Trade and Investment

Here's why the US has withdrawn from an historic 144 year-old treaty

A U.S. Postal delivery person pushes a cart in the financial district in New York City, U.S., November 28, 2017. REUTERS/Brendan McDermid - RC191C34E9D0

Sending a signal: The United States is turning its back on a global postal treaty Image: REUTERS/Brendan McDermid

Sean Doherty
Head, International Trade and Investment; Member of the Executive Committee, World Economic Forum
Kimberley Botwright
Head, Sustainable Trade, World Economic Forum
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The United States is planning to withdraw from the Universal Postal Union (UPU) - a United Nations agency dedicated to global cooperation on post. The White House has taken issue with the body’s negotiated rates for international delivery.

These rules determine what each country’s postal service may charge another for handling a shipment once it reaches their shore. The US suggests the system gives Chinese e-commerce companies an unfair advantage by making it cheaper to ship items from China than within the US. There’s truth to this in some cases, though it’s often overstated.

Although the headline move has been brewing for some time - and comes amid growing economic tensions between Washington and Beijing - it highlights something very interesting happening in global trade.

Global business to consumer e-commerce transaction values (US$billion) Image: TI Insight Research

Growth in traditional trade has been far outstripped by growth in cross-border e-commerce. Consultancy firm Forrester forecasts annual international e-commerce growth of 17% between 2017 and 2022, and 12% for overall e-commerce (cross-border and domestic, B2B and B2C).

This trend has had major impacts on logistics and transport services. Distribution channels have been rethought to deliver small volumes of goods to diverse locations. With consumers not always at home, repeat journeys and pick-up locations are on the rise. Customers expect ever faster services, putting pressure on the whole e-commerce supply chain. Returns are prevalent. And parcels that go missing or get damaged erode consumer trust.

A range of policy areas affect the cost of e-commerce delivery. Border clearance procedures, for example, are not always fit for purpose. Transport infrastructure quality and availability, digital governance, e-payment options and regulatory transparency are all important factors.

Many postal services were deeply transformed in recent decades through privatization and the liberalization of markets. The e-commerce explosion calls for another round of reforms, something both welcomed and occasionally feared by express and parcel competitors.

For example, some postal administrations need to make it easier for other providers to connect to their networks, ensure better data management for customs reporting and reappraise the form of universal service obligations.Back to that price disadvantage for domestic mailers. International rates are broadly based on costs, though adjustments take time and are not always precise. Domestic retail rates can look high in comparison, but most mail is charged at lower commercial rates. Domestic mail typically provides a much faster and better service. Updating the Universal Postal Union’s rates for incoming foreign mail is a welcome step, but probably not a geopolitical earthquake.

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Unequal shipping costs have also long been a factor in trade. Air and sea freight rates out of China to the US and Europe are higher than in the reverse direction - not because of any unfairness, but simply because there are more goods competing for space in limited shipping and aircraft capacity.

Ultimately, small businesses and consumers need a wide choice of delivery options through thriving local and international logistics networks for the benefits of e-commerce to grow and spread. International collaboration, through postal modernization, services trade governance and trade facilitation, can help deliver these choices to the world’s buyers and sellers.

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