Posted by: Bixmoor

The US Withdrawal from the Universal Postal Union

Much energy has been expended on President Trump’s decision to leave the Universal Postal Union (UPU). Journalists suggest President Trump has lost his mind and wants to withdraw from the world. What’s wrong with this venerable Swiss-based international organization that sets postal charges for international traffic in letters and parcels?

A specific criticism from the US administration is that the US Postal Service (USPS) receives little income for parcels coming from China, as the UPU has set a developing country rate which is a fraction of the rate for US domestic parcels.

For example, a US shipper would pay around $8 to send a parcel from Los Angeles to New York, while a Chinese shipper would only pay $2.50 for that part of a route from China to New York.  This creates the bizarre situation that Chinese retailers can send items to cities in the US for a total price which is less than the postal cost alone for domestic retailers. The US administration says this system is out of date and needs wholesale reform.

It is an irony that President Xi Jinping plans to give China a “world class military” but won’t pay world class postal charges. However, underlying this perfectly understandable call for reform of outmoded multilateral conventions and institutions, there is a much deeper issue which concerns Washington.

The United States has a gathering drug crisis centered on opioids, mostly fentanyl-based chemicals that originate in China. From 2000 to 2016, 300,000 Americans died from opioid overdoses. In many states there are more deaths from opioid overdoses than from car crashes and often from gun violence. Fentanyl is up to 100 times stronger than heroin. A few grains is a lethal dose.

In November 2016, for example, one police raid in Columbus, Ohio, seized 20 pounds of pure fentanyl – enough to kill the entire 11.5 million population of the state. In 2017 in New York police seized 426 pounds of fentanyl, which could have killed the whole city population eleven times over. In May this year, Nebraska police seized 110 pounds, which was presumably less pure as it was estimated to be able to kill 26 million people.

In its pure state, fentanyl is even potentially highly toxic for law enforcement officers who may come into contact with it. Such activity needs to be undertaken with extreme care.

Former Federal Reserve Bank Chairman Janet Yellen has noted the markedly low and weakening labor force participation by prime-aged workers and a correlated “alarming deterioration in health outcomes among low-education workers, including a rise in deaths related to alcohol, drugs, and suicide”, which may be having a negative impact on employment.

In fact, drug overdoses have been one of the primary factors blamed for a deterioration in white Americans’ longevity in 2012-13 and later the whole country’s lifespan in 2013-14.

Opioid overdoses are now a principal cause of death in the US. They are affecting the economy through low labor force participation. They are affecting its finances: last year Ohio estimated it was spending $7.5 billion annually in the battle against opioids. This is as much as the state spends on education for every child up to the age of 12. Opioids are reducing the whole country’s longevity, a rare phenomenon for any country. This starts to justify the description of an “opioid epidemic”.

The US Drug Enforcement Administration said in 2016 that “the current fentanyl crisis is fueled by China-sourced fentanyls and fentanyl precursor chemicals”. In 2017, the US China Economic and Security Review Commission stated that “according to US law enforcement and drug investigators, China is the main supplier of fentanyl to the United States, Mexico, and Canada”.

Last month in testimony to the US Congress a senior DEA agent said that the agency had “identified numerous illicit fentanyl class substances and hundreds of synthetic drugs from at least eight different drug classes, the vast majority of which are manufactured in China”.

Most are sent as small packages in the post. In 2017, over 1.3 million parcels entered the United States every day from overseas. In the four years from 2013 the compound growth has been 35 per cent. In 2017 it was an increase of over 80 per cent. A report from the US Senate says that the Customs and Border Protection agency checks 100 a day, or one in 13,000.

The US government monitoring equipment is estimated to be slow and only partially effective.  There is a sense of the system being overwhelmed. In addition, because of low charges insisted upon by the UPU, the USPS estimates it lost in excess of $135 million in 2016.

For ten years the US has been encouraging the UPU to require advance electronic customs data (AED) to check international mail shipments for illicit items. Little progress has been made. Bilateral agreements negotiated by the United States have been more successful. Even so only 37 percent of shipments are covered.

Asian commentators have said that Washington’s motives for quitting the agency are uncertain and they very critical of the US decision. It was “trying to curtail Beijing’s power”. It was “part of US President Donald Trump’s strategy for the “all-out containment” of China”. The nearest anyone got to being right was to say that the US action was “in the name of putting “America first”.

There is no surprise. The reasons for American departure are very clear. It belongs to several organizations which have lost their way and seem immune to reform. In the case of UPU, it has decided that after ten years of pressing for reform – under Obama as well – it is time to leave.

It is not just a battle to charge the right postal rates; Washington is also driving the initiative to get other countries to provide advance electronic customs data that will facilitate the detection of opioid shipments and other illicit materials.

It is an unacceptable irony that the US should subsidize China’s e-commerce which appears to include selling deadly drugs to Americans and refusing to give advance customs information. Given the volume of the e-commerce traffic from China, it is no surprise that Beijing has said it regrets America’s decision to withdraw from the Universal Postal Union.

Bixmoor is a primary bespoke research provider to business, governments and the financial community.