[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]




                               BEFORE THE

                            SUBCOMMITTEE ON
                         GOVERNMENT OPERATIONS

                                 OF THE

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM
                        HOUSE OF REPRESENTATIVES


                             FIRST SESSION


                             JUNE 16, 2015


                           Serial No. 114-29


Printed for the use of the Committee on Oversight and Government Reform


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                     JASON CHAFFETZ, Utah, Chairman
JOHN L. MICA, Florida                ELIJAH E. CUMMINGS, Maryland, 
MICHAEL R. TURNER, Ohio                  Ranking Minority Member
JOHN J. DUNCAN, Jr., Tennessee       CAROLYN B. MALONEY, New York
JIM JORDAN, Ohio                     ELEANOR HOLMES NORTON, District of 
TIM WALBERG, Michigan                    Columbia
JUSTIN AMASH, Michigan               WM. LACY CLAY, Missouri
PAUL A. GOSAR, Arizona               STEPHEN F. LYNCH, Massachusetts
SCOTT DesJARLAIS, Tennessee          JIM COOPER, Tennessee
TREY GOWDY, South Carolina           GERALD E. CONNOLLY, Virginia
BLAKE FARENTHOLD, Texas              MATT CARTWRIGHT, Pennsylvania
CYNTHIA M. LUMMIS, Wyoming           TAMMY DUCKWORTH, Illinois
THOMAS MASSIE, Kentucky              ROBIN L. KELLY, Illinois
MARK MEADOWS, North Carolina         BRENDA L. LAWRENCE, Michigan
RON DeSANTIS, Florida                TED LIEU, California
MICK MULVANEY, South Carolina        BONNIE WATSON COLEMAN, New Jersey
KEN BUCK, Colorado                   STACEY E. PLASKETT, Virgin Islands
MARK WALKER, North Carolina          MARK DeSAULNIER, California
ROD BLUM, Iowa                       BRENDAN F. BOYLE, Pennsylvania
JODY B. HICE, Georgia                PETER WELCH, Vermont
STEVE RUSSELL, Oklahoma              MICHELLE LUJAN GRISHAM, New Mexico

                    Sean McLaughlin, Staff Director
                 David Rapallo, Minority Staff Director
                        Melissa Beaumont, Clerk
   Jeffrey Post, Deputy Staff Director for the Government Operations 
               Alexa Armstrong, Professional Staff Member
                 Subcommittee on Government Operations

                 MARK MEADOWS, North Carolina, Chairman
JIM JORDAN, Ohio                     GERALD E. CONNOLLY, Virginia, 
TIM WALBERG, Michigan, Vice Chair        Ranking Minority Member
TREY GOWDY, South Carolina           CAROLYN B. MALONEY, New York
THOMAS MASSIE, Kentucky              ELEANOR HOLMES NORTON, District of 
MICK MULVANEY, South Carolina            Columbia
KEN BUCK, Colorado                   WM. LACY CLAY, Missouri
EARL L. ``BUDDY'' CARTER, Georgia    STACEY E. PLASKETT, Virgin Islands
GLENN GROTHMAN, Wisconsin            STEPHEN F. LYNCH, Massachusetts

                            C O N T E N T S

Hearing held on June 16, 2015....................................     1


Mr. Robert G. Taub, Acting Chairman of the Postal Regulatory 
    Oral Statement...............................................     3
    Written Statement............................................     5
Mr. Robert J. Faucher, Acting Deputy Assistant Secretary, Bureau 
  of International Organization Affairs, U.S. State Department
    Oral Statement...............................................    15
    Written Statement............................................    17
Mr. Randy S. Miskanic, Acting Chief Information Officer and 
  Executive Vice President, U.S. Postal Service
    Oral Statement...............................................    22
    Written Statement............................................    25
Ms. Nancy Sparks, Managing Director, Regulatory Affairs, Fedex 
    Oral Statement...............................................    30
    Written Statement............................................    32
Mr. Paul Misener, Vice President, Global Public Policy, 
    Oral Statement...............................................    50
    Written Statement............................................    52
The Hon. David C. Williams, Inspector General, U.S. Postal 
    Oral Statement...............................................    59
    Written Statement............................................    61



                        Tuesday, June 16, 2015,

                  House of Representatives,
             Subcommittee on Government Operations,
              Sommittee on Oversight and Government Reform,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:23 p.m. in 
room 2154, Rayburn House Office Building, the Honorable Mark 
Meadows [chairman of the subcommittee], presiding.
    Present: Representatives Meadows, Walberg, Massie, Buck, 
Carter, Grothman, Connolly, Maloney, Norton, Clay and Plaskett.
    Mr.  Meadows. The Subcommittee on Government Operations 
will come to order.
    Without objection, the Chair is authorized to declare a 
recess at any time.
    The Ranking Member, Mr. Connolly, will be coming shortly. 
When he comes, we will allow him to give his opening statement.
    Today, through the United States Postal Service, it is 
often cheaper to ship a small package from China than to ship 
that same package within the United States. Intuitively, this 
does not make a lot of sense as the nearest coast of China is 
more than 5,000 miles away from the United States across a very 
large body of water.
    A simple search of any one of a dozen or more websites 
helps to illustrate the issue. In searching this topic, the 
Committee staff found numerous examples where small, 
lightweight goods from China could be purchased, delivered, 
shipped and with shipping included, at unbelievable prices such 
as 99 cents for a stylus pen or $1.58 for lipstick.
    Prices like these cause the Postal Service to lose money on 
at least some of this international mail. In fact, the Postal 
Service lost some $75 million on inbound international mail 
last year alone.
    However, this loss is not necessarily the Postal Service's 
fault. International mail rates are largely governed by a 
treaty drafted through the Universal Postal Union, a United 
Nations organization with over 192 member countries.
    This treaty covers the establishment of what they call 
terminal dues or the amount of money that one post gives to 
another post for the final delivery of that international mail. 
Every four years, the UPU negotiates a new treaty, the most 
recent of which will run through 2018. The stated goal of these 
negotiations is to eventually create a system that accurately 
reflects the cost of final delivery in each country.
    Under the current treaty, countries are generally 
classified as either target or transition. Target group members 
are typically the more industrialized countries and transition 
group members are usually more developing countries.
    While the terminal dues rates between target countries are 
somewhat reflective of delivery costs, rates for mail from 
transition countries to target countries are not. This problem 
is exacerbated by the fact that the classification system for 
countries is far from perfect. Most notably, China is included 
in the same group as Libya, Kazakhstan and others making it 
eligible for higher preferential rates.
    To help combat terminal dues problems, the Postal Service 
is authorized to seek out bilateral agreements with countries 
to secure rates above the terminal dues level. However, in most 
cases, the Postal Service has little leverage with the 
transition countries to secure better rates through these added 
services like parcel tracking. As one example, in 2012, mail 
sent under a bilateral agreement with China only reduced Postal 
Service costs by 3 percent compared to the terminal dues rate.
    All of this has left thousands of American small businesses 
at a competitive disadvantage against foreign competition, not 
because of the price of the goods, the labor or anything else, 
but because of the size of the hidden shipping subsidies.
    With that in mind, the question becomes, how can we improve 
this situation which brings us to the panel that is before us 
today. Before us, we have key representatives from a wide array 
of interested parties, including the State Department, the 
Postal Service, the Postal Regulatory Commission, international 
shippers and the domestic retail industry, all of whom have a 
clear stake in the long term future of the terminal dues 
    I look forward to hearing from all of the witnesses about 
our current situation, how it came about and what we can do to 
eliminate what I would say anticompetitive trade distortions as 
quickly as possible. As a previous small business guy, the last 
thing I want to do is take my home field advantage and feel I 
have a disadvantage because someone can ship it at a much 
cheaper cost from 5,000 miles away.
    Specifically, I hope the witnesses will share their ideas 
about how we can make the Universal Postal Union more 
transparent, how to reduce the amount of information on 
international mailing that is considered commercially sensitive 
and not available to the public, and how to improve the overall 
fair competition for international package delivery.
    Mr.  Meadows. As I said earlier, we will recognize the 
Ranking Member when he gets.
    I will hold the record open for five legislative days for 
any member who would like to submit a written statement.
    We will now recognize our panel of witnesses.
    I am pleased to welcome the Honorable Robert G. Taub, 
Acting Chairman of the Postal Regulatory Commission. It is good 
to see you again. Mr. Robert J. Faucher, Acting Deputy 
Assistant Secretary, Bureau of International Organization 
Affairs at the U.S. State Department; Mr. Randy S. Miskanic, 
Acting Chief Information Officer and Executive Vice President, 
the United States Postal Service; Ms. Nancy Sparks, Managing 
Director, Regulatory Affairs at FedEx Express; Mr. Paul 
Misener, Vice President for Global Public Policy at Amazon.com; 
and Mr. David C. Williams, Inspector General of the United 
States Postal Service.
    Welcome to all of you.
    Pursuant to Committee rules, all witnesses will be sworn 
before they testify. Please rise and raise your right hand.
    Do you solemnly swear or affirm that the testimony you are 
about to give will be the truth, the whole truth, and nothing 
but the truth?
    [Witnesses respond in the affirmative.]
    Mr.  Meadows. In order to allow time for discussion, I 
would ask that you limit your oral testimony to five minutes. 
Your entire written statement will be made a part of the 
    We will recognize our first witness for five minutes.

                       WITNESS STATEMENTS

                  STATEMENT OF ROBERT G. TAUB

    Mr.  Taub. Thank you, Chairman Meadows, Ranking Member 
Connolly, and members of the subcommittee. Good afternoon. I am 
pleased to testify before you today.
    The defining feature of the Postal Regulatory Commission's 
responsibilities and current law is that they exist within the 
larger context of U.S. membership in the Universal Postal 
Union, where terminal dues are negotiated as part of a complex 
process which the Chairman outlined in detail in his opening 
    The current negotiated framework established by the Postal 
Accountability and Enhancement Act of 2006 depends upon 
landmark 1998 legislation that transferred responsibility for 
international postal policy from the Postal Service to the 
Secretary of State.
    The 2006 law established clear policy for the U.S. to, 
among other goals, ``promote and encourage unrestricted and 
undistorted competition in the provision of international 
postal services and other international delivery services.'' 
The law also established a new role for the Commission by 
directing the Secretary of State to request, and the Commission 
to provide, views on the consistency of terminal dues proposals 
for domestic rate regulation.
    The most recent view stated that ``the Commission continues 
to adhere to the position that the U.S. Government should 
actively promote terminal dues rates in the UPU that are 
closely aligned with domestic postage rates and provide 
sufficient cost coverage to handle, transport and deliver 
inbound international mail for the Postal Service. Terminal 
dues rates are available only to designated operators. The 
Commission encourages the Department of State to move the UPU 
to adopt a terminal dues system that is more cost-based, 
country-specific and just and reasonable.''
    The 2012 UPU Congress enacted terminal dues that are 
increasing the Postal Service's rates for most industrialized 
countries by roughly 13 percent annually from 2014 to 2017. The 
Commission has found that these continued terminal dues 
increases, if accompanied by cost containment, should have a 
positive effect on inbound letter post revenue and cost 
    In addition, as the Commission's understanding of the UPU 
terminal dues system grew, it realized that no one had analyzed 
the wider effects of the terminal dues system through the lens 
of economic theory. Therefore, last year, the Commission 
contracted with Copenhagen Economics to address terminal dues 
from this perspective. The principal findings of the Copenhagen 
Economics report are detailed in my written testimony.
    Overall, the report found that terminal dues as currently 
structured create a variety of distortions to competition, 
demand, trade flows and postal operators' costs.
    Fifteen years ago in March 2000, this Committee held a very 
similar hearing on international postal policy in my capacity 
as subcommittee staff director. The hearing was chaired by 
former Representative John McHugh, to whom I also served as 
chief of staff. I attended the hearing
    The hearing followed the 1999 UPU Congress which committed 
to a goal of achieving a cost-based terminal dues system by 
2005. There have been three additional UPU Congresses since but 
the goal of the 1999 UPU Congress to achieve cost-based 
terminal dues by 2005 has not been realized.
    I think the conclusion is that progress on terminal dues 
has been glacial since the previous subcommittee hearing 15 
years ago. Indeed, a decade and a half later, the Commission 
stated in a report issued less than three months ago ``the 
Commission recognizes that the pricing regime for the inbound 
letter post product based upon the current UPU formula results 
in noncompensatory terminal dues rates. As a result, domestic 
mailers continue to subsidize the entry of inbound letter posts 
by foreign mailers who use the same postal infrastructure but 
bear none of the burden of contributing to its institutional 
cost.'' At that hearing 15 years ago, the Commission described 
the exact same situation.
    Last September, the private sector submitted three terminal 
dues proposals to the State Department's Federal Advisory 
Committee. The Commission suggests that the Advisory 
Committee's recently approved Subcommittee on Terminal Dues 
carefully examine these proposals and the Copenhagen economics 
    That report's key solution, similar prices for similar 
services, regardless of country of origin or status as private 
or public operator, shows that terminal dues do not have to 
remain an intractable problem.
    On behalf of my fellow commissioners and the entire hard-
working agency staff, thank you for the opportunity to testify 
today. I would be happy to answer any questions.
    [Prepared statement of Mr. Taub follows:]
    Mr.  Meadows. Thank you so much and thank you for your 
    Mr. Faucher.


    Mr.  Faucher. Thank you, Mr. Chairman. Thank you for this 
opportunity to discuss the Department of State's role in 
international postal matters.
    For 140 years, the Universal Postal Union has provided the 
framework for the international exchange of mail. The United 
States participation in the Universal Postal Union is led by 
the Department of State, which is responsible for the 
formulation, coordination and oversight of foreign policy 
related to international postal services.
    In discharging these responsibilities, the Department of 
State works closely with the Postal Regulatory Commission, the 
U.S. Postal Service and other concerned government agencies, 
including the Department of Homeland Security, the Department 
of Commerce, and the Office of the United States Trade 
Representative. We also seek advice from the International 
Postal and Delivery Services Advisory Committee, which brings 
together key private sector and government stakeholders.
    In 2012, the International Postal and Delivery Services 
Advisory Committee helped to formulate the 2013-2016 United 
States Strategic Plan for the Universal Postal Union. This plan 
identified five priorities with regard to the terminal dues 
system. These priorities included supporting the fundamental 
principle of market-oriented, cost-based, country-specific 
terminal dues.
    Those priorities also included further refining the 
methodology of the terminal dues pricing model to produce rates 
that more closely reflect costs and also included more member 
states and the target terminal dues system.
    Terminal dues rates are established in the Universal Postal 
Union Convention, which is adopted by the Congress of the 
Universal Postal Union every four years. It establishes 
universally applicable rules for the provision of international 
postal services. The next Congress of the Universal Postal 
Union will take place in Istanbul in 2016.
    The Department of State provides the head of the U.S. 
delegation to the Congresses and also initiates the Circular 
175 process to authorize negotiations. The State Department 
also coordinates production of position papers that are cleared 
through an interagency process.
    In addition to this interagency coordination, the 
Department of State also solicits the views of the Postal 
Regulatory Commission on the consistency of proposals that are 
before the Congress that could establish a rate or 
classification for any market dominant product with the 
regulatory standards and criteria established by the Postal 
Regulatory Commission.
    The State Department also ensures that the formulation of 
the United States' positions is informed by stakeholder input, 
principally through the International Postal and Delivery 
Services Advisory Committee, which the Department of State 
convenes when there are issues to consider and before all major 
Universal Postal Union meetings. Finally, it is important to 
understand that the U.S. delegation to a Congress of the 
Universal Postal Union has sometimes included private sector 
advisors, whose knowledge and perspective has proven to be 
    The United States is a member of the Postal Operations 
Council and the Council of Administration at the Universal 
Postal Union. These two bodies have the responsibility of 
preparing the terminal dues proposals for the next Universal 
Postal Convention.
    The State Department has designated the Postal Regulatory 
Commission and the Postal Service as co-leads for U.S. 
participation in formulation of these proposals. The State 
Department, however, will retain final authority for 
determining U.S. positions.
    The focus of current work in the Postal Operations Council 
is to finalize two terminal dues pricing model options that 
would incorporate the differences in delivery costs associated 
with mail items of different shapes, since, for example, 
handling costs are higher for a box than for an envelope. We 
strongly support this effort, which advances our goal of 
further refining the pricing model to produce terminal dues 
rates that more closely reflect costs to postal service 
    In addition, there is a potentially far-reaching initiative 
to modernize the Universal Postal Union's physical services 
portfolio, potentially integrating letter post and parcel post, 
which would have significant implications for terminal dues.
    Let me conclude with a further note on stakeholder 
consultation. At the State Department's request, a Postal 
Service official briefed the International Postal and Delivery 
Services Advisory Committee on the state of play in terminal 
dues work at the Postal Operations Council at the Committee's 
most recent meeting on February 13.
    The Advisory Committee had two lengthy discussions on 
terminal dues issues in the past year. These discussions 
focused on the proposals presented by Advisory Committee 
members representing the commercial express delivery industry 
with the objective of having the United States propose them at 
the 2016 Istanbul Congress.
    The Advisory Committee took no action on these proposals 
but recommended that a subcommittee be formed to facilitate a 
more detailed examination of the terminal dues issues. The 
State Department accepted this recommendation, and has 
authorized establishment of a subcommittee for this purpose 
which should be meeting in the next few weeks.
    Mr. Chairman, thank you again for this opportunity to 
describe the role of the Department of State in international 
postal matters, including the process of establishing terminal 
dues and to outline U.S. goals in this process.
    I would be happy to answer any questions members of the 
Committee have on these topics or on other matters related to 
terminal dues or the Universal Postal Union or international 
postal and delivery services in general.
    Thank you.
    [Prepared statement of Mr. Faucher follows:]
    Mr.  Meadows. Thank you, Mr. Faucher.
    Before we go on to you, Mr. Miskanic, I am going to 
recognize the Ranking Member, the gentleman from the 11th 
District of Virginia, Mr. Connolly.
    Mr.  Connolly. Thank you, Mr. Chairman. Thank you for 
holding today's hearing to examine the international postal 
policy, particularly the current terminal dues rate system.
    We have an excellent panel of witnesses before us. Indeed, 
I believe it was PRC Chairman Taub who was the catalyst behind 
the last hearing held to examine the international postal 
system back in March 2000. Each witness represents a key entity 
with expertise and importance as to how we can work together to 
strengthen the U.S. strategic approach to future negotiations.
    I look forward to an in-depth conversation today to explore 
how our Nation can work to level the playing field for American 
small businesses and in the process, enhance global competition 
in ecommerce markets to benefit consumers at home and abroad.
    As you noted, Mr. Chairman, the UPU is the global 
organization through which the international community 
establishes treaties governing complex global mail issues such 
as setting appropriate terminal dues rates every four years. 
Terminal dues are meant to cover the domestic cost of handling, 
transporting and delivering mail originating abroad, while 
ensuring that rates are set in a progressive fashion to ensure 
that all UPU countries participate in the system.
    The concept of the terminal dues system is well intended. 
Indeed, the world needs a mechanism in place to facilitate 
global mail exchanges. However, there appear to be serious 
shortcomings in the current system that may be harming American 
business interests.
    For example, recent audits by the U.S. Postal Service's 
Inspector General found that terminal dues do not cover the 
Postal Service's actual cost for handling, transporting and 
delivering letter post items from abroad.
    Further, I am concerned that the significant imbalance 
between our Nation's domestic shipping rates and the incredibly 
low international shipping rates we charge so-called 
transitional countries to export goods into our country may be 
providing an artificial and unfair competitive advantage to 
foreign retailers. That harms U.S. small businesses.
    According to the Postal Regulatory Commission, the current 
terminal dues rates may distort competition and artificially 
increase demand for products from foreign vendors who benefit 
from these low transitional country rates. The shipping of 
epackage which weigh up to 4.4 pounds and contain tracking and 
delivering features from China to the United States have 
increased by 182 percent just from 2011 to 2012 according to 
the report by Postal Vision 2020.
    While this increase is partially a result of technological 
advancements, it has spurred greater utilization of ecommerce 
marketplaces, it is highly likely that the unfair competitive 
advantage provided by the low terminal dues is also a major 
driver of this dramatic increase.
    American small businesses simply want a level playing field 
on which to compete with foreign retailers, many of whom are 
formidable business competitors even absent the artificial 
terminal dues pricing advantage they get.
    In addition, private carriers are struggling to compete 
with carriers who have access to terminal dues. The Postal 
Service continues to lose money on foreign shipping costs as 
foreign posts profit.
    The bottom line is that we are here this afternoon to 
ensure there is a fair and equitable global marketplace and 
that American businesses have a fair opportunity to compete on 
a level playing field in the digital age. The one country, one 
vote structure of the UPU does not allow change to happen at a 
rapid pace. That is why it is essential for government agencies 
and private entities to do everything in their power to protect 
American interests.
    According to Title 39, Section 407, the State Department's 
role is to ``promote and encourage unrestricted and undistorted 
competition in the provision of international postal services 
and other international delivery service.'' This is crucial to 
ensuring the success of American business and ultimately the 
American economy. I look forward to hearing how the State 
Department in particular has carried out this responsibility.
    I would also like to hear the PRC's view on the most 
pressing issues with the current system and its proposals on 
how it can be improved to facilitate robust but fair 
    From our private carriers and the ecommerce marketplace 
providers I would like to gain an understanding of how 
businesses have been affected by these dues, particularly our 
Nation's community of small e-retailers.
    I think this is an important hearing. Mr. Chairman, I thank 
you for holding it and look forward to the testimony. I thank 
you for allowing me to interject at this point.
    Mr.  Meadows. I thank you for your comments.
    Now we will recognize you, Mr. Miskanic, for five minutes.


    Mr.  Miskanic. Good afternoon, Chairman Meadows, Ranking 
Member Connolly and members of the subcommittee.
    My name is Randy S. Miskanic. I am Acting Chief Information 
Officer and Executive Vice President of the United States 
Postal Service.
    I previously served at the Universal Postal Union in Berne, 
Switzerland, for approximately three years. I was also a member 
of the U.S. Delegation for the last UPU Congress in Doha in 
    I am pleased to be here today to discuss the UPU terminal 
dues system. The UPU is a specialized agency of the United 
Nations that sets the terms for how the world's postal 
operators exchange international mail. The organization 
establish terminal dues rates and is the primary forum for 
cooperation among postal operators.
    The United States is a member of the UPU and exchanges mail 
globally, in accordance with its Acts. The U.S. Department of 
State, the Postal Service, the U.S. Postal Regulatory 
Commission and representatives of the broader postal industry 
are all key UPU stakeholders. By law, the State Department is 
the lead representative of the U.S. Government to the UPU.
    The Postal Service is designated by the United States 
Government to fulfill the obligations of the UPU Acts, which 
include exchanging international mail with more than 200 
countries and territories. International mail accounts for 4 
percent of our revenue and 1 percent of our annual total 
    Industry representatives, including FedEx, UPS and DHL, 
directly participate in the State Department's Advisory 
Committee on International Postal and Delivery Services. A 
subcommittee will be forming to facilitate a more detailed 
examination of terminal dues which will be an appropriate venue 
for greater stakeholder engagement.
    The UPU Congress, which convenes every four years, provides 
the forum for member countries to establish policies and 
regulations for the global postal sector. Each of the 192 
member countries is entitled to one vote on proposals 
introduced to the Congress, including those involving terminal 
    Terminal dues are paid and received for the delivery of 
letters, flats and small packages weighing up to 4.4 pounds. 
The rates, which are set by the UPU, and assessed against the 
originating post, are intended to cover processing and delivery 
costs for inbound international mail.
    Terminal dues rates are based on whether a country is 
classified as target or transition as determinate by its stage 
of development. Target country terminal dues are based on 
country specific rates which is currently 70 percent of 
domestic postage rates. Transition countries pay terminal dues 
rates that are based primarily on lower, worldwide average 
    The 2012 Doha Congress established a new formula to produce 
terminal dues that are closer to actual costs which will result 
in increases for both the target and transition countries. 
While this is a favorable development, the changes will take 
four years to be fully implemented from the January 2014 
effective date and cost coverage may remain under 100 percent. 
We have long made the argument that inbound letter post cost 
coverage for a country like the United States must be improved.
    The terminal dues system is designed to serve multiple 
competing objectives, including support for developing 
countries. As such, it is not a system suitable for 
participation by both public and private operators, the latter 
of which differ in several ways from universal service 
    Private operators are not encumbered by universal service 
obligations and are free to target only the most lucrative 
markets. Additionally, they are able to offer service to or 
from a country without having to carry reverse traffic at a 
    Going forward, the Postal Service is advocating for shape-
based pricing to better achieve cost. It is anticipated that 
the 2016 Istanbul Congress will adopt a terminal dues structure 
that is more closely related to the cost of processing and 
delivering different shapes of mail.
    As an alternative to UPU terminal dues, the Postal Service 
can enter bilateral agreements with foreign postal operators 
that include negotiated rates for some or all inbound letter 
post items. Negotiated rates are designed to improve the 
overall cost coverage and improve efficiencies. Proposed 
inbound bilateral agreements must be filed at the PRC for 
review and approval.
    While the Postal Service may be better served by 
negotiating terms independently with certain countries, it 
would be impractical to negotiate, sign and file at the PRC, a 
separate bilateral agreement with each UPU designated operator.
    In many cases, foreign postal operators are not willing to 
negotiate bilateral agreements as doing so would require paying 
a rate higher than UPU terminal dues. When the Postal Service 
negotiates with foreign postal operators, there is little 
bargaining room to increase cost coverage because the current 
UPU terminal dues structure provides the base of the 
negotiating position.
    The Postal Service continues to encourage the UPU and State 
Department to support the principle of cost-based country-
specific terminal dues and advocates for positions that move 
toward better cost coverage for all inbound UPU mail flows.
    Thank you, Mr. Chairman. I welcome any questions that you 
and the Committee members may have.
    [Prepared statement of Mr. Miskanic follows:]
    Mr.  Meadows. Thank you for your testimony.
    Ms. Sparks, we will recognize you for five minutes.

                    STATEMENT OF NANCY SPARKS

    Ms.  Sparks. Thank you very much.
    I am here today on behalf of FedEx Express and our 300,000 
team members in the United States and around the world.
    With your permission, I would like to submit my full 
statement for the record and just provide a brief overview now.
    Mr.  Meadows. Without objection.
    Ms.  Sparks. First, I would like to thank you, Chairman 
Meadows, Ranking Member Connolly, and members of the 
Subcommittee on Government Operations for convening this 
hearing on international postal and delivery services. It is 
extremely timely given the upcoming Universal Postal Union 
Congress in 2016.
    The topic of international postal policy often feels 
obscure and impenetrable, but it is important for the U.S. 
economy. Today, three of the top five players in the global 
parcel delivery market are U.S. entities, FedEx, UPS and the 
United States Postal Service. Collectively, we employ more than 
1 million Americans. We connect sellers and buyers and ordinary 
individuals across the globe. We are the conduit for the 
booming international ecommerce trade.
    The next UPU Congress will establish the rules until 2022. 
The time for promoting long needed reforms at the UPU is 
getting very short. The legal framework of the UPU is outdated 
and ill-equipped to handle today's radically changing market. 
It produces significant regulatory challenges which adversely 
affect FedEx and the United States.
    The world's post offices, including the Postal Service, are 
experiencing massive changes due to the steep decline in 
letters and documents. They are attempting to change their 
focus to package delivery services, especially ecommerce 
    Large, international postal companies like Royal Mail, 
China Post and La Poste of France, are now major logistics 
companies. For private carriers like FedEx and UPS, ecommerce 
services are a natural extension of long established global 
express networks. International package delivery has become a 
big and highly competitive business.
    As you quoted, Congress defined the policy of the United 
States toward this dynamic market in the 2006 PAEA, that is, to 
promote and encourage unrestricted and undistorted competition 
in the provision of international postal and other 
international delivery services.
    This declaration rests on two insights. First, 
international postal and delivery services now comprise a 
single market. Second, competition should be the norm. In the 
package segment, in particular, there is no room for monopoly 
and no entitlement to a special position for any actor.
    Congress had it right in 2006. Promoting competition on the 
international stage may be hard work but it is necessary to 
foster better and more innovative services which will support 
international commerce in the 21st Century. The PAEA prescribed 
the right goals and standards for U.S. participation in the 
    Viewed through the lens of the PAEA, however, there are 
three fundamental problems with the way the UPU interacts with 
the global parcels market. It looks like I am only going to 
have time to talk about one of them, the terminal dues system.
    The UPU has established a system of economically distorted 
and anticompetitive delivery rates for international postal 
packages. These delivery rates are exclusively available to 
post offices. They are not cost-based, as you have heard. They 
are fixed by agreement among posts.
    The gist of the system is that posts give each other large 
discounts off the domestic passed postage rates they charge 
their own citizens. Discounts are extra deep, as we have heard, 
for developing countries, even though some, like China, 
Singapore and Hong Kong, are powerhouses in international 
    When the Postal Service delivers goods from Asia at deeply 
discounted prices, the losers are U.S. businesses who are 
placed at a competitive disadvantage. Private carriers, like 
FedEx, are affected as well.
    We have identified two other issues in our written 
testimony, one dealing with customs parity and the other 
dealing with the need for institutional reform at the UPU. I 
appreciate the time you have given us today and hope you will 
find our written statement useful.
    [Prepared statement of Ms. Sparks follows:]
    Mr.  Meadows. Thank you, Ms. Sparks.
    I must admit that you are one of the few in Washington, 
D.C. that actually pays attention to the clock and I appreciate 
    Mr. Misener, I will come to you. The pressure is on.

                    STATEMENT OF PAUL MISENER

    Mr.  Misener. Thank you, Mr. Chairman.
    My name is Paul Misener, and I am Amazon.com's Vice 
President for Global Public Policy. Thank you for having me.
    Under international postal agreements, the U.S. Postal 
Service charges much lower rates for delivering foreign 
shipments from transfer points in the United States to 
recipients in the United States, than the USPS charges for 
handling comparable wholly domestic shipments between the same 
U.S. points.
    This disparity discriminates against American businesses 
shipping domestically. To allow fair competition in shipping to 
U.S. consumers and equitable treatment of American businesses, 
the international agreements must be reformed.
    Thank you for your attention to this important topic, for 
holding this hearing, and for inviting me.
    Amazon operates a global ecommerce business and we strive 
to be Earth's most customer-centric company. In the context of 
shipping, our key customer sets are consumers, buyers, as well 
as seller.
    For our consumer customers, we offer low prices, vast 
selection, and convenience, and for our seller customers, our 
Marketplace ecommerce platform allows millions of sellers, 
mostly small businesses and individuals, to sell through 
Amazons websites. Today, more than 40 percent of Amazon's total 
unit sales are by these third party sellers.
    Delivery is a very important part of the customer 
experience at Amazon. Accordingly, we maintain strong ties to 
postal operators around the world, including the USPS and China 
    We believe that two problematic compensation arrangements 
between them need to be reformed to promote fair competition in 
shipping to American consumers. There is considerable 
discussion about whether these agreements adversely affect the 
financial health of the USPS as its Office of Inspector General 
concluded in a 2014 white paper.
    It is not difficult to see that as a result of the 
compensation imbalance, businesses in China end up paying less 
for delivery in the United States than American businesses end 
up paying for delivery in China.
    Another serious problem caused by these agreements is less 
well known and may be less obvious. As an indirect result of 
the arrangements between China Post and the USPS under which 
China Post under pays the USPS for lightweight deliveries 
within the United States, American businesses of all sizes end 
up paying more than Chinese companies for deliveries to 
American consumers.
    In other words, because U.S. domestic delivery rates exceed 
international terminal rates here, Chinese companies end up 
getting a better deal from the USPS than American businesses. 
Amazingly, when combined with extremely low bulk shipping rates 
from China to U.S. transfer points, shipments from China to 
points throughout the United States are often cheaper than 
shipments entirely within the United States.
    The resulting competitive disadvantage to American 
businesses of all sizes is as unfair as it is illogical. For 
example, at today's rates, the shipping of a 100 gram parcel to 
Fairfax, Virginia would cost a small business in Marion, North 
Carolina at least $1.94 at a distance of 340 miles but would 
cost a company in Shanghai only $1.12 at a distance of 7,000 
    Similarly, shipping a 1 pound parcel to New York City would 
cost nearly $6.00 from Greenville, South Carolina but only 
$3.66 from Beijing. At high volumes, especially for low-priced 
items, such dramatic shipping cost differences can make or 
break a small ecommerce business.
    The current international agreements that ultimately 
discriminate against American domestic shippers of all sizes 
should be reformed. Ideally, international terminal 
compensation rates would rise, approaching the domestic rates 
of postage and, at least in theory, then both rates could meet 
at a point of parity less than the current domestic rate.
    That is, increases in terminal rates could potentially 
allow a revenue-neutral reduction in domestic delivery rates, 
which would benefit even more Americans. This reformation would 
not give an advantage to American sellers over foreign-based 
sellers; rather, it merely would level the playing field on 
which they compete.
    In particular, the United States has a special relationship 
with China. Truly with all the strong and growing ties between 
our nations we can resolve the anachronistic imbalance which, 
if it ever made sense for China-based dollars to have a 
shipping price advantage within the United States over U.S.-
based sellers, it makes no sense now given the strong trading 
position that China already enjoys.
    In conclusion, existing international agreements offer 
foreign-based companies much cheaper mail service in the United 
States than the USPS offers to American seller businesses for 
domestic shipments. For the sake of both effective competition 
in shipping and fairness to American seller businesses, the UPU 
terminal delivery compensation system and current bilateral 
agreements between the USPS and key foreign postal operators 
such as China Post must be reformed.
    Thank you again for inviting me to testify. I look forward 
to your questions.
    [Prepared statement of Mr. Misener follows:]
    Mr.  Meadows. You rose to the occasion, Mr. Misener.
    I will say it is not without recognition by me or the 
Ranking Member that your example was from my district to his 
    Mr.  Misener. Purely coincidental.
    Mr.  Meadows. Purely coincidental, I appreciate it.
    Mr. Williams, we will recognize you for five minutes.


    Mr.  Williams. Thank you, Mr. Chairman and members of the 
subcommittee for the opportunity to discuss this issue.
    When someone mails a letter or parcel to another country, 
the sending post receives the postage, but then compensates the 
destination post for its processing and delivery.
    Compensation rates, called terminal dues, are negotiated 
among 192 countries at the Universal Postal Union every four 
years. Each nation gets one vote. Countries are also free to 
enter their own customized bilateral agreements for particular 
mail flows. The U.S. Postal Service has bilateral agreements 
with Canada Post, China Post and others.
    Historically, inbound terminal dues rates have not covered 
delivery cost for the U.S. Postal Service and many other posts. 
Last year, the Postal Service lost $75 million delivering 
inbound international mail. Other nations also lose money 
processing mail for inadequate terminal dues rates.
    The explosion in ecommerce is creating new areas of 
concern. The number of small parcels sent to the United States 
from China has greatly increased. The Postal Service loses 
money delivering each of these parcels, and China Post can send 
them at lower rates than even businesses located here in the 
United States.
    In 2012, for example, a typical small parcel, the First-
Class rate for U.S. businesses was more than $1 higher than the 
rate China Post paid under terminal dues. It is unclear how 
much China Post charges its own large customers.
    To respond to parcel growth and to better cover costs, the 
Postal Service created the ePacket product in a bilateral 
agreement with China Post. The ePackets are small parcels that 
receive delivery tracking. In return, China Post pays higher 
rates than terminal dues.
    In a recent audit, we found the Postal Service received 27 
million ePackets from China Post in fiscal year 2012. Each 
packet lost $1.10 on average, a negligible improvement of 5 
cents compared to the loss under terminal dues rates.
    In response, the Postal Service explained that it was 
negotiating a better deal, but it also made clear that 
substantial rate increases could cause China Post to revert to 
low UPU terminal dues rates, which treat China as a developing 
nation in need of price support.
    The UPU is gradually making changes to terminal dues, 
although progress has been slow. A 2012 decision will move 
China and several other significant economies to the lowest 
target category for industrialized countries in 2016. However, 
this will not result in any significant increase in terminal 
dues rates until 2018. Any damage to U.S businesses will likely 
have occurred by then.
    More beneficially for the Postal Service, the terminal dues 
rates it receives from industrialized countries are increasing 
13 percent a year between 2014 and 2017. This will bring the 
Postal Service significant additional revenue, but make it 
harder than ever for British or German goods to compete with 
Chinese products sold here.
    The UPU's mission is as relevant as when the institution 
was created, but, like many enterprises, the UPU system has 
been greatly disrupted by globalization and the digital age. 
The process is not agile or responsive even to great changes in 
commerce and economics. It can take years for rates to catch up 
to changing economic realities.
    Many nations have made significant economic progress, but 
the process of bringing their rates in line with the terminal 
dues paid by other developed countries has been slow. Nations 
still vote on the size and timeframe of terminal dues 
increases. The existence of low terminal dues rates as a 
default hampers nations' ability to negotiate fair agreements.
    The UPU system involves nation-states providing universal 
service, but excludes private sector carriers whose importance 
has grown with the rise of ecommerce. Gaps in real mail 
processing costs and terminal dues are encouraging exploitative 
new industries that take advantage of low terminal dues rates 
and undermine national posts.
    An unintended consequence of terminal dues is that the 
system picks winners and losers, and undermines efficient 
market forces. In the United States, China has an unfair edge 
over U.S. businesses. These distortions are even greater in 
other industrialized countries.
    Removing market distortions and ensuring agility take on 
new importance with the growth in ecommerce and globalization. 
My office wants to do additional work in this area and would 
like to work with your staffs to include issues brought out 
today in that body of work.
    Thank you.
    [Prepared statement of Mr. Williams follows:]
    Mr.  Meadows. Thank you, Mr. Williams. Thank all of you for 
your testimony.
    I must confess that when I first heard about this 
particular issue, it was not on the top of my bucket list in 
terms of issues to address but I will say, thank you for your 
illuminating testimony.
    We are going to have a series of questions. I am going to 
recognize the gentleman from Kentucky, Mr. Massie, for five 
minutes, for a round of questioning.
    Mr.  Massie. Thank you, Mr. Chairman.
    Mr. Faucher, are terminal dues rates made public?
    Mr.  Faucher. I can be corrected here, but I believe they 
are made public as part of the UPU's records.
    Mr.  Massie. Do small businesses have access to this?
    Mr.  Faucher. Again, if those records are made public, they 
would have access to those, yes, they would. I could ask my 
colleagues to correct me if I have this wrong.
    Mr.  Massie. Is that correct?
    Mr.  Miskanic. That is correct.
    Mr.  Massie. Ms. Sparks, how is your company specifically 
impacted by terminal dues rates?
    Ms.  Sparks. I would say there are probably two different 
ways we are affected. First of all, we look at the global 
competition when we talk about delivery services. We not only 
compete with UPS and the United States Postal Service, but we 
compete offshore with Royal Mail and China Post.
    What has happened with the terminal dues system is they 
have set up what I refer to as an exclusive club where they 
offer each other deep discounts but they do not offer them to 
us. It is very difficult for us to get into those markets with 
a similarly priced ecommerce product, so it is difficult to 
    Mr.  Massie. It is not just a problem in the United States 
where we have disparity and people paying higher or lower rates 
disconnected from the actual cost, it is a problem in other 
    Ms.  Sparks. Absolutely. In fact, if you talk to regulators 
in other countries, regulating in Europe, for example, they 
will tell you that their countries are similarly being flooded 
with these low postal charge packages.
    Mr.  Massie. Do you have access to those rates overseas?
    Ms.  Sparks. No, we would not have access to any rates. We 
would have access to the same rates as a domestic shipper, for 
instance, as a German shipper would get in Germany.
    Mr.  Massie. So we make it public here in the U.S. and 
transparent but not overseas?
    Ms.  Sparks. No, no, I am sorry. I thought you meant access 
like we could use them or get the benefit of them.
    The rates are published, the UPU rates, what they charge 
each other, are published after the Congress once they have 
been decided upon unless there is a bilateral agreement in 
place like the one the United States has with China. That is 
not made public. We do not know what the United States and 
China are charging each other right now.
    Mr.  Massie. My next question is for Mr. Misener. Who are 
the winners and losers in the current terminal dues system?
    Mr.  Misener. The clear losers are American businesses 
selling to American consumers. These are many of the sellers 
through our website. The clear winners are foreign sellers 
selling to American consumers. They get a terrific benefit.
    Overall, it is mostly the distortion among our seller 
customers that has been so frustrating to us. It is a 
completely unnecessary and illogical distortion that one set of 
sellers would get a benefit from the USPS and another set of 
sellers does not.
    Mr.  Massie. It seems like there is clearly a problem here. 
Mr. Chairman, I had no idea that this disparity existed either 
until you called this hearing.
    Mr. Miskanic, is it correct that the next chance to fix 
this is in 2016 at the next UPU Congress where they are going 
to discuss and set these rates or is there a chance before 
    Mr.  Miskanic. That is correct. The next chance to fix this 
is in 2016 at the Istanbul Congress.
    Mr.  Massie. I think you mentioned in your testimony, or 
maybe it was someone else that there will be another Committee 
established to represent stakeholders in the United States or 
having more input?
    Mr.  Miskanic. That is correct, Mr. Massie. There is a 
subcommittee formed by the State Department specifically to 
address this issue and work on proposals moving forward in 
anticipation of the 2016 Istanbul Congress.
    Mr.  Massie. Is the State Department optimistic that we can 
address this in 2016 because these rates are going to be set 
until 2021. We do not want to miss the next chance.
    Mr.  Faucher. I would say the State Department is very 
optimistic that we will be able to address this problem in 
2016, just as it was addressed in 2012. We are going to make 
progress on this problem. We might not solve it completely, 
however, but we are going to continue to try to move to 
terminal dues rates as close to the cost base as possible. That 
is our goal for 2016.
    Mr.  Massie. Thank you very much.
    I yield back my remaining two seconds.
    Mr.  Meadows. I thank the gentleman from Kentucky.
    The Chair recognizes the gentleman from Missouri, Mr. Clay, 
for five minutes.
    Mr.  Clay. Thank you, Mr. Chairman, for conducting this 
    I want to talk to Mr. Faucher and Mr. Taub. I would like to 
discuss the role of the State Department and the Postal 
Regulatory Commission in shaping international mail policy.
    The State Department has the responsibility to coordinate 
with other agencies as appropriate and in particular should 
give full consideration to the authority vested by law or 
Executive Order in the PRC. Is that right, Mr. Faucher?
    Mr.  Faucher. That is absolutely correct.
    Mr.  Clay. Section 407 states ``Before concluding any 
treaty, convention or amendment that establishes a rate or 
classification, the Secretary of State shall request the PRC to 
submit its views on whether such rate or classification is 
consistent with the standards and criteria established by the 
Commission.'' Is it fair to say the State Department uses the 
PRC as a tool to evaluate the proposals?
    Mr.  Faucher. We definitely see the Postal Regulatory 
Commission as a very important colleague and collaborator in 
all these things. We seek their advice and views on these 
questions to the greatest extent possible because they have the 
expertise in this area.
    Mr.  Clay. Once the State Department receives a 
recommendation, is it required to follow it?
    Mr.  Faucher. I do not know I would say required. In almost 
every case I can think of, we have tried to follow what the PRC 
has recommended. We still have our foreign policy prerogatives 
that we must follow also, but I cannot think of a single case 
that I am aware of where we have not followed a PRC 
    Mr.  Clay. It is my understanding that the U.S. Postal 
Service is not supposed to have involvement in the shaping of 
international postal policy. Is that correct?
    Mr.  Faucher. Is not supposed to have what?
    Mr.  Clay. Not supposed to have involvement in the shaping 
of international postal policy?
    Mr.  Faucher. I am not aware of that. I would say it is 
very important for us to understand the U.S. Postal Service and 
its constraints and the way it is doing business for us to be 
able to shape international postal policy.
    They are the designated postal operator under the Universal 
Postal Union, so it is very important for us to hear their 
voice and also get their advice on the issues before us.
    Mr.  Clay. Fair enough.
    Mr. Miskanic, would you care to comment on the role of the 
Postal Service with respect to international postal policy?
    Mr.  Miskanic. The Postal Service serves as a member on the 
U.S. delegation to the UPU. As such, we participate in meetings 
and forums as the formulation of policy is conducted.
    As Mr. Faucher stated, the State Department has the 
ultimate role in shaping foreign policy, however, as the 
designated postal operator and the entity that bears the 
universal service obligation for the acts of the UPU, we do 
have the opportunity to participate and provide input to that 
    Mr.  Clay. Thank you for that response.
    Mr. Taub, it is clear that the State Department relies 
heavily on the PRC's opinion as to whether these proposals are 
consistent with the law concerning postal policy, is that 
    Mr.  Taub. That is correct. We have a clear statutory role 
in this process.
    Mr.  Clay. Is it true that the PRC reviews every proposal 
that could potentially have an effect on postal policy that the 
State Department receives?
    Mr.  Taub. Indeed, we have a very small staff and a very 
limited budget, but we have dedicated staff to this issue. They 
go through every proposal to ensure whether it has a rate or 
classification implication and if so, then we go through and 
assess whether we should be providing a view to the Department 
of State.
    Mr.  Clay. In that process, in addition to making sure they 
are consistent with the law, are they making a determination as 
to how good or bad the proposal is overall?
    Mr.  Taub. The specific determination we are making is, is 
the specific proposal consistent or inconsistent with the 
legislative criteria to set market dominant rates in the U.S. 
which is mainly letters and periodicals. It is not the 
competitive products; it is a different regulatory regime. We 
are looking at is the specific proposal consistent with the 
statutory criteria?
    Mr.  Clay. Thank you for your response.
    Mr. Chairman, I finished on time.
    Mr.  Meadows. Kudos to the gentleman from Missouri for 
finishing on time.
    I am going to recognize the Vice Chair of this Committee, 
the gentleman from Michigan, Mr. Wahlberg.
    Mr.  Walberg. Thank you, Mr. Chairman. I am starting on 
    Mr. Misener, to your knowledge, how, if at all, does the 
State Department take into account the views of American 
retailers, particularly small businesses, in determining UPU 
bargaining positions?
    Mr.  Misener. I think it will increase after this hearing. 
I thank the Committee for holding this hearing because it does 
focus attention on the need to take into account the effects on 
American businesses within the United States.
    There was an answer earlier to a question about when the 
next opportunity is to adjust these disparities. Mr. Massie 
asked this question. The answer given was with respect to the 
UPU only.
    As I pointed out in my written testimony, I think there are 
opportunities for bilateral negotiations where the most 
significant problems arise. A negotiation directly with China 
on this issue I think is in order, without waiting for the UPU 
Congress or the results of that multinational body.
    Mr.  Walberg. Consultation throughout the process over 
time, checking out with the private sector, would be helpful?
    Mr.  Misener. It is also my responsibility at Amazon to 
ensure that our ideas are transmitted to the State Department, 
the Postal Service and others. I am offering them here today 
and I will follow up.
    Mr.  Walberg. Mr. Faucher, similarly, how much of a voice 
do American businesses have in the process of developing 
States' objectives going into the UPU Congress?
    Mr.  Faucher. I have been in this position for almost two 
years and throughout all the deliberations we have had on this 
issue, we have always taken into account the concerns of U.S. 
businesses and the concerns of U.S. consumers.
    We welcome U.S. businesses to attend our advisory Committee 
meetings, we look for their representatives in various things, 
we invite them onto our delegations and they have been totally 
welcomed at all times to make their concerns known to us so 
that we can take those into account.
    Mr.  Walberg. Have they followed up with that openness?
    Mr.  Faucher. Yes. We have regularly representatives of 
members at this table who have been members of our delegations 
representing their interests. That is correct.
    Mr.  Walberg. Ms. Sparks, what can be done to give more of 
a voice to American business in this process? We have had a 
request from one side, we would like more opportunity. Mr. 
Faucher says, yes, they have the opportunity, we are always 
open to that. Bring us together here.
    Ms.  Sparks. That is a tall order. I think certainly the 
IPDS, the International Postal and Delivery Services Committee, 
is an excellent vehicle.
    We have found it, at times, to be difficult because there 
are very many opinions in the room. We presented a proposal on 
terminal dues last September. We were told last week that the 
subcommittee is now being convened.
    These things do not always move as quickly as we would 
like. This is why we found the timing of this hearing to be 
very important because, in UPU time, September 2016 is a 
heartbeat away.
    We welcome continued involvement. I did go to Doha as a 
private sector advisor to the delegation in the last Congress 
and appreciated that opportunity. I would have appreciated it 
more if I had seen the U.S. proposals before I went.
    Mr.  Walberg. You had not seen the proposals?
    Ms.  Sparks. I did not see the U.S. position papers before 
we went. In all deference to Mr. Faucher, he was not in this 
position at that time. This was a previous group we were 
dealing with.
    Mr.  Walberg. Saved by the appointment time.
    Ms.  Sparks. Getting U.S. commercial input is a learning 
process. I think we are learning and I think this hearing today 
provides us with another opportunity for all of us to learn how 
to participate.
    Mr.  Walberg. Definitely, as with any business, we are 
talking milliseconds of need and making decisions. If you are 
waiting too long, it is hard to make those key decisions.
    Mr. Taub, would you respond as well to the preceding 
question of how the businesses could be worked with in a better 
way in coming up with solutions and agendas?
    Mr.  Taub. To give a little context, in my written and oral 
statement, I had described 15 years ago this Committee holding 
a very similar hearing on this issue. That was before the law 
changed in 2006 but it was shortly after the law had changed 
for the first time to have the Secretary of State in the lead 
role, not the Postal Service.
    The Government Accountability Office testified at that 
hearing and said, the State Department really needs to 
undertake a federal advisory Committee process and probably 
needs to be mandated. The 2006 law did that.
    Frankly, without that change, I am not sure we would have 
seen the structure in place. That structure is in place now. We 
are members of that FACA, as it is called. I think as Nancy 
outlined, it has been a learning process.
    I would observe that the law did have very specific 
requirements of the Secretary of State's consultation and 
involvement with other federal agencies and yet, had the Postal 
Service in that same law together with all of our postal and 
delivery sector, both public and private.
    I do have an observation. Having attended the recent FACA 
meeting in my new role as Acting Chair, that the Postal Service 
is at the table in some ways as another Executive Branch 
agency. They certainly are, but when it comes to Title 39 of 
the U.S. Code, Section 407, there was an intent there to have a 
better distinction.
    Mr.  Walberg. I appreciate that.
    Mr. Chairman, thank you for giving me additional time.
    Mr.  Meadows. I thank the gentleman.
    The Chair recognizes the gentlelady, Ms. Plaskett, from the 
Virgin Islands, for five minutes.
    Ms.  Plaskett. Thank you very much, Mr. Chairman.
    Thank you, lady and gentleman for being here this 
    I wanted to ask some specific questions that may be a 
little off from what we are specifically talking about.
    I live in a district, the United States Virgin Islands, 
which for all intents and purposes by the Postal Service, as 
well as some of the testifiers, is treated as an international 
postal zone. I wanted to ask questions specific to that.
    Mr. Taub, I wanted to ask you with regard to the Postal 
Regulatory Commission, if, in fact, the Virgin Islands is 
considered international?
    Mr.  Taub. The Virgin Islands is part of the United States 
and in terms of the service standards we are looking at, the 
Postal Service sets those. They are supposed to be covering all 
of the United States.
    Ms.  Plaskett. Can you tell me why in the last five years 
residents of the Virgin Islands have been required to fill out 
customs forms when they send packages from the U.S. Virgin 
Islands to the United States, to the mainland?
    Mr.  Taub. I cannot answer that. We are the regulator, not 
the operator. Those are operational details. I would suggest 
the Postal Service itself.
    Ms.  Plaskett. Is anyone from the Postal Service testifying 
today able to tell me why that has been imposed on the people 
who are U.S. citizens to fill out these forms every time they 
try to send a package to a relative on the mainland?
    Mr.  Miskanic. Representative Plaskett, the completion of 
customs forms is directed by Customs and Border Protection. 
Obviously, the Postal Service would not create an undue burden 
for your constituents.
    Ms.  Plaskett. So we would need to speak with Customs as to 
why they are making us at the U.S. Postal Service fill out 
customs forms?
    Mr.  Miskanic. Yes, ma'am.
    Ms.  Plaskett. You do not have any control over what 
happens within post office?
    Mr.  Miskanic. The Postal Service has no authority over 
Customs and Border Protection, the processing and the 
requirement of customs forms.
    Ms.  Plaskett. I will direct my questions to them.
    The other thing I found interesting in reading the 
testimony of Ms. Sparks particularly, as well as Mr. Misener 
from the private sector, is the discussion about the 
disparities in competition that is given to businesses outside 
of the United States and competing with U.S. businesses from 
the rates that are offered.
    Ms. Sparks, can you tell me why a package coming from the 
Virgin Islands is treated as international in terms of the 
rates they have to pay whereas individuals sending the same 
sized package with FedEx from the mainland pay domestic prices?
    Ms.  Sparks. I am afraid I cannot. I think what you are 
asking is why does the Postal Service charge that?
    Ms.  Plaskett. No, this is from FedEx.
    Ms.  Sparks. I am going to have to get back to you on that.
    Ms.  Plaskett. Would you? That is very important to us.
    Ms.  Sparks. I would be glad to address that.
    Ms.  Plaskett. If I am sending the same package from the 
States, I get to pay domestic rates but when I pay it from the 
Virgin Islands, the same sized package, I am charged 
international rates.
    Ms.  Sparks. I would be glad to check it and get back to 
    Ms.  Plaskett. Mr. Misener, we know that letters are 
decreasing. You talked about that. At the same time, there has 
been an explosion in terms of ecommerce and the amount of 
ecommerce activity.
    We have many small businesses in the territory that are 
trying to utilize ecommerce to be able to not just have their 
goods on Amazon or things of that nature but also to ship in 
other things. Our consumers, as well, love using Amazon.
    Is there a reason why in the U.S. Virgin Islands we are not 
allowed to have certain packages, certain things from Amazon, 
why certain electronics or other things are not treated the 
same and why the rates we have for our shipping are very 
different than anywhere else, even from our neighbor, Puerto 
    Mr.  Misener. The question about varying rates is what we 
discussed today. We as a company are sellers that I am here 
talking about, are facing this disparate system that does not 
make any sense. We are sort of victims of it as well.
    The reason why certain goods cannot be shipped to certain 
places, those are restrictions placed upon us as a business 
usually by the manufacturers of certain products. You just 
cannot sell some things into some places. Geographical 
restrictions exist separate and apart from us. We want to 
provide as much convenience and selection as we can to our 
customers worldwide, including the U.S. Virgin Islands.
    Ms.  Plaskett. Are the shipping rates also restricted by 
those manufacturers or are those your rates?
    Mr.  Misener. Neither, they are the rates of the shippers.
    Ms.  Plaskett. Of the shippers?
    Mr.  Misener. Correct.
    Ms.  Plaskett. That you have partnered with, correct?
    Mr.  Misener. That is correct. We pay a variety of 
shippers, including two at the table, and others to ship things 
for us worldwide.
    Ms.  Plaskett. Which of the two at the table, Federal 
Express and the Postal Service?
    Mr.  Misener. Yes, not the Inspector General.
    Ms.  Plaskett. I would hope not. I do not know if he has 
the capacity for that at this time but you never know.
    Thank you very much.
    Thank you for the indulgence. I will take a little of Mr. 
Clay's time.
    Mr.  Meadows. Kind of like carryover minutes.
    I am going to recognize myself for a series of questions. 
Then we will go to the gentlewoman from the District of 
    I am fascinated, Mr. Misener. This is a big deal to Amazon, 
this what I would call non-competitive rates internationally, 
    Mr.  Misener. It is a big deal for our seller customers. We 
are looking out for them. We are going to be fine either way. 
There is kind of an imbalance among our seller customers. It is 
illogical and ends up hurting, as I mentioned, American 
    Mr.  Meadows. You are an international company, so you 
could potentially benefit greatly from importing products via 
lower postal rates from China directly to Marion, North 
    Mr.  Misener. I look forward to visiting, sir. Amazon has 
sellers in 100 different countries around the world, so you are 
absolutely right that there are these disparities that operate 
even within our Amazon system.
    We see no need for this as a matter of policy. The very 
fact is it is hurting a segment of our seller customers, 
American sellers selling to American consumers. It is an 
imbalance that makes no sense to us. We are looking out for the 
entire ecosystem.
    Mr.  Meadows. It adds real credibility to your testimony 
because the potential for you to be harmed, your company, is at 
the expense of fairness, so I applaud you being here not only 
as a witness but with being willing to speak on behalf of what 
I see as an unfair system with regards to all U.S. citizens.
    Mr. Faucher, you made a comment earlier that was extremely 
troubling because you said, we will listen to all the input of 
everybody else with one caveat, except if it has a foreign 
policy implication. Are you suggesting or is it your testimony 
that the American people ought to be paying higher package 
delivery rates to further the foreign policy as it relates to 
    Mr.  Faucher. No, that was not the intention of my 
    Mr.  Meadows. Please clarify for me because that is what it 
sounded like. I want you to clarify it for me because people in 
North Carolina, California or wherever, when they start to hear 
this, they are going to have a real hard time and saying why 
are we giving China better rates than Virginia or California? 
How can you justify that as fair?
    Mr.  Faucher. The system is not fair and that is what we 
are trying to improve upon and correct. That is what we have 
been doing for years starting, as far as I know, with the 2012 
Congress going to the 2016 and 2020 Congresses.
    We will work to make this system more fair for the American 
consumer overall. That means bringing down the cost or matching 
the cost of the terminal dues to the cost of providing the 
service for the international mail that comes into the United 
    Earlier, I was trying to explain this process we use to 
develop our policies. I was trying to explain that we are not 
bound 100 percent by rules and regulations that we have to take 
into account the President's prerogatives to form foreign 
    I did not mean to indicate in any way that we want to give 
favor in any way the Chinese consumer over an American consumer 
or China's business over American business. At the State 
Department, we are in the business of promoting American 
interests, including American consumers and American 
businessmen. That is what we are going to do.
    Mr.  Meadows. Ms. Sparks helped you out because she gave 
you an olly olly oxen free as I would call it, that you were 
not there during the last time it was negotiated but now you 
will be. Now the pressure will be focused on you. I can assure 
you this will not be the last hearing as we look at this 
because we are going to look for real results.
    Mr.  Faucher. First of all, it is not just me. There is a 
whole team at the State Department and among all these 
different agencies that will be working on this issue. We have 
our strategic goals that have been agreed upon and we are 
trying to achieve those. Those goals really are to bring down 
the cost of this system for the American consumer and the 
American taxpayer.
    Mr.  Meadows. Mr. Taub said he was part of the hearing when 
he was Chief of Staff here on Capitol Hill. I guess to quote 
him, ``it has moved at a glacial pace'' which I would assume is 
not very fast.
    Are we going to see progress in glacial terms or are we 
going to see progress in real terms? When is it going to be 
more expensive for a Chinese company to ship something from 
Shanghai to Marion than it is for a U.S. company? When can we 
expect that, 2018?
    Mr.  Faucher. I really cannot answer that question. I do 
not know. I would hope that we will have the system corrected 
by then so that the costs reflect the actual costs for shipping 
those products.
    Mr.  Meadows. I have asked the Committee to go back and get 
some of the testimony from the last hearing because I do not 
want us to be repeating that we would hope it will be fixed and 
there is someone with more gray hair chairing this Committee 15 
years from now and we have not fixed the problem because it has 
real impact.
    I am going to recognize the gentlelady from the District of 
Columbia, my good friend, Ms. Norton.
    Ms.  Norton. Thank you very much, Mr. Chairman. I 
appreciate your holding this hearing. It presents new 
information to me and I am getting to understand the 
    As I understand, if there is primary authority, it would be 
with the State Department, although that agency can coordinate 
with other agencies like the Postal Service. I am particularly 
interested in the Postal Service in light of this Committee's 
jurisdiction over the Postal Service.
    I do not know whether this question is for Mr. Miskanic or 
Mr. Williams. Let us look at the post office. It can make 
agreements with other countries as well, is that correct, the 
United States Postal Service, Mr. Miskanic?
    Mr.  Miskanic. That is correct, Ms. Norton.
    Ms.  Norton. Does the current terminal system we have 
discussed make it more difficult for the Postal Service to 
enter such agreements?
    Mr.  Williams. It does. With terminal dues at the back of 
the person with whom we are negotiating, all they have to do is 
stand up from the table and the matter is settled by reverting 
all the way back to terminal dues. It puts the person trying to 
move toward a fairer agreement at a severe disadvantage knowing 
all the other party has to do is stand up and it is settled 
very much in their favor.
    Ms.  Norton. That gets us back to the State Department?
    Mr.  Williams. The Universal Postal Union proceedings are 
all representative of the State Department but it can only be 
solved there. As some of the witnesses have said, it has been a 
chronic problem. There has been very little progress against 
this longstanding problem.
    Ms.  Norton. Let us look at where there has been some 
progress with the Postal Service. Apparently there is a Postal 
Service agreement with China of all places. Is that correct?
    Mr.  Miskanic. That is correct. There has been progress on 
several fronts, both at the UPU and negotiating the bilateral 
    I would caution that progress is not getting us to the 
point of cost coverage. Specifically to answer a question that 
was posed earlier as to when China would be paying more under 
the terminal dues structure, that will occur in 2016 when they 
move from a transition country to a target country and 
therefore, are required to pay a higher rate from a terminal 
dues perspective.
    When they are required to do so, the Postal Service could 
renegotiate the bilateral discussion with them and ask for 
higher rates as a result. As we look toward the Istanbul 
Congress in 2016, it is our objective to have shape-based 
costing, country-specific that I think my colleagues here would 
generally agree.
    The Postal Service is really looking for cost coverage for 
these inbound items. I think that is universal across this 
    There has been progress. Sometimes the pace of the UPU is 
unfortunate, but we made progress in Doha and are looking to 
make even more in Istanbul.
    Ms.  Norton. Does the bilateral agreement with China relate 
only to so-called epackets? Those are packets that weigh up to 
4.4 pounds.
    Mr.  Miskanic. That is the primary foundation.
    Ms.  Norton. How come?
    Mr.  Miskanic. That is obviously the volume increase that 
respective foreign postal operator is looking to provide.
    Ms.  Norton. What China is willing to provide?
    Mr.  Miskanic. Correct.
    Ms.  Norton. Do you consider this bilateral agreement with 
respect to epackets a success?
    Mr.  Miskanic. It is a step in the right direction. But 
until we reach cost coverage, I would be remiss in claiming 
anything a success.
    Ms.  Norton. Mr. Taub, you report that the bilateral 
agreements cause the same distortions as the terminal dues 
system. If that is so, why is that so?
    Mr.  Taub. One, in context, we have long said and continue 
to maintain that bilateral-multilateral agreements relative to 
the UPU terminal dues rates are better but it is relative.
    Ms.  Norton. Again, why are they better?
    Mr.  Taub. They are better because the Postal Service 
itself can have the control to negotiate a more compensatory 
rate than the default UPU rate that is available.
    Our report that we had done last year which you referenced 
did observe that similar distortions in effect with terminal 
dues are there with bilaterals. We have to keep in mind that 
bilaterals are, similar to terminal dues, not open to private 
    Again, these are agreements that the goal should be similar 
prices for similar services regardless of country of origin and 
regardless of whether a public or private operator. These 
agreements distort that proverbial first mile, who will I 
select to ship because, for example, FedEx on this table would 
not be able to be a participant in that type of agreement.
    Ms.  Norton. I thought FedEx and UPS were receiving small 
packages from China.
    Mr.  Taub. I am just referring to the bilateral agreements 
themselves, in concept, but certainly FedEx can speak to their 
    Ms.  Norton. FedEx, how is this occurring then, apparently 
in large volumes?
    Ms.  Sparks. We definitely carry packets from China to the 
United States, but we do not receive any pricing benefits 
similar to what foreign post offices give each other. We are in 
a different pricing regime.
    Ms.  Norton. Do you lose money in carrying these small 
epackets from China to the United States?
    Ms.  Sparks. I am afraid I cannot answer that question but 
I will be glad to check into it.
    Ms.  Norton. I would be pleased if you would check into 
that. Do you cover your costs? You have decided to do this on 
your own, I take it.
    Ms.  Sparks. We certainly do not, at this point, offer a 
service similar in terms of the very low prices that China Post 
charges its own shippers.
    Ms.  Norton. So we are not competitive with China Post?
    Ms.  Sparks. I would say that is correct, yes.
    Ms.  Norton. Thank you, Mr. Chairman.
    Mr.  Meadows. I thank the gentlelady.
    Since I made reference to the hearing in March 2000, at 
that particular point, as Mr. Taub can recollect, the State 
Department said they wanted the cost covered fully by 2005. We 
missed it by at least ten years.
    Are we going to make better progress, Mr. Faucher, in the 
coming couple of years? You are the only one at the table who 
can probably speak to that.
    Mr.  Faucher. I would absolutely hope so. I would agree 
that the pace has been very slow, it could be better, but we 
are negotiating with 192 other countries in a global framework 
for all these sorts of things. It is not something we can just 
wish, snap our fingers and have it done.
    We have to work it very carefully, work it very diligently 
and put all our efforts and resources toward achieving this. It 
would have been great to achieve it by 2005. I wish we had 
achieved it by today but we are not there yet. We will continue 
working toward that goal and hopefully by 2016, 2018, we will 
be closer if not there.
    Mr.  Meadows. I am going to recognize, and let you off the 
hook, the Ranking Member, Mr. Connolly, for as much time as he 
    Mr.  Connolly. Thank you so much, Mr. Chairman.
    Mr. Faucher, you heard Mr. Misener use the example of a 
package going from my home county of Fairfax to the Chairman's 
home county of Marion, North Carolina. That distance is 340 
miles and would cost $1.94. A comparable package being shipped 
from Shanghai, China to Marion, North Carolina, a distance of 
7,000 miles, would actually cost 82 cents less.
    Is there any rhyme or reason for providing that kind of 
effective subsidy for parcels going back and forth with China 
in today's day and age?
    Mr.  Faucher. First of all, I have to say I am not a 
businessman, so I do not know how these business deals are done 
between the shippers and sellers and how they arrive at the 
rates the shippers are going to pay. I am sure there are 
negotiations among the sellers in China with China Post to 
figure out what kind of costs they are going to have.
    We deal with the terminal dues, which is the cost the 
United States agrees to take on for the international postal 
mail that comes in. You are absolutely correct. It does not 
make any sense. We need to increase the terminal dues so that 
they cover our costs.
    Mr.  Connolly. Aside from the solution, and I agree with 
you, from a foreign policy point of view, from an economic 
foreign policy point of view, even if you are not a 
businessman, it just kind of flies in the face of intuitive 
sense, given China's increasing economic development.
    It is a competitor now. It does not need a subsidy, it 
seems to me, to be engaged in commerce with the United States. 
It certainly should not cost less to deliver a package from 
Shanghai to here than it does for me to send a package to my 
good friend, Mr. Meadows, in North Carolina.
    Mr.  Faucher. I would agree.
    Mr.  Connolly. Does anyone disagree? Does anyone want to 
take the stance of China needs more subsidies from the United 
States? I did not think so.
    Mr. Williams, terminal dues are meant to cover the cost of 
inbound international mail, correct?
    Mr.  Williams. Correct.
    Mr.  Connolly. Would you say these fees cover the actual 
cost of transporting that mail?
    Mr.  Williams. No, sir. We lose revenue on every single 
package that we deliver.
    Mr.  Connolly. Why is that?
    Mr.  Williams. The terminal dues are set below the delivery 
costs the Postal Service incurs.
    Mr.  Connolly. Reading your last report, we have lost over 
$200 million in the 2010 to 2013 period alone on inbound 
international single piece letter post, is that correct?
    Mr.  Williams. That is correct, $233 million. If you 
include the latest figures for 2014, it rises to a cumulative 
loss of $308 million.
    Mr.  Connolly. Outbound though, we are making money, is 
that correct? You state in the report that the Postal Service 
has made just under $900 million in outbound international 
mail, is that correct?
    Mr.  Williams. That is correct, sir.
    Mr.  Connolly. The PRC report states ``The fact that 
terminal dues do not reflect the domestic price for last mile 
activities,'' which you already testified, ``implies that 
designated postal operators may lose money on inbound 
deliveries and earn money on outbound deliveries,'' which in 
fact your report documents.
    Mr.  Williams. That is correct. The concern I think all of 
us have is not that this is a postal issue, but that we are 
inflicting harm on American commerce. Because of all of these 
anomalies and distortions, we can make or lose money in any 
given year, but the constant loser is the American businessman 
and American commerce.
    Mr.  Connolly. In essence, Americans mailing to foreign 
countries are subsidizing foreign mailers who send mail to the 
United States, would that be a fair statement?
    Mr.  Williams. Correct. The American businessmen are paying 
to be devoured by the Chinese businessmen.
    Mr.  Connolly. The PRC report also states, ``distortion of 
competition for first mile and last mile activities is an issue 
caused by the current terminal dues system.'' Would you agree 
with that, Ms. Sparks?
    Ms.  Sparks. Yes, I would.
    Mr.  Connolly. Has the current system left your company, 
FedEx, unable to compete for those first and last mile 
    Ms.  Sparks. Certainly at those prices at that price point, 
    Mr.  Connolly. While I have you here, Ms. Sparks, does 
FedEx or do you support the TPA and the underlying TPP? Would 
that be good for America?
    Ms.  Sparks. Wow, okay. I was not expecting that question.
    Mr.  Connolly. I just let it hang out there.
    Mr.  Meadows. I will give you a clue. You probably ought to 
answer yes.
    Ms.  Sparks. I think I will follow the Chairman's lead.
    Mr.  Connolly. We are dying to hear from business on that 
    Ms.  Sparks. It is an important issue to us and the answer 
is yes, sir.
    Mr.  Connolly. I know it was a cheap question but I need 
allies everywhere I can find them. I am very lonely these days 
on my side of the aisle.
    The PRC report also identified the distortion of 
competition between retailers in the domestic market and 
markets abroad as an issue. Mr. Misener, you would agree?
    Mr.  Misener. Yes, sir. I very much agree with that. We see 
it on our platform. We are seeing different sellers advantaged, 
different sellers disadvantaged. It turns out that those 
advantaged are overseas and those disadvantaged are domestic.
    Mr.  Connolly. What do you think the problem is, Mr. 
Misener? Is it just that we have not gotten around to 
rationalizing this thing?
    Mr.  Misener. I think that is part of it. We heard today 
that it is difficult for the postal operators like the USPS to 
negotiate with say China Post and form a bilateral agreement if 
the floor set by the UPU is so low.
    That is viewing this completely in a vacuum. It seems like 
we have this much broader relationship with China and this 
ought to be on the table as part of it. If the State Department 
is limiting itself only to negotiating in the UPU, we are 
missing an opportunity to view this more holistically as part 
of our bilateral relationship with China.
    Mr.  Connolly. I wonder what you think, Mr. Faucher, from 
the State Department point of view, if you have one, but 
sometimes with the best of intentions, we do things to help 
lift a country so that it can improve its economic status, 
income and the quality of the lives of the folks there.
    It is one thing to help a Burkina Faso, not to pick on 
somebody, but it is quite another to decide China still needs 
the same kind of help. What strikes me about this is we have 
not reevaluated the change. When I was growing up, we saw the 
famines in China. We have come a long way from that.
    Does our policy, in this case, the fees we set, reflect 
that reality, that change? Some part of me thinks that it is 
almost inertia that we have not gotten around to it. Obviously 
we do not have some dark, conspiratorial plan to help China 
beat America in competition but here is something it seems to 
me to be counterproductive and there is no reason China cannot 
pay the same going freight as anyone else.
    Is that fair enough, Mr. Faucher, from the State Department 
point of view?
    Mr.  Faucher. I would say obviously there is a major 
difference between Burkina Faso and China as it exists today. 
There has been change and I want to point that out.
    China is moving from the transitional phase to the target 
phase, so its rates will be going up reflecting its greater 
economic power. There was also an agreement negotiated by USPS 
with China also reflecting China's commercial power.
    Mr.  Connolly. Mr. Misener is shaking his head. Mr. 
    Mr.  Misener. That is correct. There is going to be this 
transition of group to another group but it will not affect the 
terminal dues rates here in the United States. That alone is 
not sufficient to change the rates.
    Mr.  Meadows. I think that is the key. If you want to 
disagree with that, I will give you equal time. I would caution 
you because I think the facts would speak otherwise. I think 
they would agree with Mr. Misener.
    Mr.  Connolly. Ms. Sparks was also shaking her head.
    Mr.  Meadows. They are transitional right now and my 
question is transitional to what, to number one in the world? 
We have to look at this from a standpoint of real rates based 
on real costs and based on the fact China is an economic power, 
without a doubt. I think anyone who studies it would see that.
    Transitioning them in terms of where they are categorized 
in the rates must reflect that transition. We are led to 
believe at this point it would be very minor in terms of the 
rate difference, even by coming out of that. Would you disagree 
with that?
    Mr.  Faucher. No, I really would not disagree with anything 
you said other than to point out that there will be an increase 
as I understand it, I could be corrected here, in the terminal 
dues rate that will be charged to China once they transition to 
the target group.
    Basically we are seeing a trend line here where we are 
getting closer but not quite there, not by a long shot, to 
covering the cost with China. It is moving downward; it is not 
widening, it is narrowing.
    Mr.  Connolly. Mr. Chairman, I just want to give Mr. Taub a 
chance to clarify because he actually had a lot of experience 
with this fee setting and so forth. Did you have a comment? 
Then I am done.
    Thank you, Mr. Chairman.
    Mr.  Taub. I think everything everyone has addressed is a-
okay. I have nothing to add on that unless there is something 
    Mr.  Meadows. The Chair recognizes the gentleman from 
Wisconsin, Mr. Grothman.
    Mr.  Grothman. Thank you.
    Ms. Sparks, do you think we are effectively advocating for 
our position or are we effectively advocating our interests at 
the UPU?
    Ms.  Sparks. As a Midwesterner, Wisconsin, right?
    Mr.  Grothman. Correct.
    Ms.  Sparks. My son just moved there, nice State.
    Mr.  Grothman. Good for him.
    Ms.  Sparks. I think the proof is in the pudding. We have 
not gotten there yet. It is a very difficult atmosphere to 
operate in because it is a one country, one vote but the United 
States needs to continue to push very hard for cost-based 
    I think historically we have thrown up our hands in the 
past. I think there are European countries experiencing some of 
the same problems. I think there are coalitions that could be 
made but this takes time and resources which is why in our 
written testimony, we advocated a special task force be formed 
among government agencies to talk about how this could better 
be approached.
    Get the U.S. Trade Representative in there. They are good 
at negotiating. Get the Department of Commerce in there to 
represent the interests of small businesses. I think there are 
some things that can be done to help the State Department and 
bolster their fact bases and positions.
    Mr.  Grothman. Mr. Faucher, in 2016 when the next Universal 
Postal Union Congress meets, how do you plan to do a better job 
of negotiating?
    Mr.  Faucher. Of negotiating?
    Mr.  Grothman. Pushing for a better deal, what are your 
plans next time around?
    Mr.  Faucher. There are at least two initiatives on 
terminal dues that we are supporting which we hope will improve 
the system, refine it and make it better. It will not 
completely solve it, but we will continue to push that way.
    We will push for a work program for the Postal Operations 
Council so that in the following cycle, after the next 
Congress, it will be forced to look at these issues much more 
closely and make progress on them along the lines we have been 
discussing today.
    Mr.  Grothman. Ms. Sparks, we are 40 percent of the world's 
mail volume. Are other countries, do you think, looking for us 
to take a leadership role and change some of this stuff?
    Ms.  Sparks. There is no question in my mind that other 
countries are looking for us to be a leader here. At the last 
UPU Congress, there was a resolution introduced to do a study 
similar to what Mr. Faucher talked about.
    That was championed by the Nordic countries and was finally 
withdrawn for lack of support. If I remember correctly, the 
United States was not out there strongly advocating for that 
particular amendment. I am glad to hear that we would be doing 
something like that in this Congress.
    Mr.  Grothman. Do you think in the past we really have not 
been aggressive enough, have not taken the leadership role some 
people are expecting from us? Is that accurate, do you think?
    Ms.  Sparks. I hate to say we lack aggression.
    Mr.  Grothman. I am sure you do not, but go ahead.
    Ms.  Sparks. I think we could be stronger advocates for 
cost-based pricing for transparent treatment of mailers and, as 
Mr. Taub said, for similar prices for similar services.
    That is not the tradition of the UPU. The tradition of the 
UPU is that the haves pay the have-nots. What has brought this 
problem to a head is the have-nots suddenly have a lot.
    Mr.  Grothman. I have one more question for you. About a 
year ago, Alibaba bought 10 percent of the Singapore Post. I 
think as a result of that, and due to the convention, USPS is 
really subsidizing Alibaba to compete with American companies. 
Do you think this might be the beginning of a trend?
    Mr.  Misener. I hope not. We do see that companies with 
strong ties to transition countries or countries that have much 
lower terminal dues rates for shipments to the United States 
are better advantaged, they are better positioned to take 
advantage of these disparities.
    I do not know what the stake in the Singapore Post will do 
for them but it does not make sense that as a postal operator, 
partly owned now by a private company, these subsidies would 
end up in the hands of a foreign private company. That makes as 
little sense as the underlying structure.
    Mr.  Grothman. It is not possible this would happen again?
    Mr.  Misener. I do not see why it would not be possible.
    Mr.  Grothman. It could be possible, right?
    Mr.  Misener. Certainly.
    Mr.  Grothman. Thank you for indulging me for an extra half 
    Mr.  Meadows. I thank the gentleman.
    I thank each of you for your responses. I want to close 
with this.
    Mr. Miskanic, do you reimburse the State Department for 
representation costs as it relates to negotiating this? Does 
the Postal Service do that?
    Mr.  Miskanic. Yes, the Postal Service, under an 
interagency agreement, reimburses the State Department a 
nominal amount.
    Mr.  Meadows. What is that amount?
    Mr.  Miskanic. Approximately $150,000 a year for 
administrative costs.
    Mr.  Meadows. You actually pay him to represent you in 
negotiating, in a generic sense? Obviously, it is not him 
    Mr.  Miskanic. Yes, by the 1999 Omnibus Appropriations, we 
are required to reimburse the State Department. It varies based 
upon the level of engagement.
    Mr.  Meadows. Ms. Sparks, does that create a competitive 
disadvantage for you?
    Ms.  Sparks. I think it certainly creates the appearance of 
a conflict. We think it actually stems from a historical 
anomaly when representation was first assigned to the State 
Department. We think that could easily be gotten rid of in a 
future appropriations bill by just lining out that item.
    Mr.  Meadows. Mr. Faucher, I am going to put you on the 
spot but I will do it in a nice way hopefully. You would never 
want to have the appearance of a conflict of interest, would 
    Mr.  Faucher. That is a softball question. No.
    Mr.  Meadows. In that, you would certainly support getting 
rid of this reimbursement that would come from the Postal 
Service to you for representation? You would support 
legislation to that effect if it came in a bipartisan manner 
from Mr. Connolly and I?
    Mr.  Faucher. I think we would support continuing to 
receiving the amount we receive so that we can carry out our 
function under the law.
    Mr.  Meadows. You would not support legislation to do away 
with that?
    Mr.  Faucher. The source of it is up to Congress basically.
    Mr.  Meadows. I am saying, if we put it forward, you would 
not be pushing back from the State Department and say no, we 
really want that money to come in from the Postal Service?
    Mr.  Faucher. I cannot imagine why we would do that.
    Mr.  Meadows. I would hope that would be the answer.
    I am going to thank each of you for your willingness to 
participate. I have tried to keep part of this jovial and yet 
at the same time, it is a very serious, serious matter that the 
American people would not understand.
    I do not understand. Mr. Connolly and I were just talking 
and we do not understand it. The message needs to be clear at 
the State Department that if there is a foreign policy reason 
for it, we want to know what the compelling foreign policy 
reason would be, not just generically but why is it so 
compelling that the American people should be subsidizing 
foreign package and postal rates from someone who, as Ms. 
Sparks so eloquently put it, were the have-nots and now they 
are the haves.
    With that, I would like to thank you all.
    If there is no further business before the Committee, 
without objection, the subcommittee stands adjourned.
    [Whereupon, at 4:01 p.m., the subcommittee was adjourned.]