U.S. Postal Service: Competitive Concerns About Global Package Link Service
Released: 1998-06-12T00:00:00

Letter

Introduction

Increased demand for consumer goods worldwide has intensified competition between private express carriers and postal services for providing international parcel delivery services. Private carriers have expressed long-standing concerns about trade barriers, such as foreign customs’ clearance requirements that they say hinder their ability to provide cost-effective and timely delivery of parcels. More recently, the carriers have raised competitive concerns about the U.S. Postal Service’s (USPS) Global Package Link (GPL) service, which USPS established in 1995 to provide mailers of catalog merchandise, such as apparel, with an economical and simplified means of shipping goods internationally.

In the summer of 1997, representatives from Federal Express Corporation (FedEx) and United Parcel Service (UPS) raised concerns to Congress about GPL, alleging that USPS has used its governmental status with foreign governments to give GPL parcels preferential treatment. In particular, the carriers indicated GPL parcels received reduced customs fees and faster customs clearance over private express parcels. USPS officials replied that GPL service was designed to provide direct marketers with an economical and simplified means of shipping goods internationally, particularly with respect to the automation of customs information. USPS indicated that it had not made any special arrangements with foreign governments to give GPL parcels preferential customs treatment over private express parcels.

This report responds to a request from the Chairman of the Subcommittee on the Postal Service, House Committee on Government Reform and Oversight, that we review whether differences existed in the customs treatment for GPL and private express carrier parcels sent to Canada, Japan, and the United Kingdom—the three countries where USPS was primarily providing GPL service in 1997.

Overview of USPS’ GPL Service

GPL was designed as a bulk delivery service that would make it easier and more economical for companies to ship parcels containing merchandise internationally. During 1997, GPL customers were primarily direct marketers—mailers of catalog merchandise. First introduced under the name International Package Consignment Service (IPCS) to Japan in 1995, and renamed Global Package Link in 1997, the service is now available for parcel shipments to 10 countries. However, in fiscal year 1997, GPL was operating primarily in only three countries—Canada, Japan, and the United Kingdom.

Responsibility for implementing GPL and other international mail services lies with the USPS’ International Business Unit (IBU). According to USPS, IBU was started in 1995 with the vision of becoming within the next few years—and no later than 2005—the “leading global supplier of direct marketing and package delivery services and related business transactions to business customers worldwide.” According to IBU officials, GPL destinations were selected after customers expressed an interest in shipping there or USPS decided that certain shipping opportunities existed. Although GPL currently operates only as an outbound delivery service for U.S. companies, USPS also plans to offer inbound services to foreign companies in GPL countries that want to ship products to the United States.

GPL Volume and Revenue

GPL is one of several international mailing services offered by USPS. In fiscal year 1997, USPS shipped about 2 million parcels via GPL service, almost all of which were shipped to Japan. GPL parcels represented less than 1 percent of USPS’ total outgoing international mail volume of almost 1 billion pieces in fiscal year 1997. GPL gross revenues for fiscal year 1997 were $33.5 million, an increase of about 13.5 percent over fiscal year 1996, when GPL generated $29.5 million in gross revenue.

The number of GPL parcels being sent to different countries may be affected by several key factors, including currency fluctuations and cultural preferences for U.S. goods. Exports of U.S. goods sold by direct marketers to Japan, for example, increased substantially in recent years but have leveled off recently as the U.S. dollar has increased in strength against the Japanese yen, according to the American Chamber of Commerce in Japan. The U.S. Department of Commerce reports that U.S. merchandise represents 80 to 90 percent of the value of total personal imports in Japan. Direct marketers have estimated the value of personal imports in Japan to represent sales of $1 billion to $1.5 billion annually. On the basis of catalog requests at direct marketing promotions in Tokyo and Osaka, Japan, Japanese consumers prefer goods such as apparel; sports/outdoor equipment; videos, cassettes, compact discs, and books; and hobby merchandise.

Generally, GPL mailers said that their success in overseas markets depended on their ability to offer unique and high-quality goods at favorable prices, including shipping charges. As shown in figure 1.1, Canada, Japan, and the United Kingdom together account for about one-third of the value of merchandise goods exported from the United States, according to 1996 Commerce Department figures.

GPL Start-Up Process

A new GPL customer is required, among other things, to sign an agreement with USPS that it will (1) mail at least 10,000 parcels a year to 1 or more destination countries; (2) agree to link its information systems with those of USPS, enabling the customer and USPS to generate reciprocal data transmissions concerning the parcels; (3) meet certain shipping preparation requirements; and (4) designate USPS as its carrier of choice for each country to which it sends GPL parcels. For new GPL customers, USPS creates an electronic data link between it and the customer and installs proprietary software known as the Customs Pre-Advisory System (CPAS) to capture shipping data. For new GPL countries, USPS creates an electronic data link with its delivery agents—usually the foreign postal services. USPS may determine the harmonized tariff codes for the mailers, depending upon the destination country’s customs clearance requirements. GPL mailers provide data into CPAS about product origin, description, and value for the system to generate mailing labels, and in some countries, calculate applicable duties and taxes.

Key Elements of GPL Service to Canada, Japan, and the United Kingdom

USPS offers different levels of GPL service to Canada, Japan, and the United Kingdom, depending upon customers’ needs regarding delivery speed, parcel tracking, and insurance. Customers are also bound to parcel weight and size limitations, depending on destination. Shipping rates vary by country, and customers are eligible for certain volume discounts. As shown in table 1.1, GPL service includes two to three levels for each of the three countries (e.g., premium, standard, and economy), with parcels generally scheduled for delivery within 2 to 10 business days, depending upon destination; time-definite delivery is not guaranteed to any GPL country.

GPL parcels are processed at and exported from USPS’ GPL processing centers located in New York, Chicago, Dallas, Miami, and San Francisco as well as the Air Mail Center in Seattle. GPL parcels sent to Canada are also processed at a USPS facility in Buffalo, NY. According to USPS, it is required by law to use only U.S. commercial airlines for transporting parcels overseas. In 9 of 10 GPL countries, foreign postal services deliver GPL parcels for USPS.

Overview of Private Express Carrier Services

Private express carriers have many different types of customers and offer various delivery services both domestically and internationally, depending upon shippers’ needs. For the purposes of this review, we focused on private express services involving the shipment of parcels of a size and weight similar to GPL parcels sent to the three countries in our review.Nevertheless, differences may exist between some features of the international delivery services provided by postal and private express carriers, such as time-definite delivery guarantees and door-to-door service, which make an exact comparison impossible. For example, private express services generally provide for guaranteed scheduled delivery within 1 to 4 business days, compared to 2 to 10 business days for delivery of GPL parcels, depending on the destination. Also, private express carriers generally have responsibility for their parcels throughout the international delivery process, but foreign postal services deliver most GPL parcels for USPS in other countries. Differences may also exist in the tracking services available for GPL and private express parcels.

Volume, Value, and Weight of GPL and Private Express Parcels Shipped to Canada, Japan, and the United Kingdom in 1997

Private express carrier officials said that no published data exist on their market shares to Canada, Japan, and the United Kingdom. However, at our request, DHL, FedEx, and UPS provided data on the combined number of parcels that they shipped to Canada, Japan, and the United Kingdom in 1997, excluding documents and freight. USPS provided similar data on GPL parcels shipped to those countries in 1997.

DHL, FedEx, and UPS provided data indicating that they sent a total of about 8 million parcels to Canada, Japan, and the United Kingdom in 1997. GPL parcels represented less than 1 percent of the total number of parcels sent to Canada by the three major carriers and USPS via GPL, about 60 percent of those sent to Japan, and about 2 percent of those sent to the United Kingdom.

USPS and the three carriers also reported differences in the average weight and value of GPL and private express parcels. USPS reported that the average weight of GPL parcels sent to Japan, for example, was about 3 pounds; the private express carriers reported that the average weight of their parcels to Japan was about 21 pounds. Further, USPS reported that the average value of GPL parcels to Japan was about $120; the average value of parcels shipped by the private express carriers to Japan was about $900.

Overview of Customs Clearance Process

Governments generally establish export and import control laws for national security and foreign policy purposes, to generate revenue, and to protect domestic industries and their citizens. Customs organizations are typically charged with ensuring that all goods and persons entering and exiting their countries comply with customs laws and regulations, as well as with facilitating the prompt and efficient movement of international goods. To ensure compliance, customs services monitor the arrival and departure of shipments of goods through their clearance processes. The export process normally consists of seeking permission from customs services to export goods. This may involve a process of listing goods on a manifest for presentation to the customs services for export clearance. The import process involves the inspection of goods for admissibility and the assessment and collection of any applicable duties and fees.

Duties, also known as tariffs, are charges that a government imposes on the goods that are brought into the country. Using a Harmonized Tariff Schedule, each country can establish its own rates, which may vary with the type of goods and sometimes with the country of origin. In addition, fees or taxes, such as the Value Added Tax (VAT) in European Union countries, also may be assessed. Table 1.2 shows the duties and taxes applicable to imported parcels in the three countries and the United States.

Historically, customs clearance requirements and procedures have developed along separate tracks for postal and cargo shipments. In the United States, customs requirements for clearance of postal items are affected by a postal law (39 U.S.C. 3623) that protects certain mail of domestic origin from inspection without a search warrant. Customs treatment of international mail parcels originated decades ago, when the need to handle large volumes of international mail prompted customs and postal administrations to work closely together to simplify forms and streamline their procedures for handling mail and parcels.

According to customs officials in the United States and the countries in our review, different requirements and processes for postal and commercial imports evolved over time, and the requirements were not intended to be the same. They said that historically, more requirements have been imposed on commercial cargo than on postal parcels. Customs clearance for international mail parcels was intended to be simple for individuals sending parcels to other individuals overseas. International mail primarily consisted of written letters and low-value packages containing items for personal consumption. International express cargo, on the other hand, tended to be time-sensitive shipments being sent from a company in one country to a company in another country for the purpose of generating revenue.

Because of the differences in the nature and value of the items entering a country by mail versus commercial cargo, most countries established different customs requirements and procedures for these two different types of shipments. However, with the development of the direct marketing industry through catalog sales and, more recently, through on-line computer orders, the historical distinctions between mail parcels and cargo have been blurred, as consumers increasingly purchase merchandise goods directly from businesses and have the goods delivered to their residences.

The Universal Postal Union (UPU), an agency of the United Nations that governs international postal service, also established customs procedures for international mail. Under a UPU international agreement, the Universal Postal Convention, member countries are provided with a standard declaration form to prepare parcels for international shipment. On the declaration form, mailers provide information about a parcel’s contents, weight, and value, as well as the mailer’s and recipient’s names and addresses.

Private express carriers began importing and exporting shipments into and out of the United States in the late 1960s and early 1970s as a small industry responding to the geographic dispersion of industries and organizations. Initially, the industry provided door-to-door service for documents. Cargo shipments were not part of express consignment shipments during the early years because regulatory barriers prevented rapid effective movement of packages.

During the latter 1970s, private express carriers began the practice of importing courier-accompanied parcels into the United States via commercial airlines. Initially, the U.S. Customs Service did not recognize the private express industry as a separate entity and treated private express shipments as passenger baggage or normal air cargo. In 1987, after repeated requests by the private express carriers to be treated as a separate and special industry, the Customs Service recognized the need to address the growing private express industry. In May 1989, U.S. Customs published regulations (19 C.F.R. Part 128) recognizing the special needs of the private express industry. These regulations provided definitions and guidelines addressing private express procedures, which included application procedures and requirements that the carriers provide advance manifest information and reimburse U.S. Customs for expedited clearances, and required the express facility to be highly automated.

Although we will discuss differences between foreign customs clearance requirements and processes for postal and private express carrier shipments in chapter 2, figure 1.2 is a general overview of the major steps involved in U.S. Customs clearance. This general overview is intended to explain the basic steps in the customs clearance process. The differences between customs clearance requirements for postal and private carriers in the United States was the subject of a report being prepared by the U.S. Customs Service in 1998 for the House and Senate Appropriations Committees.

Customs-approved postal facility. shipment arrival.

Parcel shipment arrives in the United States and is moved to bonded and inspects for admissibility. facility pending Customs clearance. taxes on parcel. completes customs declaration, using shipping documentation, and calculates duties and taxes. to USPS for delivery and collection customs broker and inspects for of duties and taxes owed. content admissibility.

Customs verifies duties and taxes owed on parcel. duties and taxes.

USPS remits to Customs duties and taxes collected from recipient. payment of applicable duties and taxes to Customs. parcel to carrier, which delivers parcel to U.S. recipient.

Objectives, Scope, and Methodology

In 1996, we reported to the Chairman of the Subcommittee on the Postal Service, House Committee on Government Reform and Oversight, the major unresolved issues in the international mail market, including concerns about unfair competition by private carriers. During the summer of 1997, representatives from the largest U.S. private express carriers expressed concerns to Congress about GPL, alleging that USPS (1) received preferential customs treatment, (2) used its governmental status to negotiate special arrangements with other governments, and (3) charged shipping rates that did not cover all of its operational and administrative costs for GPL service. In response to these concerns, the Chairman of the House Subcommittee on the Postal Service requested that we review several issues related to the competitiveness of the international mail market. To accommodate resource limitations, we agreed to address these issues in a series of reviews.

In this first review, our primary objective was to determine whether differences existed in the customs requirements for the portion of the international mail market involving GPL and private express carrier parcels. We agreed to review the requirements for and customs treatment of GPL and private express parcels being sent to Canada, Japan, and the United Kingdom—the three primary countries where GPL service was being provided in 1997. In this report, we also discuss some issues related to addressing concerns about GPL’s perceived competitive advantages. We did not review customs treatment of other, non-GPL international postal services, which may have differed from customs treatment of GPL parcels. Further, although other government requirements that are related to both imports and exports may apply, such as those regarding airline security and shipments of restricted and prohibited goods, the focus of this review included only customs requirements. In a separate review, we are examining issues related to the Postal Service’s role and U.S. representation in UPU. In a future review, we plan to look at issues related to the Postal Service’s pricing and allocation of costs for its GPL service.

To identify whether customs treatment differed for GPL parcels and similar private express parcels, we compared (1) the customs statutory and regulatory requirements and (2) the operational practices and processes for importing merchandise through GPL or through private express carriers into each of the three foreign countries. We were assisted in our analysis of the legal requirements in Japan by Dr. Sung Yoon Cho, Assistant Chief of the Far Eastern Law Division at the Library of Congress. Some of the differences in customs treatment could not be linked to written requirements. Rather, officials from the private express carriers, USPS, and foreign customs and postal services described them to us as the operational practices and processes that were followed.

To obtain detailed information about GPL service to the three countries in our review, we interviewed USPS officials responsible for implementing and administering GPL. We met with officials at the U.S. Customs Service to better understand differences in U.S. Customs clearance of postal and commercial shipments. We interviewed government officials at the Japan Postal Bureau and the Japan Customs Bureau in Tokyo and Osaka, Japan; Parcelforce and H.M. Customs and Excise officials in London; and Revenue Canada officials in Ottawa to understand the customs clearance processes and requirements in each country. We talked to officials at Purolator and PBB Global Logistics, respectively, which handle delivery and customs clearance of GPL parcels shipped to Canada. We also asked these officials to verify our descriptions of the processes and the legal citations for foreign customs clearance of imported GPL and private express parcels.

The information on private express clearance processes discussed in this report was obtained from three private express carriers (DHL, FedEx, and UPS) because they were identified as being the largest competitors with USPS for parcel delivery services to Canada, Japan, and the United Kingdom. We interviewed officials of the three private express carriers in the United States, as well as their employees involved in customs processing in Japan and the United Kingdom, to better understand their shipping and clearance processes and their concerns related to the competitiveness of these processes. In addition, we talked to representatives of other private international delivery companies, including Airborne and Global Mail Ltd., as well as the Air Courier Conference of America (ACCA), a trade association whose members are domestic and international air courier and air express companies operating in the United States, to determine if any additional concerns by USPS competitors about GPL customs treatment existed.

We also interviewed several U.S. direct marketers, including GPL customers and customers of the private express companies, to learn what factors were important to them in determining how they would export their shipments. Finally, we interviewed officials at the U.S. Department of Commerce, the U.S. Embassy in Japan, the U.S. Chamber of Commerce in Japan, the Direct Marketing Association, and the Mail Order Association to better understand the direct marketing industry’s concerns about the competitiveness of international delivery services.

To better understand customs clearance processing for GPL and commercial carrier shipments, we observed the various stages of the customs clearance processes, including the procedures involved before parcel shipments leave the United States and the procedures involved in foreign customs clearance, for both GPL and private express carrier shipments. Our visits to observe pre-export activities that occur in the United States included a U.S. mailer’s facility where catalog orders are processed; a GPL processing facility at John F. Kennedy International Airport in New York; as well as the processing centers of the three major private express carriers located in Memphis, TN; Louisville, KY; and at Kennedy Airport in New York. In addition, our observations of customs clearance processes included the postal and commercial clearance facilities at Kennedy Airport in New York; Heathrow, Stansted, and East Midlands Airports in the United Kingdom; and the New Tokyo International (Narita) and Osaka Kansai International Airports in Japan.

The purpose of these visits was to obtain a basic understanding of the customs clearance process, but the visits were not intended to serve as an independent verification of whether the foreign customs clearance processes were appropriately implemented as described by foreign customs officials. Further, we did not have audit authority that would have provided access to records of foreign customs services and would have allowed us to verify the collection of duties and taxes on imported parcels from the United States. We considered options to address concerns raised by USPS competitors about whether duties and fees were being appropriately assessed on GPL packages. However, such options as sending comparable GPL and private express parcels as a test to measure differences in customs treatment or examining foreign governments’ customs records were not deemed feasible for a variety of reasons, including methodological and resource limitations. Further, because GPL service currently involves only the export of parcels from the United States to other countries, we did not assess U.S. import customs clearance processes.

We did not verify data provided by USPS or the carriers. USPS provided data on the number of GPL parcels shipped to Canada, Japan, and the United Kingdom in 1997; the number of which were dutiable; and their average weight and value. USPS also provided documentation on the payment of duties and taxes in Canada and the United Kingdom for GPL parcels in 1997. The carriers provided 1997 data on their costs of complying with requirements for shipping parcels from the United States to Canada, Japan, and the United Kingdom. In addition, the carriers provided data on the number of parcels that they sent to those three countries, as well as average parcel weight and value in 1997.

We requested comments on a draft of this report from USPS, the Department of the Treasury and U.S. Customs Service; the governments of Canada, Japan, and the United Kingdom; ACCA; DHL; FedEx; and UPS. We received written comments from three organizations—ACCA, USPS, and Revenue Canada; Treasury and U.S. Customs chose not to provide comments. The private express carriers chose to submit their comments together through ACCA’s written comments. The written comments are reprinted in appendixes VI through VIII. A summary of the comments and our response are provided at the ends of chapters 2 and 3. The customs services of Canada, Japan, and the United Kingdom provided technical comments, which are incorporated throughout the report where appropriate. We did our work primarily in Washington, D.C., Japan, and the United Kingdom, as well as other locations identified in this chapter, from August 1997 through May 1998, in accordance with generally accepted government auditing standards.

Differences in Customs Treatment for GPL and Private Express Carrier Parcels Shipped to Canada, Japan, and the United Kingdom

Legal differences in foreign customs treatment of postal and private express parcels existed in all three countries. Differences in foreign customs treatment of GPL and private express parcels were greatest in Japan, where private express carriers were subject to requirements regarding the preparation of shipping documentation and payment of duties and taxes for their parcels that did not apply to GPL parcels. In the United Kingdom, USPS was providing certain shipping data to the customs service on GPL parcels that were similar to the information that the carriers were required to provide. However, differences remained in the requirements applicable to importing postal and private express parcels into the United Kingdom. In Canada, GPL and private express parcels were subject to the same requirements because GPL parcels were being delivered for USPS by a private express carrier there.

Regarding two major areas of concern to the carriers, we found no evidence that GPL parcels received preferential treatment over private express parcels in terms of (1) the speed of customs clearance in all three countries and (2) the assessment and collection of applicable duties and taxes in Canada and the United Kingdom. On behalf of individual importers, USPS was paying duties and taxes on GPL parcels shipped to Canada and the United Kingdom. We were unable to determine whether duties and taxes were assessed on dutiable GPL parcels shipped to Japan because (1) USPS did not have records on payment of duties and taxes on GPL parcels shipped to Japan, because the recipients of postal parcels in Japan are responsible for paying applicable duties and taxes; and (2) Japan Customs did not provide statistics on the amount of duties and taxes that recipients paid on GPL parcels.

The delivery and customs clearance processes for GPL and private express parcels in Canada, Japan, and the United Kingdom were based primarily on the domestic import requirements applicable to mail and goods imported by private carriers in those countries. U.S. law subjected private express parcels to customs inspection prior to export, but outbound postal parcels were not subject to this requirement. Private express carriers must file manifests on outbound parcels with U.S. Customs, which the agency uses to select certain parcels for inspection.

We found that the private express carriers followed similar delivery processes for shipments from the United States to the three countries in our review. Generally, the laws of the importing countries required the carriers to provide detailed data and supporting documentation on their shipments, such as air waybills, manifests, harmonized tariff codes, and invoices. The carriers were also responsible for paying applicable duties and taxes on their imported parcels. However, USPS’ delivery and customs clearance processes for GPL parcels differed among the three countries. The differences reflected USPS’ use of different types of GPL delivery agents, which were subject to different sets of requirements within the three countries. In Japan and the United Kingdom, GPL parcels were delivered by those countries’ postal services and were treated as mail under their customs laws. In Canada, GPL parcels were delivered by a private express company and were thus subject to Canadian customs laws that applied to private carriers for importing goods. The importing requirements for postal and private express parcels in the three countries are detailed in appendices III through V.

Different foreign legal requirements also affected how USPS handled GPL parcels being shipped from the United States to Canada, Japan, and the United Kingdom. In Japan, for example, USPS was only required to affix GPL parcels with labels containing basic customs declaration information as prescribed by UPU; the labels were generated by USPS’ automated data information system, CPAS. Further, USPS was not required to calculate or pay duties and taxes on GPL parcels shipped to Japan because, under Japanese law, duties and taxes on postal parcels were calculated by Japan Customs and paid by the parcel recipients. By contrast, in the United Kingdom, USPS was providing customs information similar to that provided by private express carriers as well as calculating and paying duties and taxes owed on GPL parcels. In providing comments on a draft of this report, Japan Customs said that it was planning to introduce an import information system in cooperation with USPS similar to that used in the United Kingdom. In Canada, where GPL parcels were being delivered by a private express carrier and cleared through customs by a broker, USPS was providing customs information similar to that required from private express carriers, in addition to calculating and paying duties and taxes.

We reviewed the applicability of customs requirements to private express and GPL parcels shipped from the United States to Canada, Japan, and the United Kingdom by interviewing customs officials and reviewing the relevant laws and regulations. In the process, we identified 11 major categories of requirements that potentially differed between the carriers and postal services. The 11 categories, only the first of which involved U.S. law, included (1) U.S. Customs inspection of outbound parcels, (2) preparation of import shipping documentation, (3) electronic submission of shipping data, (4) use of licensed customs brokers, (5) calculation of duties and taxes, (6) the timing of payment of duties and taxes, (7) payment for customs clearance outside of regular business hours, (8) posting of bonds or other security to customs services for storage facilities, (9) retention of shipping records, (10) liability for importation of restricted or prohibited parcel contents, and (11) liability for incorrect or missing customs declarations.

Table 2.1 summarizes our findings regarding the requirements and practices in shipping GPL and private express parcels to Canada, Japan, and the United Kingdom in the 11 major categories.

Differences in Customs Treatment for GPL and Private Express Parcels Shipped to Japan

Customs treatment of GPL and private express parcels shipped from the United States to Japan was determined largely by Japanese law, which prescribed different sets of requirements for postal and private express parcels. Under Japanese law, postal parcels were exempt from the major requirements that applied to private express parcels. Also affecting customs treatment were the carriers’ different valuations of certain imported goods, which provided the basis for determining the amount of duties and taxes owed.

Differences in Customs Requirements and Processes for GPL and Private Express Parcels Shipped to Japan

Private express carriers or their brokers were subject to significantly more requirements than were USPS and the Japan Postal Bureau in shipping their parcels from the United States to Japan. U.S. law subjected private express parcels to customs inspection prior to export, but outbound postal parcels were not subject to this requirement. Under Japanese law, the carriers or their brokers were required to provide detailed shipping documentation, calculate duties and taxes, pay or secure payment of duties and taxes before Customs’ release to the delivery agent, and retain shipping records. In addition, the carriers or their brokers could be liable for fines and penalties regarding the importation of restricted or prohibited parcel contents and for incorrect or missing customs declarations. They also paid for customs clearance outside of regular business hours to expedite parcel clearance. Although not required to by law, the carriers entered most of their import shipping data into Japan Customs’ computer system. By contrast, USPS and the Japan Postal Bureau were not subject to these requirements and practices with regard to GPL parcels, with the exception of the postal services’ potential liability for restricted or prohibited parcel contents.

In shipping parcels from the United States to Japan, USPS and the private express carriers followed different delivery and customs clearance processes. A major process difference involved the delivery agents used by USPS and the carriers in Japan. USPS paid the Japan Postal Bureau to deliver GPL parcels within Japan. In comparison, employees of the three major private express carriers, or their Japanese business partners, delivered their parcels from the United States to recipients within Japan. Further, although private express parcels were typically cleared at airport facilities, customs clearance at the Japan Postal Bureau facility that received the most GPL parcels was located in downtown Tokyo, about 2 hours from the New Tokyo International (Narita) Airport, where the parcels arrived from the United States.

Differences in the delivery and customs clearance processes for GPL and private express parcels reflected different sets of requirements contained in Japanese law applicable to postal and private express parcels. Appendix III summarizes the Japanese laws and regulations that provide the basis for the different requirements. Figures 2.1 through 2.2 show the preparation, delivery, and customs clearance processes for GPL and private express parcels to Japan.

A comparison of the delivery processes for postal and private express parcels in Japan illustrates the differences in the roles of brokers, who handled customs clearance for the carriers; and of the Japan Postal Bureau, which presented GPL parcels to the Japan Customs Bureau for customs clearance (see GPL steps 9 through 17 and carrier steps 12 through 19 of fig. 2.2). The carriers were not required by law in Japan to use licensed customs brokers. However, in practice, the carriers believed it was necessary to use brokers to comply with the requirements for preparing the information needed for customs clearance, including air waybills, manifests, harmonized tariff codes, and invoices. Japanese law did not allow the Postal Bureau to act as a licensed broker. Further, Japanese law exempted the Postal Bureau from submitting documentation on its imported mail that the private carriers were required to provide.

Under Japanese law, the carriers, on behalf of individual importers, were required to pay or secure payment of duties and taxes on imported parcels before Customs’ release to the delivery agent. In comparison, Japanese law exempted postal parcels from the requirement that importers pay duties and taxes before customs clearance. However, recipients of postal parcels were required to pay duties and taxes upon delivery at their doors or at the post office before receiving their parcels from the Postal Bureau (see step 16 of fig. 2.2 for both GPL and carriers). In addition, recipients of dutiable GPL parcels were charged a 200-yen fee by the Japan Postal Bureau when it collected applicable duties and taxes, but recipients of private express parcels were not subject to this fee. According to Japan Customs officials, the basis for charging recipients of dutiable postal parcels a 200-yen fee is contained in provisions of the Universal Postal Convention and the International Postal Rules.

The carriers’ brokers in Japan were not required by law to enter parcel data into the Nippon Automated Cargo Clearance System (NACCS), Japan Customs’ computerized customs clearance system (step 12 of fig. 2.2 for carriers). However, to speed customs clearance, the three carriers said they entered between 70 percent to 100 percent of their import data into NACCS, which automatically calculated duties and taxes. With respect to GPL parcels, Japanese law did not require submission of postal data into NACCS. Instead, Japan Customs employees entered data on dutiable postal parcels (values and tariff codes) into a separate computer system called the Customs Overseas Mail Tax Information System (COMTIS), which determined the duties and taxes.

Brokers were required to hold the carriers’ goods in facilities under the control of or approved by Japan Customs before customs clearance, but they were not required to post bonds in connection with those facilities (step 13 of fig. 2.2 for carriers). GPL parcels were held in postal facilities for customs clearance (step 10 of fig. 2.2 for GPL), and Japan Post was not required to post bonds to secure the parcels.

Japanese law also required private carriers’ brokers to pay for customs clearance outside of regular business hours. The carriers indicated that charges for customs clearance outside of regular business hours were often incurred because of limits on the number of shipments that could be cleared within an hour in Japan. Japan Customs officials said that GPL parcels were not cleared outside of regular business hours. Further, Japanese law did not subject the Japan Postal Bureau to payment for customs clearance of mail outside of regular business hours.

In addition, under Japanese law, carriers’ brokers were subject to a requirement to maintain customs clearance records on their parcels for 3 years. No similar provision of law applied to records of postal items.

According to Japan Customs, Japanese law imposes fines and penalties against any persons, whether postal services or private carriers, for importing prohibited goods if they are knowledgeable about the illegal parcel contents.

A Japanese law implemented in October 1997 subjected importers in Japan to an additional 10- to 15-percent tax for filing an incorrect customs declaration, or failing to file one, without a proper reason. This law did not apply to the postal services.

Differences in Operational Practices and Processes for Shipping GPL and Private Express Parcels to Japan

Japan Customs is responsible for calculating duties and taxes on imported postal parcels, including GPL parcels. On the other hand, private carriers or their brokers must calculate duties and taxes on their imported parcels based on applicable law. These calculations of duties and taxes by the carriers are later verified by Japan Customs. The carriers indicated that because they or their brokers calculated duties and taxes on parcels imported into Japan, their records prove they pay 100 percent of applicable duties and taxes. The carriers were concerned that they have lost direct marketers as customers because of a perception that duties and taxes were not always assessed on dutiable postal parcels in Japan.

Japan Customs officials, however, said that GPL and private express parcels received the same customs treatment. In addition, the officials said that duties and taxes were being assessed on all dutiable parcels from the United States. In providing comments on a draft of this report, Japan Customs emphasized that postal parcels, including GPL parcels, were subject to full inspection. We were unable to determine whether duties and taxes were assessed on dutiable GPL parcels shipped to Japan because (1) USPS did not have records on payment of duties and taxes on GPL parcels shipped to Japan, because the recipients of postal parcels in Japan are responsible for paying applicable duties and taxes; and (2) Japan Customs did not provide statistics on the amount of duties and taxes that recipients paid on GPL parcels.

On the basis of information provided by USPS and Japan Customs and our observations, we found no evidence that GPL parcels received preferential treatment over private express parcels with respect to the speed of customs clearance. However, because of different valuations of imported goods by private carriers or their brokers in Japan, differences existed in the amounts of duties and taxes paid on some postal and private express parcels. Finally, we were unable to determine the significance of USPS’ sorting GPL parcels destined for Japan by value—a practice that we observed at USPS’ GPL facility at John F. Kennedy International Airport in New York.

Assessment and Collection of Duties and Taxes

Japan Customs indicated that it collected 1.1 trillion yen in customs duties and 2.1 trillion yen in internal consumption taxes in 1996, but it did not maintain specific statistics reflecting the amount of duties collected on GPL parcels or the number of dutiable parcels. USPS data indicated that about 44 percent of the GPL parcels shipped to Japan in 1997 would have been dutiable. During our tour of the International Post Office in Tokyo, where many GPL parcels are processed, we observed Japan Customs officials inspecting and assessing duties on some GPL parcels.

Japanese law allowed imported goods to be valued at their wholesale, rather than retail, values if the goods were deemed to be for the personal use of the importer or were a gift to a person who is a resident in Japan and the goods were deemed to be for the personal use of the recipient of the gift. In assessing the customs value of goods, Japan Customs officials said that imported parcels from direct marketers that are addressed to an individual, in many cases, qualified as goods deemed to be for the importers’ personal use and could be valued at their wholesale, rather than retail, values. The officials said that the government’s objective in assessing duties and taxes on mail-order goods based on their wholesale values was to benefit Japanese consumers.

Japan Customs officials said wholesale valuations could be applied for both GPL and private express parcels containing goods from direct marketers for the recipients’ personal use, and they applied a standard 60-percent valuation of GPL parcels’ retail value to calculate wholesale values. Japan Customs officials said that their formula for calculating the wholesale value of mail-order goods was not a written policy, regulation, or law. The officials said that this formula for calculating the wholesale values of goods from direct marketers was based on their review of catalogs from mail-order companies that sell similar goods. In addition, the officials said that if the information was not available, the carriers or their brokers could consult with them to calculate the wholesale value using standard profit margins.

Japan Customs officials said that because most, if not all, GPL parcels are shipped by direct marketers, after inspection they considered GPL parcels to be for personal use and assessed duties and taxes on them on the basis of their wholesale values. With regard to private express parcels, we found that the carriers were valuing certain imported goods differently, which could affect the amount of duties and taxes owed on their imported parcels. Of the three major private express carriers we contacted for this study, one carrier indicated that it was calculating duties and taxes on only imported mail-order goods on the basis of wholesale values of the goods.

Another said that it was using wholesale valuations for both imported mail-order goods and gifts. The third carrier was not using wholesale valuations for any of its imported goods as a basis for calculating duties and taxes.

The carriers’ valuation of imported goods was important because their parcel values provided the basis for calculating duties and taxes; however, Japan Customs assessed the value and calculated duties and taxes on postal parcels. The carriers indicated that Japan Customs rarely, if ever, adjusted the carriers’ calculations of duties and taxes to reflect the wholesale values of imported goods. In providing comments on a draft of this report, Japan Customs indicated that under the carriers’ “self-assessment” system, private express parcels were exempt from full inspection. Further, Japan Customs indicated that under the self-assessment system, the carriers’ import declarations were considered to be correct and would be adjusted only at the time of inspection.

Speed of Customs Clearance

We found no evidence that GPL parcels received preferential treatment by Japan Customs in terms of the speed of clearance. Indeed, it appeared that private express parcels were cleared significantly faster than were GPL parcels. According to Japan Customs, private express parcels were normally cleared in Japan within 2 hours. They also said that carriers’ import requirements made it possible to clear private express parcels at the fastest possible speed. The carriers reported that customs clearance in Japan generally took between 2 and 5 hours for their parcels not held for inspection. Japan Customs officials said that it did not maintain records on customs clearance times for GPL parcels, but they also said that most GPL parcels were released to the Postal Bureau within the same day that they were received. Data provided by USPS indicated that in 1997, clearance of GPL parcels in Japan took an average of 2.17 days.

USPS Sorting GPL Parcels by Value

During a tour of USPS’ GPL facility at John F. Kennedy International Airport in New York, where GPL parcels are prepared for shipment to Japan, we observed USPS employees sorting GPL parcels into two categories: those with a value of $300 or less and those with a value of more than $300. USPS officials said that they were sorting the parcels by value at the request of Japan Post on behalf of Japan Customs, but Japan Customs officials said that they had not requested USPS to do so. In commenting on a draft of this report, Japan Customs indicated that it had requested USPS to sort the parcels by destination, but not by value. If GPL parcels arrived in Japan sorted into those less than and those more than $300 in value, they would not, however, be separated into those that were dutiable and nondutiable. At an exchange rate of about 125 yen per dollar, the dutiable threshold for GPL parcels would be $133, on the basis of their wholesale valuation. We were unable to determine the significance of this sorting practice.

Differences in Customs Treatment for GPL and Private Express Parcels Shipped to the United Kingdom

The customs treatment of GPL and private express parcels being shipped from the United States to the United Kingdom was governed primarily by legal requirements applicable in the United Kingdom, which included U.K. and European Union (EU) laws and regulations. USPS’ provision of certain shipping data to the customs service in the United Kingdom on GPL parcels, although not required by law, served to lessen the extent of operational differences in the treatment of postal and private express parcels in the United Kingdom. However, differences remained in the requirements applicable to imported postal and private express parcels.

Differences in Requirements and Processes for GPL and Private Express Parcels Shipped to the United Kingdom

As in Japan, private express carriers in the United Kingdom were subject to requirements that did not apply to postal services. In the United Kingdom, carriers or their brokers were required to pay or secure duties and taxes before customs clearance, provide security to the customs service for storage facilities, and retain shipping records. They also paid for customs clearance outside of regular business hours to expedite parcel clearance. By contrast, USPS and its delivery agent for GPL parcels in the United Kingdom were not required to pay or secure duties and taxes before customs clearance, post bonds or other security to the customs service for storage facilities, or retain shipping records, and did not normally have GPL parcels cleared outside of regular business hours. Both the carriers and the postal service in the United Kingdom were subject to liabilities for illegal parcels contents and for incorrect or missing customs declarations.

USPS was providing electronic shipping data on GPL parcels to its delivery agent in the United Kingdom for access by Her Majesty’s Customs and Excise (H.M. Customs) officials. The content of USPS’ shipping data on GPL parcels was similar to that provided to H.M. Customs by the carriers on their parcels. Further, USPS was paying duties and taxes on GPL parcels shipped to the United Kingdom. USPS officials said that they offered to follow these procedures in establishing GPL service to the United Kingdom.

USPS and the private express carriers followed different processes for delivering parcels from the United States to the United Kingdom, reflecting the use of different delivery agents. Within the United Kingdom, USPS paid Parcelforce, a for-profit subsidiary of Royal Mail, the United Kingdom’s postal service, to deliver GPL parcels. By contrast, employees of the three major private express carriers delivered their parcels or contracted with local delivery companies within the United Kingdom.

Carrier receives parcels at its processing facility and scans barcodes. received from the shipper--in electronic form or hard copy.

Carrier employees ensure that required documents have been completed and parcel contents can be into the U.K. documents, U.S. Customs reviews documents to U.S. Customs pending them to determine whether contents of export clearance. parcels are exportable. shipment (parcels), carrier's employees load it on an international whether parcels are (1) cleared for export or (2) subject to inspection. aircraft to the U.K. shipment to the U.K.

While shipment is in transit, carrier transmits customs clearance data to its U.K. brokerage operations electronically and by fax.

Differences in Operational Practices and Processes for Shipping GPL and Private Express Parcels to the United Kingdom

USPS officials said that as a result of its electronic submission of shipping data to H.M. Customs, which included the values and contents of GPL parcels, as well as applicable duties and taxes, all duties and taxes were being paid on dutiable GPL parcels being shipped to the United Kingdom. USPS officials provided data indicating that over 90 percent of the GPL parcels shipped from the United States to the United Kingdom in 1997 were dutiable. In addition, USPS provided documentation indicating that it paid duties and taxes on GPL parcels shipped to the United Kingdom in 1997.

The only apparent difference in customs treatment of postal and private express parcels in the United Kingdom related to the speed of customs clearance. USPS did not have exact data indicating how long customs clearance took in the United Kingdom, but USPS officials said that GPL parcels were normally cleared within the same day that they arrived in the United Kingdom. An H.M. Customs official said that private express parcels were cleared, on average, in 2 hours. However, the carriers said that under new simplified procedures, customs clearance occurred immediately upon arrival for certain imported goods.

Differences in Customs Treatment for GPL and Private Express Parcels Shipped to Canada

The treatment of GPL and private express parcels being shipped from the United States to Canada was determined by Canadian law applicable to imports of goods by private carriers into Canada. Although Canadian law prescribed different sets of requirements for postal and private express carrier parcels, USPS chose to have its GPL parcels delivered by a private express carrier in Canada. According to Revenue Canada, GPL parcels were therefore treated as goods imported by private express carriers.

Differences in Requirements and Processes for GPL and Private Express Parcels Shipped to Canada

Although GPL parcels shipped from the United States to Canada originated as mail in the United States, they were treated as private express parcels in Canada and were subject to the same requirements. These requirements included the preparation of shipping documentation, calculation of duties and taxes, posting of security for storage facilities, retention of shipping records, payment for customs clearance outside of regular business hours, and potential liability for restricted or prohibited parcel contents and for incorrect or missing customs declarations. Appendix V summarizes the Canadian laws and regulations that provide the basis for the requirements.

Figures 2.5 and 2.6 show the preparation, delivery, and customs clearance processes for GPL and private express parcels to Canada.

According to Purolator, the private express company that delivered GPL parcels for USPS in Canada, the only difference in the process between GPL and its other parcels was in the level of automated shipping data provided to Revenue Canada. Purolator indicated that USPS provided GPL data electronically through CPAS, but the carrier’s other commercial customers provided shipping documentation in both electronic and paper format. In addition, Purolator indicated that CPAS provided harmonized tariff codes on GPL parcels, but some of the carrier’s other commercial customers did not provide the codes, requiring the broker to determine them. Revenue Canada normally charges a $5 per parcel fee for Canada Post to collect duties and taxes on imported postal parcels, but USPS avoids this fee on GPL parcels because they are imported by a private carrier.

Purolator said that GPL parcels were being cleared through Revenue Canada’s low-value shipment program, which allowed Purolator’s broker to pay duties and taxes and provide harmonized codes after customs clearance on goods valued at less than $1,600 Canadian as long as security for payment was provided. Under this program, Revenue Canada used a manifest to clear goods immediately, and Purolator’s broker could pay duties and taxes later. USPS provided documentation indicating that it paid duties and taxes on GPL parcels shipped to Canada in 1997.

According to Revenue Canada, the recipients of imported parcels in Canada were subject to liabilities for importation of restricted or prohibited contents, and the importers or their brokers were liable for missing or incorrect customs declarations.

Operational Practices and Processes for Shipping GPL and Private Express Parcels to Canada

USPS indicated that because it was submitting detailed shipping documentation to Revenue Canada, including data on duties and taxes owed, all duties and taxes on GPL parcels being shipped to Canada were being paid. According to USPS, over 95 percent of GPL parcels shipped to Canada in 1997 were dutiable. Purolator said that customs clearance for GPL and private express parcels is the same, ranging from 1/2 hour to 3 hours. USPS did not have data on how much time customs clearance took for GPL parcels in Canada.

Agency Comments

The comments we received from USPS, Revenue Canada, and ACCA indicated general agreement with the facts presented in the report on the differences in the requirements and procedures for customs clearance of GPL and private express parcels in the three countries in our review. Revenue Canada said that the report correctly described the key features of its processing of GPL parcels. Although USPS and ACCA generally agreed with the differences in customs requirements and procedures we described, they had different interpretations of the differences in requirements and procedures. ACCA also believed that the review’s limitations should have been more carefully explained.

Comments Related to Customs Treatment

In its comments, USPS said the report confirmed that no preferential customs arrangements (“sweetheart deals”) benefitting the Postal Service existed and that USPS enjoys no customs clearance advantage over private express parcels. USPS said that rather than identifying sweetheart deals, the report identified different, but not better, customs processes for postal parcels, compared to private parcels. In addition, USPS said that its competitors’ allegations that GPL service is fraught with unfair advantages are erroneous. USPS also agreed with the concerns of its customers that they would lose a competitive and attractive shipping option if GPL service were made unavailable.

We did not confirm that sweetheart deals did not exist, as USPS indicated in its comments. Instead, we reported that we found no evidence that GPL parcels received preferential treatment over private express parcels in two specific areas. However, we did observe some unexplained activities such as the sorting of GPL parcels bound to Japan by value at USPS’ GPL processing center in New York. Neither Japan Customs nor Japan Postal officials acknowledged requesting this practice.

Although ACCA generally agreed with the stated differences in customs treatment between GPL and privately transported parcels described in the report, it suggested that additional clarification of the commercial implications of the differences in customs treatment would be helpful, such as the benefits from cost savings traceable to differences in customs treatment. As we noted in the report, differences in customs requirements for GPL and private express parcels existed; and in some cases, there were additional requirements for the private carriers. However, we did not assess the advantages or disadvantages of these differences.

Comments Related to the Scope of the Review

ACCA also noted that although the study’s focus on only the outbound leg of GPL’s shipments was too limited and thus would not illuminate all aspects of the issue related to whether USPS has an unfair competitive advantage in providing international parcel delivery service, it was a good place to start. ACCA raised four areas of concern. First, it noted that the customs treatment of GPL parcels may not be entirely representative of all customs treatment of international postal shipments. Second, ACCA said that the report did not include customs treatment of parcels entering the United States, particularly return merchandise, which ACCA indicated was significant in terms of costs and service. Third, it stated that we did not address the extent to which differences in customs treatment may result from manipulation of international law by USPS. Further, ACCA noted several points in this chapter that it believed deserved additional clarification or research, including (1) the incidence of duty collection, (2) a simplified classification system available to postal shipments in Japan, (3) private carrier fees for customs clearance, and (4) legal requirements for GPL in Canada.

On the first issue, we were asked by the requester to focus specifically on GPL in response to concerns that the private carriers had raised regarding GPL. Thus, we did not review customs procedures related to international postal shipments other than GPL parcels, and we were not in a position to comment on the relationship between GPL shipments and other international postal shipments.

On the second issue, we asked the foreign customs officials and private carriers for information related to merchandise returns, but we did not receive enough information to discuss this issue in a meaningful way. Thus, we did not discuss this issue.

Regarding the third issue, as ACCA indicated, we are currently reviewing issues related to U.S. representation at UPU. However, we do not anticipate the review will address ACCA’s assertion that UPU customs procedures are the basis for most of the differences in customs treatment identified in this report or whether USPS uses its position within UPU to manipulate customs law and practices to its advantage.

We also had some scoping limitations related to some of the areas in this chapter where ACCA desired additional clarification. For example, the private carriers believed that the incidence of duty collection for GPL shipments is “substantially less than 100 percent for shipments entering Japan.” As we explain in the Objectives, Scope, and Methodology section in chapter 1, we did not have audit authority to examine the records of foreign governments to verify the incidence of duty collection. We obtained records from USPS indicating that it paid duties and taxes on GPL parcels shipped to Canada and the United Kingdom, but USPS was not responsible for duty payments in Japan. Further, as explained in chapter 1, we did not conduct a limited test of customs treatment in Japan, as suggested by ACCA, because of resource and methodological limitations. From a methodological perspective, a limited test would not produce reliable results that would be generalizable to the universe of all GPL parcels sent from the United States to Japan.

ACCA also wanted the report to call more attention to the simplified classification system in Japan, which it said was available only for postal shipments. We reported the position of Japan Customs officials that the simplified classification system applies to both postal and private carrier parcels and cited the relevant provision of Japanese law.

ACCA also stated that private carriers pay for customs clearance services outside of regular business hours in part because Customs authorities generally refuse to provide dedicated staff at private carriers’ facilities during normal business hours. We added information to this chapter that the carriers indicated that Japan Customs limits the number of parcels that can be cleared per hour. However, because we were not informed by the carriers during our visit to Japan of their concern about insufficient staffing for customs clearance, we did not discuss this matter with Japan Customs.

Finally, ACCA suggested that table 2.1 show the application of customs procedures to GPL in Canada as “practices” rather than “requirements.” We discussed this issue with Revenue Canada officials, who said that the designation should be “requirements” because, if USPS uses a private carrier as its delivery agent, it must meet the requirements for private carriers. Although ACCA is correct that USPS could choose to use Canada Post to deliver GPL parcels in Canada, we relied on Revenue Canada officials in this regard.

Issues Related to Addressing Differences in Requirements for Postal and Private Express Parcels

The private express industry has commented that differences in customs clearance requirements for postal and privately shipped parcels result in more work and higher costs for the carriers, placing them at a disadvantage in competing with USPS to provide international parcel delivery service. However, USPS officials noted that they also incur costs that the private carriers do not, such as meeting their obligations to provide delivery service to persons in all communities of the United States and to member countries of UPU. In addition, businesses that ship their goods internationally, as well as USPS and the carriers, stressed the importance of having competitive choices that provide alternatives in the cost and speed of international shipping services for consumers.

The carriers have urged Congress to protect fair competition by enacting legislation that would require USPS to compete on the same terms, particularly for customs treatment, as private carriers. This proposal raises several questions related to GPL, such as (1) whether international parcels delivered by postal services and private carriers should be subject to the same requirements and customs treatment; (2) if so, what requirements might be appropriate to apply to international parcels; and (3) how those requirements should be implemented. Although we do not take a position on whether the existing requirements or a change in policy would be desirable, we discuss some potential implications that have been raised and may be relevant to considering how these options could be implemented.

Regarding the issue of whether the same customs requirements should be applied to postal and privately shipped parcels, USPS and private carrier officials have conflicting views about whether that would achieve a more “level playing field.” Additional implications of applying the same requirements include the potential effects on the costs and choices that would be available to businesses and consumers, as well as the potential impact on the workloads of U.S. and foreign postal and customs services. If the same requirements were to be applied, many ongoing national and international efforts aimed at streamlining customs procedures worldwide could benefit both USPS and the private carriers in terms of how they provide international parcel delivery services. Regarding how to implement the same requirements, the U.S. government does not have jurisdiction over foreign customs requirements; so changes involving foreign requirements might need to be negotiated through bilateral or multilateral agreements. Moreover, potential conflicts with current international agreements would have to be considered.

Views on Applying the Same Requirements

The carriers have urged Congress to enact legislation aimed at applying the same customs clearance requirements for USPS and the private express industry. This could be achieved in several ways, such as (1) applying the carriers’ requirements to competitive international postal products, (2) allowing the carriers to follow the same requirements that apply to competitive international postal products, (3) applying simplified procedures to both postal and private express parcels, or (4) other options. In this report, we do not attempt to provide a comprehensive analysis of potential changes; but we present some of the issues in this regard that were raised by stakeholders in the course of our review.

The carriers are concerned they must incur substantial costs to comply with requirements that do not apply to USPS. At our request, DHL, FedEx, and UPS calculated that they incurred over $110 million in costs to comply with customs requirements in connection with delivering over 8 million parcels to Canada, Japan, and the United Kingdom in 1997. The carriers indicated that they incurred these costs in the following areas: (1) preparation, transmission, and submission of shipping documentation; (2) use of licensed customs brokers; (3) bonding or other security requirements; (4) customs clearance services outside of regular business hours; (5) records retention; (6) fines and penalties; (7) liability expenses; and (8) expenses related to the payment of duties, taxes, and fees in the three countries. We did not verify the cost data provided by the private express carriers or obtain data on the costs that USPS incurred to provide GPL service. We plan to evaluate the cost issues in a later review.

In response to the carriers’ concerns about the costs of complying with customs clearance requirements, USPS officials said that they must incur costs for public service obligations that the private carriers do not, such as meeting their universal service delivery obligations. USPS’ universal service obligations include delivering mail to persons in all communities in the United States and mailing to the 189 countries of UPU. USPS also cited the costs of maintaining a universal delivery infrastructure, including a large number of unprofitable post offices, and offering customers uniform prices. An official from the Direct Marketing Association (DMA), which represents direct marketers who ship their goods overseas, said that DMA members want a choice of international carriers. In addition, the DMA official said that GPL serves as an important means of simplifying the shipment of goods internationally. The DMA official also said that the advantages enjoyed by GPL customers—low-cost shipping and various delivery speeds and automated customs clearance data—also should be available to private carriers’ customers. An official from the Mail Order Association said that GPL was essential to serving overseas markets and that his organization would like to see GPL expanded to additional countries. Moreover, officials from several GPL customers said that simplification of the customs process and lower shipping costs were the primary reasons they used GPL to ship internationally. USPS and the carriers also stressed the importance of competitive choices for shippers.

Potential Implications and Means of Applying the Same Requirements

Determining whether and/or how to make customs requirements more similar would involve considering the implications of any changes on the postal and customs services, private express carriers, businesses, and consumers. From the perspective of customs services, these implications include the potential impact on their workload and efforts to implement simplified procedures that facilitate timely and cost-effective customs clearance while also allowing them to meet their law enforcement and revenue collection responsibilities. Also, postal services would want to ensure that they would be able to continue providing universal mail service. Implementation of the same requirements would need to address potential limitations due to lack of U.S. jurisdiction over importing requirements of other countries and existing international agreements.

Potential Additional Workload Burden

Depending upon the requirements and what types of competitive international postal products were to be treated the same as private express parcels, applying the same requirements to international postal and privately shipped parcels could affect the workload of postal and customs services worldwide, as well as individuals and businesses sending mail to the United States. If the same requirements were applied, one option would be to apply the private carriers’ requirements to USPS’ competitive international postal products; another option would be to apply USPS’ requirements to the private carriers.

Currently, private express carriers must provide U.S. Customs with manifests and supporting documentation, such as invoices, on goods imported into the United States. According to USPS, requiring foreign postal services to provide manifests and supporting documentation on parcels being shipped to the United States under the first option could be a very burdensome task. In 1996, USPS received about 714 million pieces of incoming international mail, including about 4 million parcels, most of which were sent from household to household. USPS officials also said that most countries do not require that they be provided with manifests and supporting documentation on incoming international mail.

Further, under the first option, U.S. Customs would need to determine the potential impact on its resource allocation if all inbound and outbound international postal parcels were subject to inspection, as are all private express carriers’ parcels. When we asked U.S. Customs officials what impact this could have on the agency’s workload, they said this issue had not yet been fully analyzed. In a recently issued GAO report, we said that U.S. Customs does not have an agencywide process for annually determining its need for inspectional personnel for all of its cargo operations and for allocating these personnel to commercial ports of entry. We recommended that such a process should include conducting annual assessments to determine the appropriate staffing levels for its operational activities related to processing cargo at commercial ports.

Depending on the option selected and the terms of applying the same requirements on competitive international postal products and private express carrier shipments, the implications regarding the procedures for individuals and businesses who send mail to the United States are also a consideration. Currently, senders of postal parcels to the United States affix a simple customs declaration label to the parcels. If the same requirements were imposed on competitive international postal products incoming into the United States as currently apply to privately shipped imports, individuals and businesses in other countries could be required to provide additional data not currently provided on the customs declaration labels. This data could include harmonized tariff codes, as well as supporting documentation, such as invoices, for postal parcels sent to the United States.

In providing comments on a draft of this report, the carriers said they would like to have “postal-like simplicity” applied to the customs treatment of privately transported low-value parcels. We did not receive views on the feasibility of this option during the course of our review. However, many of the same workload implications would need to be considered, such as how U.S. Customs could expeditiously clear private express parcels while applying the requirements that apply to postal parcels.

As it plans to expand GPL service, USPS is engaged in discussions with the U.S. Customs Service regarding future incoming service. Issues being discussed include whether USPS would be required to present manifests of incoming GPL parcels and how duties and taxes would be paid. With regard to future incoming GPL service, USPS officials said that they were willing to comply with many of the same requirements that private express carriers must follow, such as preparing manifests and prepaying duties and taxes. However, they indicated that providing invoices would be unnecessary because CPAS data included parcel values. In addition, Postal Service officials did not believe that USPS, as a government entity, could be subject to the same liabilities and associated penalties as are private express carriers.

USPS officials said that they would like to see their procedures for providing shipping data electronically and paying duties and taxes in Canada and the United Kingdom applied to GPL service in other countries, including Japan. U.S. Customs’ strategic plan for 1997 through 2002 indicates that the United States is experiencing a period of unprecedented growth in world trade and the value of trade imports is expected to double over the next 5 years. To handle the increased volume of trade, U.S. Customs is planning to expand the electronic transmission of data needed by Customs, as well as permit the electronic payment of duties and taxes, and take other measures.

National and International Efforts to Develop Efficient Customs Procedures

Costs and workload burdens are a concern to all parties. Therefore, efforts to find more efficient and cost-effective customs clearance procedures could benefit all parties. International organizations and national governments are attempting to simplify and standardize customs procedures worldwide. These international efforts are relevant to the debate over whether the same and which requirements should apply to GPL and private express parcels because, as explained in chapter 2, most of the requirements that apply to parcels exported from the United States are imposed by the importing countries. All three countries in our review have initiated or implemented procedures to speed the customs clearance process and reduce the paperwork burdens on the carriers for low-value imports.

In 1993, Canada implemented its courier/low-value shipment program to streamline the reporting, release, and accounting procedures for certain goods valued at less than $1,600 Canadian. Under the program, couriers report the goods to Revenue Canada on a cargo/release list, which reduces paperwork burden by eliminating the need to present a separate manifest for each parcel. Revenue Canada said it usually receives the list before the goods arrive. Prior to the arrival of goods, customs inspectors are to review the cargo/release list and select any parcels to be examined. Customs entry and accounting documentation must be presented by the 24th day of the month following the month of release, and the duties and taxes must be paid by the last business day of that month. Revenue Canada said it verifies compliance with customs laws through periodic audits of importers and customs brokers and other checks.

In 1996, Japan Customs began allowing shippers to declare imported shipments valued at no more than 100,000 yen without preparing an invoice as long as the shipper maintains import records. In addition, carriers have the option of calculating duties on imports into Japan that are valued at no more than 100,000 yen using single duty rates that are selected from six categories, eliminating the time needed to determine specific duty rates applicable to each item. Another new program in Japan allows shippers to clear some low-value imports on one air waybill. We asked Japan Customs officials whether they would like USPS to provide certain shipping documentation on GPL parcels, such as harmonized tariff codes, as private carriers do. In providing comments on this report, Japan Customs indicated that it is preparing for the introduction of an import information system with the cooperation of USPS that is similar to that used in the United Kingdom.

In April 1997, the United Kingdom initiated a pilot program to simplify customs clearance procedures for some types of private express shipments. H.M. Customs indicated that the program is aimed at reducing paperwork requirements by allowing electronic submission of customs declarations. In addition, under the simplified procedures, carriers may pay duties and taxes the following month. According to the carriers operating in the United Kingdom, the new program has reduced customs clearance times for qualifying imports from about 2 hours to immediate clearance upon arrival.

At the international level, organizations such as the World Customs Organization are examining the issue of simplifying customs procedures worldwide. Similarly, a project was initiated at the 1996 G-7 summit in Lyon, France, to standardize and simplify customs procedures scheduled to be completed in 1998. Two key proposals raised at the international forums to streamline customs procedures included (1) reducing paperwork requirements on imported goods and (2) increasing the dutiable de minimis in various countries. In the three countries in our review, imported nondutiable goods were subject to reduced paperwork requirements for customs clearance. In U.S. dollars, the dutiable de minimis was the equivalent of about $14 in Canada, about $30 in the United Kingdom, about $80 in Japan, and $200 in the United States.According to the U.S. Embassy officials in Japan, increasing the dutiable de minimis on imported goods has been the subject of ongoing negotiations between the United States and Japan. One carrier said that raising the dutiable de minimis in Japan from 10,000 yen to 30,000 yen, for example, would increase its nondutiable imports from 40 to 80 percent. Guidelines issued by the International Chamber of Commerce in 1996 regarding best practices recommended that customs services regularly review dutiable de minimis levels to take into account such factors as inflation.

Potential Conflicts With International Postal Agreements

The ability of the United States to apply the same international customs requirements to both USPS and the private carriers may have some limitations, due to the lack of U.S. jurisdiction over importing requirements imposed by foreign governments and potential conflicts with current international agreements on customs clearance. For example, a UPU agreement prescribes specific procedures for member postal services regarding customs declarations on postal parcels. These procedures differ from the customs procedures that the private carriers are required to follow. Further, the UPU agreement provides that “postal administrations shall accept no liability for customs declarations in whatever form these are made or for decisions taken by the Customs on examination of parcels submitted to customs control.” If USPS were subject to the same requirements as the private carriers, this provision of the UPU agreement could conflict with a requirement to subject USPS to liabilities for customs declarations. Efforts to apply similar customs requirements may require bilateral or multilateral agreements.

Conclusions

The private express industry has commented that it wants Congress to establish a “level playing field” with USPS in providing international parcel delivery service by applying the same customs requirements on USPS and the carriers. Issues related to fair competition involve weighing how USPS and its private sector competitors can compete, given that different sets of requirements and obligations currently exist. The potential implications of whether to apply the same requirements, under what terms, and how to implement the same requirements for both USPS and the carriers may include a number of factors, including those raised by the U.S. and foreign postal and customs services, private express carriers, shippers, and consumers. USPS officials noted that they incur costs that the private carriers do not, such as meeting their obligations to provide delivery service to persons in all communities of the United States and to UPU member countries. The carriers noted the benefits that simplification of customs formalities for low value shipments could have for all international commerce. Moreover, businesses that ship their goods internationally stressed their need to have competitive choices that provide alternatives in the cost and speed of international shipping services for consumers.

In urging that the same international customs clearance requirements should be applied to USPS and the private carriers, the carriers have raised fundamental questions about the fairness of competing with a government entity that is providing a businesslike service. The carriers believe that competing with a government entity that is subject to fewer customs requirements and lower associated costs distorts the competitive marketplace. However, depending upon what types of competitive international postal products would be subject to the same requirements, postal services are concerned that requiring USPS and the private carriers to follow the same requirements could affect the simplified process that was intended for mail sent from household to household internationally.

Another consideration is the potential impact on shippers, such as the direct marketing industry, who want to have a choice of different types, costs, and speeds of delivery services to respond to their customers’ demands for their goods.

Determining how to make customs requirements the same would involve several considerations. Changes in U.S. law by themselves would not equalize customs treatment for postal and private express parcels under foreign law. Bilateral or multilateral agreements with other countries may also be necessary. Further, additional analysis would be needed to determine whether making customs requirements the same would conflict with current international agreements, such as those involving UPU service obligations, and if such changes would impose additional workload burdens on postal and customs services worldwide.

With respect to U.S. law, opportunities may exist to change customs treatment of parcels imported into the United States. Negotiations between USPS and the U.S. Customs Service regarding the treatment of future GPL service incoming to the United States involve discussions of such issues as manifesting requirements and payment of duties and taxes. Moreover, in considering what requirements might be appropriate, additional opportunities may exist to build on national and international proposals discussed earlier in this chapter to simplify and expedite customs clearance procedures worldwide. Such opportunities include reducing paperwork and increasing the dutiable de minimis, which could benefit both USPS and the private express carriers.

Agency Comments

In its comments, ACCA said that this chapter did not develop a sound and objective basis for evaluating the policy implications of the differences in customs treatment. It appears that ACCA may have misinterpreted our discussion of several issues in this chapter. We did not intend to take a position on the policy issues that are discussed in this chapter or make assumptions about the implications of changes in policy. Rather, our intent was to identify some of the key issues that are being considered by policymakers in Congress and that were raised during our review to provide some perspective on the significance of the issues related to differences in customs treatment. We modified this chapter to address ACCA’s specific concerns.

ACCA raised four primary areas of concern about this chapter. First, it said our report implied that the principle of equal application of the customs laws, as advocated by the carriers, could result in adverse consequences, such as eliminating the simplified clearance process that currently benefits U.S. shippers. In discussing the potential implications of the principle of equal application of customs laws, we were not taking a position on whether existing requirements or a change in policy would be desirable. Thus, we changed our discussion to make this clear where appropriate.

Second, ACCA said that our report assumed that a U.S. policy of equal application of the customs laws could lead foreign customs authorities to subject all postal shipments—or at least all GPL parcels—to the customs procedures now applied to privately carried shipments. In this report, we discussed options that were raised during the course of our review; however, other options could be considered. One of the possibilities raised in draft legislation was to apply the customs requirements for private carriers to all competitive international postal products. ACCA indicated in its comments that foreign governments would discover strong incentives to extend simplified customs procedures to all U.S. direct marketing shipments tendered by all U.S. carriers, provided that the carriers tender the shipments in the same manner now employed by USPS. In providing informal comments on a draft of this report, H.M. Customs said that simplified procedures already could be used by anyone fulfilling its requirements, but that customs inspectors would need shipment data in advance, or at least at the time of importation, for inspection purposes. In addition, the World Customs Organization is currently reviewing this issue.

Third, ACCA was concerned that by presenting USPS’ views on its universal service obligations, our report helped to militate against a U.S. policy of nondiscrimination in customs treatment for U.S. carriers. Although we noted both USPS’ stated service obligations and the carriers’ business choices, we did not take positions on their respective arguments. We sought to provide a fair and balanced presentation of the often conflicting interests and opinions associated with this issue.

Finally, ACCA said that our report exaggerated the legal difficulties associated with implementing a U.S. policy requiring equal application of customs procedures to U.S. based carriers. We disagree. We only pointed out that potential limitations may exist in applying equal customs requirements, including the lack of U.S. jurisdiction over foreign customs laws. This discussion was presented not as obstacles, but as legal considerations for implementing these policies.