U.S. Postal Service Loses Millions Delivering China Counterfeits

US manufacturers, retailers and USPS suffer from deep postage discounts.

October 4, 2016, Los Angeles, CA - If you want to sell counterfeit products, you get a big boost from a postage agreement between China and the US Government. Deep postage discounts are available when shipping counterfeit goods from China to the United States. While the counterfeiters profit, the US Postal Service is losing millions.

Under this decades-old arrangement which is overseen by the Universal Postal Union (“UPU”), an agency of the United Nations with participation from nearly every country, national postal services pay each other discounted rates known as “terminal dues” on international mail under a certain size and weight. Often, the rate is much less than moving a package across the United States.

Now, Chinese counterfeiters and dishonest sellers use e-commerce websites including eBay, Amazon and Alibaba to take advantage of discounted China direct shipping to peddle illegal counterfeit goods, an industry expected to top $1.7 trillion this year. China produces over 90% of global counterfeit goods, many of which are mailed to the US.

In terms set out in the UPU treaty, the USPS in 2014 was paid no more than about $1.50 for delivering a one-pound package from a foreign carrier. Packages receive USPS First-Class Mail service with Delivery Confirmation Service which makes it hard for the USPS to cover costs. The United States Postal Service (USPS) Inspector General’s Office reported that the USPS lost $308 million between 2010 and 2014 delivering this foreign treaty mail.

These postal rates are generally far below rates paid by US retailers and shippers. For example, in 2012, the terminal dues on items from China to the U.S. were about $1.60 per kilogram (2.2 pounds).

The impact of this imbalance has grown over the past five years with the rise of international e-commerce platforms like eBay, Amazon and Alibaba whose sellers offer “free shipping.” US retailers simply can't compete. eBay, who claims a partnership with the US Postal Service, receives a transaction fee on the overall transaction value of an eBay sale including postage>, which benefit China Post and Chinese online retailers at the expense of the US Postal Service, other international carriers operating from China, and American retailers.

Protecting consumers, retailers and product manufacturers from the risks and harmful effects of the global trafficking of counterfeit goods has become an impossible task. E-commerce websites provide an avalanche of counterfeit goods which lack enforcement and oversight, and have a cheap, effective way to reach US consumers. Initial reform should focus on separating e-commerce packages from letters in the terminal dues stream.