Successes & Messes: Sending a strong message on trade

By combining a credible threat with a willingness to negotiate collaboratively, the Trump administration prompted global postal reforms.

By — on / International Negotiation

For years, Donald Trump has complained that the United States is getting a raw deal in international trade negotiations. As president, he has tried to improve U.S. trade partnerships in different ways, with mixed results: Trump withdrew the United States from the Trans-Pacific Partnership entirely, renegotiated changes to NAFTA with Canada and Mexico, imposed punitive tariffs on China that escalated into a trade war, and reached limited trade deals with countries such as India and Japan.

Recently, the Trump White House triggered an international negotiation that, though receiving little media attention, can be counted as one of its more successful trade initiatives: a deal to update the rates that countries pay to deliver one another’s mail. The story illustrates an effective use of one of Trump’s favorite negotiating tools— the threat.

Special delivery

In 1874, the Universal Postal Union (UPU) was established to help countries move mail and small packages seamlessly across the globe. Now part of the United Nations, the UPU sets “terminal dues”—the fees that its 192 member nations pay one another to deliver mail, according to Time magazine.

In 1969, UPU members agreed to a rate-setting formula that was based largely on nations’ level of economic development at the time. China received heavily subsidized international postage rates; the United States did not. That basic formula never changed, even as China grew into an economic powerhouse.

Today, Chinese companies typically pay less to mail small packages to the United States than American companies do to mail such packages within the states, according to Time. In 2016, under pressure from the Obama administration, the UPU approved a 20% increase in its terminal-dues formula, but it didn’t sufficiently address the rate imbalance. When Trump took office, the United States was effectively subsidizing the cost of delivering imports up to $500 million annually, according to the White House.

Cargo hold?

In October 2019, Trump threatened to withdraw the United States from the UPU in a year’s time if it didn’t address the rate imbalance to the White House’s satisfaction. That raised the prospect of a chaotic “postal Brexit” during the 2019 holiday season if U.S. stamps were no longer recognized abroad and the Trump administration needed to negotiate bilateral postal agreements with 192 nations.

Trump’s threat motivated the UPU to schedule a so-called Extraordinary Congress—emergency talks—for September 2019 during which members would negotiate a new rate system. The congress prepared to consider three proposals, Time reports. Option A wouldn’t fundamentally change the UPU’s rate formula but would allow rate increases—a nonstarter for the U.S. government. Option B would do away with the UPU’s terminal-dues system entirely and allow member nations to immediately begin setting their own shipping rates. Option C, a more gradual approach, would phase in increases to UPU terminal dues and give nations the option to self-declare rates between 2021 and 2025.

In a Financial Times editorial, White House trade adviser Peter Navarro wrote that the United States would accept Option B or C, but would withdraw from the UPU by October 17 if the UPU congress voted for Option A.

Inside the box

UPU negotiations kicked off in Geneva on September 24 with representatives of about 150 UPU member nations in attendance. They began by discussing the most drastic proposal, Option B. Despite U.S. support, it was voted down in a secret ballot due to the likely disruption caused by allowing all countries to immediately set their own postage rates.

The next day, the discussion turned to Option C and dragged on for several days. “There were moments when I really felt like things were falling apart,” UPU director-general Bishar Hussein later told the New York Times.

To try to get a handle on the unwieldy negotiations, Hussein convened a “convergence group” made up of representatives of 34 countries, including the United States and China, for two days of talks. Those meetings identified areas of disagreement as well as a “box of consensus,” according to Navarro, or what negotiation experts would call a zone of possible agreement (ZOPA)—the confines of a potential deal.

Stamp of approval

Ultimately, a majority of member nations voted to approve a more moderate version of Option C that was dubbed Option V, with V standing for victory.

Under the final deal, the small number of countries that import more than 75,000 metric tons of mail annually, including the United States, will be able to set self-declared rates for the distribution of foreign mail beginning in July 2020. Starting in January 2021, other high-volume importers will be allowed to choose between imposing their own rates or sticking with the status quo. In return for the ability to self-declare rates, countries will pay $40 million annually toward the UPU’s employee pension program and security systems aimed at reducing the shipping of illegal goods such as the drug fentanyl, according to the Times.

With the deal, the Trump administration achieved most of its goals in exchange for relatively minor concessions. The switch to self-declared rates was expected to reduce the financial burden on the United States Postal Service and private shipping companies such as UPS and FedEx. American manufacturers expressed hope that the new system will reduce the flow of counterfeit imports from China and elsewhere.

However, Navarro and many experts acknowledged that shipping costs would rise worldwide. “The end customer will definitely have to pay a higher price,” the UPU’s Hussein told reporters. In that sense, whether the V actually stands for victory may depend on who you are.

3 notes for writing new rules:

1. Combine threats with engagement.

A risky tactic, threats often diminish trust and inspire retaliation. Moreover, when you make a rash threat and then back away from it—as Trump has done often in his presidency—counterparts learn not to take you seriously. By contrast, Trump’s threat to exit the UPU was credible, and the White House referenced it frequently before and during the rate negotiations. If you decide a threat is warranted, make sure you’re prepared to follow through with it, and combine it with collaborative dealmaking.

2. Break talks down to size.

Multiparty negotiations can quickly become chaotic, so it’s smart to divide them into a smaller group or groups, perhaps with one representative from each faction. Another effective way of managing complex talks is to give negotiators several clearly labeled proposals to consider, as the UPU did. By gauging negotiators’ reactions to the different proposals, you can determine which one is most worth pursuing and negotiate from there.

3. Prepare to change with the times.

Like the UPU, many organizations resist diverging from the status quo. When we fail to adapt, inefficiency, accusations of unfairness, and conflict are likely. The time to prepare for change is when you first craft an agreement. Include clauses stipulating that you will revisit, and perhaps overhaul, the terms of your deal at regular intervals, factoring in economic, industry, and other changing conditions.

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