Affordable package delivery service is critical to the manufacturing industry. In the United States, manufacturers rely on a handful of key players—including the U.S. Postal Service—that compete against each other to provide fair domestic rates for bringing a package from the warehouse to a customer’s front door.
The Postal Service, however, gives some shippers located outside of the United States a far better deal. Those shippers can take advantage of an almost unbelievable subsidy for package delivery due to the bizarre application of an international agreement that sets global rules for exchanging mail. The end result is that international shippers get much lower rates than what a domestic shipper would pay for the same service.
The impact of this subsidy used to be minimal, but with the growth of e-commerce, it is becoming a much bigger problem: inbound packets are increasingly displacing U.S. products in the market while enabling counterfeit goods and dangerous drugs to flood into the country.
The international agreement at issue here is administered by the Universal Postal Union (UPU), an international agency established in 1875 that has long set global postal rules behind closed doors. The agreement—formalized in the 1960s—still treats China and other countries as far less developed than they actually are; that allows them to benefit from especially low rates, which is effectively a subsidy. As a result, USPS provides postal operators from China and other countries with below-market and sometimes below-cost rates for delivering inbound letter post items.
The agreement initially intended for these rates to only cover items that we usually think of as “mail,” or letters and flats, but the category includes items up to 4.4lbs. Over the past several years, this 4.4lbs limit has opened the door for small items to enter into the country from places like China at extremely low prices. This result is hardly surprising, because under the agreement, it is cheaper to ship a small packet via airmail from China than it is to send that same item across the street here in the United States. That system is unsustainable, and it places a tremendous cost on the Postal Service. It lost $170 million last year because of this subsidy, and that loss is growing at a roughly 40 percent rate annually with much of the growth made up of volume from China.
Manufacturers scored a major victory in August, when President Donald Trump issued a Presidential Memorandum (PM) laying out clear objectives for ending this unfair subsidy at a September meeting of the UPU in Addis Ababa, Ethiopia. The PM calls on the State Department negotiators to issue a report to the president on the outcome of those admittedly long-shot efforts in Addis by no later than November 1. After the president receives the report, he will then consider options for reform, including simply adopting a system of “self-declared rates” that reflect cost and are available on a nondiscriminatory basis. But the outcome of the Addis Ababa meeting makes such a report unnecessary, because, just like almost everyone expected, there essentially was no outcome at all.
The State Department negotiators took home a vague and weak promise from the UPU delegates to consider the terminal dues problem several years down the road, with any “fix” not going into effect until the mid-2020s.
So what comes next?
For the most part, the answer to that question comes down to what the president and his advisers choose to do in response to the outcome of the Addis Ababa meeting. Staying the course and hoping for a vague diplomatic fix down the road is clearly not a realistic option. Some might suggest withdrawal, but that option is neither needed nor constructive, as other parts of the UPU, particularly its valuable framework for exchanging mail, provide benefits for U.S. residents.
There should be no need to tear up the entire agreement simply to fix a problem that only involves the limited number of countries that send a meaningful amount of packages to the United States. Rather, manufacturers see the most constructive path as self-declaring the appropriate rates for inbound packages and showing the UPU that the United States is serious about real and immediate reform.
We are extremely encouraged by the work that the administration has done to date on this issue. Although it will take time to work out the details and implement a fix, this problem really is eminently fixable under current U.S. law. Manufacturers look forward to working with the White House, the State Department and the other players involved to find a path forward that closes the door to abusive practices and unfair competition.
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