UPU Terminal Dues

What are terminal dues?

Terminal dues are fees that post offices charge each other for delivery of international letter post items. The international letter post service conveys not only letters but also all kinds of documents, publications, and packages weighing up to 2 kg (4.4 lbs). With the rapid decline in international documents — more rapid than in the domestic post — the international letter post is increasingly a package service that serves primarily the booming demand for international e-commerce. Terminal dues constitute the legal default delivery rates for about 80 to 90 percent of international postal packages, althoguh post offices can agree on different rates between themselves. A small fraction of international postal packages are transmitted by other international postal services such as “parcel post” and “EMS” (express mail) services for which different delivery rates apply.

Terminal dues rates are established by the Universal Postal Union (UPU) in the Universal Postal Convention. The Convention and related UPU measues not only establish terminal rates per se, they also include related provisions that protect the terminal dues rates by restraining competition among post offices.

UPU terminal dues, 2014–2017

Terminal dues rates for 2014 through 2017 were established in the 2012 Universal Postal Convention, adopted by the 2012 Doha Congress of the UPU. The 2012 Convention is in effect from 1 January 2014 to 31 December 2017. The 2012 terminal dues rates and related provisions prohibiting competition from "remail" and "extra-territorial offices of exchange" are set out in the linked paper, "UPU Terminal Dues and Related Provisions 2014-2017".

UPU terminal dues, 2018–2021

The terminal dues rates for 2018 through 2021 were established in the 2016 Universal Posal Convention adopted by the 2016 Istanbul Congress of the UPU. The 2012 Convention is in effect from 1 January 2018 to 31 December 2021. The 2016 terminal dues rates and related provisions prohibiting competition from "remail" and "extra-territorial offices of exchange" are set out in the linked paper, "UPU Terminal Dues and Related Provisions 2018-2021". The official explanation of the POC's terminal dues proposal is provided in Congress Doc 40.

A Simple Terminal Dues Calculator

In general, terminal dues are set substantially below Equivalent Domestic Postage, where "equivalent domestic postage" is the postage that would be charged domestic mailers for comparable services. The UPU estimates that equivalent domestic postage is about 70 percent of retail "priority" or "first class" domestic postage, reflecting the fact that international mail is collected and transported by the origin post office not by the destination post office. For industrialized countries, which send and receive the majority of international mail, terminal dues are about 45 to 60 percent of equivalent domestic postage.

The UPU has adopted four schedules of terminal dues. Which schedule applies to a specific bilateral exchange depends on the level of economic development of the origin and destination countries. A post office in an industrialized country may charge three or four different terminal dues rates for delivery of identical inbound mail depending on the country of origin.

The attached Simple Terminal Dues Calculator (revised 27 July 2016), an Excel spreadsheet, will allow the user to estimate terminal dues rates and equivalent domestic postage rates for the delivery of inbound international documents (letters and flats) or small packets of different weights for the years 2018 through 2021. The user can select the destination country, the currency used in the rate tables, and assumptions about increases in domestic postage rates during these years. An example of the output of the Simple Terminal Dues Calculator is provided here.

Policy issues raised by UPU terminal dues

The UPU terminal dues system restrains competition in the market for international delivery services. Only post offices have access to terminal dues. Terminal dues apply only to letter post items that are (A) posted by senders residing a post office's national territory and (B) dispatched by an office located in the post office's home terriority. Since terminal dues are only available to post offices, they limit the ability of private carriers to compete in the business of collecting and transporting international letter post items, especially e-commerce packages. Since terminal dues apply only to shipments sent from a post office's national territory, they limit competition among post offices.

The UPU terminal dues system also creates additional economic distortions. Terminal dues favor foreign e-commerce merchants over national merchants. Foreign e-commerce merchants and other foreign mailers obtain postal delivery of shipments in industrialzed countries at rates that are substantialy less than those available to national merchants and other domesic mailers. In recent years, postal favoriticism of foreign merchants, especially large Asian e-commerce services, has caused significant comment in the press.  See, e.g., Washington Post ("The Postal Service is losing millions a year to help you buy cheap stuff from China"), Fortune Magazine ("The United Nations is helping subsidize Chinese shipping. Here's how"), Pacific Standard ("The International Postal System Is Profoundly Broken—and Nobody Is Paying Attention"), The Hill ("Universal disservice"), E-commerce Bytes ("Online Sellers Fume over Low ePacket Postal Rates from China").

In June 2016,  a Congressional subcommittee held a hearing on UPU terminal dues and expressed broad disapproval with the current system. Subcomm. on Government Operations of the House Comm. on Oversight and Government Reform, Fair Competition in International Shipping. Congressional hearing on June 16, 2016.

Terminal dues not only harm private carriers and national merchants, they also impose a burden on domestic mailers who must make up for the discounts given to foreign mailers. Moreover, terminal dues create a substantial net financial transfer between post offices. As a result, some post offices and mailers benefit at the expense of others.

The international postal service as a whole is another victim of the UPU terminal dues system. The fact that terminal dues are set well below domestic postage rates in most industrialized countries has led some post offices (particularly, the net losers) to downgrade services for inbound international mail. This degrades the quality of the international postal system as a whole. As Deepak Chopra, CEO of Canada Post, famously remarked in 2015, the UPU's mismanagement threatens to turn the international postal system into a "network of leftovers". Reflecting such concerns, the Office of the Inspector General of the United States Postal Service has called for fundamental reform of the UPU terminal dues system.  See Terminal Dues in the Age of Ecommerce (Dec. 2015).

How big are economic distortions created by terminal dues?

In December 2015, Copenhagen Economics, a Danish economic consultant, estimated in a report for the U.S. Postal Regulatory Commission that in 2014 the UPU terminal dues system created net financial transfers between post offices of about US $ 1.4 billion, with a range of $ 0.85 billion to $ 1.66 billion, depending on assumptions. About 70 percent of this net transfer was due to terminal dues for small packets. Almost all of the net losses were born by just 15 post offices and their mailers. See  Quantification of Financial Transfers Caused by Universal Postal Union Terminal Dues (Dec. 2015).

For a more detailed analysis of terminal dues distortions in the 2014 to 2021 period, see the related page on this website, Estimating Terminal Dues Distortions.

Legality of UPU terminal dues in the industrialized countries.

The legality of the UPU terminal dues system in the industrialized countries has been questioned. Such questions are significant for the future of UPU terminal dues because of the large role of the industrialized countriess in the international postal system. In 2014, approximately 63 percent of the international letter post was exchanged between industrialized countries; another 32 percent was sent from or to an industrialized country. Only about 5 percent of the world’s letter post was sent from a non-industrialized country to another non-industrialized country.

In the European Union, the legality of UPU terminal dues provisions has been analyzed on several occasions. It appears clear that the UPU terminal dues system is an illegal price-fixing agreement under EU competition law, prescribes rates for universal services that are inconsistent with the European Postal Directive, and entails legal obligations by Member States that violate the constitutional provisions of the European Union. See Damien Geradin, "Legal Opinion on the Compatibility of the Proposed Target System for Terminal Dues with EU Law" (2012) and sources cited there.

In the United States, the legality of UPU terminal dues provisions has been less well studied. Nonetheless, the U.S. Department of Justice has objected to key aspects of UPU terminal dues as anticompetitive. See Statement by Donna E. Patterson, Deputy Assistant Attorney General, Antitrust Division (2000) and proceedings cited there.

In response to the concerns of the Department of Justice and others, in 2006 Congress amended the postal law to provide that U.S. antitrust laws apply to the activities (outside the scope of the U.S. postal monopoly) of both the Postal Service and any “other Federal agency acting on behalf of or in concert with the Postal Service.” The 2006 postal law also prohibits the U.S. government from participating in any international agreement that will “with respect to any competitive product, grant an undue or unreasonable preference to the Postal Service, a private provider of international postal or delivery services, or any other person.” The phrase “undue or unreasonable preference” was taken from a long standing prohibition against “any undue or unreasonable preference” by the Postal Service. These provisions have not been considered by U.S. courts.

For the industrialized countries and other members of the World Trade Organization, another legal issue posed by the UPU terminal dues system is its apparent incompatibility with the General Agreement on Trade in Services (GATS) and, perhaps, the General Agreement on Tariffs and Trade (GATT). See, e.g., David Luff, "International Regulations of Postal Services: UPU vs. WTO Rules" (2002).