[Federal Register Volume 73, Number 186 (Wednesday, September 24, 2008)]
[Rules and Regulations]
[Pages 55422-55425]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-22328]



[[Page 55421]]

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Part IV





Postal Regulatory Commission





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39 CFR Part 3020



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Administrative Practice and Procedure, Postal Service; Final Rule

  Federal Register / Vol. 73, No. 186 / Wednesday, September 24, 2008 / 
Rules and Regulations  

[[Page 55422]]


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POSTAL REGULATORY COMMISSION

39 CFR Part 3020

[Docket Nos. MC2008-6, CP2008-14, and CP2008-15; Order No. 105]


Administrative Practice and Procedure, Postal Service

AGENCY: Postal Regulatory Commission.

ACTION: Final rule.

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

DATES: Effective September 24, 2008.

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

SUPPLEMENTARY INFORMATION: Regulatory History, 73 FR 49723 (August 22, 
2008).
    In these dockets, the Postal Service requests that the Commission 
add a new product to the competitive product list and add two new 
contracts to that competitive product. For the reasons discussed below, 
the Commission grants the Postal Service's requests.

I. Background

    On August 5, 2008, the Postal Service filed three requests 
announcing prices and classification changes for competitive products 
not of general applicability. The requests incorporate notices, 
pursuant to 39 U.S.C. 3642, 39 CFR 3020.30 et seq. The request in 
Docket No. MC2008-6 informs the Commission that ``the Governors have 
established prices and classifications not of general applicability for 
Inbound Direct Entry Contracts with Foreign Postal Administrations,'' 
and attaches a redacted copy of the Governors' Decision.\1\ See 
Request, Attachment 1. The Postal Service also provides a revision of 
the draft Mail Classification Schedule (MCS) (section 2612) concerning 
Inbound Direct Entry Contracts with Foreign Postal Administrations to 
the Request.\2\ See Request, Attachment 1, Attachment A.
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    \1\ Request of United States Postal Service to Add Inbound 
Direct Entry Contracts with Foreign Postal Administrations to the 
Competitive Product List, and Notice of Filing (Under Seal) the 
Enabling Governors' Decision and Two Functionally Equivalent 
Contracts with Foreign Posts, August 5, 2008 (Request).
    \2\ The draft MCS remains under review. The Commission 
anticipates providing interested persons an opportunity to comment 
on the draft MCS in the near future.
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    In support of these dockets, the Postal Service provides a 
Statement of Supporting Justification of Pranab Shah. See Request, 
Attachment 2. The Postal Service also provides materials under seal, 
including the unredacted Governors' Decision in Docket No. MC2008-6. 
The Postal Service claims that ``[p]rices and other contract terms 
relating to the foreign posts' processes and procedures are highly 
confidential in the business world . * * * [and that its] ability * * * 
to negotiate individual contracts would be severely compromised if 
prices * * * [for] these types of agreements were publicly disclosed.'' 
Request at 2-3.
    Docket Nos. CP2008-14 and CP2008-15 announce specific Inbound 
Direct Entry Contracts that the Postal Service has entered into with 
the individual Foreign Postal Administrations, namely China Post Group 
and Hong Kong Post, respectively.\3\ Id. at 2. In support of these 
dockets, the Postal Service also provides materials, including the 
contracts and supporting certifications, under seal.\4\
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    \3\ The Commission characterizes the Governors' Decision and 
associated materials filed in Docket No. MC2008-6 as material that 
supports the specific negotiated service agreements filed in Docket 
Nos. CP2008-14 and CP2008-15.
    \4\ See PRC Order No. 95, August 11, 2008, at 2 regarding the 
filing of certifications under seal. The Postal Service is directed 
to follow the practice established in Docket Nos. CP2008-11, CP2008-
12, and CP2008-13 regarding the filing of redacted versions of 
certifications for the above-captioned ``CP'' cases.
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    The Postal Service's filings in these dockets are related. Docket 
No. MC2008-6 establishes, in essence, a shell classification, while 
Docket Nos. CP2008-14 and CP2008-15 are specific agreements negotiated 
pursuant to the conditions of the shell classification. Given this 
interrelationship, the Commission reviews these proceedings together in 
this order.
    In Order No. 43, the Commission issued regulations establishing a 
modern system of rate regulation, including a list of competitive 
products. Docket No. RM2007-1, Order Establishing Ratemaking 
Regulations for Market Dominant and Competitive Products, October 29, 
2007, Appendix A. Among other things, the Commission determined that 
each negotiated service agreement would initially be classified as a 
separate product. The Commission also acknowledged the possibility of 
grouping substantially equivalent agreements as a single product if 
they exhibit similar cost and market characteristics. Id., paras. 2177 
and 3001. In its filings, the Postal Service contends that these two 
agreements are premised on similar cost and market characteristics and 
provides arguments to support this claim. Request at 5-6. The Postal 
Service requests that the Commission classify the two agreements filed 
in Docket Nos. CP2008-14 and CP2008-15 as part of the same product.

II. Comments

    Comments were filed by the Public Representative.\5\ These comments 
discuss (1) Confidentiality; (2) the Governors' Decision; (3) pricing, 
cost coverage, and contribution; (4) functional equivalency; (5) 
whether the contracts belong on the competitive or market dominant 
products list; and (6) practical considerations. Id. The Public 
Representative finds that the Postal Service adequately justifies its 
under seal submissions, has confidence in the Governors' Decision, and 
acknowledges that the pricing, cost coverage, and contribution comport 
with the provisions of title 39. Id. at 3-5. The Public Representative 
believes that the Postal Service persuasively reasons that the proposed 
contracts are functionally equivalent. Id. at 5-6. With respect to 
whether the product should be classified as market dominant or 
competitive, the Public Representative believes that Inbound Direct 
Entry contracts are hybrids \6\ because they include mostly competitive 
products but also include inbound First-Class Mail, a market dominant 
product. Id. at 6-10. Due to practical considerations and the fact that 
the Inbound Direct Entry contracts are predominantly comprised of 
competitive products, the Public Representative contends that 
classifying the product as competitive is appropriate. Id. at 10-12.
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    \5\ Public Representative Comments in Response to United States 
Postal Service Request to Add Inbound Direct Entry Contracts with 
Foreign Postal Administrations to the Competitive Products List, 
August 25, 2008 (Public Representative Comments).
    \6\ The term ``hybrid'' here means has characteristics of both 
market dominant and competitive products. See Public Representative 
Comments at 9.
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III. Commission Analysis

A. Statutory Requirements

    The statutory responsibility of the Commission, in this instance, 
is to assign new products 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 
proposals for compliance with the requirements of the Postal 
Accountability and Enhancement Act (PAEA) of 2006. For proposed 
competitive products, this includes a review of the provisions

[[Page 55423]]

applicable to rates for competitive products. 39 U.S.C. 3633.
    The Postal Service explains that adding the Inbound Direct Entry 
Contracts with Foreign Postal Administrations (MC2008-6) product will 
allow Foreign Postal Administrations the ability to prepare individual 
items from their customers for shipment, print USPS mail labels and 
permit imprints, package the items in receptacles, and dispatch these 
items to Postal Service incoming acceptance points. See Request, 
Attachment 2, at 2-3. The fees to be charged identified in the Postal 
Service's Request would cover the sack handling activities upon arrival 
of the dispatches from the foreign posts. Id. The Postal Service 
believes that adding these agreements to the competitive product list 
will improve the Postal Service's competitive posture and that the 
contracts cover their attributable costs, make a positive contribution 
to coverage of institutional costs, and do not result in subsidization 
of competitive products by market dominant products. Id. at 2.
    The Commission has reviewed the financial analyses provided under 
seal that accompanies the two agreements as well as the comments filed 
by interested persons. A preliminary review of the proposed Inbound 
Direct Entry Contract with Foreign China Post Group and the proposed 
Inbound Direct Entry Contract with Hong Kong Post indicate that they 
both comport with the provisions applicable to rates for competitive 
products. Based on the information provided, the Commission finds that 
the proposed contracts submitted should cover their individual 
attributable costs (39 U.S.C. 3633(a)(2)); each agreement should not 
lead to the subsidization of competitive products by market dominant 
products (39 U.S.C. 3633(a)(1)), and each should have a positive effect 
on competitive products' contribution to institutional costs (39 U.S.C. 
3633(a)(3)).
    In determining whether to assign the Inbound Direct Entry Contracts 
with Foreign Postal Administrations (MC2008-6) product to the market 
dominant product list or the competitive product list the Commission 
must consider whether

[T]he 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 without the risk of losing volume 
to private companies. The Postal Service states that large private 
consolidators and freight forwarders also may offer international 
shipping arrangements whereby they provide inbound direct entry 
services under similar conditions using their own networks or the 
Postal Service's domestic mail network for domestic delivery. Request, 
Attachment 2, at 3-4. The Postal Service also contends that the Postal 
Service may not decrease quality or output without risking the loss of 
business to competitors that offer similar expedited delivery services. 
Id. at 4. The Postal Service believes the classification will have 
little, if any, impact upon small business concerns, and it is unaware 
of any small businesses that could offer comparable services. Id. 
Finally, it states that it does not have any data on whether the users/
contract partners prefer to have the contracts placed on either the 
list of competitive or market dominant products. Id. at 6.
    No commenter opposes the proposed regulatory classification of the 
Inbound Direct Entry Contracts with Foreign Postal Administrations 
(MC2008-6) as competitive and no late-filed comments were received,\7\ 
although the Public Representative does raise an issue with respect to 
the proper classification of the contracts. Having considered the 
statutory requirements, the argument put forth by the Postal Service, 
and the public comments, the Commission finds that the contracts are 
appropriately classified and should be added to the list of competitive 
products. The product/contracts are for the provision of the service of 
accepting sacks of certain types of mail and entering the parcels 
contained in the sacks into the domestic mailstream at published 
domestic rates. See Request at 5. For the provision of these services, 
the Postal Service charges a sack handling fee, regardless of the 
actual type of mail that is contained in the sacks. Since the types of 
mail contained in the sacks do not receive discounted postage, the 
Commission does not view these contracts as ``hybrid'' products.\8\
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    \7\ See Public Representative Comments at 2.
    \8\ This finding is preliminary and does not preclude the 
Commission from revisiting this issue at a future date if 
circumstances warrant. See 39 U.S.C. 3642.
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B. Substantially Equivalent Agreements

    The Postal Service has filed two agreements with foreign postal 
administrations that it believes are substantially similar, and 
accordingly should be grouped under one product. Request at 6. It 
argues these contracts share the same cost and market characteristics; 
in particular, they both cover the same underlying services and similar 
preparation requirements. Id. at 5-6.
    The Postal Service also identifies differences between the two 
proposed new contracts. Id. It notes the following differences: (1) 
Different account types are authorized in order to make payments, and 
(2) different dispute resolution procedures are allowed.
    The Commission has reviewed the contracts in Docket Nos. CP2008-14 
and CP2008-15 and finds those agreements to be substantially equivalent 
in all pertinent respects. The contracts will be classified as one 
product within 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.

C. Updating the Mail Classification Schedule

    The agreements contain provisions for early termination and 
automatic renewal. The Postal Service shall promptly notify the 
Commission of an early termination no later than the actual termination 
date. The Commission then will remove the contract 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 to its occurrence. Otherwise, the 
Commission will assume that the contract has lapsed and remove the 
agreement from the Mail Classification Schedule without notice.

IV. Ordering Paragraphs

    It is Ordered:
    1. The China Post Group contract submitted in Docket No. CP2008-14 
and the Hong Kong Post contract submitted in Docket No. CP2008-15 will 
be added to the competitive product list as one product under 
Negotiated Service Agreements as Inbound Direct Entry

[[Page 55424]]

Contracts with Foreign Postal Administrations (MC2008-6).
    2. The Postal Service is directed to file redacted versions of the 
certifications for the above-captioned cases as discussed in the body 
of this order.
    3. The Secretary shall arrange for publication of this Order in the 
Federal Register.

    Issued September 4, 2008.
    By the Commission.

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:

PART 3020--PRODUCT LISTS

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. Revise Appendix A to subpart A of part 3020 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
Negotiated Service Agreements
    HSBC North America Holdings Inc. Negotiated Service Agreement
    Bookspan Negotiated Service Agreement
    Bank of America Corporation Negotiated Service Agreement
    The Bradford Group Negotiated Service Agreement
Market Dominant Product Descriptions
First-Class Mail
[Reserved for Class Description]
    Single-Piece Letters/Postcards
    [Reserved for Product Description]
    Bulk Letters/Postcards
    [Reserved for Product Description]
    Flats
    [Reserved for Product Description]
    Parcels
    [Reserved for Product Description]
    Outbound Single-Piece First-Class Mail International
    [Reserved for Product Description]
    Inbound Single-Piece First-Class Mail International
    [Reserved for Product Description]
Standard Mail (Regular and Nonprofit)
[Reserved for Class Description]
    High Density and Saturation Letters
    [Reserved for Product Description]
    High Density and Saturation Flats/Parcels
    [Reserved for Product Description]
    Carrier Route
    [Reserved for Product Description]
    Letters
    [Reserved for Product Description]
    Flats
    [Reserved for Product Description]
    Not Flat-Machinables (NFMs)/Parcels
    [Reserved for Product Description]
Periodicals
[Reserved for Class Description]
    Within County Periodicals
    [Reserved for Product Description]
    Outside County Periodicals
    [Reserved for Product Description]
Package Services
[Reserved for Class Description]
    Single-Piece Parcel Post
    [Reserved for Product Description]
    Inbound Surface Parcel Post (at UPU rates)
    [Reserved for Product Description]
    Bound Printed Matter Flats
    [Reserved for Product Description]
    Bound Printed Matter Parcels
    [Reserved for Product Description]
    Media Mail/Library Mail
    [Reserved for Product Description]
Special Services
[Reserved for Class Description]
    Ancillary Services
    [Reserved for Product Description]
    Address Correction Service
    [Reserved for Product Description]
    Applications and Mailing Permits
    [Reserved for Product Description]
    Business Reply Mail
    [Reserved for Product Description]
    Bulk Parcel Return Service
    [Reserved for Product Description]
    Certified Mail
    [Reserved for Product Description]
    Certificate of Mailing
    [Reserved for Product Description]
    Collect on Delivery
    [Reserved for Product Description]
    Delivery Confirmation
    [Reserved for Product Description]
    Insurance
    [Reserved for Product Description]
    Merchandise Return Service
    [Reserved for Product Description]
    Parcel Airlift (PAL)
    [Reserved for Product Description]
    Registered Mail
    [Reserved for Product Description]
    Return Receipt
    [Reserved for Product Description]
    Return Receipt for Merchandise
    [Reserved for Product Description]
    Restricted Delivery
    [Reserved for Product Description]
    Shipper-Paid Forwarding
    [Reserved for Product Description]
    Signature Confirmation
    [Reserved for Product Description]
    Special Handling
    [Reserved for Product Description]
    Stamped Envelopes
    [Reserved for Product Description]
    Stamped Cards
    [Reserved for Product Description]
    Premium Stamped Stationery
    [Reserved for Product Description]
    Premium Stamped Cards
    [Reserved for Product Description]
    International Ancillary Services
    [Reserved for Product Description]
    International Certificate of Mailing
    [Reserved for Product Description]
    International Registered Mail
    [Reserved for Product Description]
    International Return Receipt
    [Reserved for Product Description]
    International Restricted Delivery
    [Reserved for Product Description]
    Address List Services
    [Reserved for Product Description]
    Caller Service
    [Reserved for Product Description]
    Change-of-Address Credit Card Authentication
    [Reserved for Product Description]
    Confirm
    [Reserved for Product Description]
    International Reply Coupon Service
    [Reserved for Product Description]
    International Business Reply Mail Service
    [Reserved for Product Description]
    Money Orders
    [Reserved for Product Description]
    Post Office Box Service
    [Reserved for Product Description]
Negotiated Service Agreements
[Reserved for Class Description]
    HSBC North America Holdings Inc. Negotiated Service Agreement
    [Reserved for Product Description]
    Bookspan Negotiated Service Agreement
    [Reserved for Product Description]
    Bank of America Corporation Negotiated Service Agreement
    The Bradford Group Negotiated Service Agreement

Part B--Competitive Products

Competitive Product List

Express Mail
    Express Mail
    Outbound International Expedited Services
    Inbound International Expedited Services
    Inbound International Expedited Services 1 (CP2008-7)

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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
Special Services
    Premium Forwarding Service
Negotiated Service Agreements
    Domestic
    Express Mail Contract 1 (MC2008-5)
    Outbound International
    Global Expedited Package Services (GEPS) Contracts
    GEPS 1 (CP2008-5, CP2008-11, CP2008-12, and CP2008-13)
    Global Plus Contracts
    Global Plus 1 (CP2008-9 and CP2008-10)
    Inbound Direct Entry Contracts with Foreign Postal 
Administrations (MC2008-6)
Competitive Product Descriptions
    Express Mail
    [Reserved for Group Description]
    Express Mail
    [Reserved for Product Description]
    Outbound International Expedited Services
    [Reserved for Product Description]
    Inbound International Expedited Services
    [Reserved for Product Description]
    Priority
    [Reserved for Product Description]
    Priority Mail
    [Reserved for Product Description]
    Outbound Priority Mail International
    [Reserved for Product Description]
    Inbound Air Parcel Post
    [Reserved for Product Description]
    Parcel Select
    [Reserved for Group Description]
    Parcel Return Service
    [Reserved for Group Description]
    International
    [Reserved for Group Description]
    International Priority Airlift (IPA)
    [Reserved for Product Description]
    International Surface Airlift (ISAL)
    [Reserved for Product Description]
    International Direct Sacks--M-Bags
    [Reserved for Product Description]
    Global Customized Shipping Services
    [Reserved for Product Description]
    International Money Transfer Service
    [Reserved for Product Description]
    Inbound Surface Parcel Post (at non-UPU rates)
    [Reserved for Product Description]
    International Ancillary Services
    [Reserved for Product Description]
    International Certificate of Mailing
    [Reserved for Product Description]
    International Registered Mail
    [Reserved for Product Description]
    International Return Receipt
    [Reserved for Product Description]
    International Restricted Delivery
    [Reserved for Product Description]
    International Insurance
    [Reserved for Product Description]
    Negotiated Service Agreements
    [Reserved for Group Description]
    Domestic
    [Reserved for Product Description]
    Outbound International
    [Reserved for Group Description]

Part C--Glossary of Terms and Conditions [Reserved]

Part D--Country Price Lists for International Mail [Reserved]

[FR Doc. E8-22328 Filed 9-23-08; 8:45 am]
BILLING CODE 7710-FW-P