LEXIS-NEXIS® Congressional Universe-Document

Search Terms: postal w/10 modernization, House or Senate or Joint

Document 8 of 51.

View Related Topics

March 9, 2000, Thursday

SECTION: PREPARED TESTIMONY

LENGTH: 4311 words

HEADLINE: PREPARED TESTIMONY OF FREDERICK W. SMITH CHAIRMAN, PRESIDENT, AND CHIEF EXECUTIVE OFFICER FEDEX CORPORATION

BEFORE THE HOUSE COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT SUBCOMMITTEE ON THE POSTAL SERVICE

BODY:
On behalf of the management and 200,000 employees and independent contractors who make up the FedEx family, I would like to thank the Subcommittee for this opportunity to present our views on U.S. international postal policy

There are four main points that I would like to make:

- While the delivery services sector is rapidly evolving into a global business that includes elements of postal, express, and logistics services, the primary legal framework for this sector, the Universal Postal Convention, is outdated; it needs to be fundamentally revised so that it is pro-consumer, pro-competitive, pro-global, and pro- reform.

- Despite the best efforts of the U.S. delegation, the new UPU Convention concluded in Beijing in 1999 is anticompetitive and anti- reform; the United States should allow the Postal Service to implement operational provisions of the Convention but give serious consideration to withholding formal ratification (like most nations).

- The act transferring policy responsibility for the UPU to the Department of State was a major step forward but experience has demonstrated that additional reforms envisioned in H.R. 22 are urgently needed.

- The United States needs to put the case for reform of the international legal framework directly to other governments, but first it needs to undertake a major review of policy goals and options. GROWTH OF EXPRESS SERVICES IN THE UNITED STATES

FedEx was founded twenty seven years ago, on April 17, 1973, to be exact. In less than three decades, our company and other express services have changed the way all of us in the United States think about delivery services. Since then -- thanks in large part to wise decisions to deregulate both air and surface transportation -- the delivery services sector has evolved rapidly into a universal nationwide infrastructure that includes elements of postal, express and logistics services.

Our industry in general - and, indeed, FedEx in particular - has been very fortunate to be at the right place at the right time to take advantage of four very powerful macro trends shaping the national economy.

- First, there has been an undeniable rise of high-tech and high- value-added goods as a percentage of economic activity- an issue that Federal Reserve Chairman Alan Greenspan has addressed on numerous occasions.

- Second, those high-tech goods are increasingly sourced and sold on a nationwide, indeed global, basis.

- Third, to compete in this high-tech, global economy, companies have turned to fast-cycle logistics to help streamline their entire supply chain. - And, fourth, just within the past decade, this business model has intensified with the application of e-commerce capabilities that add both velocity and visibility of goods in transit.

These macro trends have helped propel the United States into the longest period of economic prosperity in the history of our country.

EVOLUTION OF GLOBAL DELIVERY SERVICES

Economic trends which have powered the growth of the national economy are rapidly transforming the global economy as well. The air express industry has been a primary facilitator of this global economic advance. Air transport accounts for less than 2 percent of the weight of goods shipped internationally, but more than 40 percent of value.

As I said in recent testimony on the accession of China to the WTO, no country can expect to operate a modern economy or be at the forefront of trade in the twenty-first century without a strong air express service.

Express companies were the first type of international delivery service to harness the potential of these technologies. Specializing in the collection and delivery of urgent documents and parcels, international express companies have developed a seamless global service that is the same locally and internationally. Looking to the future, however, the implications of modern technology are not confined to express operations. Today, systems developed for international express services are being adapted to the movement of international mail and high value freight. Distinctions between international express, postal, and high-end freight services are disappearing.

Global delivery services are becoming a central feature of the global economy.

A NEW INTERNATIONAL LEGAL FRAMEWORK

There is no question this is the way the world is going to work. But there is a question, a serious question, whether the international legal structure will help or hinder the process.1 I believe it is imperative to shape a new international legal structure that is pro- consumer, pro-competitive, pro-global, and pro-reform.

Pro-consumer

The basic legal framework of international delivery services is the Universal Postal Convention. Although it has been amended and reorganized, the fundamental concepts of the Convention have not changed since the end of the nineteenth century. A century and a quarter ago, the Universal Postal Union (UPU) was a good idea, facilitating the exchange of international mails between national postal administrations. Today, the UPU is an anticompetitive anachronism impeding development of an important element of the global infrastructure.

The fundamental flaw of the UPU is this: it is an inter-governmental organization of the post offices, by the post offices, and for the post offices. Yet post offices today do not speak for their governments. They speak for their own commercial self-interests, as they compete more and more aggressively against private operators and other media. Nor, with a handful of notable exceptions, are post offices in the vanguard of changes that are reshaping the global delivery services sector. What the majority of post offices have in common is a shared interest in dividing the sector into national markets dominated by post offices.

The present UPU Convention is focused not on the needs of the international economy but on the welfare of nationally based public postal operators. The Convention mentions the "user" or "customer" or "consumer" of postal services only twice (once to encourage preferential rates for major users). Postal administrations are mentioned more than 200 times. Private operators are not referred to at all. The present Convention is not concerned with facilitating international postal service; it is concerned with promoting national postal operators.

In the twenty-first century, the UPU Convention needs to be rededicated, this time with an unwavering focus on the needs of the consumer rather than on advancing the interests of one class of operators. Governments, not post offices, must make international law, and all interested parties -- users, public postal operators, private operators, and employee groups -- should have equal access to the decision making process.

Pro-competitive

The present UPU Convention distorts and retards international postal service by establishing a non-economic system of charges for the delivery of international mail. When the Postal Service receives mail from a foreign post office, it charges the foreign post office a rate called "terminal dues." Terminal dues charges do not correspond to U.S. domestic postage. In fact, terminal dues have nothing to do with the Postal Service's cost of delivering international mail. In many cases, terminal dues rates are below cost. For example, a typical single-piece domestic letter weighs about 8 ounces, and the Postal Service charges an American mailer 33 cents to deliver it. But the Postal Service charges a foreign post office only about 7 cents to deliver the same letter (23 cents from some European countries). It is as though the Postal Service had printed two sets of stamps, one set for Americans and one set for foreign post offices. This practice is indefensible.

Not only does this practice discriminate against American mailers, it also discriminates against private operators. If a foreign post office and international private operator arrive in the United States with the identical bags of foreign mail, the Postal Service will charge the foreign post office the low terminal dues rate and the private operator the higher domestic postage rate. Terminal dues are available only to post offices.

Another way to look at the special treatment which the Postal Service gives to foreign post offices emerges from the Postal Rate Commission's recent International Mail Report (1998). This report shows that the cost coverage for inbound international mail was 113.5% while the cost coverage for domestic mail was 159.5%. If the Postal Service had charged overhead costs to foreign post offices in the same proportion as to American mailers, it would have collected approximately $176 million more in revenues. In essence, the Postal Service gave foreign post offices a 38 percent discount off of normal domestic postage rates.

Private operators like FedEx face the same postal discrimination abroad. The German post office, for example, gives the Postal Service one rate for the delivery of U.S.-origin letters and gives FedEx a different, higher rate if we tender identical letters for delivery.

Even worse, to protect this artificial terminal dues scheme against arbitrage, post offices intercept international mail that is posted in a country other than the country where post offices believe it should be posted. For example, suppose a large U.S. bank uses FedEx to send monthly credit card statements in bulk to the Dutch post office for forwarding to its European customers. A destination post office -- for example the German post office -- might intercept this mail and refuse to deliver it because it was not posted with the U.S. Postal Service. In essence, the German post office would be acting to protect its sister post office, the Postal Service, against competition by FedEx and the Dutch post office. This practice is flatly contrary to antitrust principles, yet the UPU Convention condones it on a worldwide basis.

In the twenty-first century, the UPU Convention must be cleansed of anticompetitive provisions which distort international commerce and depress investment. The Convention should not choose sides in the commercial competition among different operators, whether public or private. It should be commercially neutral. Global services should be facilitated, not impeded.

Pro-global

The UPU Convention also hinders overdue reform and simplification of customs laws which reinforce national barriers to emergence of the global economy. Customs simplifications found in the UPU Convention, which were once desirable, have become set in concrete and inhibit further reform.

The first UPU agreement on international parcel post was adopted in 1880. From the start, parcel post was shaped by customs considerations. Parcels were treated separately from letter-post mail because of fear that customs control of parcels would lead to delays for all mail. Over the years, the UPU worked with customs officials to develop simplified customs procedures for postal parcels. In 1977, the UPU and the Customs Cooperation Council (predecessor of the World Customs Organization) included in an international customs treaty (the "Kyoto Convention") a provision that authorizes post offices to use very simplified customs forms prescribed in the UPU Convention. Moreover, the Convention exempts post offices from liability under customs laws.

When international express operators developed in the mid 1970s and early 1980s, customs authorities treated us as carriers of freight. We faced complex documentation procedures originally developed for clearing shiploads of goods. Over the years, express companies have worked with customs authorities to simplify and speed up these procedures, primarily through adaptation of computer technology and establishment of dedicated customs facilities, often at great cost to us.

In this manner, two quite different modes of customs clearance have developed for international documents and parcels: a postal mode and an express mode. Postal mode is simple, slow, and cheap. When a typical postal parcel enters the United States, the Postal Service is not required to fill out a customs form; it simply tenders the parcel to Customs. Using information on the package supplied by the mailer, a Customs inspector prepares a simple form called a "mail entry" and clears the parcel. If duty is owed, the Postal Service collects if it from the addressee and remits it to Customs. Many times, Customs inspectors skip the mail entry and waive the duty. If there are errors in the documentation, the Postal Service bears no liability.

The express mode of customs clearance is fast, but it is also complicated and expensive. When a typical express parcel enters the United States via FedEx, we fill out (either physically or electronically) a detailed customs form for each parcel and provide substantial backup documentation. We must calculate and pay the duty to Customs before Customs will clear the parcel. Often we do not get the duty back from the addressee because it is too costly to collect small sums of money. Since the Customs Service does not have to do the paperwork, it never waives duty on parcels cleared by express mode. If there are mistakes in the documentation, FedEx is liable for hefty fines or worse.2

I do not object to two modes of customs clearance. Different modes of customs clearance for different types of articles may be sensible: for example, cheap clearance for non-urgent household goods and expensive clearance for time-sensitive commercial goods. What I do object to is treating different operators differently in the clearance of identical shipments. Public postal operators can choose between postal mode and express mode of customs clearance. We have access only to express mode and are thus handicapped from competing for the transportation of parcels that lend themselves to the postal mode of customs clearance.

In the twenty-first century, the postal mode of customs clearance defined in the UPU Convention must be made available to all operators. It may, as some authorities argue, have to be revised to accommodate the needs of modern customs law. But there is no excuse for an international convention that establishes a simplified system of customs clearance and makes it available to only a portion of operators in a competitive market.

Pro-reform In addition, in a twenty-first century rewrite of the UPU Convention, I believe we should go beyond fixing existing flaws. We need to consider additional principles to facilitate the exchange of international documents and parcels. Inspiration is provided by the "reference paper" in the Basic Telecommunications Agreement adopted by the World Trade Organization in 1997. The reference paper embodied regulatory guidelines which signatory countries agreed to incorporate into their national law. A similar approach should be included in a modern UPU Convention.

For example, in a revised UPU Convention, signatory countries might pledge that they will:

- apply national laws equally to all international operators (in particular, competition, customs, and tax laws);

- not grant public postal operators (or other national operators) special or exclusive rights in the export or import of documents and parcels except where, and to the extent, demonstrably necessary to protect the provision of universal postal service at the national level;

- ensure that post offices with special or exclusive rights cannot use revenues derived from such rights to gain a competitive advantage in the international sector (in particular, at a minimum, prices of international services should bear the long run marginal costs of such services and a proportional share of common overhead costs);

- ensure that post offices with special or exclusive rights in the domestic sector provide all international operators and shippers equal access to non- competitive services;

- ensure that public postal operators with special or exclusive rights that provide international services keep accounts for such services separate from accounts for domestic services and treat jointly incurred costs in a transparent manner; and

- ensure that an impartial and independent regulator is established to enforce regulatory provisions.

As experience in the telecommunications sector demonstrates, we need a global agreement to limit national restrictions on international service.

ACTS OF THE BEIJING CONGRESS

In August 1999, the UPU convened a general congress in Beijing to draft a new Convention and related acts. The new Convention will apply during the five-year period January l, 2001 to December 31, 2005. In preparing for this congress, themajor parties were well aware of the flaws in the present Convention. From postal reforms at national level and the telecommunications agreement in the WTO, the general path to reform was well lit and visible to all.

Several countries urged the Beijing Congress to take the UPU's first steps down this path. The United States and Germany urged the Congress to study reform for two years and convene an Extraordinary Congress in 2001 to adopt necessary measures. The Netherlands proposed that the UPU open its meetings to representatives of all interested. Australia argued that terminal dues should be brought into conformance with the principles of the WTO's General Agreement on Trade in Services (GATS). New Zealand suggested leaving terminal dues to commercial contracts between post offices. The United States urged limitations on the right of post offices to intercept mail not posted in accordance with the UPU's implicit division of the world into national markets.

Unfortunately, a coalition of anti-reform post offices blocked all these reforms. The only vestige of reform to emerge from Beijing was establishment of a "High Level Group" to study future reform. Even so, the High Level Group is subsumed to existing UPU institutions and powerless to convene an Extraordinary Congress.

Legal repartee in respect to terminal dues was particularly acute. The United States, citing "the growing blur between private delivery services and competitive services of the postal operators," added a mild reservation to the Convention stating that the U.S. would implement UPU terminal dues in a manner consistent with procompetitive provisions of GATS and future GATS agreements. In response, sixty-five countries added a second reservation declaring that, in respect to them, UPU terminal dues must be observed regardless of GATS and future GATS agreements. Even by UPU standards, this is a remarkably anticompetitive position.

Far from separating commercial and govemmental functions, as advocated by reformers, the Beijing Congress moved in the opposite direction. The UPU Postal Operations Council, a body limited to postal officials, has become an international postal legislature. This body is now vested with authority to adopt, amend, and repeal about three-quarters of the UPU's binding legal texts. At the same time, this same Postal Operations Council is responsible for a laundry list of projects intended to promote the commercial fortunes of post offices. Market analysis, competitive analysis, customer satisfaction, parcel and express services, email and e-commerce, freight services, direct marketing, and financial services -- all are on the agenda of the Postal Operations Council.

In short, despite the best efforts of the U.S. delegation, the Beijing Congress of the UPU did not take the path leading to reform of the Convention and adaptation to the twenty-first century. The Beijing Congress acted to preserve the UPU as an inter-govemmental organization of, by, and for post offices until 2006. Anticompetitive provisions were extended for five years, as was customs favoritism for postal articles. And anti-GATS provisions are incorporated by reservation. The Beijing Convention is antithetical to the whole American approach to modernization of international trade in services.

The new UPU Convention is so deeply flawed that I believe the United States should give very serious consideration to simply not ratifying it. Ratification is a formal step that binds the United States to its provisions. Without ratification, international postal service will continue unimpeded. The Postal Service and foreign post offices will implement the Convention as an agreement among post offices. In fact, the great majority of UPU member countries do exactly this; they never ratify the UPU Convention.

Rather than binding ourselves legally to the Beijing Convention for the next five years, the United States should actively press for reform in the international legal structure before the end of 2005. We cannot impose our will on other governments, nor should we try to do so. But we can and should make every effort to work closely and cooperatively with reform-minded governments, both within and without the UPU, to develop a legal framework suited to the new century.

LEGISLATION NEEDED

In 1998, Congress transferred lead authority in UPU policy matters from a commercially interested party, the Postal Service, to an impartial government agency, the Department of State. This was a long- needed, highly desirable reform. FedEx has been actively working with the Department of State in the field of international postal policy. I am happy to commend Ambassador Michael Southwick and his team for their hard work and evident dedication to advancing the interests of all Americans.

Despite these improvements, however, much remains to be done to render the process of developing U.S. policy open, even-handed, and informed. After a year and half, the decision making process is still opaque. Key UPU policy documents are unavailable. Interested parties have only a general idea of who advocates what position or why. No written record exists to illuminate the bases for U.S. policy determinations. The Postal Service continues to insist that it is both interested party and government decision maker, a dual status which Congress rejected in 1998 but the Department of State seems unwilling to confirm. The long term aims and purposes of U.S. international postal policy are a blank slate awaiting the chalk's mark.

To complete reforms well begun in 1998, additional Congressional input is needed. Most of the necessary steps were foreshadowed in the internationalprovisions of H.R. 22, the Postal Modernization Act of 1999. A year ago, I testified to this Subcommittee in support of H.R. 22. Experience in the last year has demonstrated forcefully the need to enact H.R. 22's reforms in the international policy area. In particular, I would emphasize the importance of the following points:

- a legislative statement of pro-competitive national policy goals;

- a unambignous designation of the Department of State as the sole government agency authorized to negotiate and conclude international conventions in the name of the United States; - a legislative mandate to adopt open, transparent decision-making procedures in the development of U.S. international postal policy; and

- a requirement of equal application of U.S. customs laws to postal and private shipments.

In addition, I believe the need for several additional provisions has also been indicated.

- First, the wrangle over public disclosure of the International Mail Report by the Postal Rate Commission should be resolved. I believe the Postal Rate Commission should be required to publish a public report on international mail that is consistent with public disclosure requirements adopted in general postal rate cases.

- Second, I suggest that U.S. law should make crystal clear that, in the field of international delivery services, the Postal Service is an operator and not a regulator and can be given no greater access to the govemmental policy making apparatus than other interested parties.

- Third, I believe that the persistently anticompetitive nature of the UPU indicates that the United States should, like the European Union, make antitrust laws applicable to the international agreements among post offices.

A U.S. POLICY REVIEW

Finally, before the United States can make the case for reform as I have urged, it needs to do its homework. The U.S. should initiate a broad review of its policies towards the international exchange of documents and parcels. The Executive and Congress need an objective description of the market and market trends, a comprehensive survey of approaches of other governments, and an identification oflong term policy options. Following the example of the European Commission in 1998, the U.S. government should retain independent expert consultants to gather and refine much of this information. I pledge that FedEx will do all that we can to cooperate with the government in this effort.

Thank you for your consideration of the views of FedEx.

FOOTNOTES:

1 See, e.g., Organisation for Economic Co-operation and Development, "International Parcel Delivery" (1997); "Competition Policy and International Airport Services" (1998); "A Global Marketplace for Consumers: Simplifying Customs Clearance Procedures" (1999); "Promoting Competition in Postal Services" (1999), and "Regulatory Reform in International Air Cargo Transportation" (1999). In contrast, nearly 90 percent of shipments handled by private express companies were assessed proper duty.

2 In 1998, U.S. Customs described differences between postal and express modes of clearance in "A Review of U.S. Customs Treatment: International Express Mail& Express Consignment Shipments." Last week, the Air Courier Conference of America released a study by Wirthlin Worldwide which shows that only six percent of all express shipments coming into the United States through the U.S. Postal Service are properly processed and assessed customs duties and fees.

END

LOAD-DATE: March 10, 2000

Document 8 of 51.


Search Terms: postal w/10 modernization, House or Senate or Joint
To narrow your search, please enter a word or phrase: