U.S. GOVERNMENT PRINTING OFFICE

65–745 CC WASHINGTON : 2000

INTERNATIONAL POSTAL POLICY

HEARING

BEFORE THE

SUBCOMMITTEE ON THE POSTAL SERVICE

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

MARCH 9, 2000

Serial No. 106–133

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

DAVID M. MCINTOSH, Indiana

MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida

STEVEN C. LATOURETTE, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

BOB BARR, Georgia

DAN MILLER, Florida

ASA HUTCHINSON, Arkansas

LEE TERRY, Nebraska

JUDY BIGGERT, Illinois

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

HELEN CHENOWETH-HAGE, Idaho

DAVID VITTER, Louisiana

HENRY A. WAXMAN, California

TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

CHAKA FATTAH, Pennsylvania

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

HAROLD E. FORD, JR., Tennessee

JANICE D. SCHAKOWSKY, Illinois

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

DAVID A. KASS, Deputy Counsel and Parliamentarian

LISA SMITH ARAFUNE, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON THE POSTAL SERVICE

JOHN M. MCHUGH, New York, Chairman

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

BENJAMIN A. GILMAN, New York

STEVEN C. LATOURETTE, Ohio

DAN MILLER, Florida

CHAKA FATTAH, Pennsylvania

MAJOR R. OWENS, New York

DANNY K. DAVIS, Illinois

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

ROBERT TAUB, Staff Director

HEEA VAZIRANI-FALES, Counsel

LOREN SCIURBA, Counsel

ABIGAIL HUROWITZ, Clerk

TONY HAYWOOD, Minority Counsel

(III)

C O N T E N T S

Page

Hearing held on March 9, 2000 .............................................................................. 1

Statement of:

Bos, Simone, vice president, TNT Post Group, N.V., member, Mail Board,

and managing director, business unit, International and Consumer

Mail; Uwe Doerken, member, Board of Management, Deutsche Post

AG; William J. Henderson, Postmaster General, Chief Executive Officer, U.S. Postal Service; and Fred Smith, chairman, Chief Executive

Officer, FedEx Corp ...................................................................................... 32

Southwick, Michael, Ambassador and Deputy Assistant Secretary, Bureau of International Organization Affairs, U.S. Department of State;

Robert Cohen, Director, Office of Rates, Analysis and Planning, U.S.

Postal Rate Commission; T.S. Chung, Deputy Assistant Secretary,

Services Industry, International Trade Administration, U.S. Department of Commerce; Joseph Papovich, Assistant U.S. Trade Representative for Services, Investments, and Intellectual Property, Office of the

U.S. Trade Representative; Elizabeth Durant, Director, Trade Programs, U.S. Customs Service, U.S. Department of Treasury; and Donna

Patterson, Deputy Assistant Attorney General, Antitrust Division, U.S.

Department of Justice .................................................................................. 152

Ungar, Bernard L., Director, Government Business Operations Issues,

GAO, accompanied by Teresa Anderson, Assistant Director .................... 6

Letters, statements, et cetera, submitted for the record by:

Bos, Simone, vice president, TNT Post Group, N.V., member, Mail Board,

and managing director, business unit, International and Consumer

Mail:

Followup questions and responses ........................................................... 120

Prepared statement of ............................................................................... 35

Chung, T.S., Deputy Assistant Secretary, Services Industry, International

Trade Administration, U.S. Department of Commerce:

Followup questions and responses ........................................................... 223

Prepared statement of ............................................................................... 175

Cohen, Robert, Director, Office of Rates, Analysis and Planning, U.S.

Postal Rate Commission:

Followup questions and responses ........................................................... 213

Prepared statement of ............................................................................... 163

Doerken, Uwe, member, Board of Management, Deutsche Post AG:

Followup questions and responses ........................................................... 107

Prepared statement of ............................................................................... 57

Durant, Elizabeth, Director, Trade Programs, U.S. Customs Service, U.S.

Department of Treasury:

Followup questions and responses ........................................................... 231

Prepared statement of ............................................................................... 187

Fattah, Hon. Chaka, a Representative in Congress from the State of

Pennsylvania, prepared statement of .......................................................... 3

Henderson, William J., Postmaster General, Chief Executive Officer, U.S.

Postal Service:

Followup questions and responses ........................................................... 139

Prepared statement of ............................................................................... 62

Papovich, Joseph, Assistant U.S. Trade Representative for Services, Investments, and Intellectual Property, Office of the U.S. Trade Representative:

Followup questions and responses ........................................................... 209

Prepared statement of ............................................................................... 181

Page

IV

Letters, statements, et cetera, submitted for the record by—Continued

Patterson, Donna, Deputy Assistant Attorney General, Antitrust Division,

U.S. Department of Justice:

Followup questions and responses ........................................................... 241

Prepared statement of ............................................................................... 198

Smith, Fred, chairman, Chief Executive Officer, FedEx Corp.:

Followup questions and responses ........................................................... 85

Prepared statement of ............................................................................... 69

Southwick, Michael, Ambassador and Deputy Assistant Secretary, Bureau of International Organization Affairs, U.S. Department of State:

Followup questions and responses ........................................................... 245

Prepared statement of ............................................................................... 155

Ungar, Bernard L., Director, Government Business Operations Issues,

GAO:

Followup questions and responses ........................................................... 24

Prepared statement of ............................................................................... 9

(1)

INTERNATIONAL POSTAL POLICY

THURSDAY, MARCH 9, 2000

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON THE POSTAL SERVICE,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 10:40 a.m., in room

2154, Rayburn House Office Building, Hon. John M. McHugh

(chairman of the subcommittee) presiding.

Present: Representatives McHugh, Fattah, Owens, Davis, and

Waxman.

Staff present: Robert Taub, staff director; Heea Vazirani-Fales

and Loren Sciurba, counsels; Jane Hatcherson, professional staff

member; Abigail Hurowitz, clerk; Tony Haywood, minority counsel;

Denise Wilson, minority professional staff member; and Earley

Green, minority assistant clerk.

Mr. MCHUGH. We are already some 35 minutes behind schedule

which I understand by congressional standards is not particularly

bad but it bothers the ranking member and myself, so I am going

to enter what I thought was a rather eloquent opening statement

into the record rather than share it with you. I know you will all

want to look that up. It will be available in the Congressional

Record coming to a theater near you.

I would like to say that I think the topic of the hearing today

is a very important one. We, in America, have had the opportunity

and opportunity we have seized upon to become leaders in promoting free trade and international competition in a variety of sectors

throughout our economy, most notably the telecommunications and

airline industries. In spite of that leadership, we find ourselves

with a postal system that certainly has not measured up to the accomplishments in other areas.

We are here today to look at the circumstances surrounding the

international mail system, particularly as it relates to the U.S.

Postal Service, how it serves its customers, how it serves the taxpayers of this country, how it affects its ability to compete and how

it impacts those who compete against it.

I do want to say that we are fortunate to have three panels today

ranging in expertise from the General Accounting Office, our dear

friends who have appeared with us many times before, to the Postmaster General, the heads of two of the premiere corporations not

just in the United States but in the world, Federal Express with

Mr. Fred Smith, and also a number of panelists from various departments of the U.S. Government—the Department of State, the

Department of Commerce and the International Trade Association,

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the Office of the Trade Representative, the Customs Service, Treasury, the Justice Department, their Antitrust Division, and the

Postal Rate Commission.

I want to pay particular thanks to our international panelists

who have joined us today—Mr. Uwe Doerken of the Deutsche Post,

as well as Ms. Simone Bos of the TNT Postal Group—who have

traveled a great distance at their own expense, I might add, to

come and share with us what those of us who have had the opportunity to examine the circumstances surrounding those two postal

operations view as a very exciting, very innovative approach to the

postal system. We particularly want to thank them for their presence.

We look forward to the testimony of everyone. We appreciate

your being here.

As you heard, we have just been called for a vote but before we

run off and do that and then try to come back as quickly as we can,

it is my honor to yield to the ranking member of the subcommittee,

the gentleman from Pennsylvania, Mr. Fattah.

Mr. FATTAH. Thank you, Mr. Chairman.

I would also like to welcome our guests here today.

I will enter my formal statement for the record.

[The prepared statement of Hon. Chaka Fattah follows:]

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4

5

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Mr. FATTAH. I think it is noteworthy that we have not looked at

this whole question of international postal policy since 1996 when

there was a joint hearing with our Senate colleagues, the Senate

Committee on Postal Reform and Civil Service. At that time, we

were looking at some of the reform efforts in a number of countries.

I am pleased to see that both Germany and the Netherlands are

represented on today’s panel to talk about their extensive reform

efforts. I would like to thank the Ambassador for his efforts and

thank you, Mr. Chairman, for convening this hearing.

I look forward to eliciting from our witnesses a greater understanding of the challenges and issues confronting us.

Thank you.

Mr. MCHUGH. I thank the gentleman both for his leadership and

for his participation here today.

Before we adjourn briefly for the vote, I would be happy to yield

to any of the other Members who may wish to make a comment.

[No response.]

Mr. MCHUGH. With that, we will run over or walk over and vote

and we will come back. When we do, we will administer the oath

which is required of all witnesses, so those who are about to appear

may want to search their conscience before we get back.

With that, we will see you in a few moments.

[Recess.]

Mr. MCHUGH. With the kind permission of the minority given

the hour already, we are going to proceed even though some of the

Members are still voting. I think it is important to get this underway.

With that, I would call our first panel comprised of Mr. Bernard

Ungar, Director, Government Business Operations Issues, accompanied by Ms. Teresa Anderson, both representing the U.S. General Accounting Office.

As I said in my opening comments, you are no strangers to this

subcommittee, to this room. We welcome you once again. As in the

past, we appreciate your efforts and that of your offices in assisting

the subcommittee in the work we have undertaken. Today’s topic

is international mail. You have done what I view to be another fine

job in surveying the lay of that land as it surrounds the U.S. Postal

Service.

With that, as is our custom, all of your testimony will be submitted for the record in its entirety, as will all of the witnesses’ testimony, and as we have done in the past, I would turn over the

microphone to you, Mr. Ungar, and encourage you to proceed in

whatever way you feel is appropriate. Welcome, and thank you for

being here.

STATEMENT OF BERNARD L. UNGAR, DIRECTOR, GOVERNMENT BUSINESS OPERATIONS ISSUES, GAO, ACCOMPANIED

BY TERESA ANDERSON, ASSISTANT DIRECTOR

Mr. UNGAR. Thank you, Mr. Chairman. We are pleased to be

here.

As requested, I will summarize our statement and then be available for questions.

As you know, in October 1998, legislation was enacted that shifted the primary responsibility for U.S. policy development, coordinaVerDate 11-MAY-2000 10:03 Aug 29, 2000 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 C:\DOCS\65745.TXT HGOVREF1 PsN: HGOVREF1
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tion and oversight from the U.S. Postal Service to the State Department. This was done basically to ensure that the policy development process was fair, open, and even-handed and that neither

the Postal Service nor private providers or others got undue or unreasonable preference through policy that the UPU developed and

implemented.

In addition, the law that shifted this responsibility to the State

Department also required consultation by both the State Department and the Postal Service with various stakeholders involved in

UPU issues, including private providers, users of international

postal services, and the general public. This was not previously a

requirement by legislation. You asked that we look at how well the

State Department implemented its responsibilities under the statute.

Despite the short time period that the State Department had between enactment of the legislation and the UPU congress which

was in August and September 1999, which wasn’t a very long time,

we reported that the State Department did a reasonably good job.

It made a lot of progress despite the short timeframe.

It provided stakeholders with an opportunity to input, including

the private sector participants. It had open meetings that were

available to the public. It consulted with organizations; it provided

materials on the UPU that were not heretofore available to all

folks who were interested.

We talked to a number of the stakeholders, both public and private organizations who were involved in this process, who observed

this process, and basically, they concurred that the State Department was fair and even-handed, and certainly attempted to do

what it could to entertain views, and comments and to get input

from the various parties.

In addition, at the UPU congress that took place in the summer,

the State Department certainly signaled a new direction in policy

for the United States with respect to the UPU. It included private

sector participants in the U.S. delegation which had not been done

before. It was instrumental in getting the UPU to establish a couple of new groups, one to consider reform issues with the UPU, another which was an advisory group set up that included members

of the private sector who could provide advice to the UPU. They

may not seem like significant issues, but considering the pervious

125 or so years history of the UPU, this was a big event.

There are also some policy issues, such as the terminal dues

issue, that the State Department, working with the Postal Service

and others, was able to get on the table and began to work toward

changes in those particular policies. So there were some substantive as well as process-oriented changes that were taking place.

In spite of the progress or in addition to the progress that has

been made in that short period of time, we also identified two

broad areas where we thought the State Department could improve

its operation.

One was in terms of the process used. I am sure largely because

of the short time period, the State Department didn’t really have

a structured, well documented, laid out process to get input. As a

result, or at least partially as a result of that, there was short notice in advance of some meetings so that the participants didn’t

8

have a long time period in some cases to prepare, or be ready and

available for the meetings.

In some cases, materials were not distributed before the meetings. A couple of meetings were held right before the deadline at

which the State Department or the United States was to submit

proposals to the UPU. In some cases there weren’t any minutes of

the meetings that were held, so there was no real public record of

the views presented or the rationale for any decisions. Obviously,

the short time State had for the whole process of policy development was a factor there.

The second concern that we identified had to do with the need

for the State Department to provide for continuity of expert staff.

The UPU deals with very highly complex issues; these are not

things people can learn overnight. During the period between October or December 1998 when the State Department really got going

and the summer, it experienced a great deal of turnover in staff for

a variety of reasons.

We and the stakeholders felt it was very important for the State

Department to provide in the future for a sufficient number of

staff, whatever that number might be, and to provide for continuity

and expertise.

We made two recommendations to the State Department. One

was that it develop and document a process that would be used in

the future to obtain input and develop policy. The second was that

it provide some assurance that there would be sufficient staff with

the necessary expertise and knowledge to carry out its responsibilities.

The State Department responded to these. It was receptive in its

written comments to our recommendations and in discussions we

have had with the Ambassador and his staff. The dilemma that we

saw, however, unfortunately was that although the State Department seemed receptive, it wasn’t very explicit in specifying exactly

what steps it would take in terms of laying out a structured process. What would this process be? How much notice would there be

before meetings? Would materials be distributed in advance? What

would be distributed or made available after the meetings? Not

that the State Department isn’t doing these things, but it was not

clear what the process would be.

Second, it really didn’t spell out in specific terms what it was

going to do about the staffing issue. We are not certain how many

staff are needed. One of the options we pointed out was perhaps

a needs assessment—what kind of knowledge and experience were

needed, and what are the various ways to attain them.

I think we would end by urging the subcommittee to discuss this

issue with the State Department and urge the State Department

to be more specific in writing on what steps it is going to take.

With that, I will conclude our summary and be available for

questions. I will take the easy ones and Ms. Anderson will take the

hard ones.

[The prepared statement of Mr. Ungar follows:]

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Mr. MCHUGH. I am not sure which mine will be, probably to Ms.

Anderson.

Having read your report, I think it is fair to say that by and

large your findings were more positive than less. I certainly got the

impression, and you have restated it here today, that particularly

given the timeframe involved, which I couldn’t agree with more,

being as short as it was that they have done a pretty credible job

in taking over an issue that was certainly not familiar to them.

It is probably worth noting that this is a job that the State Department I should say was lobbying for. In fact, you could make the

argument they were lobbying against it. I understand that. So if

you look at all those circumstances, you really can’t criticize them

too much.

I think the challenge for certainly the subcommittee, and for the

industry as well, is where were shortfalls a result of that understandable lack of expertise, that unavoidable short timeframe and

where are they more systemic and likely to endure. Would you

agree with that? That is an easy one.

Mr. UNGAR. Yes.

Mr. MCHUGH. What I get from your testimony, the written one

and what you have said here today, is this whole thing is focused

on three or four areas that need specificity rather than at this

point at least needing some sort of definitive, hardhanded legislative action. You don’t see anything right now, based on the information you received from your study and the responses, that would

require any five alarm fires. Is that a fair statement and is that

an easy question?

Mr. UNGAR. That is an easy question—I think it is an easy question. I think it is a fair statement. I think the important area that

might involve legislation at some point would be what process the

State Department is going to lay out. In our report, we identified

some options, one of which was the Federal Advisory Committee

Act.

Mr. MCHUGH. That was going to be my next question. Apparently that is easy because you knew it was coming, so keep going.

Mr. UNGAR. OK. That legislation and that program spawned a

very specific set of procedures that basically are aimed at ensuring

the public decisionmaking is open and fair and people who have

stakes have a chance to comment. It specifies a minimum amount

of time that should be provided as advance notice for public meetings, that minutes should be taken and there is a report that has

to go to the Congress from the President as a result of that on all

advisory committee efforts that GSA puts together.

It does require some rigor and it does require some work to adhere to the process. There may be some alternatives that the State

Department could come up with that basically meet that same intent. From our perspective, that would be fine too. I think the important thing is to have a structured process and to make sure that

people who want to have input and need to have input have a fair

opportunity to do that and that the people who are stakeholders,

the public, and the Congress have an opportunity to see what the

basis is for whatever policies are developed by the State Department in terms of what the various views are and how the State Department reconciled them.

20

I think any formal process that the State Department could come

up with would certainly be helpful. I suspect it will, but if it doesn’t

come up with a structured process that is documented, and open

and clear to everybody, then maybe the subcommittee may want to

pursue a legislative route.

Mr. MCHUGH. I thank you for that. So your opinion is the Federal Advisory Committee Act is not necessarily the only way and

that something other than that formalized process wouldn’t necessarily be totally abhorrent?

Mr. UNGAR. Correct. We haven’t really looked at it.

Mr. MCHUGH. I understand but in theory because that is what

we have here.

Let me ask one more question. You mentioned the advisory role

of some of the private sector individuals leading up to and into Beijing. I was not sure either from what you said this morning or from

your written testimony, you viewed that as a good step, the first

time in 130 years that anybody had been allowed to act in that capacity. Do you think that is as far as it should go or should that

evolve into a more formal role?

I know, for example, that advisory role precluded those people

from being official observers at all of the meetings and all of the

conferences in Beijing. Do you have an opinion on that?

Mr. UNGAR. Half of your question was easy and I will take it.

The other half, I will have Teresa answer.

One thing, just to clarify. In the past, I don’t think the private

sector was totally excluded from any participation. When the Postal

Service did have that responsibility, it did have information sharing with the private sector. I don’t think it was very structured. It

seemed to be quite ad hoc. In fact, we issued a report to you comparing the Postal Service’s process with respect to the UPU in comparison to how the telecommunications area was handled, which

was quite different.

On that score, I think there was some opportunity but it wasn’t

very structured and it wasn’t very formalized. I believe the private

sector probably didn’t have as much opportunity as today’s situation in the world probably would suggest.

The second part, I will ask Ms. Anderson to address.

Ms. ANDERSON. I think the UPU is struggling with the issue of

exactly how should the private sector be involved in their activities.

I think that the U.S. delegation, by having private sector representatives on the delegation, pushed this issue to the forefront at

the Beijing Congress. It is one that they are continuing to struggle

with.

They have set up an advisory group to further discuss this, but

indeed, I think that is not a settled question and is one that both

here in the United States and in the UPU, they are going to need

to continue to push forward.

Mr. MCHUGH. I may come back to yet another question on ratification of the Beijing and UPU report but I am going to defer the

ranking member, Mr. Fattah.

Mr. FATTAH. Thank you for your testimony. Let me see if I can

ask you a couple of quick questions.

From a substantive point of view, could you determine whether

or not the State Department’s involvement was a net plus or a net

21

minus in terms of the negotiations with the UPU? Did the lack of

experience in any way create a deficit position for our negotiations

with other entities?

Mr. UNGAR. I will start and I will let Ms. Anderson take part of

that too, Mr. Fattah.

I think on the one hand, obviously the State Department did not

have a huge amount of expertise in this area. However, it was supported quite heavily by the Postal Service and other agencies that

were familiar. So from that end, I don’t think it was a case of the

State Department being over there without any technical support

and help.

I know from what we have seen on some of these complex issues,

the people with the right expertise and knowledge were involved in

those working groups and the individual areas where expertise was

needed. So on that score, it certainly wasn’t the State Department

there by itself.

I would let Ms. Anderson add to that.

Ms. ANDERSON. The feedback we heard from some of these stakeholders who were part of the U.S. delegation was that certainly the

U.S. delegation having a new head and having new faces as part

of the delegation, did have some impact on the dynamics that took

place at the UPU congress.

Some of the U.S. proposals were not accepted at the Congress.

Whether they would have been is hard to say but I think certainly

a lot of the relationships that are developed within the UPU have

some influence on how proposals get accepted and passed.

I think certainly with more experience and the more you get to

know people in that organization, the more influence you are likely

to have. It would be hard to characterize just what happened at the

Beijing Congress as positive or negative.

Mr. FATTAH. Thank you very much.

How large was our delegation?

Ms. ANDERSON. I think there were officially about 50 people on

the delegation.

Mr. FATTAH. That included staff and technical support?

Ms. ANDERSON. There were some additional staff that were not

official U.S. delegates, mostly in a support capacity.

Mr. FATTAH. Would you care to estimate the number of staff and

technical support?

Ms. ANDERSON. I couldn’t say offhand because we just saw the

list of those who were on the official U.S. delegation which comprised both members of the State Department, the Postal Service

and some of the private sector representatives.

Mr. FATTAH. As I recall, the cost of this is absorbed by the Postal

Service. Mr. Ungar, how does that work? Does the State Department just name a number and the Postal Service pays?

Mr. UNGAR. Yes, there is supposed to be reimbursement. We

really didn’t look at that, sir. In terms of how it actually took place,

we didn’t follow through on it.

Ms. ANDERSON. There was an agreement and there was a figure

that was agreed upon between the Postal Service and the State Department and the Postal Service, I think, did reimburse the State

Department on that.

22

Mr. UNGAR. We didn’t specifically look at that, so we can’t give

you specific information on that.

Mr. FATTAH. Would you happen to know what the number was?

Ms. ANDERSON. No. Off the top of my head, I don’t know that.

Mr. UNGAR. I am sure probably the Postal Service folks or the

State Department could probably provide you an answer there.

Mr. FATTAH. Just in terms of the earlier conversation, it is true

that there is a very structured approach to setting up Federal advisory committees and through a legislative process. I guess we could

cause that to happen. I am not one that believes that we need a

law for every problem. I am hopeful that, especially given the fact

this is the State Department’s rookie season at this, that we will

give them a chance to find their way through it before we legislate

some restrictive approach to how it is they might have to conduct

their affairs.

Nonetheless, I want to thank you for your insights.

Mr. MCHUGH. Thank the gentleman.

I am not sure you will be prepared to respond to these. Maybe

you can ponder them and get back to us.

In his testimony, we will hear Mr. Fred Smith of Federal Express

suggest that the United States not adopt the UPU convention, that

it behave as many other nations do and just follow its conventions

but don’t lend to it any validity through ratification.

I would wonder if you have an opinion about that, but are you

aware of the background of that—I don’t want to say claim because

I am not questioning the veracity of what he says but the history

of that. Is that a normal practice for other nations, not to ratify it,

and if so, has there been any effect, good or bad, from that?

Mr. UNGAR. I will let you take that one.

Ms. ANDERSON. We haven’t looked at the legal issues that would

be associated with that, so I am not sure exactly, under international law, what the ramifications of that would be. We do understand that issue has come up and it will be looked at by the

interagency group. They still have not received the actual package

for ratification as I understand it.

As far as whether all the countries have signed on and actually

ratified the agreements in the past, again, I have heard similar

anecdotes that you have and I don’t know how many have not.

Again, what the ramifications of that would be from a legal standpoint would need to be clarified.

Mr. MCHUGH. Second and probably last, there has been a lot of

discussion, some of it contentious, about what particularly the private sector views as the continued formal government role of the

USPS in this whole system will be. They would argue that the intent of the 1998 legislation was to take sole authority out of the

U.S. Postal Service for being the representative to the UPU because it is, after all, the Postal Service that is the main actor in

the results of that, and yet under the new system with the Department of State, it appears the Postal Service is still given a very formal role which provides access and some have charged, even veto

authority over whatever the Department of State had considered

bringing to Beijing and the UPU.

Did you see any evidence that the Postal Service had not just a

formal role, but veto power? Did the Department of State put forVerDate 11-MAY-2000 10:03 Aug 29, 2000 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 C:\DOCS\65745.TXT HGOVREF1 PsN: HGOVREF1
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ward any kinds of recommendations at Beijing that came from anywhere other than the Postal Service that you are aware of?

Ms. ANDERSON. I am not aware of anything of that nature.

Mr. MCHUGH. You saw no evidence of a Postal Service veto authority for lack of a better phrase?

Ms. ANDERSON. No, because the State Department actually put

the proposals together and sent them over, so I think State would

have the ultimate say in what they were sending.

Mr. UNGAR. I guess from a practical standpoint, Mr. Chairman,

obviously the Postal Service had the market and the corner on the

knowledge and expertise that would be required to address some

of these issues at least in this round. So I think the State Department would be somewhat dependent upon the Postal Service. I

don’t know about the veto issue. That is one of the reasons we are

focusing on making sure the State Department does have a sufficient amount of knowledgeable and expert folks who can weigh the

Postal Service’s views along with the other stakeholders and make

independent judgments on what makes the best sense for the

United States.

Mr. MCHUGH. So if it did happen, it shouldn’t happen in the future, certainly to an extreme?

Mr. UNGAR. It would not appear that it should be based on the

legislation.

Mr. MCHUGH. Thank you.

Mr. FATTAH. I would just say, because I think this is an important issue, that it is obvious given the fact that this is the State

Department’s first role of this kind since well before me or the

chairman were alive, that it would have to rely on someone who

had some knowledge or it would misrepresent the interests of the

United States in these international negotiations.

I think I have heard you testify that not only the Postal Service

but the private sector players and stakeholders were formally involved on the team and participated. So it appears, from everything

you said in terms of a factual rendition of the record, that the State

Department tried to carry out the intent of the legislation.

It is also clear to me that the U.S. Postal Service, as a single entity among a family of postal interests, paid for whatever services

were taking place, which is interesting to me, but nonetheless,

thank you for your testimony.

Mr. MCHUGH. I thank the gentleman.

I thank you both for being here.

[Followup questions and responses follow:]

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Mr. MCHUGH. Our next panel is comprised of the Postmaster

General of the U.S. Postal Service, Mr. William Henderson; the

chairman and Chief Executive Officer of FedEx Corp., Mr. Fred

Smith; as I noted before, Ms. Simone Bos of the TNT Postal Group;

as well as Mr. Uwe Doerken of Deutsche Post AG.

I would note that last year’s Postmaster General and the very

fine head of FedEx have always cooperated and particularly given

their largely competitive position toward each other. We are both

delighted and honored to have both of you here today.

As I tried to indicate in my opening remarks, we are particularly

delighted with our two friends from across the pond who have come

to share their insight and wisdom. I can say it is indeed insightful

and full of wisdom. I spent some time reading, as I do all the testimony, but particularly that rendered by you two. I want to commend you as the leaders who have taken what was a very fine

dream but only a dream and a theory of politicians—and I know

a bit about that when I say it—and have made it come alive in

very exciting ways. Certainly I look to learn more from you this

day.

It would normally be our custom to start off with the Postmaster

General but with his permission, given the long way they have

traveled, I would be honored to begin with our two visitors. I will

leave it to you to decide. Either of you, please start.

It is the committee’s rule to take your full testimony and submit

it to the record. Because of the time, we certainly don’t want to

throw you off script and we all want to hear every word you wish

to share with us, but if you choose to compress it, that would be

fine too. Welcome and we look forward to your testimony.

STATEMENTS OF SIMONE BOS, VICE PRESIDENT, TNT POST

GROUP, N.V., MEMBER, MAIL BOARD, AND MANAGING DIRECTOR, BUSINESS UNIT, INTERNATIONAL AND CONSUMER

MAIL; UWE DOERKEN, MEMBER, BOARD OF MANAGEMENT,

DEUTSCHE POST AG; WILLIAM J. HENDERSON, POSTMASTER

GENERAL, CHIEF EXECUTIVE OFFICER, U.S. POSTAL SERVICE; AND FRED SMITH, CHAIRMAN, CHIEF EXECUTIVE OFFICER, FEDEX CORP.

Ms. BOS. Thank you, Mr. Chairman.

On behalf of the TNT Post Group, I would like to thank the subcommittee for giving us the opportunity to present our views on

this very important issue of international postal policy.

My statements, both my written one and my oral one, will be

based also on my own experience. I am not going to describe the

entire history of my life, but my experience in the Post is 8 years

long. I have seen changes in the marketplace, tremendous changes

in our own company because when I joined the company we started

out as a domestic postal operator and now we belong to the leading

operators in express, mail and logistics.

I think it is particularly interesting for you that I have seen developments also in domestic and international regulatory framework. I think what is important there is that we have seen that

the roles of the governments is really to enhance the existence of

a good service for all customers, be it provided by public or private

operators.

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In my written statement, I have given you an overview of all the

elements I believe to be important in this whole field. I will just

mention some things: globalization, liberalization, consolidation in

the postal world.

If I was asked to give you one core message, then I would like

to say that I firmly believe that government should take the lead

in reshaping the international regulatory framework because they

should create a level playing field for all parties. They should try

to establish, although I realize it is very difficult because I have

worked for the government in the past and I know it is not that

easy, international generic rules so that you don’t have different

rules made by different bodies so that it is easy for those parties

operating in the market to know what you can and cannot do.

This level playing field will be, to my mind, an enormous move

forward for the whole sector and for the benefit of the customers.

I think that is often what we forget to think about, that we do all

this for our customers.

Saying there should be a level playing field implies there isn’t a

level playing field at the moment. I would like to explain a little

bit why I think that is not the case.

If you look at the history of postal operators, it was quite normal

in the past that they worked in their domestic environment only

and maybe managed a little bit of international traffic as well. You

had a domain ruled by monopolies. Now this has completely

changed. It has changed in the European context very rapidly over

the past 5 years if I may say so.

What you see is that public postal operators compete with each

other in many areas already and they also compete with private

operators. When you look on the other hand at international rules

and regulations for the postal sector, you see that there are certain

rules which are not applicable for the public postal operators, that

are applicable for private operators. At the same time, they compete in the same market and offer commercial services.

I think that is not the right thing to do because there is no reason to have special delegations for those public postal operators

anymore. I also talk about my own company because we are a hybrid company, partly express and partly mail. So I think I know

what I am talking about.

If you ask: suppose government removes all those differences,

will we have a level playing field, again? I say no, we won’t have

a level playing field to my mind. I think what is important as well

is that governments give their public postal operators the commercial freedom they need to really build a normal company. What

they need is distance from the government. I have seen it in our

own case and I think also Deutsche Post sees it very clearly, that

helps the company to provide services according to market standards.

Many partners in the UPU context are often too afraid to lose

when we open up for competition. It is important that public postal

operators should be able to set their rates in a normal way like

other companies do, they should be able to invest and though I

don’t think it is such an issue here but in Europe it is, to be able

to negotiate their own collective labor agreements with their personnel.

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Yes, of course I understand if those companies, those public postal operators, still have special rights and special obligations, there

should be a very good framework from the government side to

make sure there will be no abuse of a dominant position, no abuse

of monopoly powers, no illegal cross subsidization.

The point is that this can be arranged. I know you have that also

in your bill and we have in the Netherlands the experience as well,

that those elements can coexist together. On top of that, I think at

least in Europe, also the public postal operators are susceptible to

the normal competition rules that are there for other companies as

well. I think that is an important fact, so everybody who is not satisfied with what is happening can complain—private individuals,

companies, everyone.

Now where does all this lead in the UPU context? I think the

UPU needs to change as well. As was said before, the UPU has

spoken about it. At the first UPU conference I attended here in

Washington in 1989, already they were taking about change, they

were talking about the changing environment and the need to

change. We saw it also at the Beijing Congress. Everybody talks

about it but not a lot happens.

I have to be frank. Some progress has been in the UPU. There

has been some opening up, at least we talk to customers. I think

it is important that also the UPU will advance to the changes that

we see around us. I think everybody should agree it is unacceptable

that a specialized United Nations organization like the UPU still

doesn’t have a clear separation between the regulatory and the

operational powers. They still promote commercial services of public postal operators to the disadvantage of others in the market.

They don’t allow interested parties like private operators, but also

other interested parties to attend their meetings et cetera.

I think that should change and I realize that maybe the interests

of the developing countries have to be taken into account like on

any other United Nation organization. At least between the industrialized countries, we need change.

I believe that can be done in several ways. I will not expand on

that. There are many possibilities to do that. We have U.N. examples where that happens like in the International Telecommunications Union.

I believe governments, especially like-minded governments—and

I know also the United States Government has taken that stance

during the last Beijing conference and worked together also with

my government—they have to make sure that in the international

regulatory framework, fair competition and the provision of a universal service for the international postal traffic can go hand in

hand to the benefit of all parties.

Thank you.

[The prepared statement of Ms. Bos follows:]

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Mr. MCHUGH. Thank you. Appreciate that.

Mr. Doerken.

Mr. DOERKEN. Mr. Chairman, Congressmen, ladies and gentlemen, first of all, I would like to thank you very much for the opportunity to testify here and particularly to you, Mr. McHugh, you

have put a lot of effort into postal reform in the United States

which we think is a very appropriate and interesting subject.

I would like to treat you to a couple of comments about our history as Deutsche Post, what happened in the last 10 years and

transformed us from a government bureaucracy into a worldwide

transportation distribution company, a couple of words on the

globalization of markets, on how we see the results of the European

market today from this first push of globalization and maybe some

concluding remarks on e-commerce and what our type of service

means for unleashing the potential of e-commerce.

I have been with Deutsche Post for 10 years. I was one of the

first managers who was brought in when the post reform happened

in 1990. At that time, the company was hugely lossmaking, even

more so after we had to digest the postal service of Eastern Germany after unification in 1991. So we started with the major integration of these two postal services and had to reform and restructure from the bottom of the company.

We rebuilt almost our entire logistics infrastructure, new parcel

and letter centers for all of the newly united Germany. We rebuilt

our international export/import infrastructure and within about 5

years, we turned the company around for its domestic business.

We then concluded that on the basis of the market situation and

our customer needs, just staying a German distribution company

alone would neither satisfy our customers nor bring us a sustainable business in the long run, it would endanger the employment

of our people and the universal service for the German citizens.

So we departed on an internationalization strategy that was also

a diversification into a variety of insular services which together

now form a service portfolio in the logistics transportation distribution field. Nowadays we base our business on the mail business,

mainly Germany and cross-border mail worldwide on a European

platform for parcel and pallet distribution and on a worldwide platform for logistics and forwarding services, plus a banking service

in Germany.

To give a couple of key numbers, we have over this 10 year period increased our revenue from $9 to $30 billion; we have decreased our staff in the original postal service from 380,000 to less

than 240,000 people, all without any major layoffs, only through attrition and in an amicable and cooperative way with our unions.

We are a highly unionized company. By extending this over a long

period of time, it was possible to achieve this without major social

upheavals.

We have invested a lot of money in our infrastructure and in our

additional service menu. We have turned the company around from

a heavy loss of more than $500 million in 1990 to a profit bigger

than that in 1998. The 1999 numbers are not officially out yet.

What has been the result? I think we have positioned the company for a globalized marketplace that seeks service providers who

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can provide postal services in connection with worldwide transportation logistics and distribution services.

Second, we have fulfilled the universal service obligation. In Germany, which is the only country where we have it and where we

have a reserved area too, it can be provided in an affordable way

and by Deutsche Post who can do this on its own account, even

with a very limited reserved area. Our reserved areas in Europe,

particularly in countries like Germany and Holland, are rather

small, smaller than the European directive suggests while our universal service obligation, at least in Germany, goes beyond the European directive. We can digest it due to our business activities in

these additional fields.

Third, I think we have created an interesting market landscape

in Europe. As an example, I take the parcel distribution industry

or market in Europe that is about as large as in the United States,

about $25 to $30 billion. In the European market, we now have five

major networks, four of them backed by postal operators, which

makes for a vastly competitive market situation. No provider has

more than 15 percent market share. The consolidation has taken

place to provide the customer with continent-wide consolidated networks but with a choice among several of those networks.

This leads me to e-commerce. We do see the e-commerce revolution taking-off in Europe like it has already in the United States.

We do see that e-tailors, e-commerce customers, companies who

want to provide their services via the Internet need strong service

providers and distribution networks to deliver their products to the

customer. In Europe there is now a choice of networks which can

meet these needs. We believe this to be actually an asset in terms

of helping the e-commerce revolution. We have a couple of players

of about equal weight and equal ability for the benefit of the customer.

This summarizes in a nutshell my introductory comments. I will

be glad to further explain any of these aspects and to answer the

questions as they come along.

[The prepared statement of Mr. Doerken follows:]

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Mr. MCHUGH. Thank you both very much.

I intended to first go to questions but the ranking member has

explained that he has an unavoidable meeting in the Senate in a

few moments, so I wanted to give him the advantage of hearing as

much of our two remaining witnesses as possible.

Let me thank you again for being here. We will come back to you

for questions. Frankly, I should be visiting you. How is the weather

over there now?

Mr. DOERKEN. Not as good as here at the moment.

Mr. MCHUGH. Well, I will wait until October. The ability to get

that kind of structure through a political system is something I

have come to admire, so I thank you for that.

With that, let me go next to our esteemed Postmaster General.

Bill, welcome. Thank you for being here. We look forward to your

comments.

Mr. HENDERSON. Thank you, Mr. Chairman.

First of all, I want to thank you for your leadership in passing

the legislation that we supported to reform our role. I think the

world is really changing. As you can see from this panel, the UPU,

10 to 15 years ago, was a collection of government agencies and

that simply is not the case today. You have Germany, which will

be a public entity with an IPO in the not too distant future, you

have other privatized posts like the Dutch and these are very competitive private sector organizations. I think they are going to

make a huge difference in the UPU and how it operates.

You are not going to have purely government entities sitting

there; you are going to have people who are very competitive worldwide and I think it is appropriate for companies like Federal Express to express concern that some sort of competitive advantage

would be gained by not being at the table, especially since not everyone at the table looks alike anymore.

I think reform is very important and I think after Germany goes

public the world is going to be forever changed because there is

going to be a rash of reactions to that around the world including

more privatizations, more splitting away from the government. The

role of the UPU is an interesting question.

I would also say there has to be some mechanism to assure that

Americans have global, universal service. That means there is

some mechanism to set terminal dues. The UPU plays that role

now and whatever evolves in the future, there has to be some

mechanism or else Americans will be denied universal global access.

Finally, I would conclude by saying Ambassador Southwick, in

my view, did an excellent job. He merged three different cultures.

The Postal Service, having done this historically, came to the table

with the attitude of making it work. The private sector was there

and the State Department. So it was a very short timeframe and

there might have been some administrative glitches here and

there, but from my viewpoint, he did an excellent job.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Henderson follows:]

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Mr. MCHUGH. Thank you.

Batting cleanup, appropriate, you always have your power hitter

in the fourth slot, right, Fred. Again, no stranger to this subcommittee or this hearing room, a man who I think has done an

amazing job in balancing the very considerable interests of one of

the most important companies in the world against what I think

is fair to say he recognizes is the importance of the delivery of the

mails to every citizen of this country. We are greatly appreciative

for his leadership and for his courage. Can you give us your statement in 5 minutes or we can break and come back. I don’t want

to cut you short.

Mr. SMITH. I am fine. It is your pleasure, Mr. Chairman.

Mr. MCHUGH. Why don’t you go ahead.

Mr. SMITH. I can make my points very briefly here, four points.

First, as demonstrated by the panel and by the testimony so far,

delivery services are becoming global businesses that include elements of postal express and logistic services, but the primary legal

framework, the Universal Postal Convention is outdated and it

needs to be revised to be much more pro-consumer, pro-competitive,

pro-global and pro-reform.

Second point, despite the good effort by the United States, under

your leadership as Postmaster General Henderson mentioned, the

1999 UPU convention remains anticompetitive and antireform. The

United States should implement operational provisions but as you

noted in your comments with the GAO folks, we believe you ought

to give serious consideration to withholding formal ratification of

the convention.

Third point, transferring policy responsibility of UPU to the Department of State was, in our opinion, a major step forward but additional legislation is urgently needed.

The fourth point is that as part of this legislative effort, the

United States needs to undertake a major review of its policy goals

and options in this regard.

We appreciate being able to make those four points to you, Mr.

Chairman.

[The prepared statement of Mr. Smith follows:]

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Mr. MCHUGH. Thank you, Mr. Smith, for being here today. I

deeply regret the timing of these bells all morning that have disrupted very important testimony.

You have all made some points that, because of your courteous

accommodation of our time constraints were not addressed in your

comments. Hopefully we can get a chance to talk about some and

all of those. As we hear from you and listen this morning, and having read your testimony, it seems we are all on the same page. I

think that is wonderful.

We do have some nuances and differences that I would like to

touch upon and work through. So with your patience, we will try

to run over, vote and come back as soon as we can.

We stand adjourned. Thank you.

[Recess.]

Mr. MCHUGH. I understand that Mr. Smith has some other

pressing engagements. I appreciate his being here and generously

giving us his time. I again apologize for how this has not worked

out, so let me start with you.

You mentioned in your comments about the talk of new legislation to arrive at the outcomes in this new form of UPU that you

think is fair. Could you share with us what kind of specific legislative enactments you feel are necessary at this time?

Mr. SMITH. We think at its heart the problem with the 1999

UPU convention is that it remains anticompetitive and antireform,

and a that a new legal framework is required which would be very

clear that the No. 1 consideration is the consumer rather than the

provider.

Despite the fact that the State Department is now in charge of

these negotiations, and I heard the testimony by the GAO folks,

our belief is, and I think correctly, that the UPU delegation is in

the main, perhaps because they don’t have the expertise or what

have you, controlled by the USPS based on historical requirements

rather than the requirements of the future.

We would be happy to submit to the committee with great specificity those things we think should be in the legislation but it needs

to address, first and foremost, the fact that it is pro consumer rather than pro provider.

One of the areas that is a hot button, and we have talked about

this before in your hearings, is the issue of customs clearance, that

there are very, very different requirements for clearance of postal

items versus those carried by private companies. It is not a good

situation from the standpoint of security and safety issues and it

certainly is not a level playing field. So that would be one thing

that for sure needs to be in there.

Last, it needs to be very clear that it is pro reform, that the convention which the United States stands to recognize is the requirement to reform the international delivery systems and it is largely

silent on that fact today. Yet, you have entities like Deutsche Post

and TNT which are quasi or completely privatized and still the

U.S. Postal Service, which is very constrained, whether you agree

with that or not. As you know we supported your legislation, H.R.

22, to try to put some balance in that. I am not so sure we weren’t

wrong-headed in that but that is what we did. In any case, the

UPU convention ought to push those reform measures.

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Mr. MCHUGH. Am I correct in assuming you heard GAO talk

about more formal process in terms of assuring the private sector’s

input and participation. They expressed, I think I am being fair,

a theoretical support of something less formalized than the Federal

Advisory Committee Act but would I be correct if I did imagine

that you would support and feel it was necessary to go with that

formal structure that is provided under the FACA?

Mr. SMITH. I think it should be codified and as formal as possible

to ensure that the private sector interests have a place at the table.

It is one thing to talk about all these things here in Rayburn, but

it is quite another to be on the ground in Beijing or what have you

and I think the GAO’s characterization based on what our people

told me, was the most charitable way you could present that. I am

not saying they were wrong.

Mr. MCHUGH. Less interpretation makes for a fairer and more

predictable outcome. I understand.

You mentioned customs and we have customs folks here on the

third panel and we will talk to them about that. Let me get to another point that was brought up in your testimony that I know is

a prominent concern amongst the private sector. That is the terminal dues agreement. I think it is important for the record to have,

or if you would like to submit later, your feelings and how you believe that fosters an unfair, insurmountable cost factor in terms of

operation of business.

Mr. SMITH. Well, I would like to submit something later formally

and in greater detail, but I would just say in the most general

terms, the problem with the terminal dues situation is that it in

essence creates a cartel-like mentality or an arrangement between

postal entities who perform delivery services for substantially less

money than they provide delivery services for their own citizens.

If you start with the premise, which I did, that the UPU convention the United States ratifies needs to be pro-consumer, it is very

difficult for me to rationalize the thinking behind the terminal dues

structure to begin with because it is only for those who participate

within these postal units. Yet it is subsidized by domestic mailers.

I don’t understand the logic.

I am sure my good friend, Postmaster General Henderson, has

some but it is hard for me as a civilian to figure out why that

makes sense.

Mr. MCHUGH. We will give the Postmaster General his opportunity certainly.

You did mention, I brought up before, and you stated it in your

written presentation as well as in your oral comments, your interest in not having the United States ratify the UPU convention. Do

you want to tell us if in your mind a symbolic gesture that sends

a message, I would assume to UPU that the status quo is unacceptable or is there a practical effect you are trying to implement as

well?

Mr. SMITH. I don’t think the United States of America, the bastion of free enterprise and in the interest of consumers and the average person against the interests of big organizations and what

have you, should sanctify a treaty which is not pro consumer. It is

just that simple.

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This goes on all the time. In fact where I have to go at 1 o’clock

is on exactly the same thing over at DOT about a totally

anticonsumer relationship between the United States and the

United Kingdom in its aviation treaty. It was built many years ago

not to advantage consumers, it was built to advantage British Airways.

So I don’t think the United States, in that case, should countenance a continuation of that treaty which is for the benefit of a

large organization and its stakeholders against the interest of the

many anymore than I think the United States ought to codify the

UPU convention of 1999 which does the same thing except it is

postal interests here that are protected as opposed to British Airways.

Mr. MCHUGH. You heard the GAO talk about what was still an

unprecedented participation of outside groups, private groups in

the United States delegation to Beijing. I think you agree with that

as a statement of reality but obviously as I mentioned, you were

excluded from even an observer status in many of the sessions. We

cannot control the UPU in its deliberations. I know you understand

that, but my question would be what was your impression with respect to the Department of State’s carrying what was at least officially the U.S. position that you be allowed to participate in an observer status? Do you think they fought hard enough?

I got the impression from your testimony that by and large they

did a pretty good job making that case but maybe I misinterpreted

it.

Mr. SMITH. I concur with Postmaster General Henderson. In

terms of commending the leadership of you and the committee to

having taken the step to begin with and I think the State Department made a very good faith effort based on that legislation and

there was a transition period. So it was quite natural that most of

the competency and historical institutional memory came from the

postal officials that were there and so forth.

Having said that, the facts of the matter are the Beijing activities were still much more of a postal service to postal service ambiance than we think is appropriate given the competitive realities

of the worldwide market today.

Mr. MCHUGH. Fair enough. Any thoughts or suggestions, forgetting for the moment the domestic realities of legislative change you

are interested in, as I just mentioned we can’t really compel the

UPU to do something that collectively their members of the body

don’t wish to, but what can the United States do to perhaps reengage that fight and win the next time. Not to ratify is one thing

I have heard you say to send a message of being serious about

wanting to make these changes, but are there other things that we

could be doing symbolically or in some other fashion that could

drive home the point to UPU that these are changes that have to

come and the United States is willing to fight as hard as we can

to achieve them?

Mr. SMITH. I am not sure that there are other things that we can

do that you are not already doing with H.R. 22 and those initiatives. At the end of the day, the facts of the matter are that the

rest of the world has changed and we have not. The people sitting

here to my right are perfect examples of that.

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Deutsche Post began this buying spree that it was on because it

was permitted to do so legislatively by the German Government.

The same thing was true in the Netherlands and they took those

cash-flows and moneys and put them into private business. You

can agree with that or not agree with it but that is what they did

and they did it, quite frankly, at rates that private companies

would not have paid.

I think those two governments made the decision that there were

substantial private interests, probably the employees and the

stakeholders, that needed to be accommodated by this reform and

so they did it.

In this country, that is exactly what you were trying to do with

H.R. 22. Our position has been that there is no public interest

served whatsoever in the Postal Service being able to do things

that can be adequately done in the private sector. This thing goes

back almost 100 years. The debates in this Congress at the turn

of the century on whether the Postal Service should be in parcel

post or not. You can almost take them out and read them today

and they sound like they are relevant.

We don’t think that should be. There is no public policy interest

in doing that at all, but there are substantial private interests, and

there are the 700,000 postal workers, the management of the Postal Service and so forth. So your bill, which we supported, gave that

evolution a chance to take place.

I have written the Postmaster General about this. We got very

hot about our position on this matter being portrayed as being

against the Postal Service being allowed to compete. You know better than anybody, Mr. Chairman, that is nonsense. I am sure Bill

didn’t control his PR department who wrote that magazine article

about it but that is why I said I think we may have been wrong

in supporting that because if you say the Postal Service should be

given the freedom to take these enormous cash-flows and go into

private business and subsidize those activities, quite frankly the

way that was permitted in Germany and the Netherlands, we

think that is very, very bad policy.

I think based on what we have seen that is what they want to

do. It really isn’t a compromise that they want. If that is their position, then we strongly oppose them being liberalized.

Mr. MCHUGH. I understand that. Let me say for the record, and

I tried to indicate it in my introduction, you are as you should be,

the strongest advocate for your company’s interests. No one with

half a gray cell would ever suggest you should do anything differently.

From our very first meeting, you have made it imminently clear

throughout that you have not just an appreciation but an abiding

interest in ensuring the viability of the U.S. Postal Service but in

a fair and balanced way. I want to make clear I have never had

1 second in which I had to question that. I commend you for it and

I know it has not been an easy position for you to take. It showed

great courage and I think great insight—of course I am somewhat

biased.

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Thank you, Fred. We gave all the tough questions to Mr. Davis

and now he will have to submit them for the record.

I would be happy to yield or I can go on to the next witness. Let

me yield to the gentleman from Illinois.

[Followup questions and responses follow:]

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Mr. DAVIS. Thank you very much, Mr. Chairman.

I must confess that listening to the exchange has certainly been

interesting and is fraught with a great deal of complexity. I think

that is how all of us are approaching not only this hearing but approaching restructuring of the postal system if that is to happen in

our country.

I want to thank all of the witnesses. Perhaps I will begin with

you, Ms. Bos. From your testimony it is pretty evident that TNT

Post has been successfully spun off into a fully private corporation.

The Post caters to 16 million people as opposed to the U.S. Postal

Service in this country which actually services 17 times as many.

When you look at the magnitude of difference between the

amount of service that is involved, do you view it far more difficult

to do that with the capacity of dealing with 17 times as many people?

Ms. BOS. I think that it is obvious that if you look at the different amounts of people and look at the geographical difference

between my tiny, tiny country and the United States. It would appear it is a lot more difficult to provide a universal service in the

States than it is in the Netherlands or any other European country.

In principle there may be more difficult for your postal transportation system but I believe firmly that it is possible for every public

postal operator who provides universal service countrywide to reshape the company in such a way that they can still provide a good

service, maybe even a better service at low rates if they get the

possibilities from the government to reshape in such a way.

I think that it is crucial to the postal service to be able to act

as a normal, commercial company. I heard yesterday—forgive me

if I am impolite—that it takes about 10 months before the USPS

can get rates endorsed. That is your system and I am not going to

say anything about that but if you want a company to react to the

market and to respond in an efficient and good way, those things

could not to my mind help that. It is necessary that these issues

will be changed. I think then the USPS will have a fair chance to

go forward like I think it should.

Maybe it is not allowed under your committee’s procedures but

I would like to react to what Fred Smith said. He is not here now

but probably someone who represent his company is here. Fred

Smith said that my company used the money we earned with the

monopoly to buy into the private sector. I just would like to say for

the record, and also for your information, that the moment we

started to buy, our big acquisition was the TNT company, we were

already a fully, publicly listed company. You have shareholders, a

supervisory board, on tope of that and we have in the Netherlands

a system that gives us the obligation to have a clear separation between what is earned in the monopoly area and what you do in

other areas.

So in no way have those things been mingled or mixed. Also we

have always had from the European competition authorities full

endorsement for those acquisitions.

Mr. DAVIS. I would also note that you encourage complete separation between jurisdictions. I guess my question becomes is there

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any other option other than the completeness of jurisdictional separation? Is there any room in another option to have some mix?

Ms. BOS. There may be but I have not thought about it because

I think you cannot be half alive so it is important that you actually

make sure there is a clear distinction, especially because you have

other players in the market. You have consumer interests, customer interests, so you need to have a governmental power which

is completely separate from those who execute the operations.

Maybe as a transitional phase that could be sort of in between but

I think that should not take too long.

Mr. DAVIS. Thank you.

Mr. Doerken, let me be one of those to congratulate both you and

the Deutsche Post on your corporate success. I think what you have

been able to do is obviously phenomenal.

It seems to me the ability to handle first class mail of the 274

million Americans at a unit price of 33 cents is an accomplishment

that we are very proud of and that I think most Americans appreciate.

In your conclusion, you talked about domestic flexibility in pricing and in service standards. Let me see if I can understand. Are

you suggesting by any chance that the pricing should be in some

way based upon distance or based upon variables in delivery rather

than a straight, across the board cost?

Mr. DOERKEN. Thank you, first of all for your congratulations. I

would absolutely agree with you that in our opinion, the USPS is

doing a fine job and providing a good service at very affordable

prices in the United States.

With regard to your question about pricing policies, first of all,

I am completely in agreement with Simone Bos. You need a strong,

independent regulatory authority that oversees pricing and policies.

As one of the best models. I can again refer to Holland as the one

that is being applied there, where the pricing authority or the regulatory authority sets a band, I think it is based on a formula, for

the overall revenue increase that is allowed in the reserved area,

and then leaves it to the company to set the exact pricing policy

within that umbrella formula which sets the ceiling for the overall

increases that are allowed.

I understand this formula includes certain elements of productivity increase, and you have a guaranteed price rise that is below the

general inflation rate, you then leave it to the operator to flexibly

react. This flexible reaction can indeed in certain market segments

contain elements of differentiated pricing per delivery area based

on density.

As an example, in Germany we have a universal service obligation to deliver newspapers but we do not have a reserved area for

newspapers. It is a free market and anybody else can deliver newspapers as well. What you get is that private players of course concentrate on the dense delivery areas like the big city centers and

do not serve the countryside.

So we had to adopt a pricing system where delivering newspapers in the countryside is more expensive than in the city centers or else we would not have been able to compete anymore with

the private players who can cherry pick areas, and who do not have

a universal service obligation. We can then propose a differentiated

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pricing system, we can review it with our regulators and in this

case, it has been approved along those lines.

In other segments like universal service obligation for the private

citizen, it is a question of whether you want this or don’t want it,

I think this is for the regulatory authority to oversee.

In terms of quick reaction to the market, I think an umbrella formula is best that allows the private operator to charge flexibly the

right prices without overcharging. This would be denied by the ceiling set by the formula.

Mr. DAVIS. Have you had enough experience to discern any negative impact on universality as a result of this kind of flexible arrangement?

Mr. DOERKEN. It is always a question of what is enough experience. We have had this pricing policy for newspapers for some

years now, maybe 4 or 5 years. This has not in any way dented the

availability of newspapers be it in subscription or other channels

to any citizen in Germany at all.

Mr. DAVIS. I must admit it is intriguing. It does concern me a

bit in terms of just wondering what the impact certainly would be

on our system in terms of the main ingredient that we hold so very

dear. That is the availability of every person to just about know

that they are going to be able to get their first class mail but thank

you.

Mr. Postmaster, on page 4 of your testimony you indicated the

Postal Service could lose $1 billion if UPU remail reforms are enacted and that specifically the cause for the elimination of UPU

protections regarding remail. Could you further elaborate?

Mr. HENDERSON. Sure. Under those provisions a situation called

ABA, you take mail in the United States and you fly it to Venezuela. You postmark it, bring it back into the United States and

the postage is a dime. We are forced to deliver it as foreign mail.

That violates Article 40 and there would be a lot of mail that would

migrate to these smaller countries where the exchange rate is to

their advantage. I think the $1 billion is a conservative estimate.

Last, in your testimony, you expressed support for H.R. 22. I

have seen some drafts of legislation that would repair the rate relationship between nonprofits and regular rate publications and

other mail. How do you feel or do you know if this language will

be added to H.R. 22 to be addressed or will it be addressed separately?

Mr. HENDERSON. I don’t really know. I would defer to Congress

for that answer. I know we support that change in our nonprofits

and we are very supportive of what the chairman has done in H.R.

22. I think if you look at the postal situation across the whole

world, the U.S. Postal Service cries for reform. I think H.R. 22 is

an appropriate first step in that regard. We are hopeful that the

Congress will do something with H.R. 22.

Mr. DAVIS. But you definitely have some sensitivity to the plight

of not-for-profit?

Mr. HENDERSON. Absolutely.

Mr. DAVIS. Thank you very much, Mr. Chairman.

Mr. MCHUGH. Thank you, Mr. Davis.

Just for the record, I think we should note that we have in H.R.

22 very specific provisions for nonprofits that I can’t speak for

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every nonprofit in America but I think the larger organizations represented, supported and recognized would be sufficient to protect

their interests because indeed we share that as well.

Ms. Bos, let me just say you were not being impolite. Many of

us believe the 10-month process is unnecessarily long. That is, by

the way, not a criticism of the Postal Rate Commission. You may

have meant it, and I doubt you did, but when I said is not necessarily a criticism of the Postal Rate Commission, I don’t think it

is possible for them to meet the charge they labor under with respect to intervenors, hearings and such in any quicker time. The

problem lies within the structure. So many of us share that.

I would also I am not being impolite when you mentioned the

analogy of being half alive and that is not possible. I understand

you are saying if you have had an opportunity to spend enough

time in the House of Representatives, you would know it is indeed

possible to be half alive. [Laughter.]

Just for future edification.

We are very fortunate to have been joined by the ranking member of the full committee, the gentleman from California, Mr. Waxman. We are delighted to have him with us. I would be happy to

yield to him at this time.

Mr. WAXMAN. Thank you very much, Mr. Chairman. I appreciate

you recognizing me to pursue some questions.

There have been allegations that Deutsche Post is unfairly competing in the international parcel post business by using revenues

from its public first class mail monopoly to subsidize its private,

international parcel post business.

These allegations concern me. I do not support cross-subsidization. In fact, last July I introduced H.R. 2535, the Post Service Enhancement Act. The legislation directly addresses the issue of

cross-subsidization by expressly prohibiting the U.S. Postal Service

from using revenues from one class of mail to subsidize the cost of

delivering another class of mail.

Mr. Doerken, how does Deutsche Post address the issue of crosssubsidization? Do you use moneys from your letter monopoly to

support competitive activities? If yes, to what extent? Is this legal

given your current governmental status?

Mr. DOERKEN. This is an issue that has been debated a lot over

the last year. It was actually examined closely by the German antitrust authorities a couple of years ago and there is currently still

one case pending before the European antitrust authorities. It will

probably be finished during the course of this year.

It is true that we have invested a lot of money in our parcel service in order to restructure this sector and we had to overcome a lot

of barriers and burdens from the past. That is why wwe have had

losses in the past. We are able, however, as we prepare for the

stock market, to publish accounts that separate the activity in our

reserved area from all other commercial areas in which we are active. It can be derived from these numbers that we are not crosssubsidizing. That was also the conclusion of the German antitrust

probe that was finished 4 years ago with exactly that result.

We are therefore calmly looking at the outcome of the European

probe because cross-subsidization does not take place.

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Mr. WAXMAN. So it is your testimony that there is no cross-subsidization taking place?

Mr. DOERKEN. Yes.

Mr. WAXMAN. Could you describe the extent of your commercial

nonmonoply activities? Are your commercial activities acquisitions

and ventures self-supporting? Do you receive financial assistance

from the German Government or moneys from your monopoly activities to subsidize your commercial ventures? If so, how much financial assistance do you receive?

Mr. DOERKEN. First of all, our monopoly service or our reserved

area is only a relatively small portion of our overall business. I

mentioned earlier that we now have revenue of about $30 billion

for the Deutsche Post Worldnet Group. Of that only about a quarter is in the reserve area; the rest are all business activities outside

the reserve area, where it never existed.

In addition, according to the current legal situation, our last monopoly will finish at the end of the year 2002. There is a plan to

have a complete or additional partial liberalization throughout Europe for the letter service. Regarding parcels, let alone logistics and

banking, there has never been any reserved area, so those are businesses where we have been competing freely since our existence.

In terms of your question about whether we received any other

subsidies from the government, we have not. Deutsche Post and its

preceding organizations have been on a separate budget from the

government since 1920. So everything that was invested in the

postal service has always come out of the revenue that the postal

service got from its customers. That is true for all pieces of real estate that have been purchased.

When the postal service was put into a corporatized structure in

the beginning of the 1990’s, the infrastructure that was necessary

to support the service came with it. That included a lot of operational infrastructure that was at the time necessary to provide the

service. It included also some additional assets of our company.

Our company was a little bit like an integrated Chinese or Russian communist company. We owned the apartments in which our

employees lived. We owned even some hotels in which they spent

their vacations and so on.

These assets were not actually of great benefit in the beginning

because they were all underperforming, they were in a bad condition, the rents were below market rates, and all the real estate was

not saleable when we took it over in 1990.

We then restructured, as I have explained. For example, we rebuilt our operational infrastructure. Let me describe how that typically worked. In the past, we would have had relatively small hubs

in almost every medium-sized or bigger city typically on top of the

central railway station in a given city, and we would still use the

railway a lot for connections.

Our new structure is based on much larger sorting centers, and

fewer larger centers, typically on greenfield sites outside the big

cities, and based on trucking traffic and branching into railway

only through container exchange.

The result was that for say, one big center we built, we would

typically free five or six smaller ones in downtown locations, typically next to the railway station. These were not always, but often

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interesting real estate locations. Only after we had done that, after

a couple years of restructuring, we redeveloped or sold those downtown sites. Indeed we could in the end make more money from selling these sites than it cost us to build the new factories on the

greenfield sites.

I would, however, not call this a subsidy. This was just restructuring and an asset change that we did in our balance sheet.

Mr. WAXMAN. Let me understand. In other words, you had real

estate that was owned by Deutsche Post where it was government

run?

Mr. DOERKEN. Yes.

Mr. WAXMAN. And that real estate was sold and the funds from

the sale of that real estate went into this new corporate organization?

Mr. DOERKEN. I guess it worked the other way around. We first

had to do a reorganization and invest in a new structure because

all this real estate was necessary for our business. Those were the

sorting centers in which the Post worked when we took it over in

1990. Only through our restructuring could some of this real estate

be freed, and as a corporation that focuses on providing a service,

you sell unnecessary assets and invest the proceeds into the service

you provide.

As far as the other assets are concerned like apartments or hotels, we had to put in many years of restructuring, of raising the

rates to market rates, in many cases reinovating and rebuilding

part of the buildings. Also then those could be sold in the last 2

years and those proceeds were used and put into our strategy.

Mr. WAXMAN. Those funds were used to?

Mr. DOERKEN. To invest in either our new infrastructure or some

of the acquisitions we have made. So you could say we first restructured our assets, we brought them back to market value, and then

we sold unnecessary assets and invested in assets that have an importance for maintaining our service as a distribution logistics company.

Mr. WAXMAN. The Department of Justice will formally present

testimony on the next panel stating that ‘‘In the years since the reorganization of the U.S. Post Office, we have opposed efforts to

erect restrictions on competition in international mail services.’’ To

what extent is Deutsche Post engaged in restrictions on competition in postal services in Germany?

Mr. DOERKEN. First of all, we don’t have any authority over the

regulation of the postal market in Germany. That is handled by an

independent regulatory authority that is responsible for both the

postal and the telecom regulation. This regulatory organization is

dealing on an equal footing with both ourselves and private players

in the market.

The only difference between us and the others is that we have

both a universal service obligation which is actually larger than the

one prescribed by the European Union and a reserved area to compensate for the cost of this universal service obligation. Incidentally, our reserved area is smaller than the maximum allowed according to EU regulation.

I might add that in practice our regulatory authority is even allowing our competitors to compete within our reserved area. This

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is called pilot tests, when a competitor is seen to, for example,

transport letters below 50,000 which is normally protected by our

reserve area. So it does play a role of opening the field for competition.

Of course we protest, we have to because we have a small reserved area to protect and we have to use those funds to provide

for the universal service obligation. I might add we understand the

way our regulatory authority works because it sees its task to create a market for the customer.

Mr. WAXMAN. Thank you for your answers.

Mr. Chairman, I would yield the balance of my time.

Mr. MCHUGH. Thank the gentleman.

Postmaster General Henderson, having read your testimony, I

think I am being fair in saying that in broad principle, you would

agree with Mr. Smith’s statement that the old structure of the

UPU, postal provider to postal provider, no longer works and that

you are supportive of bringing in outside private sector groups as

participants in the process? Did I misread that?

Mr. HENDERSON. No, that is correct. In fact that is being precipitated by the change in the foreign posts themselves. They are

going to be private sector entities, so it is only right, especially in

the United States, that all of the private sector come to the table.

Mr. MCHUGH. So we are all on that same page. The issue now

becomes how do we take the next step if at all. You heard the

GAO, as I mentioned to Mr. Smith, make the comment, perhaps we

need something like the Federal Advisory Committee Act to formalize a system by which that input and participation can be realized

but they would certainly think that something less than that particular enactment but something structured and defined could

serve the same purpose.

Do you have any thoughts from your perspective on how that

next step should occur? Would FACA be an appropriate step or do

you think that is further than we necessarily need to go?

Mr. HENDERSON. My own view is that is further than you necessarily need to go. I think what you have historically seen here

in the short history we have had is really the scrambling to implement a piece of legislation under some rapidly changing conditions.

I think the State Department is perfectly capable of setting up

the procedures that can bring everybody to the table. I think they

ought to be given a chance to do that before we impose something

on them.

Mr. MCHUGH. Wait and see what they do. Do you have a view

on the suggestion that we send a message to the UPU by not ratifying the most recent convention?

Mr. HENDERSON. I have a view that I am opposed to that, yes.

I think that you send delegates there, they negotiate in good faith

and then if you at the last moment say you are not going to do it

or you don’t agree with it, I don’t know what that does to your delegation. Two, I don’t know what the legal implications are of that.

For example, what if that meant the Postal Service no longer

was concerned about remail? That would have a dramatic impact

on us as aggressive private entities took advantage of that. So I am

not sure what that means. I think without fully understanding

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what it would be, what the consequences would be, I wouldn’t be

in favor of doing that.

Mr. MCHUGH. So your opposition at the moment is predicated

more upon the uncertainty of the full impact of that rather than

just a hard core against it for A, B, C, or D reason?

Mr. HENDERSON. There is a second point to that. Yes, you are

right on the first point. The second point is you send a delegation

to the UPU to negotiate in good faith and I think that would reflect

poorly on the delegation and on the new legislation. It would be an

odd position to take.

Mr. MCHUGH. A few days ago, AP had a story, dateline Washington, where a variety of private shippers, through the auspices of

the Air Courier Conference of America, had contracted a private

study that found that the Postal Service was losing, I believe, $1

billion in lost customs dues because of the way in which the Postal

Service currently interacts with Customs activities.

You heard Mr. Smith talk about that bifurcated process of customs clearance under which you operate versus theirs. Do you have

any comments as to either the findings of this particular study or

the operation of the bifurcated customs procedure that now exists?

Mr. HENDERSON. At the risk of putting words in Fred’s mouth,

these subjects are two different things. That study that was circulated is, in our view, nonsensical. It took 63 packages and mailed

them to a single location and it concluded from that experience

that we had 35 million pieces of mail inbound. We keep numbers,

we track that, so we actually have 7.1 million inbound packages

and about 30 percent of them pay customs. So I don’t think you can

read that study and draw any kind of legitimate conclusion.

On the other subject as to what Fred was talking about, it is

true, there are two ways in which you can approach or go through

customs in foreign countries. We are all for the commercial approach. He has a commercial entrance which means that he manifests and he gets personalized treatment. I don’t mean him, but

Federal Express gets personalized treatment. They pay for 24-hour

customs clearance.

The posts of the world just go through customs normally and 95

percent of our mail is someone mailing a package or a letter to

someone overseas. To manifest or electronically manifest one piece

is ridiculous. So there are two different systems but we don’t act,

for the most part, as a commercial entity. We did with GPL, Global

Package Link with Japan, and we did electronically manifest that.

Canada, for example, has a large shipping business in the United

States and electronically manifest that. That is to tell Customs and

everyone else what is coming. However, for one piece to go commercially would not be practical, they are just two separate systems.

We are dealing household to household primarily in our international market right now and Federal Express is business to customer or business to business.

Mr. MCHUGH. So would you support the theory that identical

mail should be cleared in identical ways?

Mr. HENDERSON. I would, absolutely.

Mr. MCHUGH. You heard the discussion about terminal dues.

You heard Mr. Smith’s comments that what that does is allow the

Postal Service to treat foreign mailers in a way that is more advanVerDate 11-MAY-2000 10:03 Aug 29, 2000 Jkt 000000 PO 00000 Frm 00106 Fmt 6633 Sfmt 6633 C:\DOCS\65745.TXT HGOVREF1 PsN: HGOVREF1
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tageous financially, lower costs, than we treat domestic mailers. I

believe I also heard him say that the difference there can subsidize

other operations but I don’t want to go into that necessarily unless

you do.

I would like to hear your view on terminal rates on the dues because on the surface, it certainly seems that someone mailing from

a European country coming in and paying whatever the terminal

dues fee would be—17 or 18 cents, whatever—is enjoying an advantage over the 33 cent domestic mailer. What would your response

to that be?

Mr. HENDERSON. First of all, the UPU sets the terminal dues

process and it is what is called a global averaging. Because it is

a global averaging, some countries have lower costs than other

countries upon entry into the United States, entry into our network. That is how, for example, remail occurs.

If you go to Venezuela and postmark it in Venezuela and bring

it to the United States, the postage rate is much lower than it is

in the United States. So there are instances in which other countries enjoy because of global averaging, lower costs than what we

provide our own citizens. That is true.

In a number of other countries, their costs are much higher and

the global averaging represents to us about 32 cents in costs and

close to that in revenue. So when you see a rate of 7 cents, for example, you are looking really at a country that is on the very low

end of the global averaging and their entry to the United States

is low based on the costs in their country.

The global averaging creates the disparity and it is not something that is under our unilateral control. That is the real purpose

of the UPU. If you want universal service, global universal service

to assure that if an American mails a letter to Germany or to the

Netherlands, that it gets delivered by that foreign post, then you

have to have some exchange rate. This exchange rate has been

what the UPU has negotiated over the years. It is not something

we use for any kind of competitive advantage. It is a result of negotiations within the UPU.

Mr. MCHUGH. So I am hearing you say that if you look at the

totality of the system, the mean would be somewhere around 32 to

33 cents?

Mr. HENDERSON. That is right.

Mr. MCHUGH. I would appreciate, and it would take some time,

but a breakdown of the global average to see who is paying what

in terms of mailing into the United States. Give me an example of

a country where they actually pay more than 32 cents?

Mr. HENDERSON. I cannot off the top of my head, I just know

they do.

Mr. MCHUGH. OK, that is fair. I would like to see that because

the impression one gets is that if not all, certainly the vast majority of those countries in this agreement with the United States are

below 33 cents at the disadvantage of a domestic mailer.

Let me turn to our friends from Europe. Tell me, how did your

two countries and your two postal services handle representation

within the UPU? Ms. Bos.

Ms. BOS. Our Ministry for Transport and Public Works is the responsible government body for the policies on international issues

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in the post. We were part of the delegation. PTT Post is the official

public postal operator, we have the international universal service

obligation, so we participated. There was one other representative

from an association in the Netherlands that represents competitors, especially in the parcel and express industry. He was there

not because there were no others admitted to this delegation but

because the Ministry tried very hard, but there were no more interested parties to join the Congress in Beijing, and probably they are

quite right.

You were talking about maybe half alive, well, Beijing or the

UPU congress are a fine example of that too. I think it is important

that often, although as I said there are also very relevant issues

at stake during the UPU congress, but many of the things are often

also overrated. We talk amongst postal operators on the clear operational issues on, for instance, how labels should look, when you

mail should they be white, blue or whatever. So the vast majority

of what is called detailed regulations are actually pretty boring.

That has nothing to do with anticompetitive rules or regulations.

But as I already said in my statement there are certain other aspects which we do not like as a postal operator in the UPU and

our government definitely doesn’t like them either.

Mr. MCHUGH. But you do have private representation. Or at

least you did?

Ms. BOS. We did.

Mr. MCHUGH. Are you absent the controversy you have heard

here today with respect to others who felt excluded? I just heard

you say there wasn’t anybody else who expressed an interest, so I

guess the answer to that would be yes?

Ms. BOS. I think what is important is that it depends very much

on what sort of interests are at stake. I must say also from our

side, the TNT Post Group, we represent also the private industry

part so I think it is important for us that there is a good balance

in the decisionmaking and there was another group in the Dutch

delegation representing other interests for the Netherlands.

I can understand especially for private operators if you do not

know what is going on there and you know some things like customs are they are to the advantage of the post, then you get terribly anxious of what is happening there. I think that is one of the

reasons why private operators should be admitted as well. I am

convinced they will also see that some elements are very important

to them are other elements are less relevant. I think also that will

make it possible for all interested parties to find the right solutions

for the whole sector on different subjects, for instance standardization as well as security.

Mr. MCHUGH. Mr. Doerken.

Mr. DOERKEN. In Germany, in our case, the delegation is headed

by a representative ultimately from the Ministry of Economics

which is responsible for overseeing us but mainly staffed by people

from this independent regulatory authority which formally reports

to the Ministry of Economics, but is independent in terms of its

judgment and what it does in regulating us.

We also had delegation members from service providers, a similar situation where there was no great interest by German service

providers to be present but the possibility is there. We did have a

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delegate from DHL in the organization and I think we didn’t even

find an organization representative to come with us but there is no

impediment here.

The UPU, in general, yes, deals with a lot of boring operational

issues which nevertheless are important because they impact the

way we do our business. To go a bit into some detail, the UPU has

two major parts—the administrative council and the operational

council. Typically the issues in the operational council are almost

entirely taken over and worked through by the post because that

is the entity of their concern. In the administrative council the

major decisions like elections of delegates and terminal dues decisions are being made. There the regulator takes the lead so that

he can make an even-handed decision and not just allow one party

to be advantaged.

A final word about terminal dues, I subscribe to what has been

said that the UPU has an essential role in making sure there is

a worldwide postal territory that can be used by everybody. Everybody who sends a letter in the world will know he or she has access

to all the other countries.

Therefore, there needs to be some kind of basic terminal dues

system as well which then has the problems Mr. Henderson has described so well. It is not perfect but it exists, and it is agreed to

in principle by all the governments or the plenipotentiaries, as they

are called, of the world governments who subscribe. That is very

valuable.

One can say it is essential for maybe 80 percent of the world’s

surface but only maybe for about 20 percent or less of the world’s

international mail flows. There is no necessity to base ourselves on

the UPU terminal dues agreement for the relationships among industrialized countries.

In Europe over the last 5 years we had long negotiations which

led to an agreement called REIMS about terminal dues among

countries in Europe. REIMS was negotiated and established completely separate from the UPU. It avoids many of the difficulties

and mistakes of the UPU system by establishing a regime much

closer to real costs and real market prices.

That agreement has been signed by all EU countries but one—

sitting next to me here. [Laughter.]

And by most other major mailers in Europe. This shows that

there is a bilateral or multilateral type of agreement that could be

reached with countries like the United States and Canada as well.

So we don’t even need the UPU for 80 percent of the mailstream.

We need it mainly to give access to those remaining 20 percent and

there I think there is a lot to be said for giving those countries, as

long as it is really only the mail from these countries, access to the

system.

I have to completely agree with the Postmaster General about

the unfairness of ABA remail, ABA meaning that these rates would

be used by other postal companies to divert domestic mail into

pseudo international mail to take advantage of these rates. This is

ridiculous, particularly as these rates as everybody knows are too

low and constitute an unfair advantage.

We have always strongly protested in legal proceedings against

this practice. We just recently won a landmark decision against

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ABA remain. Our regulator agrees that this is a special route that

should be open to developing countries, but should not be usable

to divert domestic mail.

Mr. MCHUGH. Did both of your countries formally adopt the current Beijing UPU convention? Have you ratified that?

Ms. BOS. The process in the Netherlands is such that it takes a

full year before the implementation can take place. Full ratification

will take place and the government is working on it. As far as I

know, yes they will ratify it.

If you would let me comment a little on your question to the

other parties at the table on the signal that the United States

would send to the UPU by not ratifying the UPU convention. My

personal opinion would be if the United States would like to give

a signal, it is not the best signal not to ratify because I agree with

Bill Henderson that the delegation was there, they participated

and there was some reservations finally made in the text but nobody from the U.S. delegation actually mentioned that things were

so awful and unacceptable that there were plans not to ratify.

When discussing in the U.N. context also the UPU, I think the

State Department and maybe also other U.S. Government bodies

could send a very clear message that the UPU should change because I think it is the last international organization under a U.N.

umbrella functioning like this.

So there are, and I think around this room a lot more people are

aware of those, a lot of other possibilities to give that signal to the

UPU. A lot of lobbying and talking to people, to the International

Bureau of the UPU by different parties apart from State Department, might help a lot more than not ratifying.

Mr. MCHUGH. I appreciate that. I think Mr. Smith is expressing

a frustration that is understandable to the extent that this is not

the first time that the UPU has met and in theory, dedicated itself

to reform. I think he is looking for a somewhat new way by which

to say they are more serious this time.

I am not suggesting he is right or wrong; I am just trying to say

it, but I appreciate your comments.

Is the German Government expected to ratify the Beijing UPU

convention?

Mr. DOERKEN. Same situation, it takes about a year. We are in

the process and it is expected to be ratified.

[Followup questions and responses follow:]

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Mr. MCHUGH. Welcome to democracy.

Ms. Bos, do you want to comment on your views on remailing

provisions?

Ms. BOS. I could talk for 2 hours or whatever you want but I

know you don’t have the time to do that.

It is quite a complex issue because the way we talk about it may

make it look unfair if you reroute traffic and yes, in some cases I

admit. In the case Bill Henderson mentioned, yes, you take domestic mail that is simply intended to be domestic mail out of the

country just to abuse a sort of historical system in terminal dues.

Yes, I agree, that is not the way it should be.

However, when you talk about for instance hybrid sorts of

mailstreams where you get data flows into a specific country from

abroad, you print it there, then mail it abroad to other countries.

Is that mail originating in that country or is it international mail?

That sort of discussion is very complex and difficulty. I think it is

too easy to state either case.

I would like to ask whether you would allow us to send you a

written statement on this complex issue so you can see our views

a bit better because I think otherwise this session would become

far too lengthy. There is some disagreement between some parties

around the table as you know. We will put that down in writing.

[Followup questions and responses follow:]

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Mr. MCHUGH. We try to draw in as much differing opinion as we

can, so we would welcome written comments not just about that

but any other topics that have come up here today.

I say this to the Postmaster General without looking at him because he has heard it many times before, but to you, it is our custom to save time, which it is hard to believe that on occasion we

do that, to submit other questions that have perhaps not come up

for the record. I understand you are very busy and I am so grateful

that you have come as far as you have to share the very interesting

insights you already have been so gracious in doing.

If you do have the opportunity to respond to those as well, it

would be very helpful to us. You leave today with much appreciation, much admiration, not just on this side of the podium but

throughout the audience here from folks who understand the very

innovative and bold steps that your governments have authorized

and you have articulated in your actions. We appreciate that.

I was only half joking about coming to your countries. I was in

Germany about 6 months ago, in Garmisch. It is lovely. But we

would work, I promise you that. With that, I do thank you.

Postmaster General Henderson, I will go to you because you look

like someone who wants to say something.

Mr. HENDERSON. No.

Mr. MCHUGH. Speaking for the record, Steve LaTourette, the

gentleman from Ohio whom you know has been one of the most active members of this subcommittee, sometimes not to my liking by

the way, but very interested in postal activities has sent word he

was delayed. His plane ran into some problems, so he wasn’t able

to be here but he has asked that we submit a question to you. It

does not deal with the topic directly of this hearing but an issue

that he brought up before about local government control and such

and State laws as they interface with the organization that we are

going to submit.

He says he has not gotten a response from his previous submission so I would direct your attention to this because I know you

are going to want to get back to him.

Thank you all very much for being here today. We deeply appreciate it.

[Followup questions and responses follow:]

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Mr. MCHUGH. Our third panel of consists of considerable numbers. We will be joined by Ambassador Michael Southwick, Deputy

Assistant Secretary, Bureau of International Organization Affairs,

U.S. Department of State; Mr. T.S. Chung, Deputy Assistant Secretary, Services Industry, U.S. Department of Commerce-International Trade Administration; Mr. Joseph Papovich, Assistant

U.S. Trade Representative for Services, Investments, and Intellectual Property, Office of U.S. Trade Representative; Ms. Elizabeth

Durant, Director, Trade Programs, U.S. Customs Service, U.S. Department of Treasury; Ms. Donna Patterson, Deputy Assistant Attorney General, Antitrust Division, U.S. Department of Justice;

and Mr. Robert Cohen, Director, Office of Rates, Analysis and Planning, U.S. Postal Rate Commission.

To you all, thank you for your patience, particularly for your efforts to join with us. I have read all of your testimony that was

submitted by the weekend and we are looking forward to your comments. As I mentioned earlier, all of your testimony, as prepared,

will be submitted in its entirety to the record. We are looking forward to your comments.

You are all seated comfortably but it is the requirement of the

committee that witnesses be sworn, so if you would please rise.

[Witnesses respond in the affirmative.]

Mr. MCHUGH. The record will show that all six panelists responded to the oath in the affirmative.

With that, let me begin with Ambassador Southwick. Thank you

for being here. We are looking forward to your comments. We will

turn our attention to you, so please proceed in the fashion you

deem most fitting.

STATEMENTS OF MICHAEL SOUTHWICK, AMBASSADOR AND

DEPUTY ASSISTANT SECRETARY, BUREAU OF INTERNATIONAL ORGANIZATION AFFAIRS, U.S. DEPARTMENT OF

STATE; ROBERT COHEN, DIRECTOR, OFFICE OF RATES,

ANALYSIS AND PLANNING, U.S. POSTAL RATE COMMISSION;

T.S. CHUNG, DEPUTY ASSISTANT SECRETARY, SERVICES INDUSTRY, INTERNATIONAL TRADE ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE; JOSEPH PAPOVICH, ASSISTANT

U.S. TRADE REPRESENTATIVE FOR SERVICES, INVESTMENTS, AND INTELLECTUAL PROPERTY, OFFICE OF THE

U.S. TRADE REPRESENTATIVE; ELIZABETH DURANT, DIRECTOR, TRADE PROGRAMS, U.S. CUSTOMS SERVICE, U.S. DEPARTMENT OF TREASURY; AND DONNA PATTERSON, DEPUTY ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION,

U.S. DEPARTMENT OF JUSTICE

Ambassador SOUTHWICK. Thank you, Mr. Chairman.

I am very pleased to be here to describe the role that we have

performed as a result of this committee’s work over the past year

or so. As you know, we did submit a written statement. I think

what I will try to do here is summarize briefly some of the main

points.

As everyone here knows, this is not a particular job that the

State Department sought. Having said that, I think it is a job that

is extremely important. As I got into this work over a year ago, I

found that profound issues of public policy, economic policy, and

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competitive policy for the United States were at stake, and I think

the work of this committee is helping to build a platform where the

United States can bring itself up to date with what is going on in

the rest of the world.

In that respect, I would like to play particular tribute to the role

that the Netherlands and Germany have played in our work as we

have worked with the Universal Postal Union. They have been, before we were, in the forefront of efforts to get reform in that institution.

Just a word about the GAO report. There are some things obviously we don’t like. We have to admit that we were a little bit ragged as we got into this job. We didn’t have the proper staff, we

were on a very steep learning curve, and we had a big event that

we had to prepare for, as people know, the Beijing Congress. But

we did set to work.

The criticisms made by the GAO, I think, have been addressed.

We have done a lot of things with websites, public information, getting word out in a more timely fashion, creating records for what

we do. I think, as has been suggested, that we will put down on

paper for the benefit of all the stakeholders the process that we are

pursuing. I think it does meet the spirit of what the FACA process

is supposed to accomplish. We will do our utmost to make sure that

all stakeholders are treated fairly.

As far as the UPU is concerned, the UPU is one of the stranger

bodies in the U.N. system. In my job I deal with 47 different agencies of the U.N. system. Until this responsibility came to us, we at

the State Department frankly did not pay a whole lot of attention

to the UPU because it was basically the job of the Postal Service.

When we started looking into the UPU, we found that this was

an organization which was in danger of being eclipsed by developments in the sector where it was supposed to be a major player.

It is an old organization, a venerable organization, that has done

very good work in many, many ways over the years. I am happy

to say that it is lead by an American, an American elected to the

position. This is a rarity in the U.N. system. As a matter of fact,

Mr. Tom Leavy is unique in that respect. I think he has done a

very distinguished job.

The UPU is an organization which had the markings of a kind

of private club. I think when it was formed over 100 years ago, the

members felt they were representing the public interests. But as

time has gone on, and the sector has widened, it is very clear the

UPU is more an organization for other organizations, in this case,

traditional, old line state monopoly postal services. So we found

there was a lot of reform that was needed in that organization

that, if we had been on our toes, we would have tried to pursue

even before the legislative mandate came our way.

As for the process, there are several aspects to mention. Externally, we wanted to show we were consulting with other countries.

One of the advantages I think the State Department has brought

to this work is that we can use the whole diplomatic structure of

the Foreign Service and use our diplomatic missions abroad to engage not just the postal services of different countries, but their

economic ministries, their foreign ministries, their trade ministries

and so forth, so that postal policy as we discuss it with those counVerDate 11-MAY-2000 10:03 Aug 29, 2000 Jkt 000000 PO 00000 Frm 00157 Fmt 6633 Sfmt 6633 C:\DOCS\65745.TXT HGOVREF1 PsN: HGOVREF1
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tries is something that we bring to a wider audience abroad, as we

have done here in the United States. We have found, though, that

in many countries, postal policy is very localized and is done in a

kind of forgotten corner of the government, particularly in developing countries.

Internally with the U.S. Government, I think we have tried faithfully to follow the mandate that is prescribed in the legislation by

involving all of the stakeholders. I spend a lot of time talking to

the major actors in this sector everyone frankly who wants to talk

about one aspect of it or another. We have had many public meetings, we have an open door policy, we get a lot of input. I will say

something in that regard with respect to expertise.

We realized at the outset that we didn’t have postal expertise,

but we do have diplomatic expertise, we do have expertise in dealing with international organizations. At first when I saw this responsibility, I thought we were going to have to develop a big staff

of our own. But I like things to be lean. As we were developing our

work in this area, we found that we had a lot of help. There was

no dearth of offers to help us do our job from various folks around

town who had plenty of advice to give. We created, I think, a very

synergistic process, the interagency process, with public input,

learning what views are to help us guide our work.

I think there is enough creative tension in this process that various folks are kept honest. We are hoping to be smart enough to

make sure they stay honest as this process continues.

On policy, it was very clear that this organization, the UPU,

needed to be opened up. Most organizations in the U.N. system

have some kind of method for dealing with what we call non-governmental organizations or the public in general.

The UPU had done this to some degree quite successfully with

the direct mailers but not with their competitors, not with the private couriers. That is where the rubber hit the road. We wanted

to open that up. One of the steps I took immediately was to make

sure that UPU documents were available to all, that we included

private sector people on our delegation as we did to Beijing—this

will be a regular feature of what we do—and that this access and

participation problem would not be so acute as it was in the past.

Beyond that kind of procedural step, we did find there were

issues that were of deep concern from an economic and trade police

point of view: this Article 40 issue which has been mentioned, customs which has been mentioned, and the terminal dues structure.

We developed our positions on these issues. I think it is fair to say

there are hundreds of different proposals that were presented to

Beijing. No entity, private or public, exercised any kind of veto on

what the State Department did. As a matter of fact, we ourselves

injected some things into this process. The State Department, for

example, was the author of the reservation on the terminal dues

agreement that was agreed upon in Beijing because we in fact do

have reservations about it.

We went to Beijing with a kind of radical agenda. We wanted to

change that institution. We had to speak out loudly and clearly, at

times I would have to say stridently. This was not appreciated by

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phere that had developed over the years, the decades, in that organization.

Nonetheless, we did accomplish many of our objectives in the

sense that we opened up the process for reform and we sent a signal about the terminal dues structure that that needed to be

changed over the long term. We also got this advisory group process formed which is very limited, not what we wanted really. We

wanted something more far reaching but I think this arrangement

will be helpful as a kind of intermediate step in getting input into

the UPU from the private sector.

This high level group that was created has had a couple of meetings. I attended the first meeting which occurred in early December. I must say there was a sea change in the attitude and the atmosphere at that meeting compared to what we had experienced in

Beijing. We heard it from practically everyone. We heard it from

the Director General of the UPU. We heard it from a number of

countries that had been opposed to us in Beijing.

Clearly there is a serious reform process underway. I think it is

very incumbent on the United States as the author along with several other countries of that reform process to try to make it work.

There is a timeframe for this. We have to come up with some recommendations over the next year. In 2002, there will be an opportunity to present formally those proposals in a way where they

could be adopted before the next congress of the UPU which will

be held in Abidjan in 2004.

I think we are at a critical point with this high level group. I

want to end on that, in the sense that we are trying now to get

input. The UPU is trying to get input from interested stakeholders

on what they see in the UPU, how they would like to see it change.

We will have meetings on this on an interagency basis, and we will

have, later on, a public meeting on this. We want people to give

voice to their concerns.

It is not enough to say that we don’t like the UPU. We have to

say in a very articulate form how we want to change it. I will say

this, having had many years in international diplomacy and with

the U.N. system: nothing happens unless the United States is solidly behind it. If we can get a good plan formulated after all this

process goes forward, I think we can work with our allies to get

that job done.

Thank you.

[The prepared statement of Ambassador Southwick follows:]

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Mr. MCHUGH. Thank you, Mr. Ambassador. I appreciate your

comments.

I think it would be fairest if we just continued down the line and

go to open questions, hit or miss.

Mr. Cohen, as I mentioned before, is Director of Office for Rates,

Analysis and Planning for the U.S. Postal Rate Commission. Welcome, sir. We look forward to your comments.

Mr. COHEN. Thank you, Mr. Chairman, for inviting us to testify.

I will very briefly try to summarize my written testimony.

We talk in the testimony about our first international mail report

which was submitted to the Congress last June. That report contains some redacted material because our understanding of the

statute is that information a private business wouldn’t normally

disclose should not be released.

The report’s most important conclusion was that international

mail is not cross-subsidized, but it makes a much smaller contribution to institutional costs than does domestic mail. The highlights

of the report are contained in my written testimony.

Commissioner Goldway and I actively participated in all of the

activities that the State Department organized prior to the Beijing

conference: the public meetings and the advisory group meetings.

We attended the conference in Beijing, and I also attended the first

meeting of the high level group in Bern. I also worked with my

staff and with Postal Service staff on developing a schedule of work

for a study of remail and terminal dues. We circulated that schedule of work to interested parties, and we hope to incorporate their

comments and finally release a contract for a study.

My testimony does describe the role of the UPU in creating a single, worldwide postal territory. That is an important contribution

of the UPU. We also go on and point out that while the worldwide

postal territory is abetted by the universal service obligation, that

is not a good reason not to have fair and open competition in international mail. The USO is not supported by international mail activities. It is supported by a domestic mail monopoly, which is more

than sufficient in the United States and other countries to support

the USO.

As I mentioned, I was at the high level group meeting and I, too,

was surprised at the great change in the attitude of the delegates

to the high level group as compared to Beijing. I also am optimistic

about the prospect for reform.

The last thing I mention in my testimony are recommendations

with regard to the State Department’s process. The Rate Commission believes that State has exercised its authority in an extremely

competent and skillful manner. It believes, however, that Congress

should call on State to establish an advisory commission under the

FACA. Such a committee would institutionalize a consultative process.

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The Commission also suggests that when appropriate, State

should issue and make public statements of policy under procedures resembling notice and comment rulemaking. This would memorialize decisionmaking and prevent arbitrary changes in policy.

Finally, the Commission suggests State may wish to augment its

staff with some additional expertise.

Thank you.

[The prepared statement of Mr. Cohen follows:]

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Mr. MCHUGH. Thank you very much.

Now, Mr. T.S. Chung, Deputy Assistant Secretary, Services Industry, International Trade Administration, U.S. Department of

Commerce. Welcome, sir. Our attention is yours.

Mr. CHUNG. Thank you, Mr. Chairman. I would also like to

thank you for this opportunity to speak to you today. I will also try

to shorten my remarks in the interest of time.

The Department of Commerce does recognize that this is an opportunity to advance further the policies that will benefit all U.S.

stakeholders in the postal and delivery services sector. As the Federal Government’s chief agency with responsibility for promoting

the interests of U.S. businesses overseas, we welcome the mandate

given to the Department by the Congress to cover postal and delivery services as a part of the International Trade Administration’s

Service Industries Development Program. I am directly responsible

for that program.

Let me say a few words about the role of the State Department

in connection with the UPU congress. In short, as stated by several

of the previous speakers, the State Department has handled the

task very well under a rather challenging set of circumstances.

From the perspective of the Department of Commerce, this

change has been predominantly beneficial and has better aligned

our international postal policy with U.S. international trade policy

in general.

Before, during and after the UPU World Congress, the State Department has tried to create an open and transparent process, ensuring that the views of the interested parties, including the private providers, postal users, general public and other governmental

agencies are considered when formulating U.S. positions for the

UPU.

For the Commerce Department, obviously we were involved together with the State Department in the UPU congress as a member of the U.S. delegation and we worked closely with them to develop a policy position that we advanced at the Congress.

An important element of the work that went into our preparation

for the UPU, for the Commerce Department, was working closely

with the business community, conducting extensive outreach to

know exactly their concerns and to reflect those concerns to the

best of our abilities. This was something we had been doing even

before them as the Federal Government’s primary export promotion

agency.

We work in different fora to improve the international competitive position of U.S. private business providers and that includes

the international postal and parcel services sector, as well as a

major customer of their services, which is the direct marketing industry. Our involvement in the UPU process has given us a higher

profile as well as added expertise that will continue to serve U.S.

international interests better in the coming years.

The Department of Commerce, as a general rule, favors measures that will facilitate the movement of goods across borders in

the conduct of international trade in an efficient and timely manner. Without the free movement of goods, many of the benefits of

liberalized trade, both in goods and services, are stunted.

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As practically all of the previous speakers have mentioned, reform in the UPU is critical and we support that and will continue

to work with other agencies and private sector companies to bring

that about.

UPU does not exist in isolation and that is why the Commerce

Department is active in other related areas and fora, working with

other U.S. Government agencies and the private sector on relevant

issues in the World Trade Organization, and in particular General

Agreement on Trade in Services [GATS], the World Customs Organization and in bilateral and other multilateral fora such as air

services agreements.

The collective effect of liberalization, removal of barriers and reform will improve the overall international commerce of the United

States. For instance, the U.S. express shipping industry has told us

specifically that commitments in the GATS are needed to cover extensive aspects of providing express shipping services. We will

work with them in the coming months and years to reflect their

concerns in the WTO GATS process.

As reflected by the two speakers from Europe, market conditions

are changing rapidly here in the United States as well as across

international markets. We can expect to see trends such as postal

deregulation, partnerships and alliances, increased competition,

globalization, electronic substitution and more product service innovations. There will certainly be more competition in postal and delivery services and the consumers of these services should benefit

from this enhanced competition and greater service options.

In conclusion, it is clear that international postal and delivery

services must serve the global economy as a facilitator of an open

and fair trading system. This will require further reforms worldwide such as granting private postal providers similar access to

customs facilities as that given public postal service providers and

a comprehensive global policy strategy that recognizes the need for

change in several different fora.

Thank you, Mr. Chairman, for this opportunity and I will be

happy to answer any questions.

[The prepared statement of Mr. Chung follows:]

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Mr. MCHUGH. Thank you, Mr. Chung, and we will have some

questions for you, I assure you.

Mr. Joseph Papovich, Assistant U.S. Trade Representative for

Services, Investments, and Intellectual Property, Office of the U.S.

Trade Representative. Welcome.

Mr. PAPOVICH. Thank you very much.

I too welcome the opportunity to present my agency’s views and

I will summarize my statement.

With regard to international postal and delivery services from

the perspective of my office, opening markets to trade and services

is one of our central goals in trade negotiations. Services industries

range from finance to telecommunications to distribution to health,

education, travel, tourism, construction, engineering, architecture,

law, in addition to postal and delivery services. These industries

provide over 86 million American jobs and over $5.5 trillion worth

of production, nearly 70 percent of our gross national product. The

United States is the world’s leading exporter of services with $246

billion last year, nearly an $80 billion surplus.

While our services trade policy goals rest upon concrete and specific American trade interests, they are also designed to advance

broader goals of great value to our trading partners and their prospects for economic stability, efficiency and technological progress.

With the General Agreement on Trade and Services that we negotiated and concluded in 1995, we took the first step toward creating a set of broadly accepted rules for services trade and specific

commitments in many individual services industries. We have

since made substantial additional progress with commitments to

market access and national treatment in two of the highest value

services fields through the agreement on basic telecommunications

and the agreement on financial services.

We are now moving on to the next step with the WTO’s agreement last month to open broad ranging negotiations on services, together with agriculture. In Geneva, we are developing negotiating

proposals for a variety of sectors including financial services, energy, environmental services, audiovisual services, express delivery,

telecommunications services, the professions and many of the others I mentioned earlier.

In these negotiations, we will look beyond achieving guarantees

for existing rates to the removal of restrictions, opening of markets

and ensuring nondiscriminatory treatment for our companies. We

will work to prevent any possible discrimination against the new

technologies that are now making services exports easier than before.

We are aware of the importance of postal and delivery services

in international trade. Exporters and importers rely on these services to deliver their products, documents, advertising material, bills

and their payments. Individuals also rely on these services to deliver goods they have ordered from catalogs or from stores they visited while on foreign travel. The growing number of purchases

made on the Internet indicates a greater potential of expansion of

international postal delivery services.

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larly Europe, postal services are being privatized or outsourced to

private operators. The line between government services and private sector services is becoming obscured and competition is growing more intense. These developments benefit consumers and users

of the services by providing them with more choices, speedier deliveries and lower costs.

In our work in preparing for these trade negotiations consistent

with the express sense of Congress, we have tried to assure that

no special preference is given to any particular party that provides

these services. We have held briefings separately for private sector

service providers and for the U.S. Postal Service, and on several occasions, we have met with them jointly to discuss trade matters.

Of course we also consult with other interested parties including

business users and labor unions, including the postal unions.

We have supported the State Department in its role with respect

to the Universal Postal Union. Our staff has participated actively

in interagency meetings conducted by State to prepare for the UPU

discussions, as well as in meetings attended by private sector representatives. USTR did not attend the UPU conference in Beijing

last August. However, we did provide guidance on questions relating to these negotiations and about the WTO. We maintained contact with the United States delegation while it was in Beijing.

In this regard, we believe the Department of State has done commendable work in coordinating with us and other government

agencies and in pursuing proposals to restructure the UPU to reflect the change in nature of the world’s postal and delivery systems.

Once again, thank you, Mr. Chairman, for the opportunity to express our views on this.

[The prepared statement of Mr. Papovich follows:]

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Mr. MCHUGH. Thank you very much.

We next have Ms. Elizabeth Durant, Director of Trade Programs

for the U.S. Customs Service, U.S. Department of Treasury. Welcome.

Ms. DURANT. Thank you, Mr. Chairman.

I too will summarize my written statement.

Today I would like to use this occasion to relay to you some of

Customs’ challenges with respect to the growth of the small package delivery industry. With the enormous growth in trade and particularly in the express industry, all manner of carriers are rushing

to meet this market need. Specifically, Customs has seen the blurring of traditional roles between the Postal Service and the express

consignment operators. Customs has even been approached by traditional passenger carriers who have expressed interest in expedited clearance of small packages from foreign suppliers.

With the shift in this industry, Customs has found itself wrestling with the way it handles the processing of international mail

and express consignment shipments so that it provides no unfair

business advantage to one entity over another.

The express industry with its requirements to provide automation, to present outbound shipments for examination and to reimburse us for costs of service have so far enabled us to respond to

this growth with minimized risk. However, the lack of this capability and authority in the postal setting has hindered meeting our

goals.

Customs is under continuing pressure to move shipments quickly, yet our ability to maintain control of these small parcels is vastly different in the postal and express consignment environments.

I have submitted for the record a report requested by Congress

for fiscal year 1998 and prepared by Customs that identifies the

differences and disparities in customs treatment of international

mail and express consignment shipments. This report is entitled,

‘‘A Review of Customs Treatment, International Express Mail and

Express Consignment Shipments.’’

The U.S. Customs Service staffs 14 international mail branches

at various postal facilities across the United States. Customs’ 14 facilities process over 1 billion flats and parcels per year. We use our

resources to target the mail from countries that provide a higher

threat for illegal activity. In the mail, this targeting process is entirely manual.

In contrast, express consignment operators have regulations that

require them to integrate sophisticated automated systems into

their daily operations in exchange for expedited clearance during

nontraditional business hours and at locations where we would not

ordinarily provide service. Furthermore, advanced manifest information is required for all express consignment shipments so that

Customs may prescreen these shipments before arrival to expedite

their release automatically.

The availability of advance manifest information allows Customs

to target specific shipments for enforcement reviews to ensure that

all appropriate revenue is collected. Conversely, over 95 percent of

the Postal Service’s international mail parcels are not individually

manifested.

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The second issue pertains to the examination of in-transit and

export shipments of mail. The in-transit shipments are those that

only temporarily enter the United States on their way to a foreign

country. Export shipments originate in the United States and are

destined to be delivered to a foreign country.

Customs regulations require express consignment operators to

present both in-transit and export shipments for examination.

However, the Postal Service is not required to present these same

types of shipments to Customs. As such, the shipments are not

made available for Customs examination.

Customs believes that our lack of authority to examine the Postal

Service’s outbound or in-transit mail is an enforcement stumbling

block. In the last 2 years, Customs has seized over $17 million during outbound enforcement operations at express consignment operators’ facilities. With no outbound inspection authority over the

mail, it is likely that in the postal environment, this number could

be even greater.

Customs currently provides clearance of international mail at little or no expense to the Postal Service. The Postal Service is not

required to reimburse Customs for expenses incurred to examine

inbound international mail. These expenses include such items as

staffing, rental of offices at facility space, x-ray machines and computers. Express consignment operators are required by statute to

fully reimburse Customs for the processing of these shipments.

We feel strongly that Customs and the Postal Service need to

work together to fight the illegal shipment of contraband across our

borders and ensure that Customs is able to collect revenue on merchandise entering the United States. We know this goal can be realized because we have worked closely with the Postal Service in

the past to resolve other important issues.

In summary, Customs acknowledges that a certain level of disparate treatment exists between these two organizations. However,

it is not our intent to lower the standards placed on the express

industry to level the playing field. In fact, we believe that the

standards for processing the Postal Service shipments should be

raised. Together with the Postal Service, we are working hard to

that end.

As the Internet grows a means for conducting business for a fast

paced U.S. economy, it will increase the need for faster international small parcel delivery services. Customs needs tools and

authority that can both fairly facilitate legal international trade,

yet enable us to stand poised as America’s front line protecting our

citizens and Nation’s borders.

Mr. Chairman, this concludes my statement. I will be happy to

answer any questions.

[The prepared statement of Ms. Durant follows:]

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Mr. MCHUGH. Thank you very much.

Our last presenter, who just happened to get stuck in that seat

and it is no reflection of importance, is Ms. Donna Patterson. I

have a question for you. Today’s not your birthday. Last year it

was exactly on the day of your birthday.

Ms. PATTERSON. Last year, I was here on my birthday but this

year my birthday has already passed.

Mr. MCHUGH. So your birthday present was not to have to appear here on the day of your birthday. Happy birthday.

Ms. PATTERSON. Thank you very much.

Mr. MCHUGH. The year has been kind to you.

Ms. PATTERSON. Thank you, and to you as well.

Mr. MCHUGH. Well, we can talk about that but I appreciate the

sentiment.

We welcome you. For the record, Ms. Patterson is Deputy Assistant Attorney General, Antitrust Division, U.S. Department of Justice.

Ms. PATTERSON. Thank you and thank you for the opportunity to

return and present the Antitrust Division’s views on Postal Service

reform.

In the interest of time and to give you more time to ask all your

questions, I will summarize my summary with two points. First, in

addressing the issues raised by the structure of the market for

international mail services, our fundamental starting point is that

to the extent possible, all who wish to compete should have an

equal opportunity to compete for a customer’s business. Rules affecting the market should not favor a particular competitor over

others without a compelling justification.

Second, in our view the 1998 legislation transferring responsibility for negotiation of international postal agreements to the Department of State was a major advance for competition. We think that

has aided in the advance of competitive interest.

I will answer any questions you may have.

[The prepared statement of Ms. Patterson follows:]

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Mr. MCHUGH. You have definitely become briefer in the interim

year. I appreciate that. I did read your entire presentation so all

of that information is not lost upon us.

Let me return to the beginning with Ambassador Southwick. I

think you and your Department have fared well in this hearing. I

think most people have spoken very positively and I would join

them in that. As you mentioned, this was not high on your list of

wishes and I understand and respect that. Given that, given the

undeniable lack of subject matter expertise, I fully agree with your

observation about the extraordinary people you have in your charge

who have equally important abilities and attributes, but subject

specific expertise and the timeframe, enormously compressed, you

have done better than sufficient. I think you have done very, very

well.

The challenge that we all face now is what do we do next to continue a pretty impressive record. Obviously the basic intent of this

entire initiative was to level the playing field to give those on the

outside, particularly the private sector, a voice, input and say. You

attempted to do that. Some would like to see that not just go a step

further, I think you would agree with that as you refine it, but to

formalize the process. You heard Mr. Smith talk about implementing the Federal Advisory Committee Act.

I have read your testimony. You feel that is excessive but I would

like to hear you expound a bit upon the process you have undertaken and how you expect, hope that will meet all of the basic concerns about ensuring a definable process of input for the future.

Ambassador SOUTHWICK. Thank you for those kind words. It is

very encouraging. I will say it all wouldn’t have been possible without some very good help from all the agencies that have worked

with us—the Postal Service, the Postal Rate Commission and the

others who have offered tremendous support.

The FACA is a legal instrument and it has a lot of requirements

to it. When we look at it, we see it as being kind of difficult to administer. We think we can meet the spirit of what the FACA is trying to accomplish if we refine and improve the procedures that we

are developing.

Already we are committed to having written records of the interagency meetings; we are committed to putting all relevant kinds of

documents on our State Department website; we are committed to

giving greater notice to the public meetings where we get together

with the private sector and others outside of government, interested parties. Those kinds of things can help.

As I said, we will put down a kind of written precis of this, of

what the process looks like. Maybe in the process of doing that,

maybe we can see some other things we can do. I would ask that

we be given more time to make this work. If we find in time down

the road that it is not satisfactory, maybe we should go to a FACA.

I think I would probably leave it at that.

Mr. MCHUGH. You heard Mr. Ungar’s comments about what they

found to be a less than specific response to some of their concerns.

Can you assure us today that you are striving toward specificity—

I think there were four basic points but the points they had raised?

Maybe the two of you need to get your offices together. I am not

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sure where the lack of understanding derived from but more interested in seeing that area is clarified.

Ambassador SOUTHWICK. I think part of it is this process, Mr.

Chairman, that I mentioned which we will put down on paper.

What we are striving to do is to put together a policy document

which would clearly enunciate what our policies are. Some of this

you could derive from the statements we made here, the written

statement, the oral statement. If somebody wants to look at the

record of what we did in Beijing, I think it emerges loudly and

clearly that the United States is for reform, for opening the process, for giving this whole sector more of a competitive, deregulated

tilt, something that is fair to all players. It is not fair now.

Mr. MCHUGH. I probably will come back to you but let me go to

Mr. Papovich.

You almost got this job. We were initially looking at the USTR.

History demonstrates how that didn’t come about. Because you

were an early candidate, not you specifically but your office, it was

interesting to me—and I am not sure if it was interestingly good

or bad—but you did not participate as members and you mentioned

that in your comments. Why did that occur? What was the determining factor that you weren’t formal participants, given you almost had the whole portfolio?

Mr. PAPOVICH. In fact, it probably would have been me if USTR

would have gotten the job.

Frankly, we are a small agency with a small budget. We husbanded an enormous amount of our travel resources for this Seattle

ministerial that occurred in December. I had to make decisions and

it was my decision as to whether or not we attended the Beijing

conference.

As a general rule, USTR heads negotiations on a whole range of

trade issues. Quite honestly for us to spend our really scarce resources to send somebody to Beijing, which is very expensive for a

number of weeks, I didn’t think I could afford.

We did stay in close touch with the team in Beijing, there was

communication. We sent proposals to them, so we were all but

present.

Mr. MCHUGH. Honest answer. I appreciate that and I understand your point.

Define for me a bit more then in-country before Beijing. You

mentioned you were in contact with them. What kind of interaction

did you have with the Department of State as they were formulating and getting ready to go? What was a normal interaction? Were

you able to assign specific people or was it kind of ad hoc?

Mr. PAPOVICH. No, it was a specific person.

Mr. MCHUGH. How many people?

Mr. PAPOVICH. One person. For the most part, if I have this correct, our contribution was ensuring that the delegation understood

the interrelationship between what the UPU does, and what they

would be discussing in Beijing, with this General Agreement on

Trade and Services that we are responsible for. That is what we

would bring to the discussion. We don’t have any particular expertise in the postal services, for example, but that is our contribution,

describing how these two agreements and bodies interact with one

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another, or at least trying to describe how the WTO and the GATS

interact.

Mr. MCHUGH. I wasn’t clear from your comments. Is it your intention or have you already placed postal services on the agenda

for WTO or are you deferring that to UPU?

Mr. PAPOVICH. Postal services per se, no, but express delivery,

yes, and it is a little complicated. In fact, in preparing for this

hearing I probably learned more than I had before about the interrelationship.

The GATS, General Agreement on Trade and Services, deals

with interaction, in the first instance, between operators. The

GATS excludes services supplied by governments, provided those

services are provided on a noncommercial basis and that there is

not other competition. For example, the delivery of first class mail

in the United States would not be something that is covered by the

GATS, by our commitments to the GATS.

Clearly trade in the service of providing package delivery is covered because there is competition there. We have received advice

from private sector groups that this is something they want us to

pursue aggressively and something we intend to do.

A big part of the UPU’s activities is the letter delivery business

and that is not really a part of GATS, unless we reform our domestic situation and make first class mail delivery subject to competition. It wouldn’t be any more part of a GATS negotiation than

would say the delivery of service for public education. We wouldn’t

put our public school system on the bargaining table, for example,

anymore than we would put something like first class delivery

where it is a government service and there is no competition permitted.

[Followup questions and responses follow:]

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Mr. MCHUGH. Mr. Cohen, you mentioned redacted material with

respect to the Postal Service’s submissions. That, as I know you are

aware, has been a topic of some controversy. It has been alleged

that the Postal Service uses that shield as a means by which to go

far beyond what would be the obvious intent of it, to protect truly

proprietary data and information, to keep information from the

general public, particularly competitors. It is not unrelated to the

issue of does your body receive all of the material it necessarily

needs in a rate case.

Were you able to make any determination as to the appropriateness of the so-called redacted material or did you feel constrained

that if the claim was made, it had to be shielded?

Mr. COHEN. If this material were part of a rate case, a domestic

mail rate case, the material would be public information. It is the

same kind of information the Postal Service makes available to the

Rate Commission and the public in Express Mail and Parcel Post

and its other services.

However, I am not an attorney, and I don’t understand the FOIA

very well, but FOIA contains a provision that, for the Postal Service at any rate, allows it not to disclose any information that a commercial, ordinary business would not have to disclose. We took the

position that the cost coverage information is the kind of information that ordinary businesses don’t disclose. You usually don’t see

cost information disclosed by Federal Express or United Parcel

Service. We didn’t think, given that interpretation of the FOIA,

that such information should be disclosed from the Postal Service

either.

Mr. MCHUGH. So you concurred with the subject matter of the

redacted material? There wasn’t any controversy in your judgment?

Mr. COHEN. No.

Mr. MCHUGH. You mentioned in your comments that international mail covers its cost but does not make the same percentage of contribution as other classes of mail. Is the PRC troubled by

that?

Mr. COHEN. The PRC has no jurisdiction over the setting of

international mail rates.

Mr. MCHUGH. I understand that.

Mr. COHEN. I don’t know what the views of the Commissioners

are on that. I am sorry.

Mr. MCHUGH. Steve and George are here; we should ask them.

You will probably give me the same answer on this but I am

going to ask it anyway. What about terminal dues? You have heard

the discussion with respect to what some have argued and others

have refuted, but what some have argued is an inequitable treatment, a favorable treatment of foreign mailers over domestic mailers?

Mr. COHEN. We agree with that. In fact, in my testimony, I comment that the terminal dues arrangement has a significant competitive implication. I would just point out one other side of the

matter and that is that the United States is a net exporter of mail,

so these terminal dues arrangements redound to the credit of

American mailers on balance. That is something that has to be considered along with the competitive interest of the carriers.

[Followup questions and responses follow:]

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Mr. MCHUGH. I am glad you said that. I am surprised you are

the first to say it frankly. It reflects your brilliance but whether

that is a sufficient argument or not, I am not stating but it is indeed another part of the equation that at least ought to be out

there and discussed.

Mr. Chung, I want to jump over to you. You heard discussion

today about the challenge that the State Department had with respect to in-house expertise. I don’t think anybody really expected

them to have it at the outset but the concern is now because of the

personnel rotation policy of DOS that normally 2 to 3 years a person moves to another posting, that there is going to be a decided

lack of subject matter expertise. Do you find that troubling or do

you concur with that; do you think it is surmountable? I think Ambassador Southwick would say the overall personnel policies of his

department engender other kinds of attributes that are just as valuable because I think you folks dealt with them pretty intimately.

Mr. CHUNG. A reasonable person could differ on that; we have

within Commerce and the International Trade Administration a

similar setup, the Commercial Service, where we have officers rotating around the world amongst about 70-plus different posts.

They spend 3 to 4 years and then they go to a different place. They

learn new languages and gain new expertise.

I think State has been doing their work on this rotational system

for years. I don’t think they claim to be the repository of substantive expertise on this subject to begin with. With the assistance

of all the other agencies involved in this effort, plus the in-house

expertise that they have gained and they will continue to gain, I

believe they can meet their challenge.

Mr. MCHUGH. You have to balance your interest, you said that.

As part of Commerce, you obviously have a concern about the private sector, about the ability to compete. Do you have any thoughts

as to the need and the effort we all agree needs to happen in formalizing and structuring more soundly the means by which the private sector has input into this UPU process, an opinion as to does

it need to be structured upon a formal FACA, Federal Advisory

Committee Act requirement or can it be done as Ambassador

Southwick has suggested, through a published but somewhat less

onerous and formal declaration?

Mr. CHUNG. I believe either is possible. In the Commerce Department, I work with two industry sector advisory committees very

closely. Those are within my jurisdiction so to speak. One is on

services in general and the other one deals specifically with wholesaling and retailing. Those are FACA committees.

They have worked fairly well for us in that regard but the success of any FACA committee depends on the commitment of the industry and the interest level of the industry to participate in it on

an ongoing basis.

The other thing that needs to be pointed out from an administrative point of view is that FACA committees are very resource intensive. They demand a lot of attention from the staff as well as the

management. One advantage FACA committee members do have is

access to some classified material that we receive from our trading

partners. For instance when they are involved in trade negotiations

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such as GATS, trading partners make certain offers to us and the

FACA committee members are shown that so that they can comment and provide advice to us. So that is a plus that will not be

available in a non-FACA committee situation.

[Followup questions and responses follow:]

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Mr. MCHUGH. Thank you.

Ms. Durant, you mentioned that you perform services for the

Postal Service at no charge. I couldn’t tell if you thought that was

good or bad, fair or unfair.

Ms. DURANT. It just is. We believe that it is a cause of the disparate treatment. We feel we are understaffed in Customs with the

trade that is coming at us in practically every arena, so we do use

automation and risk assessments to decide what it is we examine.

We do feel a bit overwhelmed in the international mail arena without any reimbursable arrangement.

There is a mail fee of $5 per package on international mail that

we open, that we collect but it does not begin to offset what it costs

us to operate in the international mail arena.

Mr. MCHUGH. I appreciate that. I am sure those against whom

the USPS competes in certain areas would argue that is a decided

unfair advantage.

Ms. DURANT. They would argue that decidedly, yes, sir.

Mr. MCHUGH. I would be interested to know what is the avoided

cost to the Postal Service? Has anybody ever made an estimate or

done a study on that?

Ms. DURANT. We have not done a formal study, however, particularly in the express mail arena, we are working some overtime and

some off-hour weekend time that does cost us overtime to our inspectors that we do pay for. We could do that if you like.

I do know that the macro cost is we collect $1.2 million in the

mail fee and it costs us about $26 million to run our mail operations. We have facilities, rent, conveyor belts and repairs to conveyor belts and computers that we do pay for.

Mr. MCHUGH. I don’t want to burden an already overburdened

department, and I mean that sincerely. I represent several hundred

miles of Canadian border and I know the very, very difficult circumstances under which you are operating and I admire the abilities of your people to do all that they do.

If that would not be too much of me to ask, that analysis on

avoided costs would be very interesting. I don’t want to make any

predictions on what we might do with it but it certainly would be

worth having if you could do that.

Ms. DURANT. Yes.

Mr. MCHUGH. Let me also in sense of fairness say I mentioned

to the Postmaster General the story that appeared February 29 out

of a study contracted by the Air Courier Conference of America

that found—and I said billion and I want to correct that—the study

according to the report found millions of dollars in customs duties

that aren’t being collected on packages coming into the United

States via the U.S. Postal Service. They charge, them being the

competitive company, that puts them at a disadvantage. Do you

have any response to that?

Ms. DURANT. We did run that study of those very few packages

that the express industry sent through the Post by our statistical

people. We work on a statistical basis to determine risk and he

agreed with the Postmaster General that was not a valid sample

in terms of making those sorts of extrapolations in the Post.

Mr. MCHUGH. OK. Let us accept that, not a valid sample means

not necessarily true but it doesn’t necessarily mean incorrect?

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Ms. DURANT. Correct.

Mr. MCHUGH. Has anybody ever done what your department

with Customs or anyone else would consider valid?

Ms. DURANT. In a formal way, on extrapolating duties, no, sir,

not in Customs.

Mr. MCHUGH. Informal? You haven’t done it informally either. It

is an interesting question. The lack of that kind of data I think is

part of the whole problem we have of trying to find the best path

to resolution because we are not exactly sure what is real and what

isn’t. There too, I would be interested if your department would

have a comment as to the necessity, the advisability, the interest

in seeing that kind of analysis done in a valid way so that we

would have some better understanding as to what is happening.

[Followup questions and responses follow:]

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Mr. MCHUGH. Every dollar that is missed is something the Department and the U.S. Treasury doesn’t get but it is also $1 that

those who are trying to compete would say inures to their detriment competitively so I think it is important.

Ms. Patterson, you have heard a lot about the UPU and this new

milieu in which we are operating. What are the antitrust implications of these kinds of agreements and such? I know that is a very

broad question and you may not even contemplate it.

Ms. PATTERSON. The antitrust implications of the UPU sorts of

agreements?

Mr. MCHUGH. Yes.

Ms. PATTERSON. Those tend to be agreements among sovereign

nations which typically don’t have antitrust implications.

Mr. MCHUGH. It is because it is, in Ms. Durant’s words. That

raises another question to me. Obviously when you have this environment that even though it is still negotiated government to government has much broader implications. Deutsch Post, for example, although government in some ways, is clearly an aggressive,

and I mean that in a complimentary way, competitor with the private sector. I don’t know how we approach that in the future but

I think it illustrates a large problem.

Ms. PATTERSON. I think that Ambassador Southwick and the

ministers in Germany and the Netherlands who are responsible for

negotiating for their countries have a serious challenge in trying to

balance the competing interest of their postal services and their

private companies and an additional challenge when they get together and have firms that are competing against one another for

international services.

We found the process leading up to the Beijing Congress to be

quite open and satisfactory. We presented our views, staff members

from the Antitrust Division met with State Department employees

and went to interagency meetings leading up to the development

of the U.S.’ positions. I think they have a difficult challenge but I

think they are doing a very good job of using the other resources

of the Government to provide the kinds of expertise that they can.

Mr. MCHUGH. That actually answered the question I was going

to ask next. I was interested in both a description of what you did

and an impression of how you felt it went. I can surmise from your

comments that at least to this point, given the many unknowns

and what are largely unanswerable questions, from an antitrust

perspective, we are doing OK?

Ms. PATTERSON. Yes, sir.

[Followup questions and responses follow:]

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Mr. MCHUGH. That is good. I am glad to hear that. That is another one you passed, Mr. Ambassador.

The challenge that is out there now is how do we prevail in the

UPU. We can fix or at least fiddle with ourselves internally and

whether we make you do FACA or require you to issue something

else, whether we do any number of things internally, that is our

business collectively, all of us and we will do unto ourselves as we

are stupid enough to do, I guess.

How do we prevail upon the UPU to finally seriously take up this

challenge of reacting to the new reality of reforming? Mr. Ambassador I compliment you and your department for the process and

the steps you took. I am not suggesting you failed to do anything;

you worked with the tools you had in your bag at the time.

Do you have any thoughts? Some have suggested not adopting

the UPU convention as a means of sending that message. Representatives from the foreign posts suggested there are other ways

to do it working through Department of State and such. Have you

had an opportunity to think about how you can continue upon the

progress you have already made so that it doesn’t become again,

through no fault of yours, yet another promise of reform that as I

understand has been made quite frequently in this fine organization’s history but has never materialized into anything meaningful?

Ambassador SOUTHWICK. That is a very challenging question. In

some ways this is like a big foreign policy initiative that we are undertaking. The United States cannot go into an international organization with over 180 members and say we are the superpower,

we are half the world’s mail, you have to do it our way. It just

doesn’t work that way.

What we have to do is our homework, develop our arguments, do

good analysis, come forward with ideas that will be convincing and

understandable. That is the challenge we have over the next few

months, especially with this high level group process that is underway.

I think if we can hone our position into something that we here

collectively can agree upon and promote, we have a good chance of

being successful because there is a core of reformers already in the

Universal Postal Union. If you look at some of the votes taken in

Beijing, it is mainly developed countries that supported us. Our

challenge is with the developing countries. They feel that in some

ways what is happening here is a subset of the whole globalization

issue, the big multinational companies from the west, United

States, Europe, what have you, kind of taking over something that

belongs to them. This poses a big educational challenge to say that

opening up the system, making the world more competitive, is in

their own interest.

I spent a lot of my career in the developing world, in Africa. Good

postal systems are fundamental to development. A good postal sector I should say is fundamental to development. This is one of the

things we are trying to work on in our dialog with the World Bank

and others to get that well understood.

[Followup questions and responses follow:]

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Mr. MCHUGH. That provides a good opportunity to invoke determinant sentencing here and say for good behavior, we are going to

parole everybody after 5 hours. I think that is sufficient punishment for all of your efforts to join us.

It is rare I can say after 32 years in a variety of positions in public life that we can look at something and say confidently we did

the right thing but I do believe that very strongly in terms of what

has been achieved here. Even though this is election year, I am not

going to sit here and take credit for that. That is due to people like

yourselves, your departments, those folks who were here earlier

from the Federal Expresses of the world, including the Postal Service, that have I think to this point done a more than credible job

and a very honest and effective job.

I hope the future goes as well, and we are looking forward to

working with all of you to try to do what we can to ensure that

will happen. As I said to the other panels and as you know it is

our custom to submit a number of written questions for the record,

that we would very much appreciate a response to so we can fill

out understanding of this.

With that and my personal thanks, we will adjourn this as we

go off to a meeting. The hearing is adjourned.

[Whereupon, at 3 p.m., the subcommittee was adjourned, to reconvene at the call of the Chair.]

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