5. STATE DEPARTMENT COORDINATION
The Postal Service has continued to work in cooperation with the U.S. Department of State, which has had primary responsibility since October 1998 to formulate, coordinate, and oversee policy with respect to U.S. representation in the UPU. A chief policy goal of the Department of State has been to open the UPU to formalized participation of private-sector organizations, ranging from labor unions to philatelists and from direct mailers to express delivery companies. At its October 2001 session, the UPU Council of Administration accepted the recommendations of the High Level Group to permit private-sector members of the UPU Advisory Group to attend UPU council meetings, on an interim basis until the next UPU Congress in 2004 can formally approve the creation of a new Consultative Committee. Through its active participation on U.S. delegations to the High Level Group, the Postal Service played a key role in seeking the consensus support of other council members to accept the new open-door policy. The first opportunity to implement the policy was at the April 2002 meeting of the Postal Operations Council (POC), where Advisory Group members, including a U.S. private sector mail industry representative, participated in several meetings and offered opinions on a number of policy issues.

The Postal Service contributed actively to work within the UPU Terminal Dues Action Group (TDAG) to develop proposals for the industrialized country terminal dues system for the years 2004 and 2005. Terminal dues are the payments made to a destination country for the cost of delivering international mail. The 1999 Beijing Congress had approved a transitional two-tier terminal dues system, maintaining a flat rate per kilogram for developing countries and adopting a more cost-based system for industrialized countries for the years 2001 through 2003. The purpose of the April 2002 POC meeting was to decide the rates applicable for industrialized country mail exchanges for the years 2004 and 2005. As a result of the work of the TDAG and of the POC review process, the POC had to consider proposals ranging from those calling for moderate and gradual increases in rates to those calling for more substantial increases. The latter proposals would have required significant increases in international postage rates and would have had a negative impact on U.S. mailers. The Department of State led a consultation process with all stakeholders to develop the U.S. position on these proposals. The result was that the U.S. supported proposals calling for more moderate and gradual increases as the best way to continue moving toward a more cost based system for industrialized countries. The ultimate POC decisions, however, were to reject any increases in terminal dues rates for industrialized countries for the years 2004 and 2005, except for modest increases tied to quality of service performance beginning in 2005.

Extraterritorial Offices of Exchange (ETOEs) are facilities that a national postal operator establishes outside its country in the territory of another UPU member country. More than a dozen postal operators have set up some 60 to 70 such ETOEs around the world, with the largest concentration in the United States and Europe. Most ETOE operations are the result of postal operators' acquisitions or equity stakes in private commercial firms abroad. After consultation with the Department of State, the U.S. announced its policy regarding the terms for acceptance of ETOE traffic in the fall of 2001. ETOEs are strictly commercial entities and do not fulfill the universal service obligations of the UPU Convention in the foreign territory. Therefore, the traffic they generate abroad should be treated like any other traffic from commercial entities, that is, entered into the U.S. domestic mail stream under domestic rates and conditions, and not under UPU terminal dues. Several other countries announced similar policies. The Postal Service will continue to work with the Department of State to ensure that U.S. policy concerns are adequately addressed within the UPU regarding ETOE matters.

The Postal Service, Department of State, and Postal Rate Commission sponsored a joint study on the remail provisions of Article 43 of the UPU Convention and their effect on key U.S. stakeholders. Article 43 provides that a postal administration is not obliged to deliver mail items from a domestic sender that have been posted abroad for delivery in the sender's country at lower UPU terminal dues rates. An independent consultant firm completed an initial draft of the study in mid-2002. The final report is still under review and should be released after the three agencies have approved the final conclusions and distribution.