Trade and Security

Withdrawal from the Universal Postal Union: A Guide for the Perplexed

By Eliot Kim
Wednesday, October 31, 2018, 2:31 PM

On October 17, 2018, President Trump announced that the United States will withdraw from the Universal Postal Union (UPU), an intergovernmental organization that sets the rules and rates for international mail delivery. The decision to withdraw has been widely seen as another salvo in the Trump administration’s campaign against what it deems as unfair trade practices benefitting China. This post explains what the UPU is, why the Trump administration is withdrawing from it, the legality of withdrawal, how this decision is related to the trade war with China, and what could happen next.

What is the UPU?

The UPU was established by 22 countries in 1874, making it one of the world’s oldest international organizations. Today, the UPU has 192 member states and is a specialized agency within the United Nations. The UPU Constitution established the organization and its governing framework. Within that framework, the UPU Congress is the primary decision-making entity for the organization, and the forum for members nations to negotiate UPU matters, including future rules for international mail exchange. Using a one country, one vote process, the UPU Congress typically holds a quadrennial meeting to set policies for the upcoming four-year cycle.

Why is the U.S. withdrawing from the UPU?

President Trump issued a presidential memorandum on August 23, 2018, stating that certain “current international postal practices in the UPU do not align with United States economic and national security interests.” The memorandum raised concerns about two particular practices. The first is the UPU’s terminal dues system, which provides deep discounts for businesses in China and other nations shipping products into the United States. According to the memo, terminal dues have a distortive effect of “incentivizing the shipping of goods from foreign countries that benefit from artificially low reimbursement rates.” The second concern is the lack of advance electronic customs data from foreign postal operators. This information, according to the memo, is “needed to enhance targeting and risk management for national security and to facilitate importation and customs clearance.”

The memorandum directed Secretary of State Mike Pompeo to reach an agreement with the UPU that would comport with the policies laid out in the memo and to submit a report to President Trump on steps that could be taken to implement those policies. In accordance with the president’s instructions, U.S. officials attended an Extraordinary Session of the UPU Congress in September, seeking to negotiate reforms to the UPU system. However, those efforts to overhaul the terminal dues system and address the shortcomings on electronic customs data were rebuffed by other UPU member states. Following the Extraordinary Session, the White House started the process of withdrawing from the organization, citing a lack of “sufficient progress on reforms” to UPU practices.

Terminal Dues

Terminal dues are the remuneration owed to the postal operator of the country of destination by the postal operator of the country of origin. The 1969 UPU Congress adopted the current terminal dues system, which governs cross-border delivery of packages and letters weighing less than 2 kilograms. Instead of assessing terminal dues based on the actual cost incurred by the destination country’s postal operator, the UPU uses a country classification system that takes into account different stages of member states’ economic development and the “significant variations in their mail volumes, postal tariffs and cost absorption.” As a result, terminal dues paid by countries like the United States are higher than those paid by developing countries, regardless of the actual costs of mail delivery. The effect of this system is that the price of international shipping into the U.S. is often less than the price of domestic shipping within the U.S.

In recent years, the UPU’s terminal dues system has been the subject of increased criticism in light of the rapid growth of cross border e-commerce. In a 2015 report, the Inspector General of the U.S. Postal System found that the low terminal dues for China “benefit China Post and Chinese online retailers in the lightweight, low-value package segment at the expense of [USPS] and American retailers.” This report also estimated that terminal dues cost USPS approximately $300 million in the five year period from 2010 to 2014. These costs have continued to increase. According to the Postal Regulatory Commission’s annual compliance report,  the loss to USPS attributable to terminal dues reached $134.5 million in Fiscal Year 2016 and $170 million in Fiscal Year 2017.

Advance Electronic Customs Data

Advance Electronic Customs Data is information communicated to customs authorities to help them target and screen high-risk packages. This data typically includes the shipper’s name and address, any consignee’s name and address, a description of the cargo, the piece count (i.e. the number of physical pieces in that package) and the weight. Customs authorities can analyze this data to determine whether to conduct additional screening before a package is delivered to its final destination. The White House officials insist that this data is essential given the sheer volume of international mail sent to the U.S. According to a USPS Inspector General report, the postal service handled 621 million pieces of international mail in the 2016 fiscal year.

Legality of withdrawal

Because Article 12 of the UPU Constitution explicitly allows in for any member state to withdraw from the organization with one year’s notice, the Trump administration’s withdrawal from the UPU would not violate any international legal commitments.

The Trump administration is also unlikely to face domestic legal hurdles for withdrawing the U.S. from the UPU without congressional approval. The current version of the UPU Convention is an executive agreement pursuant to the Postal Accountability and Enhancement Act, which was enacted in 2006. The Act conferred upon the Secretary of State the responsibility to formulate, coordinate and oversee foreign policy related to international postal services and “the power to conclude treaties, conventions and amendments related to postal services and other international delivery services.” There is little controversy over whether a President can terminate an executive agreement that was finalized pursuant to an ex ante authorization by statute.

How does the UPU relate to the Trade War and to China?

Neither the Presidential Memorandum in August nor last week’s announcement to withdraw from the UPU explicitly mentioned China. However, administration officials have acknowledged that this decision is aimed at the competitive advantage the current system gives to Chinese businesses. In fact, many of the statements from U.S. lawmakers and business organizations praising the president’s decision to withdraw specifically noted that the action would level the playing field between U.S. and Chinese businesses.

For its part, China’s Ministry of Foreign Affairs expressed regret over the U.S. withdrawal from the UPU, while declaring that the decision had nothing to do with China. Instead, the Foreign Ministry sought to portray the move as part of a broader trend of the U.S. withdrawing from international organizations, while highlighting China’s commitment “to upholding multilateralism and play[ing] an active role in supporting the work of the UPU.”

The Trump administration also justified the UPU withdrawal as serving U.S. national security interests. Although the White House did not fully explain what those national security interests were, it implied that the advance electronic customs data would help the Department of Homeland Security “better flag and detect high-risk shipments,” specifically of packages containing illicit drugs from China. According to a Senate Homeland Security Committee report released in Jan. 2018, over $800 million of opioids were shipped over a two year period from China into the United States through USPS.

Framing this economic issue as a national security interest is a strategy that has been questioned by other Lawfare contributors in the context of the administration’s use of Section 232 of the Trade Expansion Act to impose tariffs on steel imports. What distinguishes this situation from the president’s other protectionist practices is the public health implications and the fact that Congress shares the president’s concerns about the lack of electronic customs information on international packages. Last month, the Senate passed the Synthetic Trafficking and Overdose Protection (STOP) Act, which subjects USPS to civil fines if it does not provide advance electronic information to the Customs and Border Protection agency. Lawmakers supporting the bill stressed that stopping the international shipment of fentanyl and other opioids from China was a primary objective of their efforts. The STOP Act, which also passed the House in June, was signed on October 24 by President Trump.

What Happens Next

President Trump’s decision to withdraw from the UPU is consistent with a pattern of disengagement from international agreements, ranging from the Iran Nuclear deal to the TPP, the Paris Treaty to NAFTA, and most recently the Intermediate-Range Nuclear Forces Treaty. Yet, the administration’s modus operandi on trade deals has been to threaten to terminate those deals while ultimately renegotiating the terms or to keeping the door open to future negotiations.

Although the UPU is not a trade regime, the announced withdrawal from the UPU may be similarly resolved through a renegotiation of the terms. Following the White House announcement of withdrawal, UPU Director General Bishar A. Hussein initially conveyed regret over the decision and welcomed the opportunity to meet with U.S. representatives to further discuss the matter. However, Hussein struck a more proactive tone this week when he stated in an interview that the UPU commissioned a report on reforming rates and expressed optimism that a negotiated agreement could be reached by April 2019. Whether the UPU can reach an agreement that will satisfy the Trump administration will depend on how China and other UPU member states benefiting from the current system approach these negotiations.