Negotiators from more than a hundred countries are working behind the scenes in Geneva, Switzerland, to keep a governing body over global mail intact.
Jean-Paul Forceville, the chief negotiator for France’s La Poste, tells CNBC the probability is “pretty high” that a compromise is reached this week to reform the 144 year-old organization along some of the lines the United States has proposed.
The White House has been pushing to raise—or, in postal jargon, “self-declare”—the rate it charges other countries to deliver their packages. Peter Navarro, leading the White House delegation in Geneva, says that a higher barrier to entry would shift demand from cheap goods produced in and subsidized by China to higher-quality goods produced in the US.
“Donald Trump is taking action to address this disparity, which costs the USPS and American consumers millions of dollars each year,” Navarro wrote in the Financial Times this month.
To effect the changes as soon as possible, the White House triggered a one-year withdrawal process in late 2018. The UPU convened an “extraordinary Congress” this week to address the US’s proposals or risk its withdrawal—and a full-scale disruption of the global mail system.
“I think we know why we are here,” said the Kenyan delegate from Posta Kenya, without referencing the United States.
The Trump administration’s grievances center on one portion of the mail calculus called terminal dues – the negotiated rate a member government can charge another country when packages under 4.4 lbs arrive on its shores. On Tuesday, the UPU rejected the White House’s preferred approach: Allowing all countries to set their own rates immediately.
But the US—along with France, Canada, Japan and others—are now working on a “multi-speed” compromise that would allow these rates to fluctuate on a set schedule.
Higher prices ahead – but for whom?
The bulk of the changes would apply to letters and packages, under 4.4 lbs., sent internationally. While a relatively small subset of global commerce, it captures military mail, absentee ballots, retail catalogs, trade journals and light e-commerce purchases.
As a result, both US importers and domestic businesses reaching non-US customers could see costs rise, says Merry Law, president of WorldVu.
“The US consumer would certainly see a higher outbound package price. For inbound packages, a foreign company might indeed just say, ‘We’re going to have to charge a delivery charge,’” Law tells CNBC. “I already know mailers who are making other plans.”
For that reason, companies like eBay, Etsy, Amazon and Alibaba have raised concerns about the impact, either directly to White House officials or through industry groups.
“We will have our sellers’ backs regardless of the outcome and work to implement a solution to that they can continue serving buyers around the world,” Etsy’s head of global shipping, Roman Sobieri, said in a statement to CNBC.
The shift may drive more consumers to purchase from dollar and discount stores, and drive more shipping volume to express carriers like FedEx, UPS and DHL, US officials say. Commercial air carriers may see less cargo space taken up by USPS deliveries, Law says.
Already, shippers are working to address the issue. Stamps.com launched a new product, GlobalPost, to try to give comparable prices to what they can get from the USPS. ” We’re acutely aware of the impact this could have on our customers, our customers do ship internationally quite a bit, and we want to ensure they have seamless access to those markets,” said Jeff Carberry, Stamps.com CFO.
A January 2019 white paper by the Council of Economic Advisers highlighted “distortions” that exist in the system but did not estimate the impact of the forthcoming changes.
US officials would not share internal projections of where the White House believes prices would go, and prices negotiated between UPU countries are done so privately.
In response to a request for information about changes in cost, Peter Navarro sent CNBC an interview with longtime FedEx lobbyist Jim Campbell in which Campbell suggested US terminal dues would rise 125% to 180%. Other estimates, according to industry executives like Law, suggest terminal dues could rise up to 600%.
Leveling the playing field
The organization that will see the greatest impact will be the US Postal Service, whose annual finances ebb and flow depending on what it pays other countries and what it receives in return from them for its services.
A spokesperson for the US Postal Service provided CNBC a statement in support of the administration’s actions but declined to answer whether the organization would lose money – or be forced to pay a fee – to level the playing field.
Forceville says any compromise will require a member country to pay a fee for the privilege of setting its own rates. A second participant in talks says the amount under consideration for the US is roughly $10 million, an annual payment the USPS would make into the UPU’s long-underfunded pension. The plan services the roughly 200 full-time employees of the multilateral organization, three of whom are American.
“The Administration deserves credit for taking leadership on addressing a global, economic distortion that was affecting trade,” says Clete Willems, a partner at Akin Gump and former White House trade negotiator. “That should be weighed against any minimal cost of preserving the UPU system.”
The Administration’s move is backed heartily by the National Association of Manufacturers (which believes US producers will see higher demand); the US Chamber of Commerce (which believes US producers will see higher demand); and the express carriers themselves.
UPS and FedEx representatives provided statements in support of the move, but declined to speculate on the impact to their business. Three participants in talks confirmed that, if government-backed postal services become more expensive, private carriers’ prices will appear more competitive.
“What we’re going to do is make the USPS option more consistent with the rest of the market,” one White House official told CNBC. “It might benefit FedEx and UPS, but not at the expense of USPS.”