[Federal Register: July 18, 2008 (Volume 73, Number 139)]
[Rules and Regulations]
[Page 41265-41268]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18jy08-13]
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POSTAL REGULATORY COMMISSION
39 CFR Part 3020
[Docket No. CP2008-7; Order No. 84]
Administrative Practice and Procedure; Postal Service
AGENCY: Postal Regulatory Commission.
ACTION: Direct final rule.
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SUMMARY: The Commission is adding the Postal Service's negotiated
agreement with China Post Group to the competitive product list. This
action is consistent with changes in a recent law governing postal
operations. Re-publication of the lists of market dominant and
competitive products is also consistent with new requirements in the
law.
[[Page 41266]]
DATES: Effective July 18, 2008. Related Postal Service filings due July
23, 2008.
FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel,
202-789-6820 or stephen.sharfman@prc.gov.
SUPPLEMENTARY INFORMATION: On May 20, 2008, the Postal Service filed
notice, pursuant to 39 U.S.C. 3632(b)(3) and 39 CFR 3015.5, of the
Governors' decision establishing prices for competitive products not of
general applicability for Inbound Express Mail International (EMS).\1\
The Postal Service's filing, docketed as Docket No. CP2008-6, includes
supporting material, including the Governors' decision, filed under
seal. Concurrently, the Postal Service filed notice, pursuant to 39 CFR
3015.5, of a specific negotiated service agreement covering Inbound EMS
prices.\2\ This filing, docketed as Docket No. CP2008-7, includes the
contract and supporting materials filed under seal.
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\1\ Notice of United States Postal Service of Governors'
Decision on Inbound Prices Under Express Mail International (EMS)
Bilateral/Multilateral Agreements, May 20, 2008 (Notice).
\2\ Notice of United States Postal Service of Filing an
Agreement for Inbound Express Mail International (EMS) Prices, May
20, 2008 (Pricing Notice).
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On June 3, 2008, the Commission issued Order No. 79, which
determined that Docket No. CP2008-6 establishes, in essence, a shell
classification, while Docket No. CP2008-7 is a specific agreement
negotiated pursuant to the conditions of the shell classification.
Given this interrelationship, the Commission consolidated the
proceedings for purposes of review under Docket No. CP2008-7.\3\
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\3\ PRC Order No. 79, Notice and Order Concerning Prices Under
Express Mail International Bilateral/Multilateral Agreements, June
3, 2008 at 2 (Order No. 79).
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In Order No. 79, the Commission also reiterated its position that
each negotiated service agreement will initially be classified as a
separate product, while acknowledging the possibility of grouping
functionally equivalent agreements as a single product if they exhibit
similar cost and market characteristics. Id. at 2-3. This, in effect,
invoked the filing and review requirements of 39 CFR part 3020, subpart
B, along with the requirements of rule 3015.5 for competitive products.
On June 10, 2008, the Postal Service filed material responsive to
questions posed in Order No. 79, and material responsive to 39 CFR part
3020, subpart B.\4\ The material responsive to 39 CFR part 3020,
subpart B included a statement of supporting justification sponsored by
Pranab Shah. See Postal Service Response, Attachment A.
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\4\ United States Postal Service Response to Order No. 79 and
Notice of Filing Information Responsive to Part 3020 of the
Commission's Rules of Practice and Procedure, June 10, 2008 (Postal
Service Response).
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The Commission previously proposed, at a minimum, identifying each
international mail agreement with foreign posts involving competitive
products (both in the Mail Classification Schedule and in other
documents generated by the Commission) by the name(s) of the foreign
post(s), the mail product(s) involved, and the agreement's expiration
date. Order No. 79 at 3-4. In this instance, the Postal Service did not
object to this proposal. Postal Service Response at 3.
The Commission also noted that it has made no determination as to
whether the portions of the agreement in Docket No. CP2008-7 that
relate to outbound mail are subject to its review. Order No. 79 at 3.
The Postal Service reiterated its position that an ``outbound EMS
agreement with China Post Group would no more need to be classified as
a product or otherwise subjected to Commission review than would an
agreement to purchase trucking services from highway contractors or to
purchase air transportation from air carriers.'' Postal Service
Response at 3.
Order No. 79 also provided an opportunity for public comment on the
Postal Service's proposals. Comments were received from the Public
Representative (an employee of the Commission assigned to represent the
interests of the general public) and United Parcel Service.\5\ Neither
the Public Representative nor United Parcel Service expressed
opposition to the China Post Group agreement.
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\5\ Public Representative Comments in Response to United States
Postal Service Notice of Negotiated Service Agreement (NSA) for
Inbound Express Mail International (EMS) with China Post (Public
Representative Comments); Comments of United Parcel Service in
Response to Order Concerning Prices Under Express Mail International
Bilateral/Multilateral Agreements (UPS Comments); both filed June
16, 2008.
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The Public Representative concludes that the China Post Group
agreement ``complies with the legal requirements for cost coverage and
contribution to the Postal Service's institutional costs.'' Public
Representative Comments at 4. United Parcel Service supports the
Commission's conclusion that this initial agreement be treated as a new
product. UPS Comments at 2. It also suggests that because private
carriers face more onerous customs and brokerage requirements than the
Postal Service, the market for international package delivery and
expedited services is less competitive than is often assumed. Id. Both
the Public Representative and United Parcel Service discuss issues
encompassing the provision of materials under seal. Public
Representative Comments at 2-3; UPS Comments at 1.
Commission analysis. The statutory responsibility of the
Commission, in this instance, is to assign a new product to either the
market dominant list or the competitive product list. 39 U.S.C. 3642.
As part of this responsibility, the Commission also will preliminarily
review the proposal for compliance with the requirements of the Postal
Accountability and Enhancement Act (PAEA) of 2006. For proposed
competitive products, this includes review of the provisions applicable
to rates for competitive products. 39 U.S.C. 3633.
The Postal Service contends that adding the shell classification as
a product will improve the Postal Service's competitive posture. It
argues that this can be accomplished while allowing verification that
each agreement covers attributable costs, does not result in
subsidization of competitive products by market dominant products, and
increases contribution from competitive products. Alternatively, adding
the individual agreement as a product also will improve the competitive
posture of the Postal Service, but to a lesser degree. Postal Service
Response, Attachment A, at 2.
The Commission has reviewed the financial analysis provided under
seal that accompanies the agreement and finds that the China Post Group
agreement should cover its attributable costs (39 U.S.C. 3633(a)(2)),
should not lead to the subsidization of competitive products by market
dominant products (39 U.S.C. 3633(a)(1)), and should have a positive
effect on the collective competitive products ability to provide their
appropriate share of institutional costs (39 U.S.C. 3633(a)(3)).\6\
Thus, a preliminary review of the agreement indicates that it comports
with the
[[Page 41267]]
provisions applicable to rates for competitive products. In determining
whether to assign the China Post Group agreement as a product to the
market dominant product list or the competitive product list the
Commission must consider whether:
\6\ The Commission notes that the Postal Service derived
inflation adjustment factors from two point estimates for a 21-month
period, September 2007 to May 2009, rather than June 2008 to May
2009, which coincides with the duration of the bilateral agreement.
The Commission also notes that the estimate of the total unit cost
of inbound Express Mail from China Post Group is based upon an
estimate of the unit cost of domestic mail processing that
represents an average of the domestic mail processing cost of
inbound Express Mail from all countries rather than the average unit
domestic mail processing cost for transition system countries. These
observations did not have a significant impact on the overall
analysis; however, the rationale for a 21-month period and the use
of an average should be explained when filing future similar
agreements.
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* * * the Postal Service exercises sufficient market power that it
can effectively set the price of such product substantially above
costs, raise prices significantly, decrease quality, or decrease
output, without risk of losing a significant level of business to
other firms offering similar products.
39 U.S.C. 3642(b)(1). If this is the case, the product will be
categorized as market dominant. The competitive category of products
shall consist of all other products.
The Commission is further required to consider the availability and
nature of enterprises in the private sector engaged in the delivery of
the product, the views of those that use the product, and the likely
impact on small business concerns. 39 U.S.C. 3642(b)(3).
The Postal Service asserts that its bargaining position is
constrained by the existence of other shippers who can provide similar
services. Thus, the market precludes the Postal Service from taking
unilateral action to increase prices or decrease service without the
risk of losing volume to private companies in the international
shipping industry. Postal Service Response, Attachment A, at 2-3. The
Postal Service contends that private consolidators and freight
forwarders may offer international arrangements under similar
conditions. Id. at 3. The Postal Service has no specific data on the
views of those that use the products on the regulatory classification.
Id. at 4. Finally, the Postal Service states that large shippers serve
the market under consideration, and that there should be little impact
upon small business other than adding an additional option for shipping
articles to the United States. Id.
The Commission previously assigned Inbound International Expedited
Services to the competitive product list.\7\ The Postal Service
contends that the China Post Group agreement falls within the Inbound
International Expedited Services heading. The Commission has not
received public opposition to the proposed regulatory classification
during the comment period. Having considered the statutory
requirements, the argument put forth by the Postal Service, and the
public comment, the Commission finds that the China Post Group
agreement is appropriately categorized as a competitive product and
should be added to the competitive product list. The revisions to the
competitive product list are shown below the signature of this order,
and shall become effective upon publication in the Federal Register.
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\7\ PRC Order No. 43, Order Establishing Ratemaking Regulations
for Market Dominant and Competitive Products, October 29, 2008,
para. 3019.
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Mail Classification Schedule. The Postal Service previously
proposed applicable draft Mail Classification Schedule language
governing Inbound Express Mail International Services (EMS).\8\
Attachment A to the Governors' decision filed in Docket No. CP2008-6
repeats this language. These proposals suggest assigning the China Post
Group agreement to the Express Mail, Inbound Express Mail International
category. In Docket Nos. CP2008-4, CP2008-5, CP2008-8, CP2008-9, and
CP2008-10, the Postal Service's draft Mail Classification Schedule
language proposes to assign the associated agreements to the Negotiated
Service Agreements, Outbound International category. The intent of the
overall Negotiated Service Agreements category is to organize all
negotiated agreements. Thus, the categorization in the instant docket
does not appear to be consistent with the other proposals. The
Commission invites the Postal Service to share its thoughts and
concerns on development of a consistent approach to organizing
competitive product negotiated agreements within the Mail
Classification Schedule.
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\8\ See United States Postal Service Submission of Additional
Mail Classification Schedule Information in Response to Order No.
43, November 20, 2007.
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The Postal Service's proposed Mail Classification Schedule language
indicates that other negotiated agreements may exist within Inbound
Express Mail International: Bilateral Express Mail Service (EMS); EMS
Cooperative Pay for Performance; Kahala Posts Group; European Parcel
Group; and China Post Group. The Commission does not have specific
information on the negotiated agreements for these products. The Postal
Service shall provide the Commission with a list of ongoing agreement
names, and expiration dates separated by product, along with a copy of
each agreement.\9\ Providing this information will aid the Commission
in understanding the Postal Service's product offerings, and enhance
the transparency of the Postal Service to the mailing community.
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\9\ See 39 U.S.C. 407(d)(2). Agreements that fall outside of the
defined product models also are to be provided.
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Updating the Mail Classification Schedule. The China Post Group
agreement contains provisions for early termination and automatic
renewal of the agreement. The Postal Service shall notify the
Commission of an early termination no later than the date of
termination. The Commission then will remove the agreement from the
Mail Classification Schedule at the earliest possible opportunity. The
Postal Service also shall notify the Commission of an automatic renewal
of the agreement 15 days prior its occurrence. Otherwise, the
Commission will assume that the contract has lapsed and remove the
agreement from the Mail Classification Schedule without notice.
Additional agreements. As of now, the China Post Group agreement
represented by Inbound International Expedited Services 1 (CP2008-7) in
the competitive product list may be considered the same entity. In the
future, the Postal Service may enter into other agreements
substantially similar to the China Post Group agreement. When this
occurs, Inbound International Expedited Services 1 (CP2008-7) will be
considered the product and the included individual agreements will be
treated as price categories under the product.\10\
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\10\ This may require future modification of the China Post
Group descriptive language.
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If the Postal Service determines that it has entered into an
agreement substantially equivalent to the China Post Group agreement
with another country, it may file such an agreement using the
abbreviated requirements provided by rule 3015.5. In each case, the
individual agreement must be filed with the Commission, and each
agreement must meet the requirements of 39 U.S.C. 3633. The Postal
Service shall identify all significant differences between the new
agreement and the pre-existing product group. Such differences would
include terms and conditions that impose new obligations or new
requirements on any party to the agreement. The Commission will verify
whether or not the second agreement is in fact substantially
equivalent. Agreements that are not substantially equivalent will
continue to have to meet the filing requirements provided by 39 CFR
part 3020, subpart B. If this approach proves too cumbersome,
alternative approaches may be considered.
Confidentiality of information. The Commission is aware that the
treatment of information as confidential is a sensitive issue. The
Postal Service, the Public Representative, and United Parcel Service
all express valid concerns
[[Page 41268]]
that the Commission will address in the future on a broader level.
In this docket, the Commission will take a limited first step to
add transparency and facilitate the process of reviewing future
agreements of this style. The Commission has reviewed the Governor's
decision supporting the request provided as required by rule
3020.31(b), and has determined that most of the document does not pose
a risk of competitive harm if disclosed. In fact, the Postal Service
disclosed similar information associated with Docket Nos. CP2008-8,
CP2008-9, and CP2008-10. The Postal Service is directed to file a
redacted version of the Governor's decision provided under seal in
Docket No. CP2008-6.\11\
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\11\ The redacted version should be filed under Docket No.
MC2008-7. The Commission anticipates the redacted version will be
similar in nature to what the Postal Service provided associated
with Docket Nos. CP2008-8, CP2008-9, and CP2008-10 on June 16, 2008.
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It is Ordered:
1. The China Post Group agreement is added as a product not of
general applicability to the competitive product list under Inbound
International Expedited Services as Inbound International Expedited
Services 1 (CP2008-7).
2. The Postal Service shall provide the Commission with suggestions
regarding the development of a consistent approach to organizing
competitive product negotiated agreements within the Mail
Classification Schedule by July 23, 2008.
3. The Postal Service shall file with the Commission a list of all
ongoing Inbound International Expedited Services agreements and
expiration dates separated by product, along with a copy of each
agreement, by July 23, 2008.
4. The Postal Service shall file with the Commission a redacted
version of the Governors' decision provided under seal in Docket No.
CP2008-6 by July 23, 2008.
5. The Secretary shall arrange for publication of this order in the
Federal Register.
By the Commission.
Issued: June 27, 2008.
Steven W. Williams,
Secretary.
List of Subjects in 39 CFR Part 3020
Administrative practice and procedure; Postal Service.
0
For the reasons stated in the preamble, under the authority at 39
U.S.C. 503, the Postal Regulatory Commission amends 39 CFR part 3020 as
follows:
0
1. The authority citation for part 3020 continues to read as follows:
Authority: 39 U.S.C. 503; 3622; 3631; 3642; 3682.
0
2. In Appendix A to Subpart A of Part 3020 revise sections 1000 and
2000 to read as follows:
Appendix A to Subpart A of Part 3020--Mail Classification Schedule
Part A--Market Dominant Products
1000 Market Dominant Product List
First-Class Mail
Single-piece Letters/Postcards
Bulk Letters/Postcards
Flats
Parcels
Outbound Single-Piece First-Class Mail International
Inbound Single-Piece First-Class Mail International
Standard Mail (Regular and Nonprofit)
High Density and Saturation Letters
High Density and Saturation Flats/Parcels
Carrier Route
Letters
Flats
Not Flat-Machinables (NFMs)/Parcels
Periodicals
Within County Periodicals
Outside County Periodicals
Package Services
Single-Piece Parcel Post
Inbound Surface Parcel Post (at UPU rates)
Bound Printed Matter Flats
Bound Printed Matter Parcels
Media Mail/Library Mail
Special Services
Ancillary Services
International Ancillary Services
Address List Services
Caller Service
Change-of-Address Credit Card Authentication
Confirm
International Reply Coupon Service
International Business Reply Mail Service
Money Orders
Post Office Box Service
Premium Forwarding Service (Experiment)
Negotiated Service Agreements
Discover Financial Services Negotiated Service Agreement
Bank One Negotiated Service Agreement
HSBC North America Holdings Inc. Negotiated Service Agreement
Bookspan Negotiated Service Agreement
1001 Market Dominant Product Descriptions
* * * * *
Part B--Competitive Products
2000 Competitive Product List
Express Mail
Express Mail
Outbound International Expedited Services
Inbound International Expedited Services
Inbound International Expedited Services 1 (CP2008-7)
Priority Mail
Priority Mail
Outbound Priority Mail International
Inbound Air Parcel Post
Parcel Select
Parcel Return Service
International
International Priority Airlift (IPA)
International Surface Airlift (ISAL)
International Direct Sacks--M-Bags
Global Customized Shipping Services
Inbound Surface Parcel Post (at non-UPU rates)
International Money Transfer Service
International Ancillary Services
Negotiated Service Agreements
Domestic
Outbound International
* * * * *
[FR Doc. E8-16031 Filed 7-17-08; 8:45 am]
BILLING CODE 7710-FW-P