Using stick and carrot…

By Eugene Eteris

Recent transport policy development in the EU has shown that Communities all the time used “stick & carrot” approaches to regulations.

For the founding fathers in the Community already in1960s the idea that a certain transportation policy is, actually, needed was clear enough. Thus, reflecting this approach, in the EEC Treaty (Rome, 1957), when the cooperation arrangements for early integration efforts among the first six Western European states had been formulated, a new notion had been coined within the Economic Community. It was called at the time a common transport policy, alongside agricultural and foreign trade policies. This common regional endeavor, about half a century ago, evolved into consolidated Treaty on the European Union –TEU under a special section (Title V Transport). The role of transportation and communication in the Union is very important; as in itself it is a major economic sector  in the Union (See Table I).

Later on transport policy evolved into so called Community’s sectoral policies, as well as other, not less important, spheres of European economic integration, e.g. energy or industrial development. Although with a slight difference; in the latter two spheres of integration Community regulations played mostly supplementary role to that of the national policy objectives. The main idea behind such spheres of regulation as agriculture and transport, was that the Community’s regulatory means should have substituted the national ones, hence the notion of a common transport policy. 

It has to be acknowledged that it was (and so far, it is) true for common agricultural policy –CAP. At present it’s the most heavily regulated sphere of European integration; as well as most heavily financed. Community spends about half of its aggregated budget to CAP. As for transport, in the “stick and carrot” combination there have been both less “sticks” (compared to CAP) and less “carrots”. Or to put it bluntly, most of the regulations in EU transport policy were not at all heavily supported from the budget, as it was, and still is, in CAP. Therefore, a truly “common” transport policy didn’t actually work, in contrast to that of CAP, and more or less concentrated efforts in member states’ transport policy integration occurred only lately.

We have to remember that “common market” itself is a very recent EU’s achievement, i.e. in the legal sense the four major basic freedoms that the common market is built on entered into force on January 1^st 1993. That means –just a decade ago, and that isn’t much, but it’s not little either. But, on the other hand, we have to admit that so called “common economic space” can’t function properly without a single transport market’s service. The latter was actually the purpose of the present EU’s transport policy; which was easier to pronounce than to implement.

Why all of a sudden it was so difficult? Why the member states have been so passive in getting their transport issues regulated “from a single center”? The answer is simple, i.e. transport issues have been always a backbone of most national economies, and transport always been in a sort of monopolistic regime in the European states. Anyway, it’s most likely that such transport monopoly is coming to an end, the way it’s already happened with national currencies, although a decade ago nobody would believe in that.     

Transport sector in Europe:

• Its present accumulated value is about 1.000 billion Euro;
• Its share in the Union’s GDP is up to 10%
• About 10 million people work for the sector

EU transport network’s breakdown:

• Goods: Road – 44%, Sea waterway – 41%, Rail – 8, Inland waterway – 4%, Other – 8%.
• Passengers: Road – 79%, Air – 5%, Rail – 6%, Other –10%.

Source: EU Commission’s White Book on transport policy

EU transport policy: problems and realities

Explanation given above depicts member states’ resistance and unwillingness to transportation integration. Indeed, the EEC Treaty set the objectives for common transport policy in Title V (so far in force, as it’s the essential ingredient in the present EU Treaty, art. 70 – 80). These objectives, in fact, were aimed at replacing essential elements of national transportation policies. In reality, a Community policy emerged that only coordinated the national ones and provided some supplementary impetus. 

It must be emphasized that “the initial Rome Treaty’ 57” only sought a common policy for inland transportation means, i.e. roads, rail and inland waterways (not maritime or air transport, art 80 TEC). All the rest was in member states’ competence, although the EU Council could lay down certain regulatory measures, but in no way was obliged to do so. Member states could certainly come up with some initiatives but those should be truly “European and regional”. Or, as it is postulated in the Treaty, the Council may, acting by qualified majority, decide whether, to what extent and by what procedure appropriate provisions may be laid down for sea and air transport.  

As soon as most of the issues are national in essence, the Council in its decisions shall “take into account the distinctive features of transport”. These features were the following: a) transport companies have been dependent upon infrastructures built by the states; b) that strong competition took place between large state controlled railway monopolies and a multitude of small road haulage and other transport operators; c) that states required transport companies, i.e. railways, to fulfill public service obligations which distort competition, etc. That was the reason behind Community’s decision (art.71, TEC), taking into account those distinctive features, in order to take some actions, including:

• Common rules applicable to international transport, to or from the territory of a member state or passing across the territory of one or more member states;
• The conditions under which non-resident carriers may operate transport services within a member state;
• Measures to improve transport safety.

At the same time, Community imposed some obligations and restrictions on the member states in respect of transport operations carried out within the territory of the Community. First of all, discrimination on the grounds of the country of origin or of destination of goods (in the form of carriers’ charging different rates and imposing different conditions for carriage of the same goods over the same transport links) shall be abolished (art.75, TEC). Second, the imposition by a member state of rates and conditions involving any elements of support or protection in the interest of one or more particular companies or industries were prohibited, unless authorized by the Commission.

It is worth bearing in mind that the notion “transport” in the Community’s policy has a double meaning. On the one hand, it means a particular service, e.g. any undertaking’s professional activity in the sphere of rendering service of goods and passengers’ transportation. In this regard such activity should be in fool compliance with the freedom of services’ regulations in the Community. Thus, from the beginning of 1993 all national licenses, issued for foreign carriers, have been abolished and a “single EC license” been introduced.  On the other hand, transport, as a means of communication owned by private and corporate persons (See Table 2). 

How transportation means are used in the EU everyday:

• About 150 million people move to offices, schools and universities, visit relatives, etc.
• About 100 million various goods move across the continent.
• About 15 million letters and parcels move around the EU.

There are some regulations concerning EU transport infrastructure. Indeed, the TEU article 155 calls for a series of guidelines, covering the objectives, priorities and other measures in the sphere of Trans-European network (TEN). The integration of national markets through the EU “single market” can only have full economic and social impact if citizens and undertakings employ TEN structures. Most of the EU budget allocations in regional transport integration are either in “structural measures” (about 32 billion euro a year) or “other internal policies” (about 6 billion euro a year), or in TEN allocations. These “carrots” are not easy to get or to swallow; Community strives to promote the interconnections and inter-operability of national networks and access to these networks. It takes account in particular of the need to link island, landlocked and peripheral regions with the central regions of the Community (art.154, TEU). Community guidelines spell out criteria to projects of common interest in order to ensure by 2010 optimum and environmentally safe exploitation of all modes of transport.

There are requirements that should be implemented by the candidate states, e.g. concerning access to terminals and ports, or dangerous goods transportation (crude oil and other products); the latter is, in fact, a main item of transit transportation in the Baltic States. Another acute problem is that of petrol certification; in Latvia, for example, there are just 5 laboratory tests for gasoline and 3 – for diesel-petrol are needed. In the EU, it is, correspondingly, 18 and 5. In the EU all such measures are undertaken for the sake of environmental protection, and clean air. On the other hand, good petrol is a big advantage for cars’ exploitation; drivers from the Baltic States working for international carriers could feel the difference better then anyone else. But, on the other hand, only in Latvia more than 500 million liters of gasoline and 400 million liters of diesel petrol are used by drivers.

The EU perspective: good roads are vital for the common market!

During last decade the EU highway mileage increased by 25% in comparison to the previous decade. Presently, at the beginning of 2000, there have been about 50.000 km highways in the Union. The railway transport is in decline temporary (with the total length of about 154.000 km); and the most developed highway system is in Germany (See Table).

As it is seen in the Table 3, the highway density in the Union’s is six times bigger than that of the Eastern European countries; it’s good for the former and bad for the latter. In the countries of Central and Eastern Europe the length of the roads increased for the last decade be one-third, and there are less than 3.000 km of highways in this region.

The most intensive development in the Baltic States occurred within railway transport sector in Estonia and Latvia. In the latter, for example, more than 80% of the whole goods transport volumes (about 38 million ton/year) were transit. About 20.000 people are employed in Latvian transportation industry, it provides the state budget with about 600 million dollars yearly, and about 60.000 people are connected to transportation sector indirectly.

We have to say in conclusion that transport issues are becoming more and more complicated and tense competition is taking place in the EU. For the applicant countries a couple of things could be well worth mentioning. One is logistic, the term which is nowadays becoming well known to those working in the sector. The appearance of this concept is due to intensive transportation, e.g. there is no need to arrange clearinghouse’s facilities, as all necessary goods will be delivered by carriers in due time.

Another one is connected with some EU directives which are of urgent implementation importance for the Baltic States. These are directives concerning inland waterways (Commission Directive No.75, 1996) and so called combined transport; for the latter the EU budget allocates substantial financial resources. But from the EU budget the project’s applicant can get only 30% to cover the total transport modernization plans. Well, something of the carrots and something of the stick…

P.S. In the draft of the “new EU Law”, i.e. future Constitution for Europe, transportation issues are in the sphere of, so called “shared competence” and are again coupled with transport, agriculture and other sectoral issues (ten in total).So transport sector in the member states has to fight for budget allocations. Industry has been moved to “Supporting, coordinating and complementary actions”.