Return to Sender? The U.S. Challenge to the Universal Postal Union’s Status Quo

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A few weeks ago, the Trump Administration initiated the process to withdraw from the 144 year old Universal Postal Union (UPU) because UPU agreements provide that the Postal Service must deliver inbound postal packages for rates that are substantially less than it charges domestic mailers for similar services. U.S. critics of the UPU rate scheme argue that it gives foreign online merchants an unfair advantage over U.S. merchants in the area of shipping costs. Today the biggest beneficiary is China, whose merchants are the biggest source of international e-commerce goods flowing into the U.S. Since the U.S. has never formally approved the current UPU Convention, the Trump Administration has decided to require the Postal Service introduce new rates for delivery of inbound packages as soon as practical, and no later than January 1, 2020, to eliminate this preference for foreign mailers. In addition, to fix this and other problems with the UPU permanently, the Trump Administration has decided to withdraw from the UPU unless satisfactory arrangements can be negotiated. However, if the U.S. withdraws from the UPU, the Postal Service may possibly lose access to UPU operational systems that facilitate international mail services and be forced to conclude new deals with foreign posts. Some critics contend that this is further evidence of the Trump Administration’s drift away from international law frameworks. Our experts will discuss the history of the UPU, the mechanics of withdrawal, and the policy issues related to staying or going.

Featuring:

James I. Campbell Jr., Lawyer and Consultant on Issues Relating to International Postal Policy

Patrick Hedren, Vice President for Labor, Legal and Regulatory Policy, National Association of Manufacturers

Moderator: Matthew R. A. Heiman, Senior Fellow and Associate Director, Global Security at the National Security Institute, George Mason University’s Antonin Scalia Law School

 

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Event Transcript

Operator:  Welcome to The Federalist Society's Practice Group Podcast. The following podcast, hosted by The Federalist Society's International & National Security Law Practice Group, was recorded on Monday, November 5, 2018, during a live teleforum conference call held exclusively for Federalist Society members.     

 

Wesley Hodges:  Welcome to The Federalist Society's teleforum conference call. This afternoon's topic is Return to Sender? The U.S. Challenge to the Universal Postal Union's Status Quo. My name is Wesley Hodges, and I am the Associate Director of Practice Groups at The Federalist Society.

 

      As always, please note that all expressions of opinion are those of the experts on today's call.

 

      Today we are very fortunate to have with us an accomplished panel to discuss this topic. And moderating it is Matthew R. A. Heiman who is a Senior Fellow and Associate Director for Global Security at the National Security Institute at George Mason University's Antonin Scalia Law School. After our speakers give their remarks today, we will have an audience Q&A, so please keep in mind what questions you have for the subject or for any of our speakers. Thank you again for sharing with us today. Matthew, the floor is yours.

 

Matthew R. A. Heiman:  Thanks, Wes. And by way of introduction, I'd like to introduce our two panelists. We're delighted to have both of them. The first is Jim Campbell. Jim is a lawyer, and he's in private practice. Jim is the leading legal authority on the Universal Postal Union in the United States. He's a postal law specialist. He's been a long-time legal advisor to companies like Federal Express, and we're just delighted to have him on the call. So Jim, thanks for joining us.

 

      And our second panelist is Patrick Hedren. Patrick is the Vice President for Labor, Legal, and Regulatory Policy at the National Association of Manufacturers. He heads up that group's advocacy before Congress in the executive branch. Before joining NAM, he was in-house counsel with a large manufacturer where he focused on regulatory matters. Earlier in his career, he also spent time on the staff of two members of Congress, so we're delighted to have Patrick as well. Patrick, thanks for joining us.

 

      So gents, let's get into the discussion. And I thought we would start by laying a certain amount of foundation because I think in the last few weeks, there have probably been, at least to my eye, more press stories about the Universal Postal Union than I can remember in many years. Admittedly, I'm not a specialist in the area. But I thought we'd begin, Jim, with you. And I'm hoping that you can give our listeners an understanding of, in broad terms, what is the Universal Postal Union, and how does it work?

 

James I. Campbell Jr.:  Okay. Well, first, let me just say one thing that whatever I say here is just personal knowledge or personal opinion and shouldn't be taken to reflect the views of clients. So the Universal Postal Union, the UPU, is an inter-governmental organization. It was founded in 1875. Today, it includes 192 countries, which is essentially all of the countries in the world, and it has a series of agreements which govern the exchange of mail between countries. The UPU meets in a general congress that is a meeting of all the countries once every four years. And they adopt new agreements, or they amend old agreements in the congress. Between the congresses, the UPU is governed by two permanent standing committees. The Postal Operations Council is composed of 40 countries which is essentially the post offices of those countries because it deals with operational matters, commercial matters, and it also adopts regulations which are binding on the countries of the UPU. The second council is composed of 41 countries, the Council of Administration, and the Council of Administration deals more with government policy issues.

 

Matthew R. A. Heiman:  And just one follow-question there, Jim. Is this a treaty organization to which the United States is a treaty-bound member, or is it a voluntary association? How does that aspect of -- or maybe better put, what is the U.S.'s formal relationship with the Universal Postal Union?

 

James I. Campbell Jr.:  So the UPU is an inter-governmental organization which is established in U.S. law not by treaty, but by an executive agreement. So it's a presidential agreement that has not gone to the Senate for approval. But it's a presidential agreement that's been entered into under authority delegated by Congress, and they're actually a series of agreements. The UPU constitution is the basic agreement that establishes the UPU, and that's a permanent international agreement. That was agreed in 1964 and was signed by President Johnson in 1965. So we are formally part of the UPU because we have agreed to the UPU constitution.

 

      Now, the UPU Convention, which is the document that governs the exchange of mail, the most recent UPU Convention—and these are four-year agreements—the most recent was agreed in 2016 in Istanbul. And that went into effect January 1, 2018, and is in effect for four years. However, the United States has never formally approved the 2016 UPU Convention. So technically, at least, my understanding is the United States is not bound by the 2016 UPU Convention, even though the Postal Service abides by its provisions voluntarily.

 

Matthew R. A. Heiman:  So obviously, this arrangement and the Universal Postal Union have been in the news, I would say, over the last month or so, and the reason for the news is the Trump administration has expressed complaints about the UPU and some of the mechanisms around it. I'm wondering, Patrick, could you talk about what is the basis for the Trump administration's complaints of what seems like a fairly old arrangement that probably most days of the week doesn't get a lot of press?

 

Patrick Hedren:  Sure. So the -- as Jim said, this has been around for a long, long time. And for most of that time, this agreement was essentially just a basic set of terms to prevent postal operators from acting badly to one another for transiting mail in the global system. And for the most part, that meant letters. And I think it's a pretty fair statement to say that back in the 50s and 60s, as the negotiations sort of proceeded en route to the agreement that President Johnson ultimately signed, there was no such thing as e-commerce or any of the sort or modern uses of the mail that have come to dominate growth and volume.

 

      So at the same time, we're also kind of grappling with these issues of what do you do with countries that really are not on an equal footing with the U.S. and postal services that sort of, for the purposes of global comity, would be best served by essentially a form of subsidy for the letters that they send. For a long, long time, this was not that big of a problem. I think Jim may disagree a little bit around the edges here as there are certainly some parties that had an issue with this because what we're describing here is essentially every postal operator in the world coming together to sort of, so to speak, behind closed doors, to come up with a set of below-market rates for one another. And that sort of meets the textbook definition of a cartel. So there certainly have been complaints about it for a long time. But if you go back about 10 or 15 years, I think the very forward-looking among us, and I think Jim foremost among them, started to spot that this was about to become a much bigger problem than it was.

 

      So the UPU, bottom line, does a lot of things that are kind of technical and unlikely to make the news. And then there are two things that they set the terms of that have become much more relevant and are becoming more relevant at a rapidly growing pace. And those two items are what's called the terminal dues system, which is the system of preferential rates that the postal operators agree to give one another, and then various requirements around what postal operators can require other postal operators to do in order to send mail into their system. So on that side of the fence, what we're talking about primarily these days is advanced electronic data.

 

      So we got engaged on this at the NAM because we started hearing from members that they went online, they checked out a site like AliExpress or one of these other sort of famous Chinese e-commerce sites, and they found a bunch of examples of their product, but clearly not their product. So they, in one case, I think now famous, bordering on infamous, I remember Mighty Mug, which produces a mug that you can't knock over, found online that you could find a knock-off of this mug shipped from China for free via airmail for something like five or six bucks, all in, on the cost of the mug and the shipping. And he realized, "Well, I can't get that to mail across the street." And then he actually took a mug to the Post Office and said, "How much does it cost me to mail it back to China?" And they said, "Well, it'll cost you about 22 bucks to mail it back." And he said, "What if I add tracking?" They said, "$62.50." So this is impossible. It's impossible that this is the situation.

 

      And essentially, as we got it -- and that was my reaction, too, and my first call when this came in was to Jim because I had heard through the grapevine that there was this guy out there, Jim Campbell, and he knows everything there is to know about the UPU. You've got to call him and just get his opinion on this. And Jim came in, and Jim probably remembers this meeting, we sat down, and about half way through, Jim turns to me and my colleague and says, "Are you serious about this? Are you guys going to get involved in this?" And we thought, "Well, yeah. We kind of have to, don't we?"

 

      This is a manufacturing industry issue, and this is exactly the time, politically speaking, where we think it's finally salient to surface this really geeky issue up to a sort of political awareness level. So we brought it into the White House and explained the issue to them. They, of course, no surprise, had the exact same response that I did, which is this can't possibly be real. This cannot possibly be a real issue. And to their immense credit, they started taking in briefings from others to get a little bit more information about it. And as they did so, they found that this is becoming a bigger and bigger problem.

 

      So fast forward to a little bit earlier this year, several months ago, the President, almost in the midst of a broader effort to look at the U.S. Postal Service as an entity in crisis and dealing with issues that go well beyond what we're talking about today, issued a presidential memorandum to a handful of principals that probably have never been on the same stationary together from the President of the United States. And we're talking about the Secretary of Homeland Security, the Postmaster General, the Chairman of the Postal Regulatory Commission, the Secretary of State, Secretary of Treasury -- just a who's who of senior government officials, some of which serve at the pleasure of the President, but not all.

 

      And he instructed them to go to the Extraordinary Congress in Addis Ababa and negotiate, to the best of their ability, pursuant to a set of terms that he laid out which would make for a fairer system because the Chinese issue is getting worse. China was listed as a developing country in the early stages of when this agreement came together. Remember, this is pre-Nixon goes to China. And they're still in there. They're still listed as a developing country. So they're still getting an even greater preference for their packet than a country like Germany. So go to Addis, negotiate a better deal, and let's see what we can get out of this. But if you come back, and we come back empty handed, we are going to move to a system of something called self-declared rates.

 

      We went to Addis and, to nobody's particular surprise, came back without a full agreement to those. And I think it was an eye-opening experience for a lot of people in government who had not been around this world to see how insular and how difficult to move the UPU has become over the years, if it hasn't always been like this, and it may have been. When they saw it with their own eyes, they realized, "Well, we need to do something that's just a little bit more dramatic than try to negotiate our way forward because we're getting these promises to maybe deal with it at some future date, and that wasn't good enough.

     

      So that, I think, is the very long version of the short answer of that's why the Trump administration is starting to think more about this and raise their voice on it. And Jim, you probably have much more collar on this because you were actually there in Addis while they were talking about this.

 

James I. Campbell Jr.:  Yes, I was. What can I say? In Addis Ababa, the reality is the State Department made no effort to implement the presidential memorandum. They never really proposed anything that would've solved the issue, so nothing was accomplished. And the State Department apparently thought that they could make that work back in Washington, but they couldn't.

 

Matthew R. A. Heiman:  And just on that, Jim -- so the President issued the presidential memorandum that Patrick just described, and the State Department is, obviously, the entity within the U.S. government that would represent us at this Extraordinary Congress. And if we just focus maybe on what the President's memorandum was asking for -- it was directing the State Department to seek, I assume, renegotiation of this rate schedule that different countries have for sending of mail. Am I understanding that correctly?

 

James I. Campbell Jr.:  Right. The presidential memorandum was issued on August 23rd, and it basically said that the State Department must immediately negotiate new arrangements with the UPU that would eliminate any sort of preference for the delivery of foreign packages as opposed to the rates that are charged for similar domestic packages. It also raised the issue of security and customs information, which is also a matter of great importance to the U.S. government. And the presidential memorandum said, basically, "Look, we have to make sure that we have adequate customs and security information on inbound postal packages as soon as possible." And it pointed to something called the STOP Act, which was recent legislation that is going to, at least, tighten up the requirements for the provision of customs and security data for inbound postal packages.

 

      So what the presidential memorandum said is, "Go negotiate new arrangements that work towards resolving this problem." It didn't exactly say come back with an agreement that fixes it, but is said make a serious effort, and them come back and report. And if it doesn't look like it's solved, you, Secretary of State, report to the President by November 1 with a plan to fix this problem. So that was, in essence, the presidential memorandum.

 

Matthew R. A. Heiman:  And one other question about the presidential memorandum. When it said it's seeking to -- I don't know what the right word is -- create a single rate for both domestic and foreign senders of mail or packages, I mean, was that the President's direction, or was it more let's make sure that China is paying a rate that's consistent with -- or I should say, Chinese merchants and vendors are paying a rate that's consistent with U.S. merchants and vendors?

 

James I. Campbell Jr.:  So the presidential memorandum doesn't mention China. This is not essentially a Chinese problem, despite the press that's surrounded this discussion. The UPU provides discounted rates for essentially all inbound packages, so the United States is giving a discount of something like 30 to 60 percent for inbound packages that the Postal Service receives from other industrialized countries. China, right now, is in a category of developing countries. They get a little bit bigger discount. They get a discount of something like 50 to 70 percent for inbound packages. Under the current UPU Convention, these discounts are going to be evened out so that by 2021, everybody's going to get a 50 percent discount. But that's still ridiculous.

 

      What the Trump administration is doing is attacking this idea of giving a preference for foreign mailers compared to domestic mailers. So what the presidential memorandum says is, essentially, work out a new arrangement that eliminates any preference for foreign mailers. And the only way to do that, essentially, is to begin charging for the delivery of inbound packages the same as you charge for the equivalent services for domestic packages. I mean, that's the only solution that really meets the criteria of the memorandum.

 

Matthew R. A. Heiman:  And just one other question kind of on the technical side, Jim, and that is does the U.S. -- so if I'm a U.S. merchant, and I have a customer base around the world, and I'm sending into these foreign postal services to complete the delivery of my packages and correspondence, am I enjoying a discount of some kind when I send to China, or when I send to Brazil, or when I send to the U.K.?

 

James I. Campbell Jr.:  The UPU terminal dues rates are substantially below domestic postage in the industrialized countries. In the industrialized countries, the postage rates are higher because the costs are higher. So if you're sending -- if you're a U.S. merchant, and you're sending small packages to the U.K., let's say, yes, you are most likely getting a substantial discount. You're probably getting delivery for less than your competitor in the U.K. is paying the Royal Mail. If you're sending packages to—and this varies by country—to China, I don't know. I don't know the domestic postage rates and how that compares to terminal dues, but in general, for the developing countries, the Postal Service is paying the developing countries a rate of delivery that is reasonable compared to the domestic postage, but not for industrialized countries where the costs are higher.

 

Patrick Hedren:  Just to jump in on that to make it maybe a finer point, I would say, Jim, that the sort of most precise way to put this is that the Postal Service can achieve a discount by shipping through this system into foreign countries, and part of that discount will be passed on to the U.S. shipper, but by no means all of that discount. So in essence, the Postal Service has an interesting sort of price delta in which they can play profitably on the outbound leg. So this is the delta between how much it will actually cost them get the packet delivered through this system, and the high end of that is how much a competitor might charge for the same service. So anywhere that they set their price in there, they will start to siphon away from other competitors on the high end. So they have historically, actually, made up a pretty good cost coverage on the outbound. And that is because their intention, I think, is very much to do that.

 

      That's not focused on China too much, but if you look at the Chinese example and what they're trying to accomplish with their use of this system, they're not necessarily, apparently, trying to accomplish shoring up the finances for China Post. They're trying to accomplish a competitive advantage for the packets that are coming into the U.S., and so they're likely to set the price much, much lower and closer to the actual cost that they pay for the delivery. And that amounts to a kind of base subsidy that accrues to the benefit of the shipper rather than the example in the U.S. where the benefit accrues partially to the shipper, but in large part to the Postal Service itself.

 

James I. Campbell Jr.:  Yeah, Patrick's right. It's complicated.

 

Matthew R. A. Heiman:  And so right now, I think, Jim, you mentioned that the Secretary of State was due to deliver a report of some kind by November 1st, which obviously was last week. Has that report been delivered, and is it public?

 

James I. Campbell Jr.:  So then what happened was on October 17th, the White House issued a press release saying that the State Department had made its report, the President agrees with the recommendations of the report, and the recommendations were essentially twofold. One is introduce self-declared rates, regardless of terminal dues, as soon as possible but no later than January 1, 2020. And secondly, tell the UPU that we are withdrawing from the UPU, which is a one-year process, and the United States will consider rescinding that withdrawal if it makes adequate progress on the principles articulated in the presidential memorandum.

 

      So that's the current state. There's a press release. The U.S. is proceeding along those two lines, and there's no further report from the Secretary of State. The Secretary of State's report to the President was not made public.

 

Matthew R. A. Heiman:  On that, Jim, if the U.S. were to withdraw from the UPU, or if the U.S. were to have mailing rates renegotiated for, I guess, China and other countries sending packages into the U.S., can you walk us through just the mechanism for that, for both withdrawal and renegotiation of, I guess, what would be the rate schedule?

 

James I. Campbell Jr.:  Well, the position of the United States is this, although this is not actually said in the press release. The press release is only two paragraphs. So it's a little bit unclear exactly the thinking in detail from the Trump administration, but the necessary implication is that since we have not signed the 2016 UPU Convention, we're not bound by it. Therefore, we, the United States, can unilaterally introduce different rates for the delivery of inbound mail, and we, the United States, are going to introduce new rates for inbound mail which are aligned with domestic postage rates because that's just good policy.

 

      That, in essence, is the position of the Trump administration. So that's not a question of renegotiation. We're just going to do it, unilaterally. On the other hand, the press release does indicate that we will try to negotiate reciprocal agreements with other countries so that this is not simply unilateral but is more mutual and amicable. So exactly how that's going to unfold, nobody knows at this point. I mean, at least, there's been no public information.

 

Patrick Hedren:  To chime in a little bit on that, a point of interest, maybe for this group, is, as it turns out, I mean, the U.S. has entered into postal agreements and/or treaties with a vast majority of those 192 countries independently. Now, they all deal with different things, but there have been agreements over the years on all kinds of different arrangements between the U.S. and other countries on postal issues. So it's not an issue of first impression for them to go and actually make a side agreement.

 

Matthew R. A. Heiman:  And just on that point, Patrick, and maybe we'll stay with you for a second, if the U.S. adopts a unilateral rate structure that Jim described in which domestic and foreign mailers sending into the U.S. system are paying equal rates, what do you think the consequences are of that in terms of U.S. merchants that are sending things outside the U.S. to other countries? Are we likely to see kind of a domino effect where all countries take this stance, or -- I'm just wondering if there's a downside risk for U.S. merchants that have international business?

 

Patrick Hedren:  You know, there is always some degree of risk in a move like this, and I think the risk -- the outer bound of that risk, to me, seems to be that U.S. merchants use private express shippers rather than the Postal Service. So there's kind of a backstop of companies that have a network through which they can transmit packets abroad. And kind of taking a step back even further, kind of a 30,000-foot view, it's not that common for people to actually ship individually through mail for items if they have any kind of volume to their business, usually they'd be looking at container shipping or something like that. So there is kind of an outer limit from where we sit where we see how ugly this could possibly be.

 

      But maybe, just to point out a few factors out there that lead me to believe that this will be a muted response, kind of, if any -- one, the United States is far from alone with having this problem. So there are other countries around the world, some of whom have actually taken action on this, that share this type of impact kind of taking place at their postal system, notably, the Nordic countries -- Sweden, which actually put a tariff on incoming Chinese packets. Even in the U.K., I think you would see that Royal Mail and shippers probably diverge a little bit in how they fell about this, but they're situated like we are through the UPU system, and they're dealing with the inbound packets as well -- Canada and others. So there is a group of countries that is more like us than not that is unlikely, in my opinion, to try and find a way to retaliate in a big way here.

 

      The U.S. consists of, or comprises, a very large percentage of mail, and Jim knows this much better than I do, but a very large percentage of total global mail items including packets, and we are the number one target inbound by far. So we're able, I think, to take advantage of the role in which we find ourselves in a way that other countries like Sweden and Canada couldn't do. And because of that, my sense on the whole is that it's in everybody's best interest, but for a small group of countries that have been shipping to the U.S., it's in everybody's best interest to more or less try and find an agreement. And in many cases, I think it would be safe to say that you could come up with an agreement that looked a lot like the terms of the UPU between the U.S. and other countries, and that might be true for, actually, a pretty good amount of other countries that actually do ship mail like this.

 

      So the last factor that I'd point out here is that exchanging packets through the mail system is a phenomenon that primarily concerns the industrialized world. It's not common to see packets coming out of Zambia Post or other countries, and not to pick on them, but other countries like that that out of the 192 countries, there's something like maybe 40 or 50 of them that have significant mail flows between each other, including packets. So there's a lot of factors here that make me think yes, there's risk, and there is kind of a likely outer bound on that risk, but the reward here clearly outweighs it.

 

      And so Jim could probably correct me here on a handful of different things that I just misspoke on, but the technical issues here are really fascinating, I think, and worth kind of noodling over because the really kind of weird, in a sense, kind of fun legal issues to grapple with that have been sort of endlessly fascinating, just from a professional perspective as an attorney.

 

Matthew R. A. Heiman:  Yeah, and Jim, I don't know if you want to comment on any of that before -- I've got another question for you, but any thoughts on anything that Patrick's just said?

 

James I. Campbell Jr.:  Well, I mean, I do think that for the other industrialized countries, the industrialized countries where the postage rates are high, that if we charge inbound rates, which are related to -- and we're talking about packages here, not documents -- but we apply delivery rates which are aligned with the domestic postage rates, I think that the other industrialized countries will do the same. On the other hand, the other industrialized countries have the same problems we do, that by what -- in essence, subsidizing international mail, what you're doing is you're hurting your domestic merchants. And so Patrick's quite right that in the end, this is really better for everybody to get these rates straight and non-discriminatory.

 

Matthew R. A. Heiman:  And just on that point, Jim, if it's better for everyone, particularly the industrialized countries, to have -- protection's maybe too strong of a word, but a balanced approach to charging rates for domestic as well as international shippers, how did we get to this place, then, where international mail was so heavily subsidized in the first place? In other words, was there a policy decision at some point along the way in the history of the UPU that said, "We're going to charge folks from outside the country less than we charge for the domestic shipper," or is this something that just sort of happened over time?

 

James I. Campbell Jr.:  This is very much something that just happened over time. Terminal dues were not introduced until 1969. Before that, for, what, 75 years before that, the various countries just delivered inbound mail for free, and they assumed that they made it up, you know, by getting their outbound mail delivered for free. And nobody really paid much attention to it. And then the UPU introduced what, in essence, was a purely nominal payment for the delivery of inbound mail because after World War II, there were a lot more developing countries who joined the UPU and therefore, a lot more countries that had net inbound imbalances. And it wasn't until, oh, the late 80s that the UPU started thinking more systematically about what should be the inbound rate.

 

      And again, as Patrick described a little bit earlier, what's really happened here is that with the growth of e-commerce and the shift from documents to packages, the consequences of terminal dues, which do not cover the proper cost of delivering inbound mail, the consequences have become much more important, not only financially, but in terms of commercial, the commercial effect on domestic merchants. So the situation -- what we really have here is a legacy system that the UPU, but particularly, a group of commercial post offices within the UPU, that those post offices, and China is one, and so is the German post or the French post, or the British post, or whatever, the Dutch post -- I mean, those operators are now -- not China, but the Europeans -- are corporatized. In many cases, they're privatized. They are extending into all sorts of non-postal businesses. And they are very much a business organization now. And they're taking advantage of a legacy system to build a business that is -- that benefits from the undercharging for the delivery of inbound packages. But it's a legacy system which has grown up without any real thought.

 

Patrick Hedren:  To add one point there, Jim, I don't know if one of us mentioned this already, but part of this issue is kind of down to a quirk. So the terminal dues system is supposed to more or less account for the transitive mail items, but the definition of mail when they set it up was such that you could send a fairly heavy flat and still have it get there. And they kind of found a pretty good safety buffer for how large those items could be and landed on two kilograms, which is a significant enough amount of weight, 4.4 pounds, that if you're using sort of like a plastic packet wrap, you can get a lot of good in there. But as originally designed, this really -- they were not really contemplating a lot of transitive those.

 

James I. Campbell Jr.:  Yeah, no question about it. This was essentially set up as a document delivery business with a few social packages, and now it's become essentially a package business with a few documents.

 

Matthew R. A. Heiman:  And as we think about the policy options that the U.S. has, and as you noted, one of them is that the U.S. would withdraw and set up its own rate structure. Have there been other countries that have withdrawn and done this, or would the U.S. be sort of pioneering a new path in this regard if it did so?

 

James I. Campbell Jr.:  No other country has withdrawn from the UPU on these kinds of grounds. That means some countries have disappeared, for example, and therefore, withdrawn, but this is a new idea, what the U.S. is doing.

 

Matthew R. A. Heiman:  Staying with this point for a moment, do you think that the threat to withdraw, is that likely to drive an agreement within the confines of the UPU? In other words, are there other countries that are taking notice and saying, "You know, we've got to get real about how we address this problem," or can the organization move that quickly to correct this imbalance?

 

James I. Campbell Jr.:  Well, let me just make one thing clear. The United States has decided to introduce self-declared rates regardless of what the UPU does. So our withdrawing from the UPU is not a necessary condition to introducing self-declared rates. However, if we introduce self-declared rates, and then we go through another congress, and we have another convention, and we continue to hold out, we're in a very uncomfortable position. So the Trump administration is, I think, correctly saying, "Hey, we're going to introduce self-declared rates because it so happens, we didn't approve the current Convention." But the Trump administration is also saying over the long term, that's not good enough. We need to reform the UPU. So both things are going on here.

 

Matthew R. A. Heiman:  Okay.

 

James I. Campbell Jr.:  In terms of what are the chances of the UPU reforming itself -- without the threat of the United States, without the leadership of the United States, I would say that the chances of the UPU reforming itself are zero. But with the leadership of the United States working with other like-minded countries, I think that reform is possible. Reform is not possible, however, until the next UPU Congress. There's really nothing the UPU can do formally until they have another congress and they adopt new agreements. The new congress is in 2020, so as a practical matter, if we're going to reform the UPU, we're going to have to sort of play for new agreements in the 2020 congress.

 

Patrick Hedren:  If I could kind of add, piggyback on that a little bit -- so Jim has referenced the fact that we haven't affirmed that 2016 agreement. I think the same is true about the 2012 agreement -- every four years, and then they begin implementation two years following the agreement. When we looked at the 2016 agreement earlier this year, we had found that, in fact, very, very few countries, if any -- maybe there was a small handful, maybe like five or six of them had actually signed on to this thing, and they were just acting as though it was binding.

 

      We at the NAM have felt like -- and I don't want to speak on behalf of the Association here, so maybe I'll just de-abstract it. So my legal sense -- I have a sense that this hasn't been correctly applied over the years at the PRC anyway because the way that this would work, to my understanding, is that the State Department is given the power to conclude an agreement through a statute passed in 2006 which, at that point, reformed the way that the Postal Service worked and that -- the way it set its rates. So we used to have, back in the day, we had the Postal Rate Commission. Now we have a more modern Postal Regulatory Commission, but they go through a rate approval process. And to do that, they have to show the basis under which they're getting them approved. That is true whether they're a so-called competitive product which is typically like a package domestically shipped here, or a so-called monopoly product like a first-class letter where the Postal Service is really the only player in that market.

 

      The UPU rates are determined and implemented through an executive agreement, and as Jim, said, executive agreement, not treaty. So the Senate did not weigh in. That agreement is not the supreme law of the land. So the typical rule for any executive agreement, congressional executive or sole executive, in the rare instance, is that you can apply the to the extent that U.S. law allows. Well, it's really not clear to me that the Postal Accountability Enhancement Act, PAEA in 2006, really allows them to set discriminatory rates like this. And as they're going through the process of the self-declared rates, they're going to have to grapple with that and figure out are they setting these -- once you sort of take the agreement out of the picture, are they setting these rates in a way that would be discriminatory against U.S. based shippers?

 

      And I think what it really comes down to is in the past, nobody has ever really challenged that directly at the Postal Regulatory Commission on either ground, on either the ground that the agreement does not supersede PAEA in 2006, or the ground that we hadn't affirmed the agreements in 2012 or 2016. Just nobody had really tried it. This time around, going forward, they kind of have the eye of the community on them, so as they go through this process at the PRC for self-declared rates, they'll have organizations like ours paying attention, very much so, to how they're doing that, the priority order and the details of what they're approving.

 

      And at the same time, the Postal Regulatory Commission can look at these in a little bit of a different way in the absence of the UPU framework and say, "Well, if it's not actually a letter or a flat, then it needs to be a packet, and it's kind of a separate issue." The Postal Service has been telling its regulator that the data around packet travel is really sensitive, commercial data. In a monopoly market, that's essentially an impossible statement to make. So the Postal Regulatory Commission came back and then said, "Well, that's very interesting you say that. Should this be a competitive product?" And as they're making all of these decisions, now we're kind of going through this fresh period of reevaluation with these, and I think that that changes, probably in a fundamental way, the way that we look at the future UPU agreement out of a congress of the UPU that would implement fixes to the terminal dues system.

 

Wesley Hodges:  Matthew, it looks like we do have two questions out of the gate. Here is Caller 1.

 

Caller 1:  What effect will the withdrawal from the UPU have on narcotics cooperation or other cooperation? And what was the reaction from opponents of the Trump administration?

 

Patrick Hedren:  Well, Jim, if you don't mind, I can do the second one probably better than the first.

 

James I. Campbell Jr.:  Okay.

 

Patrick Hedren:  So the second one -- this is fascinating to me. This issue has been very politically fascinating, and Jim and I were kind of joking offline last week that The Washington Post editorial board came out and endorsed the move, and yet, the letter carriers' union came out in opposition to it. And so we probably hit just about the right level for a response for this, but what we have found, I think, is that opponents more broadly of the administration have either stayed relatively quiet or have actually said, "You know what, in this case, this issue -- this is not necessarily something that's exactly the same as other trade issues. This is really kind of a discrete issue in its own little world." And so we've seen a lot of support for it from all sort of corners, with just the very infrequent sort of notes of opposition, most notably from the UPU, which was, unsurprisingly, not pleased with the move.

 

Matthew R. A. Heiman:  Jim, any thoughts on that question?

 

James I. Campbell Jr.:  I think what Patrick says is correct. The caller said something about a narcotics agreement or a narcotics cooperation agreement, but I'm not sure what he was thinking about there.

 

Caller 1:  Is there any cooperation between postal services to screen packages?

 

James I. Campbell Jr.:  Maybe, but not much. As part of the UPU agreement, there is an agree -- it says that items which are prohibited in the country of destination are not permitted in any international postal system, but I don't know of any firm agreement whereby the post offices screen the mail for each other.

 

Matthew R. A. Heiman:  Thanks to the caller. Wes, we'll take the next one if they're still in the queue.

 

Wesley Hodges:  Excellent. We do have one more question in the queue. Let's go to that person.

 

Caller 2:  Just wondered what impact the recent appointments of two new governors to the Postal Service Board of Governors might have on this issue?

 

James I. Campbell Jr.:  One of the governors I know. David Williams used to be the Inspector General for the Postal Service. And in that capacity, he studied the problems of terminal dues fairly carefully and came out strongly in favor of reform. So at least in terms of David, the governors have now picked up quite a bit more expertise than they used to have, and I'm hoping that he will help with the Trump administration and the Postal Regulatory Commission find some sort of a good solution.

 

Patrick Hedren:  I might chime in as well here and maybe get out over my skis a little bit, but to say that we are coming from -- and I think that the question sort of implies sort of what the world used to look like in this space, which is essentially no appointees confirmed to the board for quite some time, which means that the Postmaster General and the Deputy sit on the board, I think, ex officio, but were sort of the only members of it for a significant amount of time.

 

      Well, the Postal Service is kind of a weird creature. It's off the balance sheet of the federal government but subject heavily to its laws, and then it almost has two regulators. It has one real regulator, which is the Postal Regulatory Commission, but the other is the Board of Governors which is somewhere between something like a corporate board and a regulatory oversight body in some respects. Without that board, I think it's much tougher to get the Postal Service to respond quickly to a challenge like this. It's a big, big, big institution, so it's always tough to turn on a dime. But to the extent that you can, and that you can move them, at the end of the day when the President issued the press release acknowledging receipt of the State Department report and indicating our future intent at the UPU, at the time, the Postmaster General had concurred in that and had come to the table and worked with the administration to figure out A) yes, we can do this, B) here's kind of how we might.

 

      That kind of interaction is really helpful, but the presence of a Board of Governors certainly supports a system in which that kind of collaboration is more likely to occur. So with all of the various issues that the Postal Service is grappling with, and they are legion, having a Board of Governors there is a very, very helpful move. So as they begin to appoint and, ideally, confirm all these individuals, I'm with Jim. I think that we'll see some people that understand this issue and that are committed to addressing it.

 

Matthew R. A. Heiman:  So given that we're coming near the end of our hour, I want to ask a final question to both Jim and Patrick, and that is if you could pull out your crystal ball and give us your best guess as to where do you think this all goes? I know the President has talked about issuing our own rate structure and essentially withdrawing from the UPU structure by 2020, and then there's the intervals of the various congresses that come up with the UPU. Where do you think we are in 2020 or 2022 on this issue and the U.S. relationship with the UPU? And Patrick, maybe I'll start with you.

 

Patrick Hedren:  Crystal balling this. Well, so I start from an assumption that this is -- we have rung the bell on this problem, and I think very much going forward, it's not politically tenable for this administration or a future administration to go back in and accept a slightly less bad version of terminal dues. I think as they're going through the process for self-declaring rates, I see that change as a permanent one, not likely to be renegotiated in future administrations because, remember, now we're starting from this position of you would have to make a compelling policy argument for why we should subsidize inbound packages, and I'm really hard pressed to figure out what that argument might be.

 

      At the same time, we'll be implementing the STOP Act, as Jim referenced, and that will take some time to do. But as we do that, we're collecting more advanced electronic data. Clearly, we're not going to feel comfortable going into a system and renegotiating to a point of you're able to kind of push back on that and not provide those on your packet. So there's a couple of fundamental changes in the next year here that I think they're just baked into the cake. As long as we can accomplish them within the next one-year period, I think they're really baked into the cake.

 

      Now, is that a question? Maybe. Can I envision a scenario in which the State Department carries the ball as far as they can but gets to a point after one year of saying there's so much left to do here that we don't want to drop off a cliff. Yes, I can imagine that, and I can imagine that being very much the risk because this broader framework is valuable. There is value to the UPU framework, and because of that, I see our long-term trajectory as figuring out, as Jim said, some of these postal operators have become private over the years. Some of them are using this advantage commercially, and some of them, frankly, just do not transit mail through the system to any significant amount.

 

      I think the type of agreement you need to have for these countries is very different now. And when they put it in place, if you're in the U.K., you're in London, and you wanted to get a letter over to Berlin, well, they probably took it through France. And depending on various moments in history, the French may not, even outside of war, been that excited about carrying your letter for you to take it to Deutsche Post, and you needed to have an agreement like this in place. Well, some of those things may not be true in the same way today.

 

      So I think my hunch tells me that we go through the process of self-declaring rates, and we try and maintain something on the letters and flats front which still very much has value and very much has volume, and that we try to get back there, try to figure out what it would look like But, as Jim said, I mean, the system that they've defaulted to over the years here is really clunky, so it's going to be some time before we can get back to the table to get something approved as a new framework. And that's going to be a little bit uncomfortable for us for a few years while we go through it.

 

Matthew R. A. Heiman:  Great. Thanks, Patrick. Jim, any thoughts on sort of the crystal ball and what the future holds for these issues?

 

James I. Campbell Jr.:  Well, I agree with Patrick that by January 1, 2020, the United States will introduce some sort of self-declared rates, at least for inbound small packets, meaning packages under two kilos. Exactly how non-discriminatory they are, whether they fully eliminate the preference for foreign mailers, is, for me, a little bit unclear still. Whether or not we extend this to other packages, to the parcel post system, is unclear. And more importantly, our relationship with UPU after 2020, after the next congress, is -- for me, that depends very much on the extent to which the Trump administration sort of gets a plan together and acts to lead the UPU to reform. It's unclear how, right now, how the Trump administration's going to sort of roll this out. So it could be a much reformed UPU. It could be that we're out of the UPU by 2020.

 

Matthew R. A. Heiman:  Well, thank you, Jim. Clearly, it's an issue in which we need to stay tuned because there will be material developments, and if there are, we may well bring Jim and Patrick back together to talk about any new wrinkles. But for now, I think it's time to close it out. And I really do want to thank Jim Campbell and Patrick Hedren for a great discussion about a topic that I suspect a lot of our listeners may not have known a whole lot about before this discussion but certainly know a lot more having listened to both of you. So thanks again for your time. And with that, Wes, I'll turn it to you to close us out.

 

Wesley Hodges:   Thank you so much, Matthew, and we definitely appreciate the panel today. So on behalf of The Federalist Society, I'd like to thank our experts for the benefit of their valuable time and expertise today. We welcome all listener feedback by email at info@fedsoc.org. Thank you all for joining. This call is now adjourned.

 

Operator:  Thank you for listening. We hope you enjoyed this practice group podcast. For materials related to this podcast and other Federalist Society multimedia, please visit The Federalist Society's website at fedsoc.org/multimedia.