On Wednesday, the administration announced that it was adding a new discarded international organization to the pile. Pulling out of international treaties undoubtedly feeds the red-meat base of the Republican Party, which will cheer Trump for sticking it to — checks notes — the Universal Postal Union (UPU).
Politico’s Matthew Choi explains that this is mostly about China:
The Universal Postal Union, a body of the United Nations since 1948, allows developing countries to pay cheaper rates when shipping packages internationally, often putting some of the cost of delivering packages on the postal services of wealthier countries. The policy was initially intended to spur economic growth in poorer countries by connecting them with global markets.But now that some of those countries have become exporting giants, the administration hopes to use its withdrawal as leverage to negotiate more favorable terms for historically wealthy countries like the United States. A senior administration official said the administration would prefer to stay within the union and that a full withdrawal takes a year to implement and that he hopes the U.S. can negotiate more favorable terms within that time frame.. . . A senior White House official said Wednesday that the administration is working in “Trump time” to expediently implement rates that fully cover the cost of shipping for international packages once in the United States. He said the U.S. could be setting its own rates as soon as six months from now.
“Trump time” does . . . not sound reassuring.
This move has puzzled even the most hard-core diplomatic correspondents:
Toosi is a fantastic State Department scribe, and the hard-working staff here at Spoiler Alerts feels it owes her a few solids from the past few years. So we took a deeper dive into what the Trump administration is doing here and came away with two conclusions:
- The Trump administration is not completely nuts on this issue; and
- It will nonetheless be very likely to bungle this attempt at coercive bargaining.
While some might interpret this move as just another example of national security adviser John Bolton’s sovereigntist ambitions run amok, there is a legitimate policy issue at play here. The nature of the dispute between the administration and the UPU is over the terminal-dues system. As the UPU explains, “the designated operator that sends a letter-post item to another country remunerates the destination Post for processing and delivering that item. This system of remuneration is known as terminal dues.” The United States Post Office (USPS) is the designated operator in the U.S. of A. The UPU sets these terminal dues at their quadrennial meetings. As is typical of a multilateral institution like this one, changing these rates takes time and patience.
The U.S. beef with the UPU predates the Trump administration. A 2015 USPS Inspector General’s report and a 2017 Government Accountability Office report both state that, at present, the terminal-dues system hurts the USPS by charging a lower-than-market price for shipping mail from the post of entry to wherever the letter needs to be sent. From the 2015 USPS report: “The U.S. Postal Service and other operators have lost money on international postal letters and small packages received from abroad, especially from emerging countries like China. The explosive growth in cross-border e-commerce traffic has greatly elevated stakeholders' concerns about the economic distortions created by the system.” A 2018 UPU report also shows that international mail from East Asia is the one robust growth sector in the global mail economy.
The Financial Times’s James Peliti and Andy Bounds offer concrete evidence to back up USPS claims:
Lower costs for developing economies mean Chinese retailers can sell small goods such as phone chargers in the US for less than domestic retailers can. The price for a 4.4lb package shipped from one US state to another is $19-$23, while China Post pays $5 to ship it anywhere in the US, according to the US Postal Service. It lost more than $135m handling imports from across the world in 2016.
It is therefore unsurprising that the FT, Politico and New York Times reports all are filled with approving statements from chambers of commerce folks.
The USPS also acknowledged in its 2015 report that this wasn’t the biggest deal in the world, and the GAO noted that the system did benefit U.S. consumers, But still, for an administration obsessed with eliminating trade disadvantages and a president who is obsessed with the Post Office, I can understand their trying to disrupt the status quo. And this is not a typical case of Trump’s crony capitalism; one of the beneficiaries of reforming the terminal-dues system is Amazon.com, a company Trump is known to dislike.
The problem, of course, is that this is the Trump administration, which means I seriously doubt its ability to negotiate anything better than the status quo. It’s not as if the administration got a whole lot out of the renegotiated United States-Korea Free Trade Agreement (KORUS), and it didn’t get much more out of the renegotiated North American Free Trade Agreement. The stakes are lower here, but the UPU is also more constrained in its ability to make concessions. Furthermore, in typical Trump administration fashion, all its moves on this issue appear to have been unilateral, rather than building a coalition for change.
The withdrawal announcement takes a year to kick in, giving everyone time to negotiate. This Government Executive article by Eric Katz does a good job of describing the state of play from here on in. The administration threatened to withdraw in August to gin up leverage before the extraordinary September UPU Congress in Ethiopia. As Katz reports, that didn’t work out too well for the Trump administration:
Efforts to push for self-determination of rates were not well received at the Ethiopia meeting, a senior White House official said, and the administration will now begin a regulatory process to accomplish that on its own outside of the UPU.“We were rebuffed there,” the senior official 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.”Officials said they expected the U.S. government to start setting its own rates for small packages within the next six months to one year.. . . “We would prefer to stay within the UPU,” a senior White House official said, noting, “It does provide some benefits.” The official added the UPU assists with the war on illicit drug trafficking, and the administration is working to maintain its access to advance electronic data whether or not it withdraws from the organization.
This is the thing I keep coming back to: While the UPU status quo does hurt the Post Office, it’s not a big loss. The benefits from cooperating with the UPU seem significant across a wide array of issues, including counterterrorism and combating the opioid epidemic. This appears to be yet another issue in which this administration has prioritized a genuine but small unfair trade subsidy by ignoring all of the other benefits from international cooperation.
So, to sum up: The Trump administration is not completely crazy on this issue. It’s possible that the administration will pocket some token concession and back down. But it’s likely that the administration has once again overreached.