China-US relations

China’s cheap shipping advantage explained

Washington claims global postal alliance is flawed but what is the Universal Postal Union and why does it matter?

PUBLISHED : Thursday, 18 October, 2018, 5:22pm
UPDATED : Thursday, 18 October, 2018, 10:14pm

A seemingly illogical calculation in a 2015 report by the US Postal Service was the justification for President Donald Trump’s decision on Wednesday to pull out of the Universal Postal Union, one of the world’s oldest international organisations.

According to the US Postal Service, it would cost around US$20 to mail a small parcel of 2kg (4.4lbs) from one US state to another, but mailing the same package from China would only cost US$5.

Trump claimed China was paying discounted rates for international delivery under the system and that was hurting the US Postal Service.

Donald Trump to pull US out of postal alliance in latest move targeting China

The move to withdraw from the Universal Postal Union, which oversees international mail exchanges, is Trump’s latest protectionist measure aimed at revoking China’s competitive edge over the US.

It follows his recent accusations that China is meddling in next month’s midterm elections and the continuing strain of the US-China trade war.

While Trump has distanced the US from several international organisations and treaties, the move to pull out of the UPU could directly impact the daily lives of consumers in an age of e-commerce and globalisation.

What is the UPU and why does it matter?

From mailing a letter to receiving an online shopping parcel, the postal rates paid are determined every four years by UPU for its membership of 192 countries.

This seemingly obscure, Swiss-based organisation coordinates rates and standards between nearly every national postal system in the world.

According to its mission statement, the 144-year old organisation’s aim is to “establish worldwide postal security, encourage and promote the creation of postal security services” among member countries.

Why it could be cheaper to mail from Beijing than New York to San Francisco?

The UPU’s system of determining terminal dues is at the core of Trump’s accusation that China has benefited from the arrangement, as poor and developing countries pay lower rates than wealthier countries.

All postal operators pay terminal dues to compensate foreign postal services for delivering their overseas mail. When a letter or parcel is mailed overseas, the postal administration of the sender’s country – which has received payment for postage, usually in the form of a stamp – pays terminal dues to the destination’s postal service for its share of the delivery process.

The UPU system divides countries into categories, based on their level of development, which determines the rates of terminal dues paid to each other. The US is classified as a “target” country and China as a “transitional” country.

China is still considered a “transitional” country by the UPU, which means it enjoys a lower rate for sending mail to a developed nation like the US.

As a result, mail services from China to the US cost less than Americans are charged by their postal service for a comparable domestic delivery.

Trump’s administration has said this hurts US businesses because American customers can purchase knock-off products at a lower price, even when the cost of shipping from China is factored in.

The US Postal Service said it lost more than US$135 million handling imports from across the world in 2016.

What will happen if the US does withdraw from UPU?

Under the UPU’s framework, it takes a year for a country to withdraw from the framework, during which rates can be renegotiated.

“If negotiations are successful, the administration is prepared to rescind the notice of withdrawal and remain in the UPU,” White House spokeswoman Sarah Sanders said on Wednesday.

The president wants to adopt “self-declared rates” as soon as practical, and no later than January 1, 2020, she said.

There is no information on how rates are likely to be adjusted but, earlier in August, the US State Department said it would push for foreign postal carriers to pay the US Postal Service more to deliver small parcels within the US.

The State Department also said it would push foreign postal services to furnish data that would help customs officials detect drugs and other illegal shipments entering the country, which could also add to costs of sending mail to the US from overseas.

Who will be affected by an official US withdrawal? and United Parcel Service, both based in the US, have long alleged the current UPU system is unfair and have argued for a review of delivery charges to increase their competitiveness.

However, both US and China consumers are likely to see higher prices reflecting the new shipping rates.

Expanding Chinese e-commerce platforms like Alibaba, which owns the South China Morning Post, that ship overseas, could risk losing trade if postage rates are increased.

In 2017, the volume of China’s e-commerce transactions reached 8.2 trillion yuan (US$1.1 trillion), a year-on-year increase of 22.3 per cent, according to a report last month by the Beijing-based China Electronic Commerce Association.

Topping the ranks of cross-border shipping destinations for e-commerce products from mainland China were Hong Kong, US, and Russia.