Express Delivery and the Postal Sector in the Context of Public Secto Anti-Competitive Practices
Battle Over U.S. Market, WALL ST. J., Mar.
Express Deliver y and the Postal Sector in the Context of Public Secto Anti-Competitive Practices
D. Daniel Sokol 0 1
0 This Article is brought to you for free and open access by Northwestern University School of Law Scholarly Commons. It has been accepted for inclusion in Northwestern Journal of International Law & Business by an authorized administrator of Northwestern University School of Law Scholarly Commons
1 Part of the Antitrust and Trade Regulation Commons , International Law Commons, and the
Follow this and additional works at: http://scholarlycommons.law.northwestern.edu/njilb International Trade Commons Recommended Citation
Express Delivery and the Postal Sector
in the Context of Public Sector
International trade plays an increasingly important role in global
economics. One growing part of the international economy has been express
delivery services. Because various governments that maintain public sector
postal monopolies have erected barriers to entry to impede its growth,
express delivery has become an important battleground within the realm of
trade. International trade, which initially consisted mainly of the trade of
goods, is now increasingly focusing on services. This article focuses on the
problem of a particular type of service and the barriers on this service
(express delivery) that countries place upon it. Not surprisingly, those
countries that are the most competitive and have the fewest barriers to trade and
problems of monopolization (i.e., those countries that suffer least from
monopolistic behavior in their express delivery market) have the most effective
and competitive distribution systems.' Section II of this article explains the
importance of express delivery to the international economic system.
Section III offers examples of how countries erect public sector barriers to
entry in this field to limit the ability of private sector entrants to compete.
Section IV examines how privatization in conjunction with liberalization
will improve opportunities for entrants to provide express delivery services.
Section V explains how current legal mechanisms could promote greater
competition on the issue of public sector barriers to entry in the express
delivery segment of the postal services sector. Section VI concludes by
advo* B.A. Amherst College; MSt. University of Oxford; J.D. University of Chicago;
Associate, Steel Hector & Davis LLP. The views expressed in this article are those of the author
alone and do not represent those of the firm or its clients.
1Office of the United States Trade Representative, Express Delivery Services, available
at http://www.ustr.gov/sectors/services/express.html (n.d).
cating increased global cooperation for the elimination of entry barriers.
Many countries have placed anticompetitive barriers for entrants in
their respective express delivery markets, in many cases to protect such
countries' local monopolies. 2 Consumers are the ultimate losers of these
policies, because they must pay higher prices for poor service quality. 3
Competition stimulates productive efficiency. Companies that face falling
costs in production (due to competition and the corresponding efficiency
gains) respond by reducing price and increasing production.4 With all other
things being equal, such gains in efficiency lead to greater consumer
welfare. Continuing barriers, therefore, threaten the global economy by
reducing efficiency gains and the ability to maintain effective supply chains of
the delivery of goods from one country to another.
II. NATURE OF EXPRESS DELIVERY SERVICES
Express delivery is a method of communication and transportation that
serves to get items from door to door within a definite period of time. The
key element to this service is the time sensitivity of the packages, often next
day service. The best known companies in this field are United Parcel
Service ("UPS"), Federal Express ("FedEx") and DHL. Given the rapidly
globalizing economy that utilizes a just-in-time production schedule,
express delivery of parts has become essential to global operations of
businesses. Further, express delivery offers faster delivery of business
documents, thereby promoting more rapid transactions for services. It also
allows small and medium-sized businesses to compete in the global
marketplace by giving them access to an international distribution system.
Express delivery requires a robust service system that involves air and
ground transport, distribution centers, delivery, and the use of advanced
technologies in all facets of its business to track items and provide
information. Each of these segments is a potential bottleneck that would slow
express delivery services if governments were to erect barriers to competition
in order to protect their domestic monopolies, the domestic postal service
providers.5 Such bottlenecks exist when monopoly postal operators
crosssubsidize their competitive express delivery services via their monopoly
services.6 Costs and delays associated with cross border parcel delivery,
and unequal treatment toward postal incumbents are other methods by
65SOeEeCinDf,raINSTeEcRtiNoAnTIlOlIN.AL PARCEL DELIVERY, OCDE/GD(
) 151, 12 (1997).
which governments stymie competition in this sector, as Section III
These anti-competitive barriers keep the price of express delivery and
mail services artificially high. Moreover, there is a link between mail
service generally and express delivery service. A lack of competition in mail
service leads to a decreased mail market, which reduces the size of the
express delivery services market as well. Put differently, "the regulatory
situation in countries A and B does not only affect domestic parcel rates,
but it also exerts an impact on the entire price for international transport and
delivery."8 In any one country, a lack of competition in general mail
service has a ripple effect on the competitiveness of that country's express
delivery service, which, in turn, has a ripple effect on other countries' mail
service (including express delivery services). These pernicious, unequal
practices serve to destroy a part of the international free market system and
thus to limit global consumer welfare. It is because of this linkage that a
global solution to anti-competitive concerns in express delivery is
neededone that also addresses the problem of state owned postal monopolies.
Express delivery service is a growing part of the global economy, in
part because express delivery companies have responded to the
consequences of public monopolies' increased transaction costs due to
inefficiencies in delivering the service and insufficient customer awareness. Express
delivery service accounts for twelve percent of the world market in postal
services and market share is growing by twenty percent a year. 9 More
generally, air cargo (including cargo for express delivery traffic) transports
thirty-seven percent of the goods in the world. Once commodities such as
oil and agricultural products are excluded from this figure, nearly half of all
global trade by value is transported by air express and cargo transportation.
The importance of air transport and express delivery will only increase over
time. Currently cargo and express traffic is growing at six to seven percent
a year while passenger traffic is only increasing at between three and four
percent a year.'° The growth of air cargo will surpass that of air passenger
transportation over the next twenty years."
The growth in express delivery is key because as it grows, so does the
international economy. Thus, barriers to competitive entry in this sector
can have a deleterious effect upon the global economy. As the
Organiza7Id. at 40. This occurs because the price charged might be too high to use the service
and/or because the low savings in time in providing the service when there is lack of
competition does not encourage an increase in demand.
9Joan M. Feldman, Cargo MultilateralStuck in Neutral, AIR TRANSPORT WORLD, Sept.
1, 2001, at 93.
1oId. at 91 (quoting Brian Campbell, president of Campbell-Hill).
"197 Shapes Up as Year ofRapidGrowth, AIR COMMERCE, Jan 27, 1997, at 10.
tion for Economic Co-operation and Development ("OECD") has noted,
"Costs and delays associated with cross-border parcel delivery can be a
major disincentive for consumers wanting to make purchases from other
countries."' 2 The high costs are particularly apparent since the rates for
international service are significantly higher than domestic rates of a
comparable distance.13 Given the growing cost that these barriers and higher
costs create, a fundamental reworking of the entire postal system is needed
to ensure that express delivery services thrive.
III. CURRENT PROBLEMS
Basic economic theory teaches that free trade increases consumer
welfare.14 Though trade and liberalization may not directly lead to growth,
empirical research shows that there is a positive correlation between per
capita income and the share of investment in Gross Domestic Product
("GDP"). Indirectly, therefore, trade stimulates growth through
investment.1 5 Free trade and the reduction of barriers improve economic
performance because they force competition in domestic markets.' 6 As
Douglas Irwin notes:
This competition diminishes the market power of domestic firms and leads to a
more efficient economic outcome. This benefit does not arise because foreign
competition changes a domestic firm's costs through changes in the scale of
output... [r]ather, it comes through a change in the pricing behavior of
imperfectly competitive domestic firms. Firms with market power tend to restrict
output and raise prices, thereby harming consumers while increasing their own
duct andWariethfoinrcteerdnatotiobneahlavceommpoerteiticoonm, pfeirtmitisvecalyn.n'o7t get away with such
2OECD, supra note 6, at 56.
14See, e.g., JOHN STUART MILL, PRINCIPLES OF POLITICAL ECONOMY 271 (Appleton ed.
1864); ADAM SMITH, AN INQUIRY INTO THE NATURE AND CAUSES OF THE WEALTH OF
NATIONS 473 (Oxford ed. 1976); Stephen S. Golub & Chang-Tai Hsieh, ClassicalRicardian
Theory of ComparativeAdvantage Revisited, 8 REV. INT'L. ECON. 221 (2000); Paul
Krugman, Growing World Trade: Causes and Consequences, 1 BROOKINGS PAPERS ON ECON.
ACTIVITY 327, 330 (1995).
15See Ross Levine & David Renelt, A Sensitivity Analysis of Cross-CountryGrowth
Regressions,82 AMER. ECON. REV. 942 (1992).
16Recent research also shows a positive correlation between the growth of exports and
economic growth. See, e.g., J. DIRCK STRYKER & SELINA PANDOLFI, IMPACT OF
OUTWARDLOOKING, MARKET-ORIENTED POLICY REFORM ON ECONOMIC GROWTH AND POVERTY
(Harvard Institute for International Development ed. 1997). This correlation, however, is
indirect, since trade stimulates growth through investment. See Levine & Renelt, supranote 15,
at 942 (identifying a positive, robust correlation between growth and the share of investment
in GDP, and between the investment share and the ratio of international trade to GDP).
17DOUGLAS IRWIN, FREE TRADE UNDER FIRE 33 (2002).
Trade forces firms to become more efficient in order to deal with
competitors. If such firms do not, they will lose out on potential profits and if run
very poorly, even fail. Likewise, where there are barriers to trade, interest
groups exact rents that lower consumer welfare. Where such barriers exist,
the incentive to offer better service is lost.
Often, it is a state entity that holds a key part of the market and uses it
to exclude rivals.1 8 It is not surprising, therefore, that governments have
created a number of barriers for express delivery services. These barriers
are manifested in a number of different ways, as described in the following
A. Cross-subsidization of Express Delivery Services by Suppliers Granted
Special or Exclusive Rights in the Regulated Postal Sector
The United States Trade Representative ("USTR") has noted
continuing problems regarding the European postal sector, stating that "the
prevalence of postal monopolies in many European Union countries restricts
[express service providers'] market access and subjects them to unequal
conditions of competition."' 9 The USTR report notes in particular
problems in Belgium, where cross-subsidization may be an issue, as well as
Germany where Deutsche Post may have engaged in predatory pricing and
cross-subsidization. Further the USTR report notes that many observers
believe that the German government worked to delay the EU decision on
whether Deutsche Post cross-subsidized and used other methods to forestall
competition. 20 The Deutsche Post case offers an interesting example of a
cross-subsidization problem that express delivery providers face. The E.U.
first received complaints regarding Deutsche Post in 1994 regarding
anticompetitive cross-subsidization and other practices. However, the European
Commission ("EC") waited until July 1999 before it opened a full
investigation into the matter. They claimed that Deutsche Post stalled in providing
necessary data for the investigation. 2 1 A Deutsche Post spokesman as much
acsurardedmi(t1te9d90t-h1a9t9t5h)e,reGwerams acnrolsasw-ssuobnsidt hizeastiuobnjebcuttwthearet aatmtbhiegutiomues.
i2t2ocDeutsche Post has also been fined $21.6 million for offering loyalty rebates
to mail order customers; the European Commission stated that such rebates
18Eleanor M. Fox, Toward WorldAntitrust and Market Access, 91 AM. J. INT'L L. 1, 22
19UNITED STATES TRADE REPRESENTATIVE, 2002 REPORT ON FOREIGN TRADE BARRIERS
1272[hiedr.einafter USTR REPORT].
21 James Kanter, Deutsche Post May Face Record EUR800 Mln-Plus EU Penalty, Dow
JONES INT'L NEWS,Jan. 28, 2002.
22Philip Shishkin & Rick Brooks, Deutsche Post to Split Up in Settlement That May Fan
Northwestern Journal of
International Law & Business 23:353 (2003)
prevented other companies from entering into that market.2 3 The EC also
fined Deutsche Post for disrupting international mail bound for Germany.
However, the $860 fine was only symbolic, because German courts
condoned the practice.24 Recently, the EC ordered Deutsche Post to repay E572
million for state aid that the German government gave it in violation of E.U.
Article 87.25 The aid was used for cross-subsidization to undercut the
prices of rivals in the express delivery market. 26 Deutsche Post also may
have used its cash flow from its regulated monopoly in Germany to launch
into unregulated competitive business. 27 This is cross-subsidization, under
which Deutsche Post built a one stop shopping standard, express delivery
service, freight and even a financing arm with its revenues from its
monopoly service.2 8
In the Belgian case, the European Commission decided that the
Belgian postal operator De Post la Poste ("La Poste") abused its dominant
position by making a preferential tariff in the general letter mail service subject
to the acceptance of a supplementary contract covering a new
business-tobusiness ("B2B") mail service. This B2B service competed with the
"document exchange" B2B service provided in Belgium by Hays, a private
undertaking established in the United Kingdom. As La Poste exploited the
financial resources of the monopoly it enjoys in general letter mail in order
to leverage its dominant position there into the separate and dismtinilclitomn.a2r9ket
for B2B services, the Commission has imposed a fine of E 2.5
In Canada, the government has the ability to give direct subsidies to its
postal arm, Canada Post. The government pays for Canada Post
publications for revenue and includes Canada Post's employees as part of the
federal government's pension plan. By this measure, the federal government
subsidizes the labor costs for Canada Post. 30 There is no corresponding
payment by the Canadian government of pension plans for private
24 Bruce Barnard, EU Condemns DeutschePostPractices,J. COM., July 26, 2001.
25 Case COMP/35.141, Deutsche Post AG, 2001 O.J. (L125)
27 Neil Boudette, PrivateCourier: When Germans Open the Mail, They Get Message on
Capitalism,WALL ST. J., Nov. 20, 2000, at Al.
28 This practice is certainly not unique to Deutsche Post. Rather, it is inherent to
stateowned monopoly postal services. For example, the Dutch Post Office (KPN) used its
monopoly profits to cross-subsidize its acquisition of the express delivery carrier TNT for over
$1.5 billion. OECD, sDueprPaonsto-tLea6P,oastte1,7.2002 O.J. (L 61).
239oJC. OGMrePg/3S7i.d8a5k9,& Daniel F. Spulber, Monopoly and Mandate of CanadaPost, 14 YALE
J. ON REG. 1, 10 (1997).
tors of Canada Post.
C. Discriminatory Treatment for Foreign Suppliers with Respect to Size
and Weight of Packages
Size and weight restrictions prolong postal monopolies so as to shelter
incumbents from competition from express delivery and other services. A
proposed law by the Chinese government would place weight and rate
limitations on packages that could be delivered by foreign express delivery
companies. 3' Any shipment under 500 grams would be restricted to the
Chinese postal monopoly, except when such firms charge more than the
China Post.32 Such limitations would narrow the services express delivery
companies could offer consumers and would grant an anti-competitive
monopoly to the Chinese Post. In a market estimated to be worth $1.8 billion
annually and which has gro w33n at a rate of 30 percent in recent years, such a
proposed law is significant.
A similar case of weight restrictions can be found in Mexico. The
Mexican post office ("Sepomex") had losses of $200 million in 2000 and
$600 million in 2001. Rather than focus on improving the efficiency and
quality of Sepomex, the Mexican government is in the process of limiting
competition by express delivery service providers. A new proposal sent to
the Mexican Chamber of Deputies would require all packages weighing 350
grams or less to be sent exclusively through Sepomex except in cases where
a private firm offers extra services such as postal tracking, immediate
delivery or digital signatures, or when the price for services is at least double
those of Sepomex. 34 Currently,, over half of Mexico's corporate mail is
delivered by private companies.
D. Unfair Restrictions on Flight Times and Landing Slots
Trade negotiations between the United States and Japan have reduced
some of the more onerous barriers to entry for express delivery companies
operating in Japan. In January 1998, Japan and the United States reached
an aviation agreement that liberalized regulations going forward, and
included further provisions to take effect automatically after four years if, by
that time, a fully liberalized agreement was not reached. The agreement
lifted access restrictions on incumbent carriers for all U.S.-Japan services,
31 Daniel Pruzin, China Comes Under Fire at WTO overt Banking, Insurance, Express
Delivery Commitments, INT'L TRADE REP., June 13, 2002.
32Keith Wallis, Rules Deliver Blow to Leading Couriers,HONG KONG MAIL, Apr. 18,
allowing operations from any point in the United States to any point in
Japan. Further, the agreement created opportunities for non-incumbent
carriers (UPS and Polar Air Cargo) to transport cargo to destinations beyond
Japan. Within four years, an additional all cargo carrier will be given entry
access to the Japanese market. 36 During this interim period, however, all
other foreign express delivery firms have been denied equal landing rights
The European Commission recently found that the E9 billion subsidy
to Poste Italiane by the Italian government was not illegal state aid, since
the money was in part a compensation for Poste Italiane's historically low
efficiency. 37 Nevertheless, such behavior is anti-competitive because the
government has chosen to bail out its national favorite mail carrier rather
than to let the market punish inefficient operators for their low quality
F. Mandatory Requirements for Partnerships with Local Firms as a
Condition for Establishment
In some cases, mandatory requirements for partnerships means local
equity requirements in excess of 49 percent for a joint venture. In some
countries, foreign companies may only own as little as 10 percent of a joint
venture. This prevents foreign private companies from exercising the
control necessary to execute beneficial decisions, and therefore results in
discriminatory treatment. 38 For example, China prohibits express delivery
companies from operating independently. Instead, they must enter into a
joint venture with a Chinese company, in which the entrant cannot own a
majority stake until the end of 2006. 39 Foreign express delivery companies
doing business in China must also wait one year before establishing branch
offices and five years before entering into a second joint venture. These
limitations constrain the ability of foreign express delivery companies to
develop on a national basis. This is not a surprising policy approach since
sometimes countries replace tariffs with non-tariff barriers to impede trade
and competition. Moreover, these governments place additional limits on
investing in preexisting domestic enterprises.4 °
Since the summer of 2001, the Finnish Competition Authority has been
analyzing a case concerning the lack of transparency of tariffs for hybrid
mail applied by the Finnish Post Office.4 1 A lack of transparency in the
rules increases the cost of doing business because it raises the cost of
uncertainty in the business decision equation.
A current UPS complaint against Canada Post reveals a number of
areas in which the Canadian government has offered preferential treatment to
Canada Post.42 The government has exempted Canada Post from charging
recipients of packages imported through the postal system a 7 percent tax
on goods and services on the CDN$5 handling fee. The government has
also exempted Canada Post from interest and penalties for the late payment
or non-payment of duties.43
I. Discriminatory Tax Treatment for Foreign Suppliers
Unlike competitors that must pay taxes in the countries in which they
operate, state owned monopolies are often exempted from such treatment.
For example, until 1994, Canada Post paid no federal income taxes even for
years when the company earned positive net income.44 The state postal
companies may also gain exemption from Value Added Tax ("VAT"),
which can raise the price for express delivery competitors by up to 15
percent.45 In Canada, the postal service is free from many Customs'
Sufferance Warehouse regulations which apply to its express delivery
competitors. Customer broker license bonds, temporary importation bonds,
air carrier operation bonds, freight forwarder operation bonds, highway
car40 William E. Kovacic, InstitutionalFoundationsForEconomic Legal Reform In
Transition Economies: The Case of Competition Policy and Antitrust Enforcement, 77 CHI.-KENT
L. REv. 265, 302 (2001).
41See 2001 Press Pack, Pending Internal Market/Competition Cases and Complaints in
the PostalSector, at http://www.freefairpost.com/others/pending.htm#finlan (n.d.).
42 Amended Statement of Claim of Under the Arbitration Rules of the United Nations
Commission on International Trade Law and the North American Free Trade Agreement,
UPS v. Canada [hereinafter UPS v. Canada], at 4, available at http://www.dfaitmaeci.gc.ca/
44 Sidak & Spulber, supra note 30, at 9.
45 OECD, supranote 6, at 39.
rier bonds, and sufferance warehouse bonds are among them.46 By
exempting Canada Post from these bonding requirements, the government imposes
taxation by regulation on Canada Post's competitors and raises their cost of
J. Denial of Access to Competitors
At present the Finnish Competition Authority is investigating alleged
discrimination of access for mail delivery and packages to operators other
tthheannaFtiinonniaslh aPuothsto.ritTyhibsycaurcroemntpientviteosrtiogfatFioinnnifsohlloPwosst.a47complaint filed with
K. Lack of Consumer Choice in Selection of Delivery Services/
Reimposition of Monopoly
A proposed bill in Brazil to reorganize the postal service would create
a monopoly in the delivery of certain types of mail that are not subject to
current regulation, including express delivery packages.48 A monopoly by
the postal service would deny consumers the option to choose their own
provider of these services.
L. Restrictions on the Geographic Scope of Operations of an Express
Service Provider within a Member's Territory
Entry into the Chinese market has been frustrated in the express
delivery sector. China Post's express mail service has seen its market share
decline in the $1.5 billion Chinese market from 97 percent in 1995 to 40
percent in 2001, because of increased competition. 49 In response, the
Chinese government on December 24, 2001 moved to implement a policy that
would require licensed express delivery companies to file "entrustment"
applications with the postal service in each province where the carriers
operate. This has the potential to allow the postal authorities, under their
broad discretionary powers, to reject or delay applications for its direct
M. Inability to Expedite Delivery Service through Adoption of Rapid
Release Customs Procedures for Express Consignments for which
Immediate or Expedited Release is Requested
Brazil refuses the use of electronically produced airway bills. This has
the effect of preventing the use of certain types of software for express
delivery and slows the customs process for those shipments that are known as
"just in time."5' Unfair and slow customs services also add costs to express
delivery providers. Because items are subject to import duties, custom
clearance procedures must be applied. This creates time delays for the
delivery of a package. 2
On July 30, 2001, the European Community sent a "reasoned opinion"
to the Belgian authorities for incorrectly implementing EC Directive
97/67/EC ("Postal Directive"). Belgium maintains a system where the
national postal regulator is not independent. The opinion responds to the fact
that Belgium's Minister for Postal Services performs both managerial and
regulatory functions, creating a conflict of interest that is against the
provisions in the Postal Directive. 3
Examples of restraints on competition and trade such as those
discussed above have the effect of raising the barriers to entry for private
foreign firms. In this context, competition between state-owned and private
firms is weak. Thus, the benefits of competition which might have flowed
to the consumer are sacrificed and shipment costs remain unnecessarily
high. As the OECD notes:
[S]hipping a 3 1/2 KG parcel with the United States Postal System from New
York to London is more than two times as expensive as a shipment from New
York to Los Angeles, although the distance is similar. In some cases
international shipments can be about four times as expensive as domestic delivery
The OECD breaks down the types of charges that go into the price increases
"' USTR, 2002 National Trade Estimates Report on Foreign Trade Barriers,at 18, at
52 OECD, supra note 6, at 50.
53See 2001 Press Pack, supra note 41.
54OECD, supra note 6, at 11.
built into each step of the process. In one OECD example, a shirt bought in
New York that weighs 3 2 kilograms and has a retail value of $100 is
shipped from a point in the United States that lies precisely between Paris
and Anchorage Alaska. The OECD explains:
If delivered to Anchorage, Alaska, the UPS transportation costs, including
insurance, are $31.50. The rate to Paris, including brokerage fees and insurance,
is $77.50 to which are added 13 per cent customs duty, 20 per cent VAT, in
addition to the customs duty and VAT charged in transportation costs. The
door-to-door shipping cost to the consumer is $93 from New York to Paris,
compared with $31.50 from New York to Anchorage. The total cost of this
purchase, including transport, is $139.75 in Anchorage, and $227.58 in Paris.
pTohpeuslahtiepdpitnhgandiPstaarnisc.e5s5 are roughly equivalent and Anchorage is less densely
Given that the price difference is approximately $90 between the two
destinations, one realizes the enormous cost that trade barriers place on the
Equally significant is the fact that postal monopolies have entered into
the express delivery sector and have financed these acquisitions through
their monopoly rents. As the European Commission has noted:
We are faced with a situation where the bottleneck position of the postal
incumbents for letter mail protected by a legal monopoly continues for the time
being while we face at the same time announced intentions by the same actors
to dominate the international mail / parcel / logistics markets. Inevitably, this
combination of legal monopoly and strategic expansion implies a high risk for
the consumer, as any lack of competition combined with market dominance
does. It shows the importance which competition law must take in the current
It is because of cross-subsidization by monopoly providers that particular
urgency is required to aggressively pursue a solution that will lead to the
elimination of barriers to trade and open up competition by eliminating laws
and regulations that prevent companies from competing on equal footing.
The U.S. experience in admitting foreign competition to its express
delivery markets in the early 1980s illustrates the connection between
increased competition and greater consumer welfare in this business sector.
American regulators understood that competition in express delivery
services would yield greater economic benefits. The Civil Aeronautics Board
"Id. at 19.
56 Hans Ungerer, EuropeanCommission, PostalServices, Liberalisation,and EU
CompetitionLaw: The Next Phase,Developing Competition(June 11, 1999), at http://
in its Notice of Proposed Rulemaking noted that,"[c]ompetition, free of
government intervention, is usually the best way to optimize consumer
benefits. The greater the number of suppliers, the greater the chances that
all segments of the public will have their demands satisfied." 57 The notion
that greater competition would lead to more efficient outcomes and greater
consumer welfare was embodied in the Final Rule. In granting foreign air
freight service providers access to the U.S. market, the Final Rule noted that
such changes had the ability to "promote competition among indirect air
carriers, increase business on U.S. direct carriers, provide consumers with
more price/service options, and reaffirn
competition in the air transport industry. th58e U.S. commitment to promote
Traditional government regulation is not an effective way to channel
market forces. Government regulators operate in an environment of
informational asymmetry. They lack the benefit of data on the operations and
expenses of the companies they regulate. The companies have no incentive
to offer such information to regulators. In fact, they have an incentive not
to turn over such information or, at the very least, an incentive to provide
less than fully accurate information. These companies can leverage the
information asymmetry to generate greater profits than they would be able to
otherwise achieve in a competitive market. The costs of regulation can be
substantial. In the United States, one study estimates that the cost of all
regulation in 1991 was $542 billion, which translates to 9.5 percent of the
GDP 9 Similarly, the cost savings from deregulation can be significant.
According to another study, aggregate gains from deregulation in the
United States amounted to between $35 and $46 billion per year. 60 These
gains through deregulation are not limited to the United States.
Deregulation in the developing world can also lead to savings. Wherever such
studies have been performed, savings have amounted to at least a few
percentage points of the GDP.6 1 Not surprisingly, regulatory reform has led
to the promotion of greater competition in industry.62
One element of greater deregulation is privatization. Privatization
helps to create incentives for more efficient economic behavior. It reduces
governmental interference in economic activity, introduces competition to
consumers and exposes formerly state-owned industries to competition.6 3
Regulators may want to privatize because state-owned industries are not
commercially viable. Such companies' financing poses a problem for the
governments concerned, specifically the ability to maximize the revenues
that governments can extract from the sale of such enterprises. Yet, in
some countries, the impulse to pawn off market share in faltering industries
on new entrants is tempered by the state's reluctance to surrender control
over the outflow of economic benefits for political reasons. 64 The
possibility of market distortion through "rent seeking ' 65 in an anti-competitive
sector may be highest when there is no clear distinction between where the
public sector monopolist operates and where the competitive segment
Privatization has generally brought economic success to countries
un61J. Luis Guasch & Robert W. Hahn, The Costs and Benefits of Regulation: Implications
for Developing Countries 22 (1997), available at
http://www.worldbank.org/wbi/publicfinance/publicresources/hanh.pdf at 22. See also Omar Chisari et al., Winners and Losers
from Utility Privatizationin Argentina: Lessonsfrom a GeneralEquilibriumModel, WORLD
BANK (1996), available at
http://www.worldbank.org/html/dec/Publications/Workpapers/WPS 1800series/wps1824/wps1824.pdf; J. Luis Guasch & Pablo Spiller, Managing the
Regulatory Process:Design, Concepts, Issues and the Latin American and CaribbeanStory,
WORLD BANK (1997).
62 DAVID M. NEWBERY, PRIVATIZATION, RESTRUCTURING, AND REGULATION OF NETWORK
UTILITIES (MIT ed. 1999).
63 Such an introduction of competition can only occur when liberalization accompanies a
process of privatization. Otherwise, privatization will merely replace a public monopoly
with a private monopoly. See William L. Megginson et al., The Financialand Operating
Performance of Newly PrivatizedFirms:An InternationalEmpiricalAnalysis, 49 J. FIN. 403,
See, e.g., Maxim Boycko & Andrei Shleifer, A Theory of Privatisation,106 EcON. J.
309, 313-17 (1996); James Simms, WALL ST. J., July 8, 2000, availableat 2002 WL-WSJ
3399941. TNT Post Group ("TPG") has become the world's first publicly traded postal
system and is a provider of express delivery and logistics services. The company's Royal
TPG unit is the primary mail delivery service in the Netherlands. TPG's TNT unit is the
express service arm.
65 Elizenga argues that the reason behind protectionism is rent seeking. See Kenneth G.
Elzinga, Antitrust Policy and Trade Policy: An Economist's Perspective, 56 ANTITRUST L.J.
439, 441 (1987). Rent seeking redistributes resources to other actors. See MANCUR OLSON,
JR., THE LOGIC OF COLLECTIVE ACTION: PUBLIC GOODS AND THE THOERY OF GROUPS, 141-48
dergoing broad-scale reorganization. Empirical evidence from the 1980s
and 1990s suggests that privatized firms outperform state owned firms and
that privatization itself increases the efficiency of the incumbent private
domestic firms. 66 Since the privatized firms then depend on the capital
markets for funding rather than from their governments, there is greater
accountability because markets demand profits. Companies will thus only
supply those products and services that they believe will yield profits.67
The incentives for the government-owned firms are the opposite. As one
scholar notes, "Because they do not need to maximize profits, government
firms are unconcerned about recouping losses. Indeed, they are happy to
hold prices below cost indefinitely, since that increases output, which
enhances job security for government managers. 68 In the context of postal
markets, there is also no incentive for monopoly-holding postal incumbents
to improve operations, to simplify their network structures, to automate
sorting processes or to improve their efficiency. 69 For example, the U.S.
Postal Service had a loss of as much as $2.4 billion,70 with revenues of $63
billion .7v Former U.S. Postal Service head William Henderson has
advocated privatization in order for it to stay competitive. 72 Thus, in order to
create a more responsive competitive system to keep costs down, a market
approach7 is needed for the postal sector, which includes privatization of
66Megginson, supra note 62, at 405. See also Andrei Shleifer, State Versus Private
Ownership, 12 J. ECON. PERSP. 133, 134-41 (1998).
67In contrast, a state-owned enterprise and its incentives for decision making are not
necessarily responsive to market pressures. As Nellis has noted, it is the "common and
deadly ailment of public enterprises: interference by owners who have more than profit on
their minds." John Nellis, Is PrivatizationNecessary?, WORLD BANK (1994), available at
68 Rick Geddes, When it Comes to Engaging in Predatory Pricing and Unfair
Competition, Microsoft has Nothing on the U.S. Government, 2002: 1 HOOVER DIGEST
(2002), available at http://www-hoover.stanford.edu/publications/digest/021/geddes.html
6 Helmut M. Diet & Peter Waller, Competing with Mr. Postman: Business Strategies,
Industry Structure and Competitive Prices in LiberalizedLetter Markets (2001), at n. 15, at
70 Rick Brooks, U.S. PostalService Offers PriceBreaks on Global Service, WALL ST. J.,
Auq. 17, 2001.
Neal E.Boudette, Private Courier: When Germans Open Their Mail, They Get
Message on Capitalism, WALL ST. J., Nov. 20, 2000. The U.S. Postal Service may be forced to
become more competitive as a recent court case has removed antitrust immunity from the
postal service. See Flamingo Industries Ltd. v. U.S. PostalService, 302 F.3d 985 (9th Cir.
72 William J. Henderson, End of the Route; I Ran the PostalService; It Should Be
Privatized, WASH. POST, Sept. 2, 2001.
71One way to create such a system is through the use of an auction process rather than
competitive bidding for the procurement of services and for the sale of companies because
such an approach is more transparent. However, poor auction design may lead to bad
C. Deregulation and Liberalization
Privatization alone will not create a more competitive environment
unless the privatization proceeds hand in hand with regulatory liberalization
to prevent incumbents from maintaining monopoly power. 74 Economists
agree that "[p]erhaps the most important point to emerge from the evidence
is the importance of competitive conditions and regulatory policies, as well
as ownership, for incentives and efficiency. 7 5 Liberalization is the process
through which heavily regulated sectors begin to be exposed to market
forces. As a process, liberalization has met with mixed success. However,
when well implemented, liberalization promotes growth.76 To liberalize,
countries must implement rules to prevent monopolies. Monopoly power
not only hurts consumers through higher prices but also from poorly
executed services. 77 This is not surprising given that weak competition gives
monopoly firms little incentive to make efficient investments. 788 Without a
well structured and equitable regulatory regime, the incumbent and new
entrants will start on different footing, contravening the truism that "market[s]
cannot be expected to discover the best competitors unless all companies
begin on an equal regulatory footing., 79 Otherwise, special treatment for
incumbents will obstruct the greater efficiency that competition would
Certain structural reforms are needed to reap the benefits of
efficiencies and cost savings brought about by greater competition. First,
transparency in governance is vital.80 Further, laws must restrict anti-competitive
business practices including cross-subsidization, which occurs when a
regulated part of a business subsidizes its competitive affiliates by shifting
affiliate costs to the regulated portion of the business. When some of the
affiliate's costs are paid by the regulated side (and built in to the cost
structure for the regulated price for postal services through the use of accounting
methods that do not accurately allocate costs), consumers will have
subsidized the competitive affiliate giving them a cost advantage relative to their
competitors. Cross-subsidization and its cost shifting distorts the express
delivery market. Under such a system, the efficient allocation of resources
and the development of competitive markets can be stymied. Liberalization
increases customers' choices as new entrants enter the sector and compete
with established incumbents.
A number of governments are loath to make the necessary changes.
Overstaffing is endemic in many monopolistic postal services. 81 Moreover,
poor management and planning leads to an over-allocation of funds to the
postal sector. As te OECD has noted, reforms to create competitive
markets in public utility industries have largely bypassed the postal sector.82
Sadly, it is not uncommon for postal sectors to require heavy subsidization
out of economic necessity. 83 In the United States, the government provides
sairgen4if0icpaenrtceani dt toof trheveepnouset.al IsnerIvnidciea., tIhneBsaurbbsaiddoysisan1d00Jopredracne,ntthoefsruebvseinduiees. 84
Within the E.U., 85 percent of mail services remain controlled by national
postal monopolies. 85 Nevertheless, the universal service requirement
accounts for only 5 percent of the costs of postal operators total turnover in
the E.U. 86 This suggests that the E.U. provides indirect subsidies through
the creation of anti-competitive barriers. Similarly, if only governments
would contract with private firms, universal service problems could be
solved. As Andrei Shleifer notes:
A common argument for government ownership of the postal service is to
81 Tim Walsh, Delivering Economic Development: Postal Infrastructures and Sectoral
Reform in Developing Countries, (2001), at 17-18, available at http://www.upu.int/
postal dev reform/deliveringeconomicdevelop.pdf(2001).
82 OECD, PromotingCompetition in the PostalSector, availableat http://www.oecd.org/
oecd/pages/document/print template/0,3371 ,EN-document-59 1-17-no-
14-4440-591--,00.html. OECD argues that where regulators remain concerned over the presence of natural
monopoly elements in the postal sector, these concerns should be addressed through an
access regime rather than from a push to stop privatization and liberalization of the sector.
83 According to Final Accounting Period Data, the Postal Service ended FY 2001 with a
loss of $1.5 billion. See http://www.postalfacts.com/fmcrisis.htm.
84 Walsh, supra note 81, at 18.
85 John Parker & William B. Cassidy, Billions Up ForGrabs,TRAFFIC WORLD, May 13,
86 See Ungerer, supra note 56.
able the government to force the delivery of mail to sparsely populated areas,
where it would be unprofitable to deliver it privately. From a contractual
perspective, this argument is weak. The government can always bind private
companies that compete for a mail delivery concession to go wherever the
government wants, or it can alternatively regulate these companies when entry
is free. It cannot be so difficult to write the appropriate contract or regulation;
after all, the government now tells the U.S. Postal Service where it wants the
mail to be delivered.87
The argument that there cannot be a full privatization and liberalization of
postal services is spurious. Postal sectors are commonly state-controlled
and are often major employers, which may render restructuring and
liberalization politically difficult. 88 In the E.U., the postal sector generates 1.4
percent of the GDP and employs 1.7 million people. 89 After railway services,
postal services are the biggest employer in Europe.90 Because of the
unnecessary overstaffing, and therefore inefficient nature of such postal services,
there is all the more reason to liberalize postal services. In countries where
the postal incumbent's service is of a poor quality, entrants can compete by
offering better quality services (such as express delivery services that have
a guaranteed time of arrival). 9' In such circumstances, the need to keep a
state run monopoly has only weak support.92 Because money is siphoned
off to inefficient and anti-competitive postal services, this is money that is
87 Andrei Shleifer, State Versus PrivateOwnership, 12 J. ECON. PERSP. 133, 136 (1998).
88 Tim Schwarz & David Satola, Telecommunications Legislation in Transitional and
Developing Economies (World Bank, Technical Paper No. 489, 2000). Under a private
interest theory framework, this process can be understood as one in which competing interest
groups attempt to use state power to capture rents for the successful groups at the expense of
less organized groups and the interest groups that do not prevail. See Gary S. Becker, A
Theory of Competition Among Pressure Groupsfor PoliticalInfluence, 98 Q. J. ECON. 371
(1983); Sam Peltzman, Toward a More General Theory of Regulation, 19 J.L. & ECON. 211
(1976); George Stigler, The Theory ofEconomic Regulation, 2 BELL J. ECON. & MGMT. SCI.
3 (1971), This article uses a private interest framework. The alternative framework would be
that of public interest theory. Under public interest theory, government regulation serves to
maximize social welfare by correcting market failures and protecting consumers from harm.
That theory is also known as the positive theory of regulation. See Paul Joskow & Roger
Knoll, Regulation in Theory and Practice,An Overview, in STUDIES INPUBLIC REGULATION
(Gary Fromm ed., 1981).
89 See PostEurop, GA TS 2000: EU PostalOperators,Members ofPostEurop Contributeto
Defining E.U. Requests on Postaland CourierServices, at http://www.posteurop.org/eng/
print.asp?ne id=311 (n.d.).
" John Parker, Applying PostalBreaks, TRAFFIC WORLD, Jan. 8, 2001.
91 This strategy is effective more generally in postal services as well as in less developed
countries where the incumbent provider offers poor quality, full-service services. In
Argentina, OCA has entered the market as a full-service provider and has a 10 percent market
share compared to the incumbent's (Correo Argentina) 40 percent share. OCA is highly
profitable because it can charge a premium of 50 percent for high quality service. See Dietl
& Waller, supra note 69, at 6; see also OCA, at http://www.oca.com.ar.
92 Schwarz & Satola, supra note 88.
not available for other needed functions such as spending for health, social
services and infrastructural development. Indeed, competition will force
incumbents to become more efficient and to reduce costs. 93
Some argue that imposing a cost separation between the regulated and
unregulated markets might be a way to achieve greater sector entry. In
principle, cost separation allows auditors to track the costs in both the
regulated and unregulated portions of the mail business. However, it seems that
cost separation may not be an effective solution and full separation of postal
and express delivery services may be needed, as in practice it is difficult to
differentiate between joint costs and because of the large costs that would
be involved in reflecting accurately accounts that would be so large and
voluminous. Thus, cost accounting is limited in its ability to inform regulators
as to the treatment of an incumbent with competitors in the liberalized
In spite of some political opposition, a number of countries have
privatized and/or liberalized their postal services-Sweden, Finland, New
Zealand, and the United Kingdom. The United Kingdom is the most recent
example. Postcomm, the British regulator created a three-stage plan for the
liberalization of the U.K.'s postal system. In the first phase (January 1,
2003-March 31, 2005), bulk mail above 4000 items (from a single site in a
similar format), which constitutes approximately 30 percent of the U.K.
letter market by value, together with consolidation services and niche services
will be liberalized. In the second phase (April 1, 2005 - March 31, 2007),
the bulk mail threshold will be adjusted to open up a total of 60 percent of
the postal market by value. In the final stage (begining April 1, 2007) all
restrictions on market entry will be abolished.9 5
Liberalization has made impressive inroads in terms of quality and
price of services, specifically in the postal sector. New Zealand was one of
the first countries to liberalize its postal services. 96 In the ten-year period
since liberalization, a number of effects have been noted. Productivity
gains have been significant as 40 percent fewer staff since the service's
liberalization in 1987 handle 20 percent more business than in the
preliberalization period.97 The postal service, responding to market pressures,
was forced to become competitive with regard to profitability. A loss of
NZ$37.9 million in 1986-87 was transformed into to a NZ$47.7 million
after-tax profit in 1996-97. 98 This profitability occurred during a period,
1987-1998, when the basic letter price remained at the same nominal level
(NZ$0.40). 99 This steady price, when adjusted for inflation, implies a
significant price reduction in real terms. Further, during this period delivery
performance of service for a basic letter has improved sharply.'0 0
D. Infrastructural Development
Companies that are given opportunities to compete will create well
functioning infrastructures. Not surprisingly, the creation of a robust and
well functioning infrastructure serves to reduce prices within an economy,
promotes competition, and makes business entry and trade more reliable.'O'
A well functioning postal structure serves to reduce transaction costs by
giving businesses a more cost effective way of completing transactions. It
also serves to mitigate local market power by encouraging new entrants and
forcing the exit of high cost firms in that market.' 0 2 Smaller businesses gain
access to international suppliers and can ship their products abroad rapidly.
Such a structure allows smaller businesses opportunities to operate on a
global scale. In this regard, a well functioning postal sector and its expr0e3ss
delivery component acts as a distribution channel for market functions.'
V. LEGAL SOLUTIONS
A. Competition Policy in Trade and Antitrust law
Both economic theory and practice in the antitrust/competition policy
arena emphasize the importance of entry conditions as a key aspect to
competition. 10 4 Such entry conditions are particularly important when dealing
with the transition from a monopolistic to a competitive marketplace.
Without actual entry, consumers lack choice for competing prices for
services and incumbents have few incentives to improve or widen the services
that they offer. Mario Monti, the head of the E.U.'s competition policy, has
noted the importance of competition policy and what it means: "[T]he goal
of competition policy... is to protect consumer welfare by maintaining a
high degree of competition in the common market. Competition should lead
to lower prices, a wider choice of goods, and technological innovation, all
in the interest of the consumer."1'0 5 Competition policy laws have been
structured to attempt to achieve this goal and it is through
antitrust/competition policy that public sector anti-competitive constraints must
Public sector barriers to entry remain a serious concern. Though some
believe that since government-owned firms cannot earn profits, they are
uninterested in driving out competitors; government market actors will
attempt to undercut their private rivals. As Geddes notes:
"Government firms use the benefits of monopolized business sectors, along
with many other advantages ofgovernment ownership, to price competitive
activities below cost. Antitrust authorities call this 'predatory pricing' when
done by private firms but ignore the behavior of government firms. The effect,
however, is the same: competing private companies don't enter or are driven
from the market."' 0 6
Private firms cannot sustain predatory pricing as easily because
shareholders are likely to punish firms that price below marginal cost in order to
drive out competitors. A government market participant, however, can
susttoainenpdresduacthorpyrapcrtiicciensg. 10p7recisely for the reason that market forces will not act
In this context, the E.U. has set up a system to manage public sector
re104 DENNIS CARLTON & JEFFREY PERLOFF, MODERN INDUSTRIAL ORGANIZATION, (Scott
Foresmann & Co., 2nd ed. 1994); F.M. SCHERER & DAVID Ross, INDUSTRIAL MARKET
STRUCTURE AND ECONOMIC PERFORMANCE, (Houghton Mifflin, 3rd ed. 1990). See also
Department of Justice and Federal Trade Commission, 1992 HorizontalMerger Guidelines,
availableat http://www.ftc.gov/bc/docs/horizmer.htm (n.d.).
105 Mario Monti, The Futurefor CompetitionPolicy in the European Union, Address at
Merchant Taylor's Hall, London (July 9, 2001), at http://europe.eu.int.
106 Rick Geddes, Government Enterprises: The ForgottenAntitrust Concern, availableat
107Id. It is difficult to prove predatory pricing in the private antitrust setting. In the
United States one needs to produce objective evidence of predatory intent that shows that a
defendant priced below the appropriate measure of incremental cost and believed that the
company would recoup this cost. See, e.g., Rebel Oil Co. v. Atlantic Richfield Co., 146 F.3d
1088, 1097 (9th Cir. 1998).
Northwestern Journal of
International Law &Business
straints. Article 3 of the Treaty of Rome ensures that neither private nor
state actors could replace one form of competitive barrier (those of the
nation-state) with others (those between states).'0 8 Article 31 of the Treaty
prevents continued monopolization in the transition from state-owned
enterprises to a privatized firm. Its purpose is to prevent discrimination
regarding the conditions under which goods are procured and marketed.
Article 86 protects consumers by preventing abuse of market participants
with a dominant position. Specifically, market participants are prevented
from applying dissimilar conditions to equivalent transactions with other
trading parties, which place them at a competitive disadvantage.'0 9 Article
) is a strict threshold that requires an objective justification for the
provision of services. It states:
Undertakings entrusted with the operation of services of general economic
interest or having the character of a revenue-producing monopoly shall be
subject to the rules contained in this Treaty, in particular to the rules on
competition, in so far as the application of such rules does not obstruct the
performance, in law or in fact, of the particular tasks assigned to them. The
development of trade must not be affected to such an extent as would be contrary
to the interests of the Community. 110
Article 87 lays out the rules regarding state aid. When such aid distorts or
threatens to distort competition by favoring certain undertakings, such aid is
found to be incompatible with the E.U."' However, under Article 81,
exceptions are made to the competition laws such that under certain
circumstances state aid is permitted. Specifically under 81(
), there is a carve-out
for agreements or decisions which contribute to improving the production
or distribution of goods or to promoting technical or economic progress but
that does not: (a) impose on the undertakings concerned restrictions which
are not indispensable to the attainment of these objectives; or (b) afford
such undertakings the possibility of eliminating competition with respect to
a substantial part of the products in question .II2 Further exceptions are
made for Member States to grant state aid under a carve-out under Article
) which is: (a) aid having a social character, granted to individual
consumers, provided that such aid is granted without discrimination related to
the origin of the products concerned; (b) aid to make good the damage
caused by natural disasters or other exceptional occurrences; (c) aid granted
108Treaty Establishing the European Community, Nov. 10, 1997, O.J. (C 340) 3, art. 3
(1997) art. 3 [hereinafter E.C. Treaty].
9 Id.at art. 86.
1' Id. at art. 86(
Id. at art. 87.
121Id. at art. 81(
to the economy of certain areas of the Federal Republic of Germany
affected by the division of. 113 If rigorously enforced, these provisions could
serve as an effective model for public sector restraints on trade.
The European Commission's Green Paper, The Development of a
Single Market for Postal Services gave the initial steam to postal sector
liberalization."l 4 The Green Paper examined the interplay between competition
and universal service. The E.U. established its new regulatory framework
in the Postal Services Directive of 1997. 15 It laid out a clear maximum
scope for the reserved area (350 grams if less than 5 times 1st class tariff)
but only to the extent necessary to maintain universal service. A new E.U.
Postal Directive purports to liberalize the sector by introducing new areas of
competition. Member States must begin opening other aspects of the
market to competition in 2003 and further reforms will arrive in 2006.116 From
2003, these include delivery of letters weighing more than 100 grams (or
costing more than three times the price of a standard letter) and all outgoing
cross-border mail.' 17From 2006, liberalization will impact delivery of
letters weighing more than 50 grams or costing more than two and a half times
the price of a standard letter. The Postal Directive also requires the EC to
complete a study of each Member State that would asses the impact of an
internal market for postal services in 2009 and to make recommendations
based on the study." 8
Unlike the E.U., U.S. antitrust laws deal with private but not public
restraints of trade. Indeed, under the Parker Doctrine of state action
immunity, state legislative and regulatory policies are immune from the reach of
the Sherman Act on grounds of state sovereignty and federalism.1 9 State
action has been more narrowly tailored in this context than in 14th
amendment cases. In the antitrust setting, state action refers "only to government
policies that are articulated with sufficient clarity that it can be said that
these are in fact the state's policies."'' 20 Judge Diane Wood notes that the
result of the Parker Doctrine in its present form is that it prevents the
crea11I3d. at art.Pa8p7e(r2). on the Development of a Single Market for Postal Services,
115 Directive 97/67/EC of the European Parliament.
116 Directive 2002/39/EC.
117 However, the limitation to the latter of these two liberalizations that would allow
Member States which need the revenue from this market segment to continue to provide
their universal service to reserve such service from their competition. See New
PostalDirective, The European Commission, at http://www.europa.eu.int/comm/internalmarket/post/
119Parkerv. Brown, 317 U.S. 341, 352 (1943).
120A.D. Bedell Wholesale Co. v. PhillipMorris, 263 F.3d 239, 254 (3d Cir. 2001) (citing
AREEDA & HOVENKAMP, ANTITRUST LAW: AN ANALYSIS OF ANTITRUST PRINCIPLES AND
THEIR APPLICATION 221 (2d ed. 2001)).
tion of uniform federal competition policy. 12' Taking Judge Wood's
analysis one step further, it would follow that the effect of a global state action
exemption presents the problem of a lack of a global competition policy
because each country could create a Parker exemption for its state actions.
B. WTO Solution
A key part of the WTO is the General Agreement on Trade in Services
("GATS"), which forms part of Annex I to the WTO Agreement. 122 The
purpose of GATS is to create favored nation status by reducing barriers to
trade. Renato Ruggiero, the former Director General of the WTO, notes
that the purpose of GATS has been the right of establishment and the
obligation to treat foreign services suppliers equitably and objectively in
relevant areas of domestic regulation. 123 As a part of the WTO agreement,
GATS is binding upon all of the signatories to the WTO.
The market access provision of GATS prohibits six different types of
anticompetitive practices from being applied to foreign services or suppliers
in scheduled sectors. 24 Under Article XVII, countries must not offer more
favorable treatment to domestic providers. Known as the national treatment
article, Article XVII provides that any foreign service or foreign service
supplier be given treatment that is not less favorable than that given to
domestic counterparts. 125
The current definitions to the GATS do not include express services.
However, a reading of the GATS might include such services with regard to
the competition in services provisions. Under the definitions to the GATS,
trade in services is the supply of a service: (a) from the territory of one
Member into the territory of any other Member; (b) in the territory of one
Member to the service consumer of any other Member; (c) by a service
supplier of one Member, through commercial presence in the territory of
any other Member; and (d) by a service supplier of one Member, through
presence of natural persons of a Member in the territory of any other
Member. 126 Article I is also important in that it establishes that government
measures need not restrict trade in services but merely affect such trade in
services. Measures by Members are defined as measures taken by: (i)
cen121 Diane Wood, United States Antitrust Law in the Global Market, 1 IND. J. GLOBAL
LEGAL STUD. 409,422 (1994).
122General Agreement on Trade in Services, Marrakesh Agreement Establishing the
World Trade Organization, Annex I B, LEGAL INSTRUMENTS-RESULTS OF THE URUGUAY
ROUND vol. 31, 33 I.L.M. 44 (1994) [hereinafter GATS].
123Renato Ruggiero, Towards GATS 2000-a European Strategy (June 2, 1998), at
124 GATS, supra note 122, at art. XVI.
25 Id. at art. XVII.
126 Id. at art. 1:2.
tral, regional or local governments and authorities; and (ii)
nongovernmental bodies in the exercise of powers delegated by central,
regional or local governments or authorities. 127 Measure is further defined as
any measure by a Member, whether in the form of a law, regulation, rule,
procedure, decision, administrative action, or any other form. 28 Under
Article XXVIII, a Measure by a Member affecting trade in services includes
measures in respect of (i) the purchase, payment or use of a service; (ii) the
access to and use of, in connection with the supply of a service, services
which are required by those Members to be offered to the public generally;
and (iii) the presence, including commercial presence, of persons of a
Member for the supply of a service in the territory of another Member.129
Such measures, therefore, might include situations involving express
Under Article II of the GATS, each Member must accord immediately
and unconditionally to services and service suppliers of any other Member
treatment no less favorable than that it accords to like services and service
suppliers of any other country. 30 Only for certain exemptions can a
member have measures inconsistent with the GATS. The GATS covers all
services except those "supplied in the exercise of governmental authority."
But GATS Article I:3c defines such excluded services very narrowly as
"any service which is supplied neither on a commercial basis nor in
competition with one or more service suppliers." GATS Article VIII requires that
a monopoly supplier of a service must not be allowed to act inconsistently
with a member government's MFN obligations or any specific
commitments, nor to abuse its monopoly position. Since many governments use
their postal services as monopoly suppliers, it is possible that express
delivery might fall into this category where a postal monopoly abuses its
monopoly position to cross-subsidize its non-monopoly business.
While there is no specific GATS treatment of express delivery
services, some public sector restraints on trade are covered under the GATS.
While GATS does not cover services ",supplied in the exercise of
governmental authority," it limits this reading under Article I:3c to "any service
which is supplied neither on a commercial basis nor in competition with
one or more suppliers.' 3' Since by their nature express delivery providers
are in competition both with each other and with domestic postal services,
one could make the case that GATS should apply. Thus, under GATS the
applicability of express delivery and other postal services remains
un127 Id. at art. 1:3.
128 Id. at art. XXVIII:(a).
_d.at art. XXVIII:(c).
3 IId. at art. lI.
131Id. at art. 1:3c.
clear. 32 To address the issue that express delivery is not included among
the WTO classification list of goods, the United States has proposed a
definition under which express delivery services would be included under the
WTO classification for communications services. The proposed definition
Express delivery services are time-sensitive, utilize advanced technologies for
communication, and are integrated or controlled from end-to-end. Express
delivery services consist of the expedited collection, transport, and delivery of
documents, printed matter, parcels, and/or other goods, while tracking the
location of, and maintaining control over, such items throughout the supply of the
service. Services provided in connection with express delivery services
include, but are not limited to, customs facilitation and logistics management.
Customs facilitation consists of practices and procedures used to avoid delay
of customs processing or to obtain rapid release of shipments, while satisfying
customs requirements. Logistics is the process of planning, implementing,
managing, and controlling the flow and storage of goods, services, and related
information from the point of origin to the point of consumption. Express
delivery services may include one or more value added elements, such as
collection from an address designated by the sender; release upon signature;
guarantee of delivery within a specified time; electronic and/or other advanced
technologies; and ability of the sender to confirm delivery.'33
Such a definition would give a more definitive tool for pro-competitive
forces to open up the express delivery markets worldwide. The GATS
enforcement mechanism is found under GATS Article VI, which calls on the
Council for Trade in Services to develop any "necessary disciplines" to
ensure that "measures relating to qualification requirements and procedures,
technical standards and licensing requirements do not constitute
unnecessary barriers to trade."' 134 The acceptance of this definition would make it
easier for parties to bring a suit regarding barriers to trade.
For those cases that arise among the United States, Mexico and
Canada, NAFTA has a number of provisions with which to combat
anticompetitive public sector monopoly practices. Under the investment
chapter (Chapter 11), NAFTA Article 1102 requires each NAFTA party to
accord to investors of another party treatment no less favorable than that it
132 Alessandra Perrazzelli & Paolo R. Vergano, TerminalDues Under the UPU
Convention and the GATS: An Overview of the Rules and of Compatibility,23 FORDHAM INT'L L.J.
736, 741 (2000).
133U.S. Proposal on Express Delivery Services, available at www.ustr.gov/sectors/
services/ express.html (n.d.).
134 GATS, supra note 122, at art. VI:4.
accords, in like circumstances, to its own investors with respect to the
establishment, acquisition, expansion, management, conduct, operation, and
sale or other disposition of investments .135 This means that a national post
provider cannot be granted privileges that such a provider could use for the
purposes of cross-subsidies to its non-monopoly segment unless such
privileges are granted to the postal provider's competitors. NAFTA also has
specific provisions for "Competition Policy, Monopolies and State
Enterprises" under Chapter 15 of the Agreement. Specifically under NAFTA
)(a) a state monopoly company cannot provide discriminatory
treatment to use its monopoly position to engage in anti-competitive
practices in a non-monopolized market in its territory that adversely affects an
investment of an investor of another Party, including through the
discriminatory provision of the monopoly good or service, cross-subsidization or
itnhathteansyaleesotafbiltsishseerdviscteaste.13e7nCurrently in a Chapter 11 hearing before arbitration is the UPS suit against
the Canada Post in which UPS alleges that Canada Post has used its
monopoly in letter mail services to cross-subsidize against express delivery
providers such as UPS. UPS is requesting at least $160 million in damages,
plus costs and tax consequences. 38
The elimination of anti-competitive barriers to trade in the express
delivery sector in the postal services sector would serve to improve global
consumer welfare by reducing costs. In order to achieve this goal, countries
must push for a system that deals with private and public anti-competitive
behavior. A system is needed that incorporates both antitrust and trade law
into a more comprehensive competition policy. Competition should be
encouraged by placing entrants on a competitive footing rather than offering
advantages to national favorites. Where the state is immunized from
competition policy, there is the potential for the Parker Doctrine at the global
level one that would allow for the prosecution of private anti-competitive
practices but would immunize state owned corporations from antitrust
liability and competitive concerns.
A quick series of examples show how competition within the express
delivery sector has created greater consumer welfare because it has led to
greater efficiencies and innovations. For example, in Europe, UPS has
in13'6 NNAAFFTTAA,, aarrtt.. 11150022((13)).(c)-(d).
117 NAFTA, art. 1503.
138 Dispute Settlement-Chapter 11-Investment, Canada Department of Foreign Affairs
and International Trade, at http://www.dfait-maeci.gc.ca/tna-nac/parcel-e.asp (n.d.).
vested in new technology to improve the quality of its signature tracking,
proof of delivery, and internet-based shipping and tracking services. UPS
claims that these improvements serve to improve supply chain efficiency
because they provide visibility, multiple language capability and after sales
service. 139 Likewise, Federal Express has increased the coverage area of its
noontime delivery commitment because of enhancements of its line haul
operations in Spain and Portugal.140 Competition also leads to mergers as
competitors look to increase their scope and scale to better compete in the
more integrated marketplace. One function of the increase in mergers is
that it has led to greater transparency in pricing via standardization of
pricing and services.14 1 It may also lead to greater efficiencies.
A vigorous use of existing laws and the addition of an explicit express
delivery services section to the GATS would help to combat barriers to
trade. Further, a more global antitrust system, if based on the principal of
increasing global consumer welfare, may prove advantageous as a tool to
open the express delivery sector to greater competition. If current laws are
not applied liberally to promote greater efficiency, then a new global
system of competition policy may be required. Countries are working toward
agreed upon general principles in some areas of antitrust law under the
auspices of the International Competition Network and have created a group
that studies sector specific issues.142 The process toward a global antitrust
system may indeed be inevitable.143 Global standards may deal with the
problem that a significant number of states lack such laws at all. For
example, only 13 of the 34 states in the Western Hemisphere that are
participating in negotiations for the Free Trade Area of the Americas have
competition laws. 144 On a global level, only 80 of the WTO members have
adopted competition laws. 145 In order to promote benefits for consumers
around the world, implementation of a robust competition policy is
needed.146 One area where a global antitrust/competition policy would be
139 Express Services Unite Europe, LOGISTICS MGMT. & DISTRIBUTION REP. (Sept. 1,
142 "The purpose of this subgroup is to compile studies on competition advocacy in
specific regulated sectors: telecommunications, energy, air transportation, and the legal
profession." See http://www.intemationalcompetitionnetwork.org/sectoralstudies.html. (n.d.).
1"3 Robert H. Hahn & Anne Layne-Farrar, Federalismin Antitrust (AEI-Brookings Joint
Center for Regulatory Studies, Working Paper No. 02-9, 42, Sept. 2002).
144 See Free Trade of the Americas, http://www.ftaa-alca.oas.org/ngroups/ngcompe.asp
Indi'See CompetitionPolicy, WTO, http://www.wto.org/english/tratope/compe/ compe.htm
(n.d1.)46 Some scholars are more skeptical about the creation of antitrust laws. Paul E. Godek,
A Chicago-School Approach to Antitrust in Developing Economies, 43 ANTITRUST BULL.
particularly beneficial would be in the area of public sector barriers to trade
and particularly barriers that involve express delivery service. With the
political will to use such laws, new opportunities should emerge that will open
up markets to great opportunities for competition and therefore lower
261 (1998); Robert D. Cooter, The Theory of Market Modernization ofLaw, 16 INT'L REV.
L. & ECON. 141 (1996). Note, however, that these scholars state that even if an antitrust
authority is unnecessary, such authority is unwan'anted precisely because free trade can
accomplish many goals of antitrust policy. Cooter, at 162.
2For examples of anticompetitive barriers see infra Section III .
3Barriers to trade have been found to lower economic growth . See Sebastian Edwards, Openness, Productivity and Growth: What Do We Really Know , 108 ECON. J. 383 ( 1998 ); Ann Harrison, Openness and Growth: A Time Series, Cross-CountryAnalysis for Developing Countries,48 J. DEV . ECON. 419 ( 1996 ).
4 JEAN TIROLE , THE THEORY OF INDUSTRIAL ORGANIZATION 66-67 (MIT ed. 1988 ). 2002 , availableat 2002 WL 13735086 .
33 Edwin Chan , Chinese Express Post Stand-OffSet To Drag On-FedEx., REUTERS , June 17, 2002 , availableat http://global.factivia.com.
34 Paul Day , Spotlight, Bus. MEXICO, May 1, 2002 , availableat 2002 WL 7685510.
36 See U.S. Department of Transportation, United States, Japan Reach Aviation Agreement That Provides Immediate Benefits, Sets Stage For Further Liberalization,(Jan. 30 , 1998 ), at http://www.dot.gov/affairs/1998/dot1898.htm (n.d.).
37 2002 /782/EC, Poste Italiane SpA, 2002 O.J. ( L282 ).
38 EU/WTO - European Union Submits Requests For Services Liberalisation , EUROPEAN REPORT, July 6 , 2002 , availableat 2002 WL 13766833.
39 Richard McGregor , The Americas & InternationalEconomy-China's Postal Service 'Restricting'Competitors, FIN . TIMES, Apr. 2 , 2002 , availableat 2002 WL 16945470.
46 UPS v. Canada, supra note 42, at 4-5.
47See 2001 Press Pack, supra note 41.
48This proposed law would amend Article 9 of Law No. 6.538/78. As DHL spokesman Ricado Brandi remarks, it is a misguided proposal: "[I]f this is approved, our company will either disappear, or will be reduced dramatically in both revenue and number of employees because we will not be able to ship documents, which is still the bulk of our business." Larry Luxner, It's Not Letter-Perfect: Small-Package and Courier Services Say Pending Legislation Is Confusing and Would Put Them Out of Business, J . COM., Dec. 3 , 2001 .
4 McGregor , supranote 39 .
50 Pruzin, supra note 31.
57 Proposed Rule to Allow Foreign Indirect Air Carriers To Organize Charters and Consolidate Freight in Interstate and Overseas Markets, 46 Fed. Reg. 35664 , 35565 ( July 10, 1981 ) (to be codified at 14 C.F.R. pts. 297 , 380).
58 Foreign Air Freight Forwarders and Foreign Cooperative Shippers Associations , 47 Fed. Reg. 19683 , 19683 (May 7, 1982 ).
59 THOMAS D. HOPKINS, COSTS OF REGULATION: FILLING THE GAPS , Report prepared for the Regulatory Information Service Center , Washington, D.C., 1992 .
60 Clifford Winston , Economic Deregulation:Days of Reckoning for Microeconomists , 31 J. ECON. LIT. 1263 , 1284 ( 1993 ). suits. See, e.g., R. Preston McAfee & John McMillan , Auctions and Bidding , 25 J. ECON . LIT. 699 ( 1987 ); D. Daniel Sokol, The European Mobile 3G UMTS Process: Lessons From the Spectrum Auctions and Beauty Contests , 6 VA . J.L. & TECH . 17 ( 2001 ).
See , e.g., D. Daniel Sokol, Barriersto Entry in Mexican Telecommunications: Problems and Solutions, 27 BROOK. J. INT'L L . 1 ( 2001 ) (describing how a poorly planned privatization of Mexico's telecommunications monopoly left it with monopoly power and has limited the ability of new entrants to compete in the Mexican telecommunications sector . See also Scott J. Wallsten , An EmpiricalAnalysis of CompetitionPrivatization,and Regulation in Africa and Latin America ( 1999 ), available at http://econ.worldbank.org/docs/ 553 .pdf.
John Vickers & George Yarrow , Economic Perspectives on Privatization,5 J. ECON. PERSP . 111 , 118 ( 1991 ).
76Guasch & Hahn , supra note 61.
77 ADAM SMITH , AN INQUIRY INTO THE WEALTH OF NATIONS 163 (R. H. Skinner & A.S. Skinner, eds., 1976 ).
78 Harvey Averach & Leland L. Johnson , Behavior of the Firm Under Regulatory Constraint, 52 AM . ECON. REV. 1052 , 1059 ( 1962 ).
79 J. Gregory Sidak & Daniel F. Spulber , Deregulation and Managed Competition in Network Industries, 15 YALE J . ON REG . 117 , 127 ( 1998 ).
80 For the case in favor of transparency, see , e.g., Transparency International, TI Source Book 2000 ConfrontingCorruption: The Elements of a NationalIntegrity System , available at http://www.transparency.org/sourcebook/index.html; Tara Vishwanath & Daniel Kaufmann, Towards Transparency in Finance and Governance ( 1999 ), available at http://
93 This may be done by lowering wages, simplifying the delivery network structure and its processes, increasing automation and making redundant workers displaced by such automation, and raising labor productivity . Dietl & Waller, supra note 69 , at 7.
94 This issue is problematic in all regulated industries . See, e.g., Paul L. Joskow & Roger G. Knoll , The Bell Doctrine: Applications in Telecommunications, Electricity and Other Network Industries , 51 STAN. L. REv. 1249 , 1267 ( 1999 ).
95 Promoting Effective Competition in UK , Postal Services , A Decision Document (May 2002 ), availableat http://www.psc.gov.uk/Departments/SubSection.asp?ID= 29 .
96 Only New Zealand , Argentina, Finland and Sweden have opened up fully their postal markets to competition . Dietl & Waller, supra note 69 , at 14, at wiwi.unipaderborn.de/ bwl5/forschung/MrPostman.pdf. New Zealand also liberalized beyond mere privatization by abolishing the postal monopoly in 1998 under the Postal Services Act. Now, any company may compete in all sectors of the postal market. The Act eliminated all market access and foreign ownership restrictions on postal operations.
97 OECD, supra note 82.
99 New Zealand actually lowered its basic stamp price from 45 to 40 cents in 1995, where the price has remained ever since. Rick Geddes, A Twenty-first-Century Postal Service , availableat http://www-hoover.stanford.edu/pubaffairs/we/2002/geddes_0702.html (n.d.).
00 OECD, supra note 97.
01CHRISTINE KESSIDES , THE CONTRIBUTIONS OF INFRASTRUCTURE TO ECONOMIC DEVE02LOP . PMENT (World Bank, Discussion Paper No. 213 , 1993 ).
1 AGHION & M. SCHANERMAN, COMPETITION, ENTRY & SOCIAL RETURNS TO INFRASTRUCTURE IN TRANSITION ECONOMIES (Centre for Economic Policy Research , Discussion Paper No. 20521999 ).
103Walsh, supra note 8 1.