Another One-Sided Move? – LogiSYM October 2018

When I first started shopping on line, I used to wonder how something from China could be shipped to my home in Sydney, much cheaper than something from Melbourne. After some digging, I came across the Universal Postal Union (UPU) one of the world’s oldest international organisations.

This somewhat obscure, Swiss-based organisation coordinates rates and standards between 192 national postal systems in the world. From mailing a letter to receiving an online shopping parcel, the postal rates paid are determined every four years by the UPU for its membership.

The UPU system divides countries into categories, based on their level of development, which determines the rates or terminal dues paid to each other.

The US is classified as a “target” country and China as a “transitional” country. Since China is still considered a “transitional” country by the UPU, this means it enjoys a lower rate for sending mail to a developed nation like Australia or the US. As a result, mail services from China to countries like Australia and the US costs less than what their postal services charge for a comparable domestic delivery.

The UPU’s system of determining terminal dues is at the core of Trump’s latest move to target China whom he says has benefited from this arrangement – as 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 service 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.

Trump claims that China is paying discounted rates for international delivery under the system and that this hurts the US Postal Service. This is the latest of Trump’s latest protectionist measures which he claims is aimed at revoking China’s competitive edge over the US.

Trump’s administration has said the UPU system 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.

China’s developing-country status  has also become a central component in US-lodged complaints with the World Trade Organisation, with the US joining with Japan and the EU to initiate changes to the trading body’s rule book, aimed at forcing China to alter its trading practices.

The US campaign for WTO changes, has simmered in the background while the Trump administration continues to target Chinese imports with tariffs, which has seen Beijing retaliating with tariffs of their own. Although trade pundits have many views and perspectives about what the end result will be, what will eventuate is anyone’s guess.

Trump has displayed a particular disregard for anything that implies international co-operation. By going head to head with China, the WTO or when negotiating trade agreements like NAFTA, CPTPP or KORUS – or with anyone else whom he feels is acting against what he considers to be acting against the interests of the US,  Trump continues to challenge the status quo. This is not always a bad thing as many of these institutions are mired in bureaucracy and an inability to act. The WTO for example has for example only concluded one negotiation since its formation in 1995

Who are the losers in this latest move?

In this age of e-commerce and globalisation this move to pull out of the UPU could directly impact the daily lives of consumers. The Trump administration has said it intends to withdraw and set its own rates but what’s to stop other countries, including China, from trying to do the same – and is a petulant,  tit-for-tat approach the way trade negotiations are to be conducted moving forward?

The Trump approach with dealing does with these complex issues, is to cede it’s leadership and influence to Beijing on the world stage. China now gets to be seen as the good global actor, stepping in as the US retreats from the international order. One in which it was instrumental in creating.

Expanding Chinese e-commerce platforms like Alibaba or JD.Com that ship overseas, could risk losing trade if postage rates are increased. However, the real losers would be consumers who are likely to see higher prices reflecting the new shipping rates.

In July Australia removed the de minimis threshold. This has resulted in stopping the shipments of Amazon purchases from outside the country. At the extreme end of this scenario, online marketplaces could simply stop shipping to the US. This reality could be realised, especially if more tariffs are imposed.

But realistically the US, is too large of a consumer market to be ignored. What will really happen is that firstly, consumers will end up paying more for a similar product and online marketplaces will start to do what most others are doing, look at markets aside from the US, to grow the business.