September 26, 2019 10:02AM

Delivering a New Postal Trade Deal

We at Cato’s trade policy center have criticized the Trump administration’s trade policy quite a bit these past couple years, but last October I wrote positively about the administration’s attempt to reform an obscure international agency at the margins of trade policy (but kind of central to some actual trading):

The administration is concerned about the Universal Postal Union (UPU), a specialized agency of the UN.The UPU was established by the Berne Treaty of 1874 and became a UN agency in 1948. The administration has taken issue with the “terminal dues” rates issued by the UPU, under which, the administration argues, the United States has been subsidizing the shipping costs of foreign suppliers in certain countries, including China, when they send goods to the United States. The basic story is as follows (some good background is here).

When companies or individuals ship goods abroad, they use their domestic postal service to send the item. When that item arrives in the foreign country, the postal service of the shipping country makes a payment to the postal service of the destination country in the form of “terminal dues.” These “terminal dues” are set by the UPU and are designed to cover the destination country’s portion of the transportation costs – basically an agreed upon reimbursement rate to transport the item to the recipient.

The Trump administration’s concerns relate to the “terminal dues” rates set through the UPU for less wealthy countries, such as China. These countries’ rates are set very low, and do not necessarily cover the actual costs of shipping (and are sometimes significantly less than the rate American companies pay to ship within the United States). What this means in practice is that American taxpayers are sometimes subsidizing the transport costs of American companies’ foreign competition. It appears, then, that there is some legitimacy to the administration’s concerns about unfairness.

While I was sympathetic to the U.S. concerns, I expressed doubts about the Trump administration’s strategy for renegotiating the treaty, which had a threat of withdrawal as its centerpiece. We’ll never know what would have happened with a different strategy, so it’s hard to judge whether this was the right approach, but regardless it appears that there is now a deal to reform the system. The NY Times reports:

The United States agreed on Wednesday to stay in a United Nations body that has regulated international mail service for more than a century after delegates agreed during emergency talks to change the way postal fees are structured.

The deal struck on Wednesday will allow the United States to start setting its own postal fees in July and allow other countries that receive more than 75,000 metric tons of mail a year to start phasing in higher rates in January 2021.

The agreement is less disruptive than what the United States had pressed for, which would have created a pricing free‐​for‐​all. This new system sets a volume threshold for countries that can self‐​declare rates and a number of other controls on the process.

As part of the agreement, the United States will also pay $40 million to the postal union over a period of five years. The funding will help the postal union promote the use of computerized systems that provide security against shipments of drugs like fentanyl and other dangerous goods, said David Dadge, a union spokesman.

People are likely to draw a variety of lessons from this episode, but here’s what I take from it: When the United States has reasonable concerns about international economic agreements, other governments are often willing to listen and make the necessary reforms.