The Postal Service and its predecessors have delivered mail to and from other countries since the 1840s. International mail to and from the United States is regulated by both U.S. postal laws and international agreements. The 1970 Act authorizes the Postal Service, with consent of the President, to negotiate and conclude postal treaties or conventions and to establish the rates of postage or other charges on mail matter conveyed between the United States and other countries . On the basis of these provisions, the Postal Service participates in the Universal Postal Union (UPU). Unlike domestic rate changes, the Postal Service’s rate changes for international postal services are not reviewed by the Postal Rate Commission (PRC) and the delivery of outbound international mail is not covered by the Private Express Statutes (PES). Like its foreign counterparts, the Postal Service collects and retains revenues on outbound international mail, and UPU members compensate one another for in-country delivery of foreign-origin mail. The 1970 Act has been interpreted by Postal Service officials as requiring total international mail revenues from both outbound and inbound international services to cover all of the attributable costs associated with international mail. For fiscal year 1994, the Postal Service reported that it received $1.6 billion from international mail services. It handled 1.1 billion pieces of outbound international mail and delivered 727 million pieces of inbound international mail. International mail accounted for about 3 percent of the total postal revenues of $50 billion, about 1 percent of the total postal volume of 177 billion pieces, and contributed 2.5 percent to the total postal overhead costs of $17 billion in fiscal year 1994. Until June 1995, the Postal Service’s international mail policies were developed by various functional offices at postal headquarters. For example, the Postal Service’s operations support office was responsible for setting policies and procedures for the Service’s 28 international exchange offices, and its marketing office was responsible for developing international marketing strategies. An international postal relations office was charged with coordinating these interdepartmental efforts within the Postal Service and it continues to coordinate efforts with (1) international organizations and other countries, (2) private delivery services, and (3) other federal agencies. In June 1995, a new International Business Unit was established that, according to Postal Service officials, brought these and other functions together in a larger unit responsible for international mail policies. To accomplish the three objectives of our review, we (1) analyzed international mail revenue, volume, and cost data; (2) reviewed postal manuals and handbooks on international mail; (3) examined UPU documents and reports and other international agreements; and (4) toured the largest air facility (at John F. Kennedy Airport in New York) and the largest surface facility (the bulk-mail center in Jersey City) that process international mail. We also reviewed relevant provisions of the 1970 Act and various regulations, and court decisions, regarding the Postal Service’s participation in international mail delivery. In addition, we analyzed the Postal Service’s international marketing data, product and pricing information, and performance statistics. We also reviewed articles published in trade periodicals about the Postal Service’s international competitors and reviewed related documents on international mail prepared by PRC and the Departments of Commerce, Justice, State, and Transportation. Finally, we interviewed Postal Service officials responsible for international mail and representatives of ACCA. We conducted our work in Washington, D.C., from June 1994 to September 1995 in accordance with generally accepted government auditing standards. We requested comments on a draft of this report from the Postal Service, the Postal Rate Commission, and the International Committee of the Air Courier Conference of America. Their comments are discussed on pages 27 to 31. A UPU international agreement, the Universal Postal Convention, sets the basic principles and guidelines for the exchange of letter post mail and to a lesser extent for express mail. Other UPU agreements and guidelines apply to parcel post and financial services, such as postal money orders. UPU, one of the oldest intergovernmental organizations, was founded in 1874 by postal administrations of 22 nations to create a “single postal territory.” In 1995, 189 countries were UPU members. The “supreme” body of UPU is its “Congress.” Comprised of representatives of all member countries, the UPU Congress meets every 5 years to reevaluate and revise the “Acts” of the union: the Constitution, the General Regulations, the Universal Postal Convention, the Postal Parcels Agreement, the Money Orders Agreement, the Giro Agreement, the Cash-on-Delivery Agreement, the Final Protocols of the Conventions and the Agreements, and the Detailed Regulations of the Convention and the Agreements. Countries that signed the Universal Postal Constitution agree to accept mail from other countries and to deliver the international mail to its final destination. Member countries also are obligated to move each other’s mail through its territory and to exchange international mail where direct transportation or political relations do not exist. For example, although the U.S. government does not have diplomatic relations with the Cuban government, an American resident can send a letter to a Cuban resident. Letter mail to Cuba transits through Canada and Mexico. The Universal Postal Convention defines (1) general guidelines on international postal service and (2) regulations on the operations of letter post mail. These include the rates (called “terminal dues”) that countries pay each other compensation for processing and delivering inbound mail, the methods of calculating and collecting terminal dues, the maximum and minimum weights, the size limits of letter post mail, and the conditions of acceptance. (See app. I for further information on terminal dues.) The Postal Service and other UPU members may also enter into (1) bilateral agreements to exchange express mail and (2) multilateral agreements to exchange all categories of international mail under conditions more favorable than could be negotiated at a global level. To provide worldwide mail service, the Postal Service uses the domestic mail system as an integral part of the UPU international distribution network. Within the United States, inbound and outbound international mail is processed through the Postal Service’s national transportation, sorting, and delivery network. Under Postal Service procedures, outbound international mail is to be collected, separated from domestic mail, and transported to one of the Postal Service’s 28 international exchange offices. Outbound international airmail is to be forwarded to the assigned exchange office regardless of overseas destination. Outbound international surface mail, on the other hand, is to be transported to one of the Postal Service’s three international gateway offices (the New Jersey International Bulk Mail Center and the Miami and Oakland Processing and Distribution Centers) depending upon the country or overseas region. From the international exchange office, the mail is to be transported to the receiving foreign postal administration for processing and delivery. Inbound international mail enters the United States through one or more international exchange offices. Each inbound shipment is to be verified and recorded by postal officials and then submitted to U.S. Customs Service officers for inspection. The mail is then “commingled” with domestic mail and transported to mail processing plants where it is sorted and delivered through the network of post offices. Through its agreements with other countries, the Postal Service provides an array of international postal services. Until the mid-1970s, the Postal Service provided two basic international postal services: airmail and surface mail. Although these two services remain the principal sources of the Postal Service’s international mail revenue, the Service has over the years added several new postal services. Around 1980, it added Express Mail International Service (EMS) and International Surface Airlift (ISAL), which it continues to offer today. In 1986, the Postal Service added International Priority Airmail (IPA). Revenues from these three services totaled $184.1 million in fiscal year 1994 or about 14 percent of the $1.3 billion in international mail revenues from delivery services. Airmail accounted for 80 percent of the outbound international mail pieces, or $883.9 million, and 69 percent of the total revenues. International surface mail accounted for about 20 percent of the total international mail pieces, or $221.9 million, and about 17 percent of the international mail revenues from delivery services. (See fig. 1.) Airmail ($883.9 million) Like domestic mail, the Postal Service also offers various services for international mail, such as insurance coverage, registered mail, and return receipt. (More detailed descriptions of the these services are presented in app. II.) The Postal Service publishes its international rates by services, weight, destination country, or group of countries. For most services, the rates for Canada and Mexico are established separately from and are lower than those for other countries. For example, the rates for a 1-ounce letter to Canada and Mexico are 52 cents and 46 cents, respectively; the 1-ounce letter mail rate is $1.00 for all other foreign countries. The Postal Service has also been involved in various UPU-sponsored efforts to improve worldwide mail service. Examples of these activities include (1) providing Postal Service managers to assist postal administrations of developing countries that have requested technical assistance and (2) participating in studies to examine delivery service problems. According to Service officials, the Postal Service is losing some business to private carriers and foreign postal administrations. The Postal Service’s market research data show that total U.S. outbound international mail revenues for all carriers, including the Service, grew 12 percent annually from 1987 to 1992. In contrast, the Postal Service’s revenue annual growth rate during the same period was only 6 percent. In 1987, the Postal Service had 41 percent of the total U.S. international mail revenues; by 1992, it was down to 32 percent. Postal Service officials said that they expect that the Service’s share of international mail market revenues will drop as low as 30 percent by the end of this year unless steps are taken to reverse the trend. (See fig. 2.)