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 Universal Postal Union (UPU). A chief United States policy goal has been to promote more openness and transparency in the UPU and to formalize participation of private-sector stakeholder organizations in UPU meetings. This goal was further advanced when several representatives of U.S. stakeholder associations, as members of the Advisory Group, attended the October 2002 sessions of the UPU Strategy Conference in Geneva and Council of Administration in Bern, and the April 2003 Postal Operations Council. The creation of a new private-sector Consultative Committee will be proposed for formal adoption at the next UPU Congress to be held in Bucharest, Romania, from September 15 to October 5, 2004. The Postal Service continued to play a leadership role in key UPU activities with the goal of improving postal security and the quality of international letter, parcel, and Express Mail services, as well as promoting standards, direct mail, and postal development in developing countries.

     The Postal Service also actively contributed to the work within the UPU Terminal Dues Action Group which has considered several proposals for the future terminal dues system to be adopted by the UPU Congress in Bucharest. Terminal dues are the payments made to a destination country for the cost of delivering international mail. As these costs have a direct influence on international postage rates paid by U.S. mailers, the Postal Service has worked together with the Department of State in consultation with U.S. stakeholders, to develop positions that will maintain universal mail service at affordable rates. The Terminal Dues Action Group finalized a pay-forperformance program which will link terminal dues to the quality of letter post service provided by industrialized countries beginning January 1, 2005. By introducing

incentives for good quality performance and penalties for poor performance, this program should lead to improved quality in industrialized countries that generate an estimated 80 percent of the world's international mail volumes.

     Extraterritorial offices of exchange (ETOEs) are facilities that a national postal operator establishes outside its country in the territory of another UPU member country. Nearly 20 postal operators have set up more than 100 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. U.S. policy regarding ETOEs is that they are strictly commercial entities and do not fulfill the universal service obligations of the UPU Convention when operating in a 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 mailstream under domestic rates and conditions, and not under UPU terminal dues. More than 20 other countries have now 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 by an independent consulting firm of 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 may charge domestic rates for international mail items from a domestic sender that have been posted abroad for delivery in the sender's country at lower UPU terminal dues rates. The report was finalized in 2003 and will be published on the Department of State's Web site.