U.S. Department of State

Released by the Bureau of International Organization Affairs
June 25, 2002

A public briefing for organizations and individuals interested in issues relating to the Universal Postal Union was convened in Room 1406 of the Department of State at 2 p.m. on Thursday, June 13, 2002. Ambassador E. Michael Southwick, Deputy Assistant Secretary of State for International Organization Affairs, chaired the meeting. Neil A. Boyer, Deputy Director of the Office of Technical and Specialized Agencies in the Bureau of International Organization affairs, assisted.

The purpose of the session was to provide a briefing on the status of reform initiatives in the UPU, including the commencement of private-sector participation in UPU Council meetings and the development of terminal dues rates for 2004 and 2005. Further topics included the present circumstances of extraterritorial offices of exchange (ETOEs), and the pending completion of a study of remail provisions in Article 43 of the UPU Convention. Developments in customs-postal issues and international postal security concluded the briefing's agenda. Representatives of the private sector and U.S. Government agencies participated in the briefing. Attached to this report are the agenda, a list of those present at the meeting, and a list of the documents provided to the participants.

Citing the changing postal sector needs and the corresponding need to restructure UPU, Ambassador Southwick provided a brief history of recent UPU reforms, including those initiated at the 1999 UPU Congress in Beijing. Though the work of the High Level Reform Group had not produced radical changes, he said, it had initiated substantial, meaningful reforms regarding private sector participation in UPU. The Council of Administration (CA) had endorsed a recommendation for creation of a new private-sector "Consultative Committee," and this would be submitted to the UPU Congress in 2004 for approval. In the meantime, the CA had agreed that UPU meetings would be open to representatives of the existing private-sector Advisory Group (AG). The recent April 8-19 meeting of the UPU Postal Operations Council (POC) had been the first opportunity for members of the AG to participate.

Boyer explained that AG members had been informed in advance that they were welcome to attend meetings of the POC plenary and its main committees. He was pleased that the chairman of the POC had gone farther and encouraged chairmen of working groups and project teams to allow AG members to attend their sessions as well. In fact, the chairmen of 18 of these groups had agreed to permit AG participation.

Unfortunately, Boyer said, there was low private-sector attendance at these meetings. Two members of the AG had attended working group meetings, and only two had attended the plenary discussions. Boyer said that several AG members had indicated that late notification of invitation and a heavy schedule of concurrent UPU meetings had contributed to the limited AG participation in the April sessions. Nevertheless, there was still a need to remind private-sector agencies of the opportunity that had been created for them to attend previously closed UPU governing body meetings, and to encourage them to participate in future sessions. Boyer said the question of whether private-sector representatives would be permitted to speak had been resolved in a de facto manner since the two representatives in the plenary had been called upon and had spoken, thus creating a precedent that should be carried over to future meetings, including the Council of Administration session in October 2002.

Lea Emerson of the U.S. Postal Service reported on a round of meetings on terminal dues from January to April 2002. These sessions had dealt with the request of the 1999 UPU Congress that the POC determine 2004 and 2005 terminal dues rates for industrialized countries. Terminal dues are the amount that one country pays another country for delivering the mail. It had been the clear intention of the Congress that the POC would determine the rates and quality of service link for 2004 and 2005. However, the UPU Terminal Dues Action Group (TDAG) had been unable to agree on any increase, and the POC, through long debate and numerous votes, had decided to maintain terminal dues for industrialized countries in 2004 and 2005 at the 2003 levels. Details on the options that had been presented to the TDAG, and on the U.S. position on this issue, are available in documents on the Department of State website, as is a report on the conclusions of the POC session.

Emerson said that, despite the decision not to approve an increase in terminal dues, TDAG and the POC, also as requested by the 1999 UPU Congress, would work toward a new system of terminal dues to take effect in 2006. The intention would be that a new approach would end the current two-tier system -- one rate for industrialized countries and another for developing countries -- and create one rate for each destination country. However, Emerson noted, gaining approval of such a system in the POC and in the 2004 UPU Congress would require the support of many of the developing countries. This posed a significant challenge, since not one developing country had supported a terminal dues increase at the recent POC meeting. Emerson noted that 24 of the 40 members of the POC are from developing countries, and 21 votes are needed to approve a new terminal dues system. Gaining DC support would be a major objective of the negotiations in the next two years.

Although the POC did not approve an increase in the base terminal dues rates, Emerson said, it had agreed to apply a quality of service link to terminal dues beginning in 2005. Under this provision, a destination country may receive a 2.5% increase in its terminal dues rates as an incentive for participating in this system, and it could gain an additional 2.5% in terminal dues if its established quality target had been met. In contrast, there could be a reduction of as much as 5% in a country's terminal dues if the target was not met. The quality target would be delivery of 85 per cent of letters within one or two days of arrival in the destination country, depending on each country's domestic standards. Each country would set its own quality standards. Emerson was asked if it were possible for the USPS to provide a projection of the impact on international postage rates that could flow from this quality of service link in 2005, and she said yes but on the condition that 2001 domestic rates could be used as the basis.

Emerson was also asked why developing countries (DCs) were voting against the rate changes for industrialized countries (ICs), since the increase being considered by the POC would not have affected them. Emerson said that developing countries feared that an increase in 2004 for industrialized countries would automatically be rolled into the single rate being developed for all countries for 2006, and it would be too much for them to afford. It was therefore important, Emerson said, to explain to DCs why a one-rate system was better for global postal operations than a two-tiered system. It was also important, she said, that a gradual, not radical, transition plan be developed so that the increases for DCs would not be too abrupt. Michael Regan of USPS suggested that once developing countries had become accustomed to the two-tier system, it would be hard to get their support for one that would require them to pay higher terminal dues. They felt they needed funds to improve their own postal operations, not to transfer money to others.

Boyer commented that a serious concern among some DCs is that the new Quality of Service Fund is not providing benefits where they belong. The poorest of the DCs, those most in need of improving their postal operations, will receive the smallest amount of money from the Fund because the distributions are based upon the terminal dues owed to these countries by ICs. Those needing the money the most to improve their mail service do not receive mail in any significant volume because service is poor, and service is poor because there is insufficient incoming mail to generate money from the Fund. Thus, a cyclical problem exists. Emerson commented that some of the larger DCs that receive substantial mail from ICs, such as Brazil, have indicated willingness to share resources from the new Fund in regional postal development projects.

Emerson also gave a report on the issues regarding the growing number of ETOEs, exchange offices established in one country by the postal administration of another country. One concern relates to postal administrations that try to cash in on the arbitrage gap between ICs and DCs by applying UPU's lower DC terminal dues rates to mail that actually comes from an IC. Other concerns include the relationship of terminal dues to domestic postage; the various levels of commercialization, quality, and speed within postal markets; and the strategies of foreign market acquisitions. In regard to industrialized countries, Emerson said that though terminal dues rates are the same between the countries and the arbitrage gap does not exist, ICs setting up ETOEs in other ICs also create problems because such ETOEs do not fulfill UPU universal service obligations. Therefore, some believe these ETOEs should be treated in the same manner as any other private commercial company that does not have access to UPU terminal dues but utilizes only domestic rates. Further discussion of these points is available on the Department of State website in a report on the recent POC meetings.

Emerson said that many parts of UPU are concerned about this issue. Under the Council of Administration, Brazil is leading a study, expected to be complete in October 2003, on the regulatory and legal perspective on ETOEs. Under the POC, there is a study on marketing and operational aspects. TDAG is considering the challenges in identifying the correct sending country for accounting of terminal dues, and there is consideration of how to account for undeliverable ETOE pieces returned to host countries that had not received any postage. Part of Brazil's study would address the question of whether ETOEs were covered by the UPU Acts. One member country had raised the possibility that an ETOE's attempt to use lower UPU terminal dues rates could be considered fraud and should be investigated by UPU's Postal Security Action Group.

Questions brought up several issues for clarification or further explanation. Emerson said that USPS considered ETOEs to be commercial entities and had made clear that any items that an ETOE attempted to introduce into the U.S. mailstream would be charged U.S. domestic rates. Australia, Canada and Japan had announced the same policy. Michael Regan of USPS said that even though the major profit in mail is with packages, it is notable that European postal administrations are using ETOEs for letter service. He said their rationale appears to be that, though the letter traffic market may appear to be shrinking due to advances in technology (such as email and facsimiles), the total letter market is expected to grow in Europe as the monopolies shrink with further liberalization in the European Union, and these administrations want to get more business. Boyer said that a UPU official had commented that the issue of ETOEs was not going away.

Regan recalled that, prior to the 1999 UPU Congress, private couriers had recommended that the United States press for elimination of Article 43 of the UPU Convention. That article said that postal administrations were not bound to deliver or forward letter-post items found to have been sent by a mailer in one country to a recipient in the same country but channeled through a foreign country with the objective of obtaining UPU's lower terminal dues rates. Regan said that couriers argued that the provision was anticompetitive, a mechanism for market allocation that allowed the post to hold traffic. He said USPS opposed elimination of the article, fearing such a step would increase remail activity and have a negative impact on USPS domestic revenues.

Because of these concerns, Regan said, USPS had argued that the potential impact of elimination of Article 43 should be studied before a proposal to eliminate it was put forward. Following the Beijing Congress, USPS, the Postal Rate Commission, and the Department of State considered competitive bids and awarded a contract to Battelle Memorial Institute to study the impact of possible changes in Article 43. Now he could report that the study, based on interviews with U.S. mailers, had been submitted and that the three USG agencies concerned would review it by the end of June and decide whether to accept it and what distribution of the document should be made. He said discussions would eventually include how this report ought to affect U.S. policy on Article 43, ETOEs, and terminal dues.

Boyer opened discussion explaining that the POC in April had considered a proposal from the World Customs Organization (WCO) to the UPU for revision of the standard CN 22 and CN 23 customs declaration forms. Disagreement about the form from UPU member states had produced as much active debate as had the terminal dues and ETOE issues.

Allison Levy of USPS said that a review of the proposed changes to these forms had raised a number of concerns for the USPS and other postal administrations. First, the size of the proposed CN 22 was larger than the minimum standard letter size. This created an administrative problem in that the form, wrapped around a letter, would probably jam postal sorting equipment and/or damage the letter. Second, the extent of the data requirements listed on the revised form presented several concerns. Requiring private and commercial senders to know the correct harmonized tariff code was unrealistic, according to Levy, as codes were exceptionally item-specific and generally not known to mailers. Implementing the use of the codes would be expensive. It would be similarly impractical to require the sender to know the country of origin of the goods being shipped. Levy said a POC working group would meet on June 18, in Bern, to create a counter proposal to send back to the WCO. However, one impediment to a fast resolution on this issue was that the WCO committee that had created these proposals has been dissolved and joint discussions would be delayed.

Philip Warker of the U.S. Customs Service expressed his agency's surprise at the wide attention being given this issue. Customs, he said, supports improving the postal process as a whole and considers the present customs declaration forms, when properly filled out, to be sufficient. He agreed that the revised forms demanded too much information and said the size of the form was not of concern to the U.S. Customs Service. He thought that some of the items listed for the new form might be made optional but not mandatory. The "country of origin" issue, he said, could be handled by having the mailer insert the country where purchased, or the country where the goods were made, if that were known. Levy said she thought there needed to be improvements in the quality of data supplied on these forms but not necessarily the quantity. Warker said the U.S. Government position on this issue, for discussion at the June 18 meeting, would be available. A representative of the U.S. mailer industry said he had been flabbergasted that the WCO could turn around on a dime and put forward, on virtually no notice, a proposal that could cause chaos in his industry. He hoped for an earlier warning in the future. Warker said that nobody had really liked the way this had been handled.

Regan said that USPS and the Customs Service were cooperating in development of an electronic interface between post and customs; such an interface could enhance the dispatch of information about a particular package. He said it would soon be tested. A participant in the briefing said such a system would help to have mail cleared quickly and minimize the need for customs to open packages for security reasons. This could help to speed the mail.

Levy also pointed out that the POC in April had agreed to a U.S. proposal that these forms in the future could be provided on white paper rather than green. This would permit individual mailers to print the forms from their computers and there would be no need to go to the post office to obtain original green forms. In regard to a joint USPS-Customs study, which included a review of comparable customs treatment of items transmitted through the post and by private couriers, Warker said the document was still in the clearance process at the Office of Management and Budget. The USPS version of the study had been made available to interested members of Congress, but the Customs version was still being cleared.

Donald Hill of the U.S. Postal Inspection Service gave a summary of the April 10 meeting of UPU's Postal Security Action Group (PSAG), which he had chaired. Hill said the meeting had included a seminar about attacks on the post and postal services, and a seminar on potential bioterrorism in the mail. Examples of the anthrax exposures in the United States had been discussed, and security officials around the world had been urged to cooperate in detecting such misuses of the mail and in informing other posts of their findings. He said PSAG was preparing a bioterrorism seminar guide, so that the Bern session could be replicated in other settings.

Hill said that the PSAG had developed a report concerning the problem of drug trafficking and money laundering in Africa and noted the success of one-week training courses teaching African postal workers to prevent such activity. He said a working relationship with the International Atomic Energy Agency was building toward identification of radioactive material in the post. He also noted that meetings had already been held with the UPU planning team regarding security arrangements at the 2004 UPU Congress, to be held in Abidjan, Cote d'Ivoire.

Boyer noted that the UPU Strategic Conference is scheduled for October 2002 in Geneva, Switzerland. This is a policy-oriented meeting that is normally held about half-way between the regular UPU Congresses. He also noted that the next Congress is planned for September-October 2004 in Abidjan, Cote d'Ivoire. Information on both meetings is available on internet websites. Addresses for both meetings are included at the end of the agenda for this briefing, attached to this set of minutes.

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PUBLIC BRIEFING ON ISSUES RELATING TO THE
UNIVERSAL POSTAL UNION

June 13, 2002, 2:00 - 4:00 p.m.
Room 1406, Department of State

Chairman: Ambassador E. Michael Southwick
Deputy Assistant Secretary
Bureau of International Organization Affairs
Department of State

1. Private-Sector Participation in UPU Council Meetings

2. Terminal Dues Decisions for 2004 and 2005

3. Studies of Extraterritorial Offices of Exchange (ETOEs)

4. Status of Study of Remail (Article 43) Provisions of the UPU Convention

5. Customs-Postal Issues

6. International Postal Security Issues

7. Future UPU Meetings

8. Other Matters

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Participants in Public Briefing on the Universal Postal Union
June 13, 2002
2:00 p.m. - 4:00 p.m.
Room 1406, Department of State

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DOCUMENTS MADE AVAILABLE
AT UPU PUBLIC BRIEFING
JUNE 13, 2002

• Department of State report on the meeting of the UPU Postal Operations Council, April 8-19, 2002. Includes discussion of decisions on terminal dues, customs forms and extraterritorial offices of exchange, as well as description of private-sector participation in the meetings.

• Documents on the UPU Private-Sector Advisory Group, March 2002. Includes letter from POC Chairman to heads of project teams and working groups urging them to allow Advisory Group members to attend their meetings. Also includes initial outline of the structure of the new private-sector Consultative Committee.

• Collection of Terminal Dues Decision Papers, April 2002. Includes report of the Terminal Dues Action Group and the report of the Postal Operations Council Committee 1 on terminal dues decisions for 2004 and 2005.

• Terminal Dues Update, June 13, 2002. Slide presentation prepared by the U.S. Postal Service.

• Extraterritorial Offices of Exchange: Market Aspects (CA MWU PT 2002.1-Doc 4b, April 2002). Consultant's report on ETOEs, prepared for the Council of Administration's Project Team on Management of the Work of the Union.

• Extraterritorial Offices of Exchange, June 13, 2002. Slide presentation prepared by the U.S. Postal Service.

• Customs Issues: Revision of CN 22 and CN 23 Forms, (POC C 1 2002-Doc 10.Add l), April 5, 2002. Discussion document on proposals from the World Customs Organization to the UPU regarding expansion of two key customs declaration forms used by postal administrations.

• UPU News Release: UPU and WTO Issues Discussed, April 11, 2002. Describing seminar discussions organized by the UPU project team on relations with the WTO.

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