Government affairs

On June 16, the House Committee on Oversight and Government Reform Subcommittee on Government Operations held a hearing titled “Fair Competition in International Shipping.”

Subcommittee Chairman Mark Meadows (R-NC) organized the hearing to examine the Universal Postal Union’s (UPU) terminal dues rate-setting structure and process, to understand the inequities that result from the current system, and to explore possible opportunities for reform. Congress has not held a hearing on this issue since 2006.

The UPU’s role is to coordinate international postal policies and procedures in an effort to guarantee mail service around the world. The UPU sets terminal dues rates, fees that postal operators pay each other for domestic delivery of inbound international mail, based off of agreements negotiated at the UPU Congress. However, the terminal dues system has failed to achieve its goal of a system where the fees charged are roughly equal to the cost of delivery.

As a result, a Postal Regulatory Commission study found market distortions that are produced by the current terminal dues structure. For example: In some cases, it is cheaper to ship packages from Shanghai to North Carolina than from Virginia to North Carolina.

Subcommittee Ranking Member Gerry Connolly (D-VA) drew attention to the testimony of USPS Inspector General David Williams, who said that the Postal Service loses money when it is shipping products from foreign vendors in countries with a low terminal dues rate—in particular, China.

During the hearing, it was discussed that packages weighing less than 4 lbs., shipped from China to the United States, increased by more than 182 percent between 2011 and 2012, according to Postal Vision 2020, and that foreign postal services are profiting while USPS loses money, placing American small businesses at a severe product-shipping disadvantage in an already competitive marketplace.

“The bottom line is that we are here this afternoon to ensure that there is a fair and equitable global marketplace,” Connolly said, “and that American businesses have a fair opportunity to compete on a level playing field in the digital age.”

Besides Williams, witnesses at the hearing were Postal Regulatory Commission Chairman Robert Taub, Department of State Deputy Assistant Secretary of the Bureau of International Organization Affairs Robert Faucher, USPS Chief Information Officer and Executive Vice President Randy Miskanic, FedEx Express Managing Director of Regulatory Affairs Nancy Sparks, and Amazon Vice President for Global Public Policy Paul Misener.

In his testimony, Taub said that terminal dues rates are not cost based. At a House hearing in 2000, he said, the goal was to move to a cost-based structure for terminal dues rates by 2005, but that this still has not happened.

Agreements are voted on at the UPU Congress, where each country’s postal service, including USPS, has one vote. Terminal dues rates are exclusive to such postal services and do not apply to private companies, which struggle to compete with foreign carriers that have access to then.

Sparks testified that this is unfair to private companies that go to UPU but are not fully represented—this despite the fact that USPS, FedEx and UPS ship the highest volume of packages internationally. Faucher replied that the State Department’s delegation has included private-sector advisors.

Faucher also said that the State Department seeks formal advice from the Postal Regulatory Commission and USPS, each acting as co-leads in determining what to propose to the UPU Congress. However, the State Department maintains final authority on determining the U.S.’s position, since it’s a foreign policy issue. Faucher said that the State Department is looking to refine the pricing model to advance the goal of achieving terminal dues rates that more closely reflect costs to providers of postal services.

The next opportunity for the terminal dues rates structure to be changed is the 2016 UPU Congress in Istanbul. Faucher will be the chief diplomat representing the United States during these negotiations.

In the meantime, Rep. Meadows is exploring the possibility of introducting a bill that looks to end conflicts of interest by not having USPS reimburse the State Department for the negotiations at the next UPU Congress—looking instead at appropriating such funds from a separate source.

Meadows said that he plans to hold a hearing after the UPU Congress to track the progress of moving to a fairer, market-oriented and cost-based terminal dues rates structure.