International Postal Update — January 2012

PLANS FOR REORGANIZATION OF JAPAN POST DELAYED

Plans to reorganize Japan Post have been officially delayed until later in 2012. Currently made up of four multimillion- or multibillion-dollar entities, Japan Post is set to be divided into three subsidiaries. The delay is in large part due to the effects of March 2011’s earthquake and tsunami, which destroyed as many as 330 post offices.

Efforts to reform its structure and liberalize the market began in 2003, but privatization efforts were effectively abandoned in March 2010. In the absence of reorganization, Japan Post Insurance, the world’s largest insurer by asset value in 2009 and the country’s primary life insurance provider, will continue to dominate the Japanese insurance market.

UPU ESTABLISHES EMERGENCY & SOLIDARITY FUND

The Universal Postal Union’s Council of Administration has officially determined the mechanisms for funding and managing a new Emergency and Solidarity Fund. The structure of the new fund makes money more readily available to restore postal service to areas affected by natural disasters or armed conflict. Over the past 10 years, the UPU has assisted many needy countries, but with the Emergency and Solidarity Fund the recovery process can be expedited. Assets will be primarily maintained by voluntary contributions from Posts across the world, governments, unions, and other postal sector partners.

FINANCIAL SERVICES WORKING GROUP OUTLINES DEVELOPMENT PLANS

The Asian-Pacific Postal Union Postal Financial Services Working Group met in July 2011 to discuss development strategies. The group, comprised of 32 postal administrations not including the United States and currently chaired by Korea Post, called for a UPU worldwide electronic payments network to allow member countries to exchange postal payment services. This strategy for domestic postal financial infrastructure is organized through technical collaboration with the UPU.

DEUTSCHE POST FACES EU INVESTIGATION

In December 2011, Deutsche Post lost its attempt to block the EU Commission’s investigation of alleged illegal state aid to its competitive arm. Since 1994, the Commission has been battling Deutsche Post over funds calculated to be worth 572 million euros stemming from purportedly providing competitive delivery services below cost. In 2007, the Commission restarted an investigation into potential subsidies at Deutsche Post’s competitive services by examining pension financing. The EU General Court ruled this investigation may continue despite Deutsche Post’s challenge.

POSTE ITALIANE FINED FOR PREDATORY PRICING

Italy’s antitrust authority fined Poste Italiane nearly 40 million euros for offering “predatory” below-cost pricing for competitive products. Dutch TNT lodged the complaint. The Italian authorities found Poste Italiane guilty of subsidizing its competitive products in the express delivery market with revenue from its monopoly products until the market was fully liberalized at the end of 2010.

KOREA-U.S. TRADE AGREEMENT LIMITS KOREA POST’S INSURANCE

The Republic of Korea-United States Free Trade Agreement (KORUS FTA), approved by Congress in October 2011, will place new limitations on Korea Post’s Postal Insurance Bureau’s insurance offerings. This bureau, one of twelve entities of Korea Post, offers numerous forms of insurance, including accident and health. Under current law, these products are not subject to examinations from the government’s Financial Supervisory Service (FSS). Audits by the FSS are mandatory for other insurers.

The KORUS FTA levels the playing field between Korea Post and private insurers, requiring Korea Post’s insurance products to undergo the same auditing. The new trade agreement also prohibits Korea Post from issuing new products and limits the modifications that can be made to existing offerings, including coverage increases. U.S. insurance firms in the Korean market stand to save over $50 million thanks to these regulatory reforms.