEs) and terminal dues proposals for the Bucharest Congress.

Booth provided an overview of the growth and the practical impact of ETOEs sending dispatches inbound to the U.S. and outbound from the U.S., with accompanying slides. ETOEs, the number of which has grown dramatically worldwide in recent years, are offices of exchange operated by postal administrations in the territory of another country. Often ETOEs are established by postal administrations of industrialized countries in or in cooperation with developing countries to take advantage of the UPU's lower terminal dues letter rates for developing countries. In these cases, the mail looks as though it had originated in a developing country when it had actually been generated in an industrialized country. Of major concern is the ability to capture appropriate domestic postage or the appropriate level of terminal dues for inbound ETOE items in the destination country.

Current United States policy states that items sent from ETOEs to the United States should be considered as commercial mail - not universal postal service mail - and should therefore be charged at domestic U.S. postage rates. Also, ETOE items sent from the United States should be charged either at domestic postage rates in the destination country, or at industrialized country terminal dues rates - but not at the lower developing country terminal dues rates. The October 2003 CA had adopted a resolution put forward by Japan which would require ETOE operators to obtain the permission of the appropriate governmental authorities in the country where the ETOE is to be located before starting operations. The U.S. looked forward to resolution of the problem of ETOEs either during the February 2004 CA or the 2004 UPU Congress in Bucharest. The U.S. Postal Service does not currently operate ETOEs and has no plans to do so.

In October in Bern, the POC's Terminal Dues Action Group (TDAG) agreed that a serious attempt should be made to arrive at a single proposal from the eight separate terminal dues proposals that had been submitted to the Group. To carry out this work, TDAG formed a "Convergence Group" of selected postal administrations whose task would be to select elements from the eight proposals and draft a single "convergence proposal" which would achieve consensus among UPU members. By November, the Convergence Group had merged elements from three concept proposals into a single "convergence" proposal, which was to be presented at the World Terminal Dues Round Table in Bern in February 2004 for discussion. The intent of the convergence proposal would be to gain as much consensus as possible on the proposals on terminal dues to be submitted to the September 2004 UPU Congress in Bucharest. In February 2004, the Terminal Dues Action Group, followed by the POC and the CA, would then endorse or amend the proposal.

The main features of the convergence proposal were as follows:

  • Terminal dues for mail dispatched by ICs, which is based on a percentage of domestic postage rates and expressed in a per item/per kilogram charge, would be termed the "target system". The assumption is that all UPU member countries would transition to this target system at a specific date in the future.
  • The current percentage of domestic rates applied for terminal dues paid by ICs is 60%. Under the convergence proposal, this percentage rate would increase by 2% per year to 68% by 2009, the last year of entry into force of the Acts of the Bucharest Congress.
  • The cap would increase by 13% between 2006 and 2009.
  • The floor would increase by 9% between 2006 and 2009.
  • Terminal dues for mail dispatched by DCs would continue to be a flat rate per kilogram. The rate would increase 9% to 3.727 SDR per kilogram. For inter-administration mail flows where DCs dispatch over 100 tons annually, a per item/per kilogram charge would apply.
  • The Quality of Service Fund would be maintained. The rates paid by ICs to the Fund, however, would increase from 7.5% to 9% of their terminal dues payments to DCs. This increase of 1.5% would be transferred from the DCs to the Least Developed Countries (LDCs)

A participant asked whether domestic postage rates on which IC terminal dues are calculated are based on actual costs. A U.S. Postal Service representative responded that IC postage rates are not necessarily based strictly on costs. In some countries, the postal administration may set postage rates that include a profit margin while others, such as the U.S. Postal Service, are not legally permitted to make a profit.

The central anomaly of the current terminal dues system is that high-income countries, such as Singapore - which the UNDP has until recently classified as "developing countries" - pay the lower developing countries terminal dues rates for the letters they export abroad. According to the U.S. view, the long-term goal of the UPU should be to move all UPU member countries into the target system so that terminal dues payments are based as closely as possible on costs. This ideally would eliminate arbitrage and other abuses of the inherent anomalies of the current two-tier terminal dues system under which ICs pay much higher rates than DCs for light-weight letters, but pay less than one half the rates paid by DCs for heavy-weight items.

Deputy Assistant Secretary Terry Miller described a serious policy problem that the U.S. Government had encountered with the current structure of the portion of the terminal dues convergence proposal that concerns the Quality of Service Fund. Under the proposal, terminal dues payments would be pooled, and then redistributed to LDCs. Under such a setup, the stated purpose of terminal dues - financial compensation received by the destination postal administration for the costs it incurs to deliver inbound international mail - would become skewed; the direct link between the origin and destination administrations for the costs incurred and the payments made to pay for the costs would be lost. The Quality of Service Fund portion of the convergence proposal, in its current form, appears very much like a mandatory international tax applied by a U.N. organization, which the U.S. Government categorically opposes. It was thought, however, that a formula for the Quality of Service Fund terminal dues payments could be found that would maintain both the Fund and the principle of terminal dues payments calculated on the basis of the traffic directly exchanged between postal administrations, thereby eliminating the "pooling" of monies within the Quality of Service Fund.

Mike Regan of the U.S Postal Service noted that industrialized countries want terminal dues payments to be invested in the postal infrastructure of developing countries via the UPU's Quality of Service Fund. In reality, the governments of developing countries often do not use terminal dues payments to pay for operating or investing in the postal administration whose responsibility is to deliver inbound international mail. Regan further commented that it would be constructive to ensure that terminal dues monies that developing countries receive are used on postal infrastructure and that measurable results are achieved. Since the Beijing Congress, the UPU's Quality of Service Fund has been reasonably successful in ensuring accountability among developing countries through the control over the use of a certain (7.5%) percentage of terminal dues payments. A means to ensure developing countries' compliance is to require them to submit project proposals to the UPU and commit to producing measurable results.

Richard Miller of the International Mailers' Advisory Action Group noted that his organization could support an increase in the percentage of terminal dues payments transferred to the Quality of Service Fund because the projects approved through the Fund accrue directly to the increased quality of the postal infrastructure, thereby improving mail delivery. He did not want the U.S. to be seen as opposing the Quality of Service Fund per se. Charles Prescott of the Direct Marketing Association stressed that the DMA wanted increased oversight of the Fund and that if the convergence proposal improved such oversight, the DMA would support such an approach. Other participants, such as Tony Gallo of Postcom, also expressed support for the maintenance of the Quality of Service Fund.

Advisory Group issues and proposals to create UPU Consultative Committee

U.S. Government representatives and participants at the briefing expressed their satisfaction with the progress being made to transform the current Advisory Group into the permanent Consultative Committee through a Bucharest Congress decision to this effect.

Publication of study on remail provisions in the UPU Convention (Article 43)

Don Booth announced that the study of possible effects of eliminating the provisions of Article 43 of the UPU Convention had been published on the Department of State website at the following location: //

Under the provisions of Article 43, postal administrations are not bound to deliver letters or letter post items which senders residing in its territory mail, or cause to be mailed, in a foreign territory to take advantage of more favorable postal rates. This type of mail is known as ABA remail.

Comments on the findings of the study may be sent to the Department of State at the address indicated on the website.

Customs Issues

Customs issues at this briefing included the new customs declaration forms for use on international mail and the provisions of the Bio-Terrorism Act that impact international mail.

USPS representatives at the meeting reported that the new forms would become effective, and available in post offices in the U.S., in early 2004. Mailers attending the meetings expressed their concern about the greater complexity of the new customs declaration forms CN 22 and CN 23.

Allison Levy of U.S. Customs and Border Protection reported that on December 12, 2003, provisions of the Bioterrorism Act took effect that impact shipments of foodstuffs to the United States by public and private delivery providers. Under the Act, regulations of the Food and Drug Administration (FDA) require senders of food abroad to obtain a Prior Notification number for each shipment via the FDA's website.

The new FDA regulations are not intended to delay items upon arrival in the United States. A phase-in period is meant to allow sufficient time to educate senders abroad about the procedures they must follow to obtain Prior Notification and indicate the number on the customs declaration. Currently, items containing foodstuffs are not being held at U.S. gateways and ports, but are being forwarding to the addressee with a notice about the need for the sender abroad to communicate the prior notice number for such items. The participants at this meeting expressed serious concern about the manner in which these new regulations are being implemented as well as the burdens they have placed on senders of international mail to the U.S.

Major issues for the February 2004 meetings of the Council of Administration and Postal Operations Council

Don Booth briefly outlined the major issues to be discussed at these pre-Congress sessions of the POC and CA, which included the following:

  • Terminal dues, including Quality of Service Fund, classification of countries, and quality of service measurement
  • Practical preparations for Bucharest Congress, including invitations to be issued to observers
  • Proposals for Congress on ETOEs
  • Postal Development Action Group, Postal Security Action Group, Relations with the WTO Project Team and Standards Board: continuation of work after Bucharest
  • Inward land rates for parcels
  • Restructuring of the Telematics Cooperative
  • Review of draft Bucharest World Postal Strategy
  • Approval of revised provisions on participation of Consultative Committee members in UPU meetings

Traditionally, the CA and POC sessions during the year in which a UPU Congress is held, such as 2004, are held early in the year and focus on endorsing the work accomplished by the working groups, boards and project teams of these Councils during the previous five years. At the February 2004 POC and CA, terminal dues and ETOEs were expected to attract the most serious attention and discussion.

U.S. Preparations for the Bucharest UPU Conference

Don Booth reported that the U.S. Postal Service had already sent to the State Department 20 proposals for submission as U.S. proposals to the Bucharest UPU Congress. The deadline for submission of proposals to Congress by one member country is March 14, 2004. Proposals supported by at least three member countries may be submitted by May 14, and those supported by at least nine member countries may be submitted to the UPU by July 14.

Booth announced that the proposals submitted by the USPS would be posted on the State Department website in early January. All U.S. stakeholders were invited to submit proposals or comment on the proposals submitted by USPS.

For the Bucharest Congress, it is the intention of the U.S. delegation to draft a position paper on every proposal submitted to Congress, which will be a daunting task. To produce position papers on major proposals the State Department will conduct formal consultations with pertinent U.S. Government agencies.

Next State Department public briefing on UPU issues

The next State Department briefing on UPU issues is tentatively scheduled to be held in late May or early June 2004.