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US to withdraw from 144-year-old UN postal scheme

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US to withdraw from 144-year-old UN postal scheme

The UPU headquarter in Bern, Switzerland.
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The Universal Postal Union may be one of the least-known UN agencies but its remit is far-reaching — it effectively controls how much you pay to send and receive international mail.

Over the past few years it has come under increasing criticism for reportedly advantaging cheap manufacturing countries like China whose retailers can ship their products to consumers in industrialised countries at a much lower rate than domestic producers.

Such criticisms culminated on Wednesday with the US announcing that it would withdraw from the body at the end of 2019, unless reforms are made.

Here's what you need to know:

What's the UPU?

The UPU is the world's second oldest international organisation. It was set up in 1874, absorbed into the UN in 1948 and is headquartered in Bern, Switzerland.

Nowadays, 192 different nations are members and they meet every four years to set policy and approve a new strategy.

"One of the UPU’s key areas of work is agreeing regulated rates for cross-border mail between the nationally-designated postal operators," Bruno Basalisco, head of digital and postal economics at Copenhagen Economics — a consultancy specialised in competition, regulation, international trade and public finance — told Euronews.

How does it work?

The UPU established a terminal dues system in 1969 as a way of compensating destination countries for the cost of handling, transporting and delivering items across borders, Basalisco explained.

The rates member states pay in terminal dues depend on which UPU category they're in, which is based on their level of development. Multiple reports say that China, for instance, has been classed as a developing country alongside Gabon and Cuba.

Euronews reached out to the UPU to verify the information and obtain the organisation's classification of member states as well as terminal dues rates but the UPU declined to disclose the information, stating that is it confidential.

Mounting criticism

The US argues that because member states pay different levels of terminal dues, industrialised nations, in effect, subsidise developing countries' participation in the UPU.

According to Basalisco, "capped rates for cross-border inbound mail can often be lower than equivalent prices available for domestic customers.

"The challenge arose with cross-border e-commerce and is growing as e-commerce continues to boom."

James Campbell, a Washington-based lawyer and consultant specialised in postal systems, told Euronews that "this is a problem for the US but it's a problem for Europe as well."

"In the US the rates for delivery of (foreign) inbound packages is roughly between 30 to 50% lower than what the postal service charges Americans for domestic deliveries," he added.

In a 2015 study, the US Postal Service found that "terminal dues received by the US Postal Service for letters or small packages from China do not cover costs, leading to a loss."

"In certain instances, low terminal dues benefit China Post and Chinese online retailers in the light-weight, low-value package at the expense of the US Postal Service and American retailers," it added.

What's the alternative?

The White House said it may reverse its position in one year's time if "negotiations are successful."

If not, then it will likely start to impose self-declared rates on inbound mail which means that "the wholesale rates that the US Postal Service can charge other national designated operators for handling inbound traffic into the US will become more open for negotiation," Basalisco said.

The system is in vigor in Sweden and Denmark since March 1 with an average VAT rate of 25% applied to all mail items with declared value that come from outside the EU Customs Union.

How would this impact you?

Moving away from the UPU's system and towards a self-declared rates system means that consumers of foreign products will have to pay more for delivery, which could in turn negatively impact foreign retailers and might somewhat boost domestic retailers and postal services, according to both Basalisco and Campbell.

"This process can also affect the price that people anywhere in the world can pay to send a letter, postcard or small package via post to the US," warned Basalisco.

But for Campbell, the US is right to challenge the UPU.

"The truth of the matter is there's no justication for charging foreign merchants less than our own merchants for the delivery of goods.

"The US philosophically, is right here. It ought to be changed," he added.