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[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]

 
                      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

                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
65-745 CC                   WASHINGTON : 2000

                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
STEPHEN HORN, California             PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida                PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia            CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana           ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
JOE SCARBOROUGH, Florida             CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South     DENNIS J. KUCINICH, Ohio
    Carolina                         ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia                    DANNY K. DAVIS, Illinois
DAN MILLER, Florida                  JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas             JIM TURNER, Texas
LEE TERRY, Nebraska                  THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois               HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California                             ------
PAUL RYAN, Wisconsin                 BERNARD SANDERS, Vermont 
HELEN CHENOWETH-HAGE, Idaho              (Independent)
DAVID VITTER, Louisiana

                      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     CHAKA FATTAH, Pennsylvania
    Carolina                         MAJOR R. OWENS, New York
BENJAMIN A. GILMAN, New York         DANNY K. DAVIS, Illinois
STEVEN C. LaTOURETTE, Ohio
DAN MILLER, Florida

                               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

                            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
    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

                      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, 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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    [GRAPHIC] [TIFF OMITTED] T5745.003
    
    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, 
coordination 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 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.
    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 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.
    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 forward 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.
    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.
    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 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.
    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.
    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.
    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.
    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.
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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 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 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 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 
cross-subsidization? 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 cross-subsidizing. 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.
    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 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 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 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 
advantageous 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 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 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 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 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 countries 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 a number of countries that like this kind of 
private club atmosphere 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.
    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.
    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.
    We are aware of the fundamental changes that are taking 
place around the world and the structure and competitive status 
of postal and express delivery services. In a number of 
countries, particularly 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.
    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 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 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
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?
    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.]
    [Additional information submitted for the hearing record 
follows:]
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