LFMI has made analysis of road haulage policy in the context of Lithuania’s integration in the EU. The goal of this research was to evaluate the impact of EU accession on the business conditions of goods transportation by road in Lithuania and to submit to the Lithuanian negotiators policy recommendations in order to ensure a smooth adjustment to EU acquis communautaire. The research was conducted within the framework of LFMI’s project “Lithuania’s Integration into the EU Single Market: the Regulatory Impact on Lithuania’s Economy.” The study was presented at a press conference and a seminar held on 29 January.
This research was financed by the Lithuanian Carriers Association “Linava,” the entire project “Lithuania’s Integration into the EU Single Market: the Regulatory Impact on Lithuania’s Economy” is financed by the Swedish Embassy within the framework of “The Year of the Baltic Countries – 2000” programme.
The following presents a summary of the analysis, conclusions and policy recommendations.
The transport sector plays a significant role in an economy in both national and international terms. In Lithuania the transport sector accounts for about eight percent of gross domestic product. Transportation companies are successfully exploiting their advantages and the country’s geographical position. In the future as foreign economic relations develop, the importance of the transport sector and other sectors of infrastructure is likely to increase. Among the major factors that will affect the business of Lithuanian transportation companies will be Lithuania’s integration in the EU, the ensuing market liberalisation as well as the implementation of regulatory standards and investment programmes.
Given the importance of integration processes for the Lithuanian transport sector, there is a need to evaluate the impact of EU accession on the Lithuanian economy and to ensure a smooth adjustment to EU acquis communautaire. Recognizing this need, the Lithuanian Free Market Institute has made analysis of road haulage policy in the context of Lithuania’s integration in the EU. The following presents a summary of the analysis as well as conclusions and policy recommendations.
The study “Road Haulage Policy in the Context of Lithuania’s Integration in the EU” analyses the impact that Lithuania’s integration in the EU will have on the business conditions of goods transportation by road in Lithuania. A proper evaluation of this impact is important to carriers, consumers of transport services and the government alike. For carriers and consumers, such an assessment provides an opportunity to reduce accommodation costs, to exploit new opportunities and by doing so to better plan their business activities and maximise profits. The government has to be aware of the implementation impact of EU transport policy in order to formulate well-considered negotiation positions, to plan budget expenditures and to redesign the infrastructure of market control.
The regulatory impact analysis applied in this research was aimed at evaluating the costs and benefits that the adoption of a specific legal document or a group of legal documents will bring for businesses and society. The essence of this analysis was to collect and systematize information about the implications of a given legal document (or documents) and its alternatives for regulated groups as well as to model market conduct and to make forecasts. It should be noted that the study analyses not the consequences of adopting EU regulatory standards but the consequences of changes that will result from the implementation of these standards.
The impact of adopting EU regulations may be evaluated in both qualitative and quantitative terms. This study focuses on a qualitative assessment of the impact of legal documents regulating road haulage. In certain cases, when the adoption of higher standards is likely to require bigger investments, quantitative valuations are presented, although these are subject to certain limitations and stipulations.
The study analyses the implementation impact of EU regulations governing road haulage in the following main areas: market entry (quotas and licenses), technical and safety requirements, taxation, social policy, and competition. To assess changes in each area, a brief analysis is presented of the current situation in Lithuania, the provisions of relevant EU regulations, and the implementation impact on Lithuanian carriers and other segments of society. This analysis provided a basis for formulating conclusions and policy recommendations.
The general conclusion of the analysis is that Lithuania’s integration in the EU will have different effects on Lithuanian carriers depending on the type of their business and vehicles. Carriers engaged in cross-border road haulage and currently working in the EU have already adjusted to most EU requirements. Therefore, Lithuania’s membership in the EU and the removal of barriers to the single market will require from them smaller accommodation costs while offering greater benefits. The effects on carriers working on the national market will be more profound. The impact of integration and harmonisation will also depend on the policy of the Lithuanian government. Specifically, it will depend on the pace of harmonisation with EU laws and measures that will be chosen to achieve the objectives set out in EU directives (in those cases when national governments are given some degree of leeway to choose such measures).
The following presents specific conclusions of the analysis by type of carriers’ business as well as policy recommendations for the Government of Lithuania and Lithuania’s negotiation delegation.
Cross-border road haulage
Lithuanian carriers engaged in cross-border road haulage and those currently operating in the EU are required to have a license, therefore they will not be affected by the mandatory licensing requirement. It should be noted, however, that some licensing rules are stricter in Lithuania than in the EU, while others are not so rigid as the rules newly introduced in the EU.
Lithuanian carriers will benefit most from the elimination of authorisations for work in the EU territory. This will provide more opportunities for Lithuanian carriers to operate in the EU member states (Austria, France, etc.) and in the member states to be (e.g. Poland, where Lithuanian carriers lack authorisations to provide haulage services). There is still some likelihood that the EU will seek a transition period to impose temporary limitations on Lithuanian hauliers to operate on the EU market.
New opportunities will be open for Lithuanian companies to carry out cabotage jobs in the EU member states, provided the EU does not apply a transition period in this area.
Authorisations that are issued by the European Conference of Ministers of Transport and required to perform road haulage operations in the EU will be valid in third countries. However, most authorisations for road haulage in the CIS countries will still be issued based on bilateral negotiations between Lithuania and a given country.
Barriers to border crossing that currently exist between Lithuania and other EU member states – Poland and Latvia – and impede haulage business will disappear. The adoption of the Community’s Customs Code and joining of the Common Transit System may reduce obstacles to border crossing between the EU and the CIS countries and increase border penetrability.
Carriers performing cross-border road haulage jobs must already use recording equipment and meet the requirements regarding working hours and rest periods. These requirements are strictly controlled in the EU area. In order to satisfy technical and safety requirements, some hauliers will have to install speed limitation devices. The price of installation will depend on the age and brand of a vehicle.
Lithuanian road haulage companies are not obliged to render mandatory public services and do not receive state aid, therefore adjustment to related EU regulations will not affect them.
The procedures for inspecting vehicle equipment in Lithuania do not accord with EU principles of market supervision. Repeated inspections of recording equipment that is brought into Lithuania from the EU inflict additional difficulties and expenses on carriers.
Vehicle transportation fees are much higher in Lithuania than in the EU, while their differentiation is smaller. It should be noted that at present differences between Lithuania and the EU in these and other tax rates (e.g., excise duties) depend largely on changes in the euro-US dollar exchange rate.
Lithuania applies lower excise duties on all types of fuel than the EU. For example, excise duties on diesel fuel are almost twice lower. Their approximation will impose additional expenses on all carriers who purchase fuel in Lithuania.
– The good reputation requirement stipulated in the Lithuanian licensing rules for carriers should be softened while keeping it in line with EU standards.
– In response to intensifying competition between local and East European carriers on the EU market as well as demands from EU-registered carriers, the European Union may contemplate the application of a transition period for the removal of quotas. In that case Lithuanian negotiators should request from the EU justification for this proposal. If this proposal is submitted, the transition period should be of a limited duration and as short as possible. The application of a transition period by the EU for the removal of non-tariff barriers between the EU and Lithuania would reduce the competitiveness of Lithuanian carriers and the benefits they would derive from EU membership.
– To accelerate the simplification of customs procedures between Lithuania and Poland as well as between Lithuania and Latvia, and to accelerate the elimination of customs check-ups.
– To repeal inspection by the Lithuanian authorities of recording equipment manufactured and certified in the EU and to apply EU principles of market supervision.
– To apply the same time schedule for mandatory installation of speed limitation devices and recording equipment.
– To reduce vehicle registration fees to the minimum level stipulated in EU regulations. To apply a uniform vehicle registration fee (for goods and passenger transport alike), linking its size to the weight of a vehicle.
– To introduce taxes on the use of top-category roads, linking their rates to the volume of road use.
– To gradually adjust the rates of excise duties on fuel to the EU level. An excise duty on gas should be introduced. At the beginning the rate of the excise duty on gas would be lower than the minimum EU rate.
– The import duty on fuel should be lowered from Lithuania’s 15 percent to 4.7 percent charged in the EU.
National road haulage
At present Lithuanian hauliers operating on the local market are not licensed. The mandatory licensing requirement set out in EU regulations will be applicable to such carriers as well. In order to obtain a licence, the good repute requirement as well as requirements regarding financial standing and professional competence must be fulfilled. This translates into large accommodation costs and reduced competitiveness for local carriers. The financial standing requirement will be the most difficult to meet. Mandatory licensing will also inflict additional costs on all Lithuanian taxpayers.
As Lithuania enters the EU, competition on the Lithuanian market will intensify, creating pressure for local carriers. It is also likely that lower labour costs will intensify pressure from carriers from the CIS countries.
Lithuanian carriers operating on the national market will have to meet technical and safety requirements applied in the EU. Although many of them are already valid in Lithuania, installation of recording equipment and speed limitation devices will be the most consequential for local hauliers. It should be noted that plans to require carriers to install speed limitation devices much earlier than recording equipment is unjustified.
Lithuanian road haulage companies are not required to provide mandatory public services and do not receive state aid, therefore related EU regulations will not affect them.
Vehicle registration fees are in many cases higher in Lithuania than in the EU, although they are fewer in number.
Lithuania applies higher excise duties on all types of fuel than the EU. Their approximation will inflict additional costs on all road carriers in Lithuania.
– EU provisions stipulate the possibility of lifting market entry requirements for hauliers operating within the national territory and making short-distance travels. It is projected that member states (after consulting the European Commission) may exempt from certain market entry requirements goods transportation companies that perform only national operations and have little influence on the transport market. Therefore EU directives can be adopted without undermining competitiveness of road carriers operating on the domestic market.
– Lithuania should negotiate a transition period for installing recording equipment in vehicles registered in Lithuania. This negotiation position is justified.
– It would be expedient to apply the same time schedule for mandatory installation of speed limitation devices and recording equipment.
The adoption of most of the said transport regulations, e.g., harmonisation of licensing rules or mandatory use and inspection of recording equipment, may become one of the factors undermining competitiveness of Lithuanian road haulage companies. This refers in particular to companies operating on national market as they will have to make the biggest investments to meet technical and safety standards as well as licensing requirements. At the same time competition is likely to intensify as EU hauliers enter the Lithuanian market and Lithuanian hauliers loose competitive advantages in the CIS countries as compared with carriers registered there. Cross-border carriers may also suffer from reduced competitiveness because such requirements as accounting of working hours and rest periods are often disregarded while travelling in such countries as Russia, where the use of recording equipment is not strictly inspected.
Growing taxes – excise duties on fuel and road taxes – are another factor that may reduce competitiveness of Lithuanian hauliers. However, this will also affect carriers who are operating in Lithuania but are registered elsewhere. An increase in tax rates may diminish the volume of economic activity and certain national transport services.
The development of road haulage in the EU shows several general trends that do not relate to concrete EU regulations but will affect the operations of Lithuanian hauliers. It is likely that the road haulage market will rapidly expand as (1) the removal of barriers to transport operations among EU member states creates conditions for bigger transport flows; (2) the integration of Middle and East European countries in the EU and gradual elimination of barriers between them create more business opportunities; and finally (3) economic integration in the EU is accompanied by increased labour division and specialisation, increasing demand for transportation of raw materials, processed and end products as well as increasingly popular “delivery on time” services.
An intensifying integration of transport markets in the EU has several implications. First, it will increase competition between hauliers from Middle and East European countries and those from the EU. At present different systems of transport market regulation exist in EU member states themselves as well as between the EU member states and candidate states (e.g., tax rates in the EU member states differ quite markedly because EU laws prescribe only minimum levels). For this reason increased competition may, on the one hand, lead some countries to deregulate the transportation sector, while on the other hand it may create pressure to preserve tariff and non-tariff barriers to EU market entry for hauliers from the candidate states even after their accession. The latter would adversely affect the competitiveness of Lithuanian carriers.
Another consequence of growing road transport flows is increased concern about pollution and traffic congestion in the EU. Three types of measures are proposed to handle these problems: (1) an increase in minimal pollution standards; (2) restriction of road transport flows; and (3) a reduction of demand for transport communication.
The first solution – increasing requirements for vehicles and fuel – is used the most frequently. Road transport flows are restricted directly by fixing quotas with the help of authorisations and licences and by raising taxes, first of all excise duties on fuel, road taxes, etc. The direct restrictions of transport flows through licensing and quotas perform yet another function – they restrict competition. That is why in response to the interests of national hauliers national governments are inclined to keep such measures. Excise duties and road taxes match the interests of national governments too by bolstering budget revenues. In addition to that, such policies usually receive public support because road transport, even of high standards, is a factor reducing the quality of environment. Therefore it is only hauliers and economic entities that directly use their services that are interested in unbridled conditions for transport business.
Lately the trend has been towards new, more extreme ways of restricting road transport. One of them is promotion of alternative modes of transport. Rail transport is the most important with regard to goods carriage. As carriage by rail, irrespective of its declared priority status, is steadily shrinking, railway companies have fewer and fewer investment opportunities. Some believe that state investment funds should be diverted form road transport to rail transport to strengthen the latter’s competitiveness. Such a turn in EU transport policy is very likely.
If transport policy continues to be used to reduce road transport flows, it would be more useful for Lithuania to be a member of the EU member. In that case carriers registered in the EU could not be subject to stricter requirements, tariffs or other discriminative measures. Such measures would be only temporary. It should be noted that many environmental requirements emanate not from the EU itself but from obligations of individual states to international organisations. Therefore, such requirements should not be linked directly to EU membership.
Analysis of the factors directly or indirectly related to EU membership and affecting Lithuania’s road haulage sector shows that in the future business conditions for Lithuanian hauliers will depend largely on the development of EU common transport policy. Yet, this does not mean that the government of Lithuania does not have leeway to adopt EU principles and regulations in such a way as to reduce hauliers’ accommodation costs and preserve their competitive advantages in the single market. It is instructive to note that Article 78 of the EU Treaty stipulates that “any measures taken within the framework of this Treaty in respect to transport rates and conditions shall take account of the economic circumstances of carriers.” Lithuanian negotiators should comply with this principle when negotiating over the ways and timing of implementing EU principles in Lithuania.