Have you ever wondered why it is so much cheaper to buy a Chinese product from eBay or Amazon and have it shipped to your home than for similar American products? It is true – according to Amazon’s Vice President of Global Policy Paul Misener, you can buy a one pound package from South Carolina and have it shipped to New York City for approximately $6 whereas the same product shipping from Beijing to New York only costs about $3.66. Sending that same package from NYC to Beijing costs around $50. So – why the imbalance? And what is being done about it?
Why the Postage Imbalance?
The UPU causes the imbalance. The UPU (Universal Postal Union) is an international postage organization founded in 1874 and currently exists as a part of the United Nations. It imposes charges called terminal dues to pay a country’s domestic postal service (USPS in the United States’ case) for handling, processing, and transporting foreign mail and packages.
Currently, the UPU charges developing nations considerably less than other fully developed ones – sometimes 40-70 percent less – to ship their postage. Nations like Bosnia, Botswana, or Cuba receive significant subsidies from the United States and others to ship their products and make them affordable. The trouble comes from larger, more developed nations, like China, taking advantage of the situation.
According to the International Monetary Fund, China currently has the second largest world economy, around $12.01 trillion GDP, and the CIA World Factbook estimates it to be more like $23.16 trillion. Yet, the UPU still classifies nations like China as a developing nation and charges them pennies on the dollar to ship to nations like the United States. United States taxpayers are subsidizing these shipments at more than $300 million annually and are putting US institutions like UPS, FedEx, and the USPS at a significant disadvantage.
At the same time, China and other foreign nations are not reciprocating the reduced rates. Returning a five ounce package to China can cost US shippers anywhere from $11.48 to $34.87 due to China having virtually no restrictions on setting rates. So, what is being done about this?
Answer to Postage Imbalance
In August, 2018, President Trump directed the US State Department to begin negotiations with the UPU and others to reorganize and restore balance to the current postage system. In September, Unit Chief at the State Department’s Bureau of International Organization Affairs, Joseph Murphy, attended the UPU’s Ethiopian Congress to discuss these changes. “We were rebuffed there,” Murphy said. “Everyone was aware that if we were rebuffed we would move forward. We didn’t get fairness so this administration is taking unilateral action.”
So, in October 2018, President Trump announced his intentions for the US to leave the UPU and unilaterally set rates. The process to leave would take about a year and the US would begin its own rate implementations by January 2020. Until then, the State Department has proposed actions to the UPU that would allow the US to remain in the union. “The current system has led to the United States subsidizing the imports of small packages from other countries,” said Jeff Adams, a USPS spokesman. “As such, the Postal Service and its governors fully support the administration’s decision to move to self-declared rates, and will work closely with the State Department, the Postal Regulatory Commission, and other stakeholders to implement the administration’s decision.”
Dubbed “Option B,” this plan would allow each nation to set their own delivery rates of small, international packages (usually letters or packages under 4.4 pounds). This option requires that:
• Countries that self-declare rates, must make that rate available to every other country.
• Rates on foreign letters and packaging cannot be greater than domestic rates.
• No country is required to self-declare rates.
Currently, “Option B” has garnered the support of 30 other nations, but must win a two-thirds majority of the 192 union nations for it to go into effect. Murphy has stated that “Our goal is to succeed in this effort and to remain in the UPU,” but that this measure is the only way to satisfy the White House.
The UPU is expected to discuss and vote on the “Option B” measure in April this year, along with an opposition measure. The opposition has outlines a method of continued billing similar to what is currently in place. It also has the support of 30 nations.
Pros and Cons
Both the measures to either leave the UPU or to stay with reorganized structure have met significant support and criticism. Supporters say that the measures will:
• Save US taxpayers hundreds of millions of dollars each year in subsidies.
• Level the international playing field with actors like China.
• Strengthen US e-commerce retailers that struggle with the distinct rate reductions enforced by the UPU.
Either measure means the US will determine its own delivery rates and that foreign nations will need to play more fairly to work with the US.
Critics to the plans point out that:
• The US works with the UPU for more than just shipping parcels. They use the UPU to settle international postage disputes.
• The UPU helps monitor for drug flow – including the fentanyl crisis. Leaving it would dismiss their help and resources.
• Developing nations still require assistance to act in the world economy and giving nations a choice to manually set rates will leave the developing ones without a safety net.
• Prices for foreign products will go up as shipping prices are no longer reduced.
The UPU’s April meetings will determine whether or not they will enact the “Option B” policy. Depending on those meetings, the US will either remain in the union and set its own rates, or leave the union entirely. Either way, the shipping imbalance is about to be addressed, and US will begin to send postage at a more fair rate.