[Federal Register Volume 73, Number 139 (Friday, July 18, 2008)]
[Rules and Regulations]
[Pages 41265-41268]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-16031]


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POSTAL REGULATORY COMMISSION

39 CFR Part 3020

[Docket No. CP2008-7; Order No. 84]


Administrative Practice and Procedure; Postal Service

AGENCY: Postal Regulatory Commission.

ACTION: Direct final rule.

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SUMMARY: The Commission is adding the Postal Service's negotiated 
agreement with China Post Group to the competitive product list. This 
action is consistent with changes in a recent law governing postal 
operations. Re-publication of the lists of market dominant and 
competitive products is also consistent with new requirements in the 
law.

[[Page 41266]]


DATES: Effective July 18, 2008. Related Postal Service filings due July 
23, 2008.

FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel, 
202-789-6820 or [email protected].

SUPPLEMENTARY INFORMATION: On May 20, 2008, the Postal Service filed 
notice, pursuant to 39 U.S.C. 3632(b)(3) and 39 CFR 3015.5, of the 
Governors' decision establishing prices for competitive products not of 
general applicability for Inbound Express Mail International (EMS).\1\ 
The Postal Service's filing, docketed as Docket No. CP2008-6, includes 
supporting material, including the Governors' decision, filed under 
seal. Concurrently, the Postal Service filed notice, pursuant to 39 CFR 
3015.5, of a specific negotiated service agreement covering Inbound EMS 
prices.\2\ This filing, docketed as Docket No. CP2008-7, includes the 
contract and supporting materials filed under seal.
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    \1\ Notice of United States Postal Service of Governors' 
Decision on Inbound Prices Under Express Mail International (EMS) 
Bilateral/Multilateral Agreements, May 20, 2008 (Notice).
    \2\ Notice of United States Postal Service of Filing an 
Agreement for Inbound Express Mail International (EMS) Prices, May 
20, 2008 (Pricing Notice).
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    On June 3, 2008, the Commission issued Order No. 79, which 
determined that Docket No. CP2008-6 establishes, in essence, a shell 
classification, while Docket No. CP2008-7 is a specific agreement 
negotiated pursuant to the conditions of the shell classification. 
Given this interrelationship, the Commission consolidated the 
proceedings for purposes of review under Docket No. CP2008-7.\3\
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    \3\ PRC Order No. 79, Notice and Order Concerning Prices Under 
Express Mail International Bilateral/Multilateral Agreements, June 
3, 2008 at 2 (Order No. 79).
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    In Order No. 79, the Commission also reiterated its position that 
each negotiated service agreement will initially be classified as a 
separate product, while acknowledging the possibility of grouping 
functionally equivalent agreements as a single product if they exhibit 
similar cost and market characteristics. Id. at 2-3. This, in effect, 
invoked the filing and review requirements of 39 CFR part 3020, subpart 
B, along with the requirements of rule 3015.5 for competitive products.
    On June 10, 2008, the Postal Service filed material responsive to 
questions posed in Order No. 79, and material responsive to 39 CFR part 
3020, subpart B.\4\ The material responsive to 39 CFR part 3020, 
subpart B included a statement of supporting justification sponsored by 
Pranab Shah. See Postal Service Response, Attachment A.
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    \4\ United States Postal Service Response to Order No. 79 and 
Notice of Filing Information Responsive to Part 3020 of the 
Commission's Rules of Practice and Procedure, June 10, 2008 (Postal 
Service Response).
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    The Commission previously proposed, at a minimum, identifying each 
international mail agreement with foreign posts involving competitive 
products (both in the Mail Classification Schedule and in other 
documents generated by the Commission) by the name(s) of the foreign 
post(s), the mail product(s) involved, and the agreement's expiration 
date. Order No. 79 at 3-4. In this instance, the Postal Service did not 
object to this proposal. Postal Service Response at 3.
    The Commission also noted that it has made no determination as to 
whether the portions of the agreement in Docket No. CP2008-7 that 
relate to outbound mail are subject to its review. Order No. 79 at 3. 
The Postal Service reiterated its position that an ``outbound EMS 
agreement with China Post Group would no more need to be classified as 
a product or otherwise subjected to Commission review than would an 
agreement to purchase trucking services from highway contractors or to 
purchase air transportation from air carriers.'' Postal Service 
Response at 3.
    Order No. 79 also provided an opportunity for public comment on the 
Postal Service's proposals. Comments were received from the Public 
Representative (an employee of the Commission assigned to represent the 
interests of the general public) and United Parcel Service.\5\ Neither 
the Public Representative nor United Parcel Service expressed 
opposition to the China Post Group agreement.
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    \5\ Public Representative Comments in Response to United States 
Postal Service Notice of Negotiated Service Agreement (NSA) for 
Inbound Express Mail International (EMS) with China Post (Public 
Representative Comments); Comments of United Parcel Service in 
Response to Order Concerning Prices Under Express Mail International 
Bilateral/Multilateral Agreements (UPS Comments); both filed June 
16, 2008.
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    The Public Representative concludes that the China Post Group 
agreement ``complies with the legal requirements for cost coverage and 
contribution to the Postal Service's institutional costs.'' Public 
Representative Comments at 4. United Parcel Service supports the 
Commission's conclusion that this initial agreement be treated as a new 
product. UPS Comments at 2. It also suggests that because private 
carriers face more onerous customs and brokerage requirements than the 
Postal Service, the market for international package delivery and 
expedited services is less competitive than is often assumed. Id. Both 
the Public Representative and United Parcel Service discuss issues 
encompassing the provision of materials under seal. Public 
Representative Comments at 2-3; UPS Comments at 1.
    Commission analysis. The statutory responsibility of the 
Commission, in this instance, is to assign a new product to either the 
market dominant list or the competitive product list. 39 U.S.C. 3642. 
As part of this responsibility, the Commission also will preliminarily 
review the proposal for compliance with the requirements of the Postal 
Accountability and Enhancement Act (PAEA) of 2006. For proposed 
competitive products, this includes review of the provisions applicable 
to rates for competitive products. 39 U.S.C. 3633.
    The Postal Service contends that adding the shell classification as 
a product will improve the Postal Service's competitive posture. It 
argues that this can be accomplished while allowing verification that 
each agreement covers attributable costs, does not result in 
subsidization of competitive products by market dominant products, and 
increases contribution from competitive products. Alternatively, adding 
the individual agreement as a product also will improve the competitive 
posture of the Postal Service, but to a lesser degree. Postal Service 
Response, Attachment A, at 2.
    The Commission has reviewed the financial analysis provided under 
seal that accompanies the agreement and finds that the China Post Group 
agreement should cover its attributable costs (39 U.S.C. 3633(a)(2)), 
should not lead to the subsidization of competitive products by market 
dominant products (39 U.S.C. 3633(a)(1)), and should have a positive 
effect on the collective competitive products ability to provide their 
appropriate share of institutional costs (39 U.S.C. 3633(a)(3)).\6\ 
Thus, a preliminary review of the agreement indicates that it comports 
with the

[[Page 41267]]

provisions applicable to rates for competitive products. In determining 
whether to assign the China Post Group agreement as a product to the 
market dominant product list or the competitive product list the 
Commission must consider whether:

    \6\ The Commission notes that the Postal Service derived 
inflation adjustment factors from two point estimates for a 21-month 
period, September 2007 to May 2009, rather than June 2008 to May 
2009, which coincides with the duration of the bilateral agreement. 
The Commission also notes that the estimate of the total unit cost 
of inbound Express Mail from China Post Group is based upon an 
estimate of the unit cost of domestic mail processing that 
represents an average of the domestic mail processing cost of 
inbound Express Mail from all countries rather than the average unit 
domestic mail processing cost for transition system countries. These 
observations did not have a significant impact on the overall 
analysis; however, the rationale for a 21-month period and the use 
of an average should be explained when filing future similar 
agreements.
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* * * the Postal Service exercises sufficient market power that it 
can effectively set the price of such product substantially above 
costs, raise prices significantly, decrease quality, or decrease 
output, without risk of losing a significant level of business to 
other firms offering similar products.

39 U.S.C. 3642(b)(1). If this is the case, the product will be 
categorized as market dominant. The competitive category of products 
shall consist of all other products.
    The Commission is further required to consider the availability and 
nature of enterprises in the private sector engaged in the delivery of 
the product, the views of those that use the product, and the likely 
impact on small business concerns. 39 U.S.C. 3642(b)(3).
    The Postal Service asserts that its bargaining position is 
constrained by the existence of other shippers who can provide similar 
services. Thus, the market precludes the Postal Service from taking 
unilateral action to increase prices or decrease service without the 
risk of losing volume to private companies in the international 
shipping industry. Postal Service Response, Attachment A, at 2-3. The 
Postal Service contends that private consolidators and freight 
forwarders may offer international arrangements under similar 
conditions. Id. at 3. The Postal Service has no specific data on the 
views of those that use the products on the regulatory classification. 
Id. at 4. Finally, the Postal Service states that large shippers serve 
the market under consideration, and that there should be little impact 
upon small business other than adding an additional option for shipping 
articles to the United States. Id.
    The Commission previously assigned Inbound International Expedited 
Services to the competitive product list.\7\ The Postal Service 
contends that the China Post Group agreement falls within the Inbound 
International Expedited Services heading. The Commission has not 
received public opposition to the proposed regulatory classification 
during the comment period. Having considered the statutory 
requirements, the argument put forth by the Postal Service, and the 
public comment, the Commission finds that the China Post Group 
agreement is appropriately categorized as a competitive product and 
should be added to the competitive product list. The revisions to the 
competitive product list are shown below the signature of this order, 
and shall become effective upon publication in the Federal Register.
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    \7\ PRC Order No. 43, Order Establishing Ratemaking Regulations 
for Market Dominant and Competitive Products, October 29, 2008, 
para. 3019.
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    Mail Classification Schedule. The Postal Service previously 
proposed applicable draft Mail Classification Schedule language 
governing Inbound Express Mail International Services (EMS).\8\ 
Attachment A to the Governors' decision filed in Docket No. CP2008-6 
repeats this language. These proposals suggest assigning the China Post 
Group agreement to the Express Mail, Inbound Express Mail International 
category. In Docket Nos. CP2008-4, CP2008-5, CP2008-8, CP2008-9, and 
CP2008-10, the Postal Service's draft Mail Classification Schedule 
language proposes to assign the associated agreements to the Negotiated 
Service Agreements, Outbound International category. The intent of the 
overall Negotiated Service Agreements category is to organize all 
negotiated agreements. Thus, the categorization in the instant docket 
does not appear to be consistent with the other proposals. The 
Commission invites the Postal Service to share its thoughts and 
concerns on development of a consistent approach to organizing 
competitive product negotiated agreements within the Mail 
Classification Schedule.
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    \8\ See United States Postal Service Submission of Additional 
Mail Classification Schedule Information in Response to Order No. 
43, November 20, 2007.
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    The Postal Service's proposed Mail Classification Schedule language 
indicates that other negotiated agreements may exist within Inbound 
Express Mail International: Bilateral Express Mail Service (EMS); EMS 
Cooperative Pay for Performance; Kahala Posts Group; European Parcel 
Group; and China Post Group. The Commission does not have specific 
information on the negotiated agreements for these products. The Postal 
Service shall provide the Commission with a list of ongoing agreement 
names, and expiration dates separated by product, along with a copy of 
each agreement.\9\ Providing this information will aid the Commission 
in understanding the Postal Service's product offerings, and enhance 
the transparency of the Postal Service to the mailing community.
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    \9\ See 39 U.S.C. 407(d)(2). Agreements that fall outside of the 
defined product models also are to be provided.
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    Updating the Mail Classification Schedule. The China Post Group 
agreement contains provisions for early termination and automatic 
renewal of the agreement. The Postal Service shall notify the 
Commission of an early termination no later than the date of 
termination. The Commission then will remove the agreement from the 
Mail Classification Schedule at the earliest possible opportunity. The 
Postal Service also shall notify the Commission of an automatic renewal 
of the agreement 15 days prior its occurrence. Otherwise, the 
Commission will assume that the contract has lapsed and remove the 
agreement from the Mail Classification Schedule without notice.
    Additional agreements. As of now, the China Post Group agreement 
represented by Inbound International Expedited Services 1 (CP2008-7) in 
the competitive product list may be considered the same entity. In the 
future, the Postal Service may enter into other agreements 
substantially similar to the China Post Group agreement. When this 
occurs, Inbound International Expedited Services 1 (CP2008-7) will be 
considered the product and the included individual agreements will be 
treated as price categories under the product.\10\
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    \10\ This may require future modification of the China Post 
Group descriptive language.
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    If the Postal Service determines that it has entered into an 
agreement substantially equivalent to the China Post Group agreement 
with another country, it may file such an agreement using the 
abbreviated requirements provided by rule 3015.5. In each case, the 
individual agreement must be filed with the Commission, and each 
agreement must meet the requirements of 39 U.S.C. 3633. The Postal 
Service shall identify all significant differences between the new 
agreement and the pre-existing product group. Such differences would 
include terms and conditions that impose new obligations or new 
requirements on any party to the agreement. The Commission will verify 
whether or not the second agreement is in fact substantially 
equivalent. Agreements that are not substantially equivalent will 
continue to have to meet the filing requirements provided by 39 CFR 
part 3020, subpart B. If this approach proves too cumbersome, 
alternative approaches may be considered.
    Confidentiality of information. The Commission is aware that the 
treatment of information as confidential is a sensitive issue. The 
Postal Service, the Public Representative, and United Parcel Service 
all express valid concerns

[[Page 41268]]

that the Commission will address in the future on a broader level.
    In this docket, the Commission will take a limited first step to 
add transparency and facilitate the process of reviewing future 
agreements of this style. The Commission has reviewed the Governor's 
decision supporting the request provided as required by rule 
3020.31(b), and has determined that most of the document does not pose 
a risk of competitive harm if disclosed. In fact, the Postal Service 
disclosed similar information associated with Docket Nos. CP2008-8, 
CP2008-9, and CP2008-10. The Postal Service is directed to file a 
redacted version of the Governor's decision provided under seal in 
Docket No. CP2008-6.\11\
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    \11\ The redacted version should be filed under Docket No. 
MC2008-7. The Commission anticipates the redacted version will be 
similar in nature to what the Postal Service provided associated 
with Docket Nos. CP2008-8, CP2008-9, and CP2008-10 on June 16, 2008.
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    It is Ordered:
    1. The China Post Group agreement is added as a product not of 
general applicability to the competitive product list under Inbound 
International Expedited Services as Inbound International Expedited 
Services 1 (CP2008-7).
    2. The Postal Service shall provide the Commission with suggestions 
regarding the development of a consistent approach to organizing 
competitive product negotiated agreements within the Mail 
Classification Schedule by July 23, 2008.
    3. The Postal Service shall file with the Commission a list of all 
ongoing Inbound International Expedited Services agreements and 
expiration dates separated by product, along with a copy of each 
agreement, by July 23, 2008.
    4. The Postal Service shall file with the Commission a redacted 
version of the Governors' decision provided under seal in Docket No. 
CP2008-6 by July 23, 2008.
    5. The Secretary shall arrange for publication of this order in the 
Federal Register.

    By the Commission.

    Issued: June 27, 2008.
Steven W. Williams,
Secretary.

List of Subjects in 39 CFR Part 3020

    Administrative practice and procedure; Postal Service.

0
For the reasons stated in the preamble, under the authority at 39 
U.S.C. 503, the Postal Regulatory Commission amends 39 CFR part 3020 as 
follows:

0
1. The authority citation for part 3020 continues to read as follows:


    Authority: 39 U.S.C. 503; 3622; 3631; 3642; 3682.


0
2. In Appendix A to Subpart A of Part 3020 revise sections 1000 and 
2000 to read as follows:

Appendix A to Subpart A of Part 3020--Mail Classification Schedule

Part A--Market Dominant Products
1000 Market Dominant Product List
First-Class Mail
    Single-piece Letters/Postcards
    Bulk Letters/Postcards
    Flats
    Parcels
    Outbound Single-Piece First-Class Mail International
    Inbound Single-Piece First-Class Mail International
Standard Mail (Regular and Nonprofit)
    High Density and Saturation Letters
    High Density and Saturation Flats/Parcels
    Carrier Route
    Letters
    Flats
    Not Flat-Machinables (NFMs)/Parcels
Periodicals
    Within County Periodicals
    Outside County Periodicals
Package Services
    Single-Piece Parcel Post
    Inbound Surface Parcel Post (at UPU rates)
    Bound Printed Matter Flats
    Bound Printed Matter Parcels
    Media Mail/Library Mail
Special Services
    Ancillary Services
    International Ancillary Services
    Address List Services
    Caller Service
    Change-of-Address Credit Card Authentication
    Confirm
    International Reply Coupon Service
    International Business Reply Mail Service
    Money Orders
    Post Office Box Service
    Premium Forwarding Service (Experiment)
Negotiated Service Agreements
    Discover Financial Services Negotiated Service Agreement
    Bank One Negotiated Service Agreement
    HSBC North America Holdings Inc. Negotiated Service Agreement
    Bookspan Negotiated Service Agreement
    1001 Market Dominant Product Descriptions
* * * * *
Part B--Competitive Products
2000 Competitive Product List
Express Mail
    Express Mail
    Outbound International Expedited Services
    Inbound International Expedited Services
    Inbound International Expedited Services 1 (CP2008-7)
Priority Mail
    Priority Mail
    Outbound Priority Mail International
    Inbound Air Parcel Post
Parcel Select
Parcel Return Service
International
    International Priority Airlift (IPA)
    International Surface Airlift (ISAL)
    International Direct Sacks--M-Bags
    Global Customized Shipping Services
    Inbound Surface Parcel Post (at non-UPU rates)
    International Money Transfer Service
    International Ancillary Services
Negotiated Service Agreements
    Domestic
    Outbound International
* * * * *

[FR Doc. E8-16031 Filed 7-17-08; 8:45 am]
BILLING CODE 7710-FW-P