18 October 2018 |Viola Zhou| Inkstone News
Why is stuff made in China so cheap? According to President Trump, it’s not just the lower cost of production. It’s actually cheaper to send something from China to the US, than to send that same package within America.
This discrepancy is why Trump has vowed to withdraw the US from an obscure, 144-year-old postal body that determines rates for international shipping.
First established in 1874, the Universal Postal Union (UPU), sets the rules for international mail exchange, and works to connect postal services of its 192 member countries.
The US is a founding member of the Swiss-based organization, but it is now accusing it of unfairly benefiting China at the cost of American businesses.
Here’s what you need to know about the postal union.
Why do countries need this postal union?
Let’s say you want to send a letter from New York to a friend in London.
In a world without the postal union, the US Postal Service (USPS) would take that letter to the airport, pay for cargo on a plane to the UK and hire a courier to deliver it from the London airport to your friend’s home.
Imagine if USPS had to set up branches and hire couriers in not only London but Milan, Beijing, Tokyo and Johannesburg. Or it could find local partners and figure out how to split the money paid by the sender for the service.
Sounds like a lot of trouble, right? To make it easier to send letters across the world, 22 nations, including the US, signed a postal treaty in 1874. They basically agreed that national postal services would do the final deliveries within the destination country for each other, for free.
Thanks to the treaty, later renamed the Universal Postal Union, the USPS can simply leave your letter at the London airport for the local service to deliver, as long as it agrees to help deliver the letters that the British send to America.
Why is the system being criticized?
The treaty was signed under the assumption that each country would send a roughly equal amount of mail to other member countries, so the costs of delivery would be about the same for everyone.
This was no longer the case after more countries signed onto the treaty. Some complained the quantity of mail they helped deliver far exceeded the number they sent to other nations.
A “terminal dues” system was introduced in 1969 to address this issue. Today, postal services around the world reimburse each other regularly to cover the cost of final deliveries.
Since then, wealthy countries have been paying higher terminal dues than poor countries. The dues, renegotiated every four years, have also been failing to keep up with rising delivery costs.
In 2014, for example, the USPS paid $75 million from its own pocket to deliver letters and small packages from abroad.
So why is it so cheap to send things from China?
When you send a package from Beijing to New York, the sender doesn’t pay for the full cost of the delivery, thanks to the relatively low terminal dues.
Most of the cost incurred from delivering the package within America is subsidized by the USPS. This, therefore, allows the Chinese postal service to charge cheap rates.
American businesses, such as Amazon and UPS, have been complaining about the system for years. They say the artificially-low shipping costs from China have put US products at a price disadvantage.
President Trump issued a memorandum in August, directing officials to renegotiate the “terminal dues” rates, so that they no longer favor foreign mailers.
“UPU rules give companies in countries such as China, which already benefit from domestic support, an extra postal rate advantage and a head start in the race to win the world’s growing e-commerce business,” Trump’s trade adviser Peter Navarro wrote in a column published in the Financial Times last month.
What will happen now that the US wants to quit the treaty?
Under the UPU framework, it takes a year for a country to withdraw. White House spokeswoman Sarah Sanders said on Wednesday that the US would consider staying in the organization if upcoming negotiations are successful.
Meanwhile, the Trump administration will seek to negotiate bilateral and multilateral postal agreements outside the union. Trump has directed US officials to adopt “self-declared rates” for terminal dues no later than January 1, 2020.
Either way, the dues are likely to rise, and postal services around the world will charge more to send letters and packages to the US.
It will benefit American retailers. Overseas merchants may suffer as American consumers will find it more expensive to order foreign goods online.