Deregulation and Transport in an Enlarged European Union

A Project Report by the European Science and Technology Observatory (ESTO)

Prepared by Dirk Henstra

(TNO Inro, Delft, Co-ordinator)

Leonhard Jrg

(ARCS - Austrian Research Center Seibersdorf)

Petra Dx (VDI-TZ - VDI Technology Centre, Dsseldorf) K. Matthias Weber (IPTS Institute for Prospective Technological Studies, Sevilla)

October 1999

EUR 19581 EN

About the IPTS

The Institute for Prospective Technological Studies (IPTS) is one of the eight institutes of the Joint Research Centre (JRC) of the European Commission. It was established in Seville, Spain, in September 1994. The mission of the Institute is to provide techno-economic analysis support to the European decision-makers, by monitoring and analysing science and technology related developments, their cross-sectoral impact, their interrelationship in the socio-economic context and future policy implications and to present this information in a timely and logical fashion. Although particular emphasis is placed on key science and technology (S & T) fields, especially those that have a driving role and even the potential to reshape our society, important efforts are devoted to improving the understanding of the complex interactions between technology, economy and society. Indeed, the impact of technology on society and, conversely, the way technological development is driven by societal changes are highly relevant themes within the European decision-making context. In order to implement this mission, the Institute develops appropriate contacts, awareness and skills for anticipating and following the agenda of the policy decision-makers. In addition to its own resources, the IPTS makes use of external advisory groups and operates a network of European institutes (ESTO) working in similar areas. These networking activities enable the IPTS to draw on a large pool of available expertise, while allowing a continuous process of external peer review of the in-house The interdisciplinary prospective approach adopted by the Institute is intended to provide European decisionmakers with a deeper understanding of the emerging S & T issues, and is fully complementary to the activities undertaken by other Joint Research Centre institutes. For more information: http//www.jrc.es ipts-secr@jrc.es

About ESTO
The European Science and Technology Observatory (ESTO) is a network based on a core group of 17 European leading organisations with expertise in science and technology assessment. ESTO provides real-time information on the socio-economic significance of scientific and technological advances. The ESTO network is directed and managed by the IPTS. Along with the 14 initial members, another group of institutes later became associated to the ESTO network covering all the 15 EU Member States as well as Israel. Membership is being continuously reviewed and expanded with a view to meeting the evolving needs of the IPTS and to incorporate new competent organisations from both inside and outside the European Union. The ESTO network was formally constituted in February 1997 and its principal tasks are: to contribute to the IPTS Report with articles on relevant topics; to issue, on a periodic basis, a techno-economic analysis report, which reviews socio-economic developments either arising from technological change or driving it; to produce input to long-range foresight studies undertaken by the IPTS in response to EU policy needs; to provide quick responses to specific S & T assessment queries. Contacts: esto-secretary@jrc.es

For more information: http//:www.jrc.es

ECSC-EEC-EAEC, Brussels Luxembourg, 2000 The views expressed in this study do not necessarily reflect those of the European Commission (EC). The European Commission retains copyright, but reproduction is authorised, except for commercial purposes, provided the source is acknowledged: neither the European Commission nor any person acting on behalf of the Commission is responsible for the use which might be made of the following information. Printed in Spain

PREFACE

This document is the final report of the project Deregulation and Transport in an Enlarged European Union. The objective of this project was to explore key issues emerging from the adaptation of the transport system of the first round accession countries in Eastern Europe to both the current European Union regulatory framework and to forthcoming regulations. Secondary objective was to encourage exchange of experiences and strengthen relationships between experts and policy-makers in the transport sector of the EU and the accession countries. In both respects, the work was carried out mainly to support other ongoing activities at IPTS, in particular the Futures programme and the transport/mobility project. This report gives an overview of the progress towards liberalisation and deregulation of the freight transport systems of both the EU and the accession countries. It furthermore highlights a selected number of key problem areas and challenges to policy makers in the accession process. The focus is on the effects on transport demand, environmental impacts and infrastructure requirements resulting from the accession of Poland, the Czech Republic and Hungary to the European Union. The project was carried out by the European Science and Technology Observatory (ESTO). The main project partners were: TNO Inro, the Austrian Research Center and the Verein Deutscher Ingenieure. The project partners thank Matthias Weber of the Institute for Prospective Technological Studies (IPTS) who, on behalf of ESTO, supervised the project and who in fact worked on the project along with the project partners. Furthermore we would like to thank our Eastern European project partners for their contributions in the data-gathering phase of the project: Miroslav Kubsek and Miroslav Vanura of CDV Transport Research Centre (Czech Republic) Jzsef Plfalvi of KTI Institute for Transport Sciences (Hungary) Wodzimierz Rydzkowski of the University of Gdansk (Poland) Last but not least we would like to thank the experts participating in the workshop held in Dsseldorf on May 28, 1999. Leonhard Jrg Dirk Henstra Petra Dx

TABLE OF CONTENTS

EXECUTIVE SUMMARY............................................................................................3 1 2
2.1 2.2

INTRODUCTION .................................................................................................9 TRANSPORT POLICY IN THE EUROPEAN UNION ........................................11

Progress towards liberalisation and deregulation in the EU..............................................................11 EU policies in the pipeline .................................................................................................................13

3
3.1 3.2 3.3 3.4

TRANSPORT SYSTEMS IN ACCESSION COUNTRIES..................................15

Freight transport developments in the accession countries................................................................15 Developments in market structure .......................................................................................................18 Quantity and Quality of infrastructure in place .................................................................................19 Transport policy in the CEEC ..............................................................................................................22

4
4.1 4.2

EMERGING ISSUES .........................................................................................25

Current key themes................................................................................................................................25 Exploration of emerging issues .............................................................................................................25

5
5.1 5.2

CONCLUSIONS ................................................................................................31
Key findings on the state of affairs .......................................................................................................31 Challenges for the future.......................................................................................................................33

REFERENCES ..................................................................................................35

ANNEX I WORKSHOP PARTICIPANTS ...............................................................37 ANNEX II SUMMARY OF EUROPEAN TRANSPORT POLICY INITIATIVES ......39 ANNEX III THE TINA PROJECT............................................................................45

EXECUTIVE SUMMARY

Objectives
Several Central and Eastern European Countries (CEEC) are in the process of accession to the European Union (EU). Their regulatory and organizational frameworks will have to be adjusted to the present standards of the EU and forthcoming regulations will have to be anticipated. In parallel, the transport systems in these countries are confronted with serious adjustment problems as a consequence of the restructuring of their economic relationships and activities. The aim of the study is first to assess the current state of the CEEC transport systems and regulation and second to take a look beyond the current, most pressing issues and explore some of the challenges which the integration of CEEC transportation systems into the EU transportation system will raise in the longer term. At this, the focus is on freight transport in the countries Hungary, Poland and Czech Republic, which were not only among the first countries to start negotiating accession with the EU, but also the three largest of these countries. We will discuss to what extent the whole accession process could also be seen as an opportunity for the CEECs to avoid undesired developments observed within the European transport markets in the past and present.

The current situation of transport policy in the European Union

Historically, the freight transport market in Europe has been strictly regulated. As the single European market was pursued it became clear that a common transport policy could only consist of a liberalised market structure and not a system of strict market regulations. In 1985, a decision of the European Court of Justice initiated a period of fast liberalisation, which focused on the road haulage market. As a result, the road transport market is now widely liberalised in most EU member states, although tax levels and charges still differ. Competition in the railway sector has actually not increased to the extent desired. Transport on inland waterways was widely liberalised and the harmonisation of transport subsidisation policy in the EU member countries has helped slow down the use of subsidies and stabilise the market for inland waterway shipping. A remaining problem is the enforcement of social regulations, especially regarding working conditions in the transport sector. Transport-related environmental policy (e.g. in terms of emission limits) needs to be updated continuously in order to take into account the latest developments in technology. However, the figures for modal split show a better market position of environmentally friendly modes since 1995. On the other hand, intermodal transport has not taken off and remains a marginal competitor.

The state of transport systems in the CEECs

In comparison with the situation in EU the main findings on the state of the transport systems in the accession countries can be synthesised as follows: Demand patterns After a first of declining demand for freight transport until about 1995, a reversal of this trend could be observed, going hand in hand with economic recovery. In terms of modes, the share of road transport has nearly doubled since the mid-Eighties, though with major differences across countries. Privatisation The privatisation process for road freight transport is almost finished. In the course of market liberalisation mostly small firms with weak financial standing entered the market. Privatisation in rail transport has come on the policy agenda in the last years. The separation of infrastructure and operational business has been the first step in the introduction of transparent business principles into the national railway sector. However across the CEEC remarkable differences in terms of speed and approach can be observed. Privatisation in inland waterway transport has proved to be difficult for reasons of poor economic prospects and bad condition of infrastructure in place. Market access For road freight transport, free market access (on the basis of licences) is more or less guaranteed and comparable to standards in EU countries. Financial requirements are generally lower than within the EU. There is no free access to the rail networks. Even though on legal terms the use of rail infrastructure by new entrants is possible in principle, the actual procedures and practices seem to impose high entry barriers, a situation similar to that in the EU. Adjustments of the implementation practices are currently under preparation in several accession countries. Infrastructure There is a strong demand for expanding the road network because of the growing road freight transport. The adoption of EU standards on transport weights and dimensions is likely to cause problems as the existing network is to some extent not in the condition to deal with the required standards. As far as rail and inland waterway networks are concerned, the existing capacity seems to be sufficient. Moreover, rail freight transport and inland shipping have experienced considerable losses of market share. However, there is a high demand for modernisation of capital stock in rail transport and building up of transhipment facilities for intermodal transport. The improvement and extension of the inland waterway network has a comparatively low priority as the required investment does not seem to be justified in the face of decreasing production volumes and the high environmental impacts of waterway construction. The infrastructure plans developed in the course of the TINA (Transport Infrastructure Needs Assessment) process address crucial future needs and provide valuable information. Although TINA

5 seems to provide a well-integrated co-ordination and planning platform, problems persist with respect to the co-ordination of infrastructure investment plans for CEEC and the neighbouring member states. Financing In the case of financing road infrastructure projects the adoption to the EU acquis seems to be unproblematic because no major discrepancies have been identified. However, the vast amount of investments needed may require new ways of financing and new models of infrastructure operation, e.g. along the lines of private-public partnerships. Difficulties can be expected in the financing of rail transport. High state subsidies and the current accounting practices which do not allow proper cost accounting make it difficult to meet EU requirements, even more so in the light of the high expected social costs of introducing the new regulatory framework. Taxation/Pricing Until now taxation and pricing systems differ from those in EU countries. At the level of legislation, harmonisation does not seem to be difficult. However, at the level of implementation the reduction of discrepancies in taxation levels with much lower taxation levels in the CEEC may cause considerable adaptation costs. Working conditions Regulation regarding working condition in the transport sector tends to be less strict in CEECs than in some EU countries, but the formal harmonisation with EU norms does not appear to be particularly problematic. The main problem will be to implement an effective control system. A general difference between CEEC and EU members, characterising competition conditions, is that in CEEC labour costs are lower, as is labour productivity, but these characteristics are changing quite rapidly. Similar experiences should be taken into account when fears of unequal competition come up in the course of the current discussion on the integration of the CEEC transport systems. Environment The backlog in modernising of truck fleets together with the ongoing increase in road transport volume raises environmental concerns about emission levels along the main road links between the CEECs and the EU. Trucks for border-crossing transport to the EU are increasingly equipped with advanced emission-reducing devices, but the vehicles for local and regional trips do often not meet the EU standards yet.

Current and emerging policy issues

The main current and emerging policy issues that result, directly or indirectly, from the enlargement process can be identified. The crucial point about emerging issues is that due to their often long-term character it is important to anticipate their impacts early on, and react correspondingly.

Current key themes The issues that can be considered as first priority concerns at the moment include: Infrastructure development, particularly road links between CEEC and the current EU member states to reduce traffic congestion at border-crossings: the main limitations to progress clearly lie in the availability of financial resources. Adaptation of national legislation to bring it in conformance with the EU acquis: Remarkable progress has been made in the adoption of the acquis, but key challenges are still the reduction of state influence in the national railway companies, the introduction of market forces in the transport sector, and the harmonisation of taxation systems. Liberalisation of transport markets and privatisation of state companies.

Exploration of emerging issues A number of issues have been identified which add some new and different perspectives to the ongoing enlargement debate. They are expected to become important once the formal accession process is completed. Those issues are: Catching-up versus leapfrogging, i.e. in how far will it be possible for the accession countries to avoid going through the same phase of expansion of road transport as the EU Member States did, and move immediately towards a multi-modal freight transport system, thus taking into account the current EU transport policy priorities; International versus regional transport, i.e. finding the appropriate balance between improving international transport links and the upgrading of the regional infrastructure to promote a balanced economic development across regions and avoid the widening of regional disparities; Internalisation of external costs, i.e. anticipating the implemention of a pricing framework that takes the environmental and other external costs into consideration, rather than adjusting again to the currently planned European pricing framework in a few years time.

Derived from these three key issues, a number of more specific new challenges to policy makers in both the EU and the accession countries can be formulated: The implementation of legislation and control procedures are likely to represent more important obstacles to harmonisation than the formal adoption of the acquis communitaire. The expected costs of implementation as well as the new required procedures have not yet been fully tackled in the CEECs. The balance in infrastructure development for different modes needs to be rethought rather soon. Until now, the upgrading of the road network has been the key priority of infrastructure development, and for good reasons. However, if rail infrastructures are neglected this would put into question the competitiveness of rail and intermodal transport in the longer term. The provision of a reliable framework for transport pricing would be an important signal for potential investors in transport systems in the CEECs. Postponing this issue could imply further delays in the modernisation of the transport system.

7 The harmonisation of European and national infrastructure development plans is an important precondition to ensure that the CEEC economies are efficiently connected to the EU 15. The introduction of competition in railway transport has proven to be difficult in the EU15 countries, and is likely to be at least as problematic in the CEECs, not least due to the employment implications this will have. The overall `capillarity` of the infrastructure network, i.e. a good balance in performance at its different levels from main backbones to remote areas, is crucial to avoid an excessive concentration of economic activities around the main capitals and to ensure a balanced regional economic development. Until now, emphasis has been put on the main corridors, but once new priorities for infrastructure investment are defined, the overall capillarity of the network system should be taken into account more prominently.

9 1 INTRODUCTION

Several Central and Eastern European countries (CEEC) are in the process of accession to the European Union (EU). The first countries invited by the EU to negotiate accession were Poland, Hungary, Czech Republic, Slovenia and Estonia. The regulatory and organisational frameworks of these countries will have to be adjusted to conform to the standards of the EU. As to the EU transport market, significant progress has been made in deregulation and liberalisation. Implementation of the EU deregulated framework in the accession countries will require changes in the respective national regulatory frameworks as well as additional policy actions to counteract undesired impacts. Among these expected impacts are a large growth in the demand for freight transport and, consequently, higher requirements on the infrastructure network as well as increased environmental and congestion cost. However, the challenges for the accession countries do not only concern bridging the existing gap between regulatory frameworks, but also adapting to future EU transport policy and regulations coming into force over the next years, e.g. in the fields of road safety, transport systems integration and fair and efficient pricing. Currently the integration of CEEC transport systems into the European Union is discussed along two basic questions: What are the gaps between EU regulation and CEEC regulation and how fast should the CEEC be required to bring their transport legislation in line with EU legislation? What are the infrastructure requirements and how can they be financed?

As for the first question, a detailed screening process of the accession countries is under way and should provide a clearer picture of the adaptation requirements, also in the field of transport.1 As for the upgrading and financing of infrastructure various measures have been taken. Among others the Transport Infrastructure Needs Assessment (TINA) project has been launched which should provide the main planning instrument for infrastructure investments and their financing. Given this background the aim of this study is not to duplicate the ongoing screening process but to take a look beyond the current, most pressing issues and explore some of the challenges which the integration of CEEC transport systems will raise over the next ten to fifteen years. Beyond the mere adaptation of EU legislation and upgrading of infrastructure we will discuss to what extent the whole accession process could also be seen as an opportunity for the CEEC to leap-frog undesired developments observed within the European transport markets in the past. Furthermore we will highlight some challenges for CEEC transport policy which might become important after the completion of the accession process.

Results of this comprehensive screening conducted by the EC have been integrated in the Regular Reports on Progress Towards Accession which are available for all pre-accession countries. See the EC website under http://europa.eu.int/comm/enlargement/docs/index.htm.

10 Starting from a basic overview of the recent developments in the EU transport market (chapter 1) we outline the current transport markets in the CEEC and the progress made so far in bringing their transport legislation in line with EU requirements (chapter 2). The following chapter (chapter 3) summarises the major problem areas and discusses the identified gaps and mismatches with the EU framework. Chapter 4 pinpoints unsolved problems and future challenges. Finally chapter 5 draws the main conclusions and synthesising remarks. This report is the result of the ESTO project on Transport and Deregulation in an Enlarged European Union. It draws on three sources: Detailed information provided by experts in CEEC which were involved in the data gathering phase of the project. Their reports are separate annexes to this document. A review of relevant literature and statistical material. An expert workshop that brought together policy makers and practitioners both from members states as well as from CEECs (the participants are listed in annex I).

The research work concentrates on the three largest first round accession countries, i.e. Poland, Czech Republic and Hungary. With respect to transport area and modes we focus on freight transport via road, rail and inland waterways.

11 2 TRANSPORT POLICY IN THE EUROPEAN UNION

In this section a brief overview is given of the current situation and progress towards liberalisation and deregulation of the European transport system (section 2.1) and of EU policies in the pipeline (section 2.2).

2.1

Progress towards liberalisation and deregulation in the EU

Historically, the freight transport market in Europe has been strictly regulated. Regulation has consisted of fixing tariffs and setting quantity restrictions for market entry (licenses), quality requirements (capital, reputation), working conditions (driving time) and standards for vehicles and operation (weights, measures, speeds, access). As the single European market was pursued it became clear that a common transport policy could only consist of a liberalised market structure and not a system of strict market regulations. In 1985, a decision of the European Court of Justice initiated a period of fast and occasionally hectic liberalisation which focused on the road haulage market. In the railway sector, the basic principles for market oriented development were formulated in the EU Commission Directive 91/440. This obliges Member States to reduce state involvement and increase the competitive power of the railway companies by decreasing accumulated debt, introducing commercial financial management, substituting flat rate subsidies by contracting out public services, separating the infrastructure accounts form the operating business and providing access to the infrastructure for third parties. Apart from payments for public service and specific funding for infrastructure provision, the railways are to finance their operational activities without state subsidisation. Although some reforms have been undertaken (in Sweden, Germany and the United Kingdom), competition in international rail transport has actually not increased to the extent desired. The European railway sector remains highly nationally fragmented. The observed difficulties in liberalising the European rail market reflect the expected high social and political costs of introducing market forces and the still big differences between member states in terms of state involvement. Thus it has been difficult to achieve commitment by several member states in implementing the liberalisation policy proposed by the EU. Transport on inland waterways was widely liberalised by the Mannheim Agreement of 1868, an accord that guaranteed free shipping on the river Rhine. Barriers to competition were only set for the waterways in Northern France and the Benelux where the tour-de-rle system of allocating freight to French/Benelux carriers was established. These barriers will be abandoned in the year 2000. As transport on Europes busiest waterways was not regulated, the main public interventions consisted of subsidisation and infrastructure provision. Harmonisation of transport subsidisation policy, which began with Directive 70/1107, in the EU member countries has helped slow down the use of subsidies and stabilise the market for inland waterway shipping.

12 The road transport market is widely liberalised in most EU member countries. Tariff regulation has been abandoned completely and later on: market access was extended to remove quantity limitations; driving/rest time, quality regulations and technical standards were harmonised (at a low level); free cabotage was introduced.

Concerning taxes, there are still (sometimes considerable) differences between the member states, but minimum levels of fuel and vehicle taxes have been set; member states are free to levy a higher rate. In addition, some member states levy time-based charges while others apply usage-based charges. Only Austria levies both. A remaining problem is the enforcement of social regulations regarding the working conditions in the transport sector. As driver costs account for 50 per cent of total operating costs, there is a high incentive to violate the regulations of transport operations, such as driving bans on weekends, permits for combined transport activities, and the enforcement of the maximum driving times/minimum rest times. Since 1996, the EURO II environmental standards restrict the maximum emission values of CO, HC, NOx and particulates. Many truck manufacturers have already announced that they are able to meet the EURO III standards, which will not be introduced until 2000. This indicates that environmental policy is somewhat lagging behind the technological progress. Overall freight transport markets in Europe have changed dramatically in the past two decades. All relatively environment-friendly modes have lost market shares while road transport has expanded. Railways have lost in absolute and relative terms. Reasons include the structural change in market demand, their inertia to adjust to demand requirements, slow progress of railway reforms due to political protection and the lack of harmonisation such as balanced regulation and internalisation of externalities. The potential for rail freight markets to transport high volumes over long distances therefore has not been exploited. Also, intermodal transport has not taken off and remains a marginal competitor. The situation in Sweden, Finland and Austria is interesting in this respect. The three countries joined the EU at the beginning of 1995, i.e. after the first phase of the EC-wide liberalisation policy. Before that time, they had already implemented environmental policies in the transport sector which make for the suggestions raised in the recent Green and White Papers of the European Commission.2 This is also reflected in the modal split figures, which show a better market position of environmentally friendly modes. Also the modal split of transit traffic is influenced by this policy, as for instance in the case of trans-Alpine intermodal transport to and from Italy. There is enough statistical evidence to support the following hypothesis: the way the liberalisation process has been organised in the EU has had a significant impact on the freight transport market

See in particular the 1998 White Paper on Fair Payment for Infrastructure Use: A Phased Approach to a Common Transport Infrastructure Charging Framework in the EU (COM(98)466 final).

13 structure. The process started in 1985 with the road sector and, led also to some changes for inland waterways transport. However, the implementation of a liberalised and harmonised framework for the railway sectors in the Member States has not yet progressed as fast as it would have been desirable. As a consequence, there are indications to support the argument that the delay in liberalising and harmonising the rail sector accelerated the modal shift from rail and waterways to the roads [OECD, 1997/2].

2.2

EU policies in the pipeline

As far as new policy initiatives are concerned, several green and white papers have been published in the last few years. The most recent priorities are set out in the commission paper "The Common Transport Policy - Sustainable Mobility: Perspectives of the Future (1998)". For the time horizon 2000 to 2004 these are specified as follows:3 1. Improving efficiency and competitiveness: 2. liberalising market access (particularly rail) ensuring integrated transport systems across Europe (TEN, extension to accession countries following TINA, traffic management systems, intermodal transport) ensuring fair and efficient pricing within and between transport modes (launch first stage) enhancing the social dimension (working conditions)

making sure that the rules which have been agreed are properly implemented Improving quality: safety: particularly road safety environment: particularly tightening emission standards (for heavy duty vehicles in 2000 and 2005) Improving external effectiveness: agreements with CEEC.

3.

To some extent the recent policy initiatives taken by the European Commission can be seen as an attempt to counteract undesired developments in the transport markets. Given that the observed developments in the European transport markets (i.e. the ongoing modal shift towards road transport) are in themselves a result of past transport policy the new priorities indicate a remarkable regime shift. Overall the listed priorities reflect the growing awareness for environmental damage caused by transport and the decreasing public acceptance for further large-scale infrastructure expansion. Against this background the listed priorities come down to three general strategies: Accelerating the harmonisation process in order to secure equal competition throughout Europe (social and environmental standards). Improving the competitiveness of rail transport through liberalisation. Developing integrated transport systems across Europe.

Summaries of the most relevant policy documents can be found in Annex II of this report. It is expected that during 2000 and 2001, a number of the these documents will be updated or replaced by new ones.

14 However, that green and white papers are not yet implemented policy, but indicate more or less consolidated objectives and policy plans. This means, for example, that the envisaged new framework for road charging and infrastructure pricing is still subject to uncertainty with respect to both content and timing of its actual implementation in the Member States.

15 3 TRANSPORT SYSTEMS IN ACCESSION COUNTRIES

In this section a brief status review is given of the current situation of the inland freight transport systems in those countries that until end 1999 had a priority status as compared with the other preaccession countries (Czech Republic, Estonia, Hungary, Poland, Slovenia). After a short outline of recent developments in the CEEC (section 3.1) the transport systems are discussed in terms of market structure (section 3.2) and quantity and quality of infrastructure in place (section 3.3). Then the main orientation of transport policies in the accession countries is described (section 3.4).

3.1

Freight transport developments in the accession countries

The economic transition in the course of the system change towards market economies led to considerable changes in transport markets and transport systems in the countries considered. Five major developments can be distinguished: 1. The deep economic recession in the first half of the 1990s diminished the volume of transport demand considerably. Today, transport volumes account for only two thirds to half of those in the 1980s. This had major consequences for the economic viability of firms and infrastructure supplies. 2. The reorganisation of production and distribution, and the emergence of new specialisation patterns in the international division of labour changed the market shares of transport modes. With the shift from resource intensive production to labour intensive production, rail and inland waterways lost market shares in favour of road transport. Market shares of road freight transport increased from about 40% in the 1980s to around 60% today. 3. The liquidation of Comecon and the growing economic integration with Western Europe changed the spatial patterns of transport flows. North-South relations (within and among the accession countries) lost in relevance while East-West relations (especially border-crossing traffic to and from Western Europe) gained in relative and absolute terms. 4. The general liberalisation, privatisation and deregulation of economic activities also affected freight transport markets. State monopolies were loosened and market entries for new firms (both domestic and from abroad) were enabled. 5. Within the re-design of the whole policy framework, transport policies changed, too. New policy approaches refer to infrastructure development, taxation, charging and infrastructure financing, social and environmental regulation, privatisation, and technical standards. In general, the change in transport policies represents a move towards EU standards. As indicated above, transport markets changed significantly within the last years. Major trends in transport patterns which can be observed in almost all of the countries considered and which affect future deregulation measures include: strong decreases in the demand for rail transport and strong increases in the demand for road transport, a large increase in the transport flows from and to EU countries, leading to capacity bottlenecks in East-West relations, especially at border crossings,

16 privatisation and considerable liberalisation in road freight transport resulting in a huge increase in the number of firms operating on the market so that today road freight transport is dominated by small privately-owned firms, no significant privatisation steps in rail transport and only limited modernisation efforts, all large rail companies are still state-owned or directly controlled by ministries; however, new initiatives are under way in some of the CEECs. high state subsidies to the railway system in order to maintain a high level of employment despite diminishing demand and the need to improve efficiency, a lack of intermodality between road and rail transport, few changes in the system of inland waterways, but inland waterways playing a minor role as mode of transport in the countries considered (except transit traffic on the Danube in Hungary before the war in Yugoslavia), new ways of infrastructure financing in the road system, including tolls and private financing of new roads, adaptation of the tax system for road traffic as an element of a general tax reform in the transition process.

The changes in transport volumes which were observed in the course of the economic transition are illustrated in the following tables. Table 1 contains the information on total inland freight transport volumes since 1980. In all countries the total inland freight volumes decreased substantially. While the reduction in Poland amounted to about 45% in the period from 1980 to 1996, Hungary experienced an even bigger decrease (minus 70%). Table 1: Total inland freight transport in first round accession countries 1980-1996 (Bio tkm) 1980 1985 1990 1995 1996 Poland Hungary CZ Estonia Slovenia 181.6 38.0 10.1 7.8 156.9 36.6 10.9 9.0 123.1 33.7 11.5 9.1 120.2 21.8 44.0 5.2 5.3 124.8 22.4 42.9 5.6 5.1 Source: ECMT Figures 1 and 2 show that the decrease in freight volume was in fact a decrease in rail freight volume. The modal split changed fundamentally towards road transport. Figure 1 also shows the relative insignificance of inland waterway transport. Figure 2 shows that in the two smaller accession countries (Estonia and Slovenia) road transport suffered relatively more from the sharp decrease in freight volumes in the beginning of the Nineties than rail transport. Nevertheless, the overall picture is an increase in the modal share of road transport.

17 Figure 1: Freight transport by mode in Hungary, Poland, Slovenia and Estonia

180 160 140 120 Bio tkm 100 80 60 40 20 0 1980 Rail Road Inland Waterways

1985

1990

1995

Source: ECMT Figure 2: Development of market share of road transport in total inland freight transport
modal share road in inland transport (%) 65 60 55 50 45 40 35 30 25 20 1980 Hungary Slovenia Poland Estonia all 4 countries

1985

1990

1995

Source: ECMT A similar development has been observed within the EU. Apparently the CEEC are following the same path with some time lag. A comparison with the latest figures on the EU Transport market reveals that up till now the CEEC are still above the EU level with respect to market share of rail transport. However they have reached the levels of the last round accession countries (i.e. Austria,

18 Sweden and Finland), with Austria and Sweden coming close to 40% of market share held by railway [EUROSTAT, 1998]. Table 2: Freight transport by modes in first-round accession countries in 1996 Road Bio tkm Poland Hungary Czech Republic Estonia Slovenia 56.5 13.1 19.3 1.7 2.5 % 45.3 58.4 45.0 30.4 49.0 Rail Bio tkm 67.4 8.0 22.2 3.9 2.6 % 54.0 35.7 51.8 69.6 51.0 Inland Waterways Bio tkm % 0.9 1.3 1.4 0.0 0.0 0.7 6.0 3.2 0.0 0.0 Total Bio tkm 124.75 22.44 42.85 5.6 5.1

Source: ECMT, national statistics In spite of the significant differences in terms of infrastructures, topografy, economic specialisation and wealth, the experiences made in countries such as Austria and Sweden regarding how to maintain relatively high level of rail market shares could still be instructive for the CEEC. Even though opinions about measures taken by countries such as Austria may diverge, they give an idea of the types of regulative interventions which are still accepted within the EU to steer demand for different transport modes.

3.2

Developments in market structure

The organisation of freight transport markets in the accession countries can be characterised by a duality between a highly liberalised road freight transport market and a still fully state-controlled and more or less monopolised rail freight transport market. Thus, levels of market access, competition and market dynamics differ considerably. On the road freight transport market, the level of competition is high. There has been a large number of new market entries within the last years. According to the specific country reports produced in the course of this project the total number of freight transport enterprises in the five countries considered reaches more than 180.000 in 1996/97 (Poland: 75,000; Hungary: 60,000; Czech Republic: 35,000; Slovenia: 9,000; Estonia: 3,500), most of them being very small. Privatisation has proceeded so that today between 70% and 90% of the road freight transport potential (measured in terms of vehicles) is supplied by privately-owned firms. Former state-controlled monopolies are still major players but have adopted to market conditions. The volume of road freight transport has increased in all countries considered and is expected to continue along this path in the next ten years. Although considerable investments in the road network take place, limited road capacities, congestion and deteriorating road qualities (especially on the secondary network) are major problems. Furthermore, despite a modernisation of the truck fleet there is still a considerable share of vehicles under operation (especially in domestic transport) which do not meet the environmental and safety standards of the EU. Due to the dominance of small-sized firms

19 with limited investment capabilities a rapid modernisation of the fleet can not be expected in the short to medium term. On the rail freight transport market large state-controlled railway companies dominate or are the only suppliers of services. The market access is still highly restricted. First steps at least on the level of legislation (e.g. decree by the Polish Minister of Transport in 1998) have been taken to open up the railway infrastructure for third parties. However, the set up of transparent entry conditions and finally the actual implementation can not be expected to be achieved in the coming years. Consequently there is no real competition within the rail transport market. The discrepancies with the situation in the EU 15 are fairly low though, because in most EU countries competition in rail transport is not fully effective, either. In each country railway companies face similar difficulties such as decreasing demand for rail transport, decreasing profitability, underemployed personnel, a high investment demand in vehicles, infrastructure, buildings, information systems, marketing etc. Investments and operating deficits are fully financed by the state. Attempts to initiate an economic restructuring of railway companies are restricted by the expected negative employment effect. In fact, productivity indicators for railway transport are low compared to most EU countries and an increase in efficiency will require a significant reduction in personnel. In some countries, first initiatives were started in order to split railway companies in an infrastructure and a service organisation. Despite the weak market performance, railways are still a major mode of transport in the accession countries especially for bulk goods. The substitution of a significant part of their present transport volume of more than 100 billions tkm per year by road or inland waterway transport is not realistic. Furthermore, the ongoing economic recovery of the accession countries will not lead to a further strong reduction in the transport demand for bulk goods. Thus, a careful proceeding in order to modernise railway companies and market structures seems an appropriate approach. The potential difficulties on this way do not seem more serious than in many EU countries. Inland waterway freight transport plays a minor role in the five countries considered. The only exception is freight transport on the river Danube in Hungary, which is dominated by international traffic. Here, the regulations set out in the framework of the International Danube Commission apply. In Poland a small and decreasing volume of transport is shipped on the rivers Odra and Vistula. In the Czech Republic there is some goods traffic on the river Labe. Access to domestic inland waterway traffic is partially liberalised but economically unimportant. International inland waterway freight transport is ruled by bilateral and multilateral treaties.

3.3

Quantity and Quality of infrastructure in place

The road infrastructure in the first-round CEE accessing countries is less developed compared to EU countries, especially concerning motorways. In the accessing countries the density of motorways (length of motorways and express ways per unit of territory) is only one tenth of the respective value for Germany. The motorway length per capita is still a fifth of the German figure. Furthermore, the motorway networks are strongly domestic oriented and mainly link the most populated areas with each

20 other (which is reasonable because these are the relations with the highest volume of traffic). Bordercrossing motorways towards EU countries are widely missing. Many international roads (E-roads) in the accessing countries consist of only one track per direction. From 1990 onwards, efforts were made to close these missing links. The quality of roads is not up to European standards yet. This holds especially for the regional and local roads (which constitute the majority of all roads) but also applies for interregional and international roads (although to a smaller extent). Quality problems include both a lack in maintenance of road pavements and insufficient width and load capacities of the existing road network. Furthermore, some missing links within the national road network (e.g. bridges) and a large number of national and international roads running through built-up areas of towns and villages hamper road traffic. The quality of trucks operating in the accession countries has improved both in terms of loading capacity and environmental impacts. Today about the half of the total fleet is not older than 9 years. Terminals connecting road transport with other modes can only be found at major ports. A problem that may become even more important with respect to the enhancement of intermodal transport is the lack in intermodal transhipment facilities between road and rail (e.g. container terminals). The rail infrastructure is well developed in terms of quantity. The length of the total railway network per unit of territory in the five accession countries is only slightly smaller than the respective figure for Germany. In terms of length per capita, the railway network is even denser than in Germany (and in most other EU countries). Approximately 40% of all railway lines are operated electrically, more than 25% of the network are double track lines. Nearly all lines have the standard European width of 1435 mm. In contrast to the road network, international links towards Western Europe are well developed which is mainly due to the history of the railway network establishment in the 19th century. The quality of the railway network is considered to be fairly poor, however. Due to a lack of maintenance and investment in new rails the maximum speed allowed is low on many lines, especially on the secondary network. Since the Second World War some major new investment took place on relations where transport quantities increased due to the new division of labour within the Comecon system. Today these relations are strongly affected by the reduction in transport demand and offer high free capacities, but mainly in North-South direction. They are thus of little relevance with regard to growing East-West traffic in the course of EU accession. Vehicles and terminals are in a relatively poor condition and do not meet the requirements of modern transport systems. This is especially true for intermodal facilities. Safety equipment on tracks and vehicles is sufficient for ensuring a safe transport but are not up to the level of most EU countries. The inland waterway network within the five countries considered consists of five river sections (Danube and Thisza in Hungary, Labe in the Czech Rpeublic, Odra and Vistula in Poland) which are not directly inter-connected. Among these rivers, only the Danube allows for international traffic with standard vessels of 1350 t capacity while all other inland waterways are laid out for smaller vessels. Vessels and ports are old and of poor quality in general although the existing infrastructure is

21 sufficient for the small transport volume being shipped. A significant increase in transport volumes would demand major investment in ports and waterways (such as improvements in the navigability of Labe, Odra and Vistula and the construction of new waterways connecting the three rivers with each other and the river Danube). It is unlikely, however, that there will be such a high demand for the transport of bulk goods on these relations; the high investment could thus hardly be justified. In all accession countries infrastructure investment is nearly exclusively financed by the state from national or regional budgets or indirectly via subsidies to railway companies. The same holds true for the maintenance of existing infrastructures. There are some examples of infrastructure financing by private consortia (e.g. motorway construction in Hungary). In such cases, specific tolls are collected for infrastructure use. A pivotal step to expand the Trans-European Transport Network towards the eastern accession countries was set with the establishment of the Transport Infrastructure Needs Assessment (TINA) process. Based on elements of the transport network of the candidate countries4 TINA is defining the future Trans-European Transport Network in the enlarged European Union. This network should link the candidate countries with the current EU countries. A first progress report from August 1998 sets out a backbone network for road, rail and waterway transport and estimates the likely costs. At this planning stage the backbone multi-modal network comprises 13.497 km of railway lines and 12.050 km of roads and 35 airports, 11 sea ports and 49 river ports as nodes of the backbone network (TINA 1998). Cost estimations led to a total investment volume up to 2015 of 66 billions EURO for the backbone network. On the territory of the five first-round accession countries in CEE, the backbone network embraces approximately 6.400 km of roads, 7.200 km of railway lines and 570 km waterway sections (excluding Danube). As far as investment cost in the CEEC are concerned the estimations amount to more than 34 billions EURO. Including additional network components the total costs are expected to be more than 48 billions EURO (see also Annex III for further information on the TINA network). In this planning stage the TINA process established a platform for co-ordinated infrastructure planning. A valuable additional output of the TINA process can also be seen in the systematic set-up of transport and infrastructure data, the lack of which has shown to be a serious problem for past planning and forecast activities. As for the realisation of the TINA network the crucial factor will be the financial ability and commitment of both the EU and the candidate countries. As the financial burden lies most of all on the side of the candidate countries the investments for realising the TINA network have to be valuated against investments in the secondary transport network. In this context one has to be aware that national benefits of investments in international transport networks depend highly on the quality of the regional networks and the availability of links between both. So far, little systematic work has be done

The candidate countries for accession are: Hungary, Poland, Slovenia, Estonia, Czech Republic and Cyprus (1st wave) and Latvia, Lithuania, Slovakia, Romania, Bulgaria (2nd wave).

22 to assess these cross benefits and to develop strategies which can help to allocate (limited) financial resources accordingly. Difficulties in expanding the TEN-network to the candidate countries can be expected in linking-up the TINA-network adequately to the transport infrastructure of neighbouring member-states, particularly Austria. For example, the Czech proposal of an additional road component on the stretch Brno - Pohorelice - (border to Austria) has no continuation on Austrian side (TINA 1998). In Austria no motorway connection is planned. This example touches one of the core problems of European transport policy: the alignment of community and national interests in infrastructure development. From the perspective of member states covered by the TEN-network the distribution of costs and benefits does not seem to be symmetric because the financial as well as environmental burden lie most of all on the side of the single member state, whereas the main benefits can be expected to accrue for the community as a whole. However, even from the perspective of national governments the reluctance to align national infrastructure plans to proposed EU-transit routes and corresponding infrastructure investments can easily lead into lose-lose situations. Opting out from common infrastructure development activities can even increase the local environmental burden as the (transit) traffic will flow anyway and will cause more environmental damage when the infrastructure in place is not up to cope with it efficiently.

3.4

Transport policy in the CEEC

Since the beginning of the nineties the accession countries have undergone a major transition process, affecting the entire economy. The transition aimed to build up efficient market structures in all domains of the economy, including transport provision. Beyond the direct restructuring of the transport industries, the privatisation and liberalisation of major production and service sectors also had important impacts on the transport sector. Even though the accession countries had quite different starting conditions in terms of quality of infrastructure, trade routes and transport demand, their transport policies have followed more or less the same path. At the level of infrastructure development the priority clearly lies on extending and upgrading the road network. Compared to the financial resources mobilised for upgrading the road network, rail and inland shipping clearly received less attention from the authorities. This has to be seen in the context of changed transport demands. While the trade between the former Comecon countries which was mainly based on rail transport collapsed in the first phase of the transition process, transport demand for trade with the European Union increased. This goes hand in hand with the transition of the industrial production. While resource and transport-intensive (bulky) industries for which rail was the main mode of transport decreased, transport of (relatively high value) manufactured goods increased. All of this led to a significant change in the modal split towards road transport. Therefore perceived bottlenecks lied clearly in the realm of road rather than rail or inland shipping network. Concerning the liberalisation of transport markets the accession countries faced two main challenges. The first challenge was to set out the rules of the game, namely to develop a regulatory framework which would encourage private initiative and the foundation of transport firms. The second challenge

23 was the privatisation of state owned transport conglomerates. Against this background it is somewhat misleading to talk about deregulation of transport markets in CEEC. In the course of the integration process there was not so much a need for less regulation but for different regulation. With respect to legislation the accession countries have made remarkable progress in adopting EU standards. There is clearly the political will to diminish discrepancies between national regulation and EU regulation. Nevertheless, a number of critical issues still need to be tackled. Problematic is still the introduction of market forces in rail-transport even though first steps have been made (on the level of legislation) in the separation of infrastructure and operating business. Similar to experiences made within the EU it proves to be difficult for national governments to reduce state involvement in the railsector. This has to be seen in the context of expected social impacts of introducing competitive forces in the rail sector. Given the low productivity of the national railway companies and their high debts a painful and politically risky downsizing phase can be expected from deregulating the rail-transport market. Furthermore, environmental issues seem not to get the attention from transport policies some EU countries (most of all Austria and Germany) would like to see. This raises the more general question of asking more from the CEEC than many EU-member states are prepared to implement for themselves. In this context one has to be aware that until now the sustainable transport concept has not been adopted in the EU. Privatisation, access to the market As far as road freight transport is concerned access to the profession and access to the market is fairly liberalised in all countries in question, with Hungary being the first to have liberalised its road freight transport market. Problematic remains the access of foreign carriers to the domestic markets, particularly in the Czech Republic. Overall, the regulation of market access seems to be in line with EU regulation. Differences prevail with respect to the required financial standing of new entrants. EU regulation requires significantly better financial standing than current legislation in the accession countries. Adaptation is also necessary in the realm of cabotage traffic, which is still strongly restricted in the CEECs. Privatisation of state enterprises is well under way. Again, among the accession countries Hungary is clearly leading. Poland which has passed the control of 174 state companies on to provincial administration is lagging behind somewhat. Overall, the number and market share of state owned enterprises has sharply decreased in all countries. In the course of liberalisation many small firms entered the market resulting in a relative low market concentration. As a consequence EU integration of transport systems is likely to increase competition and to initiate market consolidation as has been already witnessed in Hungary. As far as rail freight transport is concerned we have still a de-facto monopolistic market structure in the accession countries. Although regulation on the separation of infrastructure and operation as well as access to the infrastructure for third parties is under way, little has been implemented so far. Here the backlog of accession countries seems to be highest, although also among the member states huge differences in the implementation progress of EU rail regulation prevail. To some extent this can be

24 explained by the high social costs of deregulating the rail-freight market. Nevertheless a more determined approach seems to be necessary as the lost market shares to road transport might be hard to win back the longer innovations and productivity in the rail sector are inhibited by protective regulation. Market access to inland shipping is basically liberalised. Access of foreign carriers is currently regulated on basis of bilateral agreements. Main restrictions concern technical and operating barriers like strict limitations for cabotage traffic and third countries transport. Discrepancies with EU norms also exist in the required financial endowment of new hauliers. Privatisation of inland shipping facilities and carriers proved to be difficult. Particularly in Poland the poor economic prospects for inland shipping caused by decreasing demand and bad condition of infrastructure and fleet, made it difficult to attract private investors. Pricing, taxation and infrastructure charging The liberalisation of transport markets involves also the introduction of the free pricing principle. The free pricing principle has been implemented completely in the road freight-transport market of the accession countries. Problematic remains the price setting in the rail freight transport. As the market is still dominated by national monopolists, free price setting may undermine the very objective of deregulation namely to increase efficiency by introducing competition. In the case of rail transport free pricing might allow national monopolists to deter third parties from using the railway-infrastructure. In Poland, for example, the ministry of Transport and Marine Economy regulates the charges for access to the railroad infrastructure. Prices have to be cost-based and should reflect maintenance costs, the technical standards of the line used and the time of usage. The actual price is set by the national railway company. Whether the prices set are justified or not can only be assessed on the basis of sound information on real costs. This requires high transparency as well as an independent control body. Neither is in place in the current situation. The taxation levels in the accession countries are considerably lower than within the EU. Taxation is mainly based on vehicle taxes and excise duty from fuels. The Czech Republic introduced road tax for business vehicles instead of vehicle tax. Main discrepancies with EU standards occur where national taxation and charging practice discriminates between foreign and domestic operators. In the case of Czech Republic double taxing of foreign vehicles (vehicle tax in the state of origin and road tax in the Czech Republic) might constitute a disadvantage for foreign carriers. On the other hand, differences in taxation and charging levels between accession countries and EU standards are perceived as entry barrier for carriers from the accession countries. Taxation as an instrument for introducing additional incentives for more environmental friendly transport is used in the Czech Republic and Hungary. Both grant considerable tax exemptions for combined transport.

25 4 EMERGING ISSUES

This chapter seeks to identify the main current and emerging policy issues that result, directly or indirectly, from the enlargement process. Most of the current issues reflect urgent and almost obvious problem pressures. However, the crucial point about emerging issues is that due to their often longterm character it is important to anticipate their impacts early on, and move them onto the policy agendas in time.

4.1

Current key themes

The issues that can be considered at the moment as first priority concerns in transport policy include: Infrastructure development, Highest priority has been given to road links between CEEC and the current EU member states to increase capacity at border-crossings and thus reduce traffic congestion, but also a number of other projects; Adaptation of national legislation to bring it in conformance with the EU acquis. This comprises also the harmonisation of taxation systems in the transport sector; Liberalisation of transport markets and privatisation of state companies;

As far as the infrastructure development is concerned, the main limitations to progress lie clearly in the availability of financial resources, requiring to identify key priority projects (as e.g. through the TINA process). In this sense the key factors determining infrastructure development are first of all the main current bottlenecks and secondly the changing patterns of transport demand. So far the scope for long-term intermodal infrastructure development has been small. At the level of legislation the formal adoption of EU-legislation has made remarkable progress. Key challenges are still the reduction of state influence in the national railway companies and the introduction of market forces in this sector. However, this is a challenge which the CEEC share with the majority of EU member states.

4.2

Exploration of emerging issues

Recapitulating the main findings of our research reveals a somewhat ambiguous picture. On the level of formal legislation the CEEC seem to have made big progress in adapting EU standards. The remaining discrepancies do not seem to constitute major obstacles in the accession process. Most problems are expected to occur in the implementation of the new regulation by national authorities. At the current stage little information is available on expected implementation costs and envisaged implementation and control procedures. In the course of our research and the workshop which was held with transport experts from CEEC and member states several issues were raised which seem to be underrepresented in the current debates. Interestingly the ongoing discussion of the accession of the CEEC tends to fade out some important aspects that are considered highly relevant for the introduction of sustainable transport principles,

26 which is supposed to become the underlying strategy of the new European Transport policy. The reason for this might lie in the specific negotiation dynamics in this round of EU-enlargement. At the time of the previous accession process, Austria, Sweden and Finland tried to get long transition periods in sensitive areas (especially with respect to environmental issues) and fought to maintain national standards as widely as possible. The CEEC, on the contrary, seem to be more willing to adopt EU environmental standards to speed up the integration process. As far as transport policy is concerned, a similar constellation of interests can be identified with respect to working conditions and safety regulations. Whereas it is in the interest of the accession countries to adopt EU-standards as soon as possible, concerns have been raised in the neighbouring member states (e.g. Austria and Germany) about the competition impacts which a fast integration would have on the national transport industries. In the following we will highlight issues which add some new and different perspectives to the ongoing enlargement debate. Moreover we want to pinpoint issues which are expected to become important once the formal accession process is completed. Catching up versus leapfrogging Overall it can be observed that the CEEC are undergoing a similar process of priority shifts in transport policy as the member states. At first sight it seems to be just a question of how fast the CEEC can catch up with the technical and infrastructure standards of the EU transport system. This process is supported by both sides, the EU as well as the national governments of CEEC. So far little attention has been paid to the question of whether this implicit catching-up strategy, implying a repetition of the member states development path, is really the best way forward. In fact, there is scope for revisiting and learning from the recent experiences of the member states. Following the same path as most EU member states make the CEEC also bound to make the same mistakes. One should ask to what extent the CEEC could take advantage of the experiences made during the restructuring of the transport system in the western European countries. One might expect that the position of the follower bears the opportunity of avoiding mistakes and benefit from experiences of others. In this respect one good example is the current emphasis put on improving the road infrastructure in order to meet growing demand for road transport and on the deregulation of road transport. The same has been done in most EU member states resulting in a significant shift in the modal split from rail to road transport, i.e. it had impacts which nowadays would be assessed as rather problematic. Policy of the EU and of independent member states is currently moving towards stimulation of sustainable transport. It would obviously be a major challenge for the CEEC to embark immediately on a strategy of multi-modal and sustainable transport rather than one of expanding road transport. A fast expansion of road transport would most probably mean that it would be hard to win the lost market shares of rail transport back in the future. In other words, the CEECs are certainly at an important bifurcation point, having major implications with respect to the long-term development of their transport systems. With this experience in mind it is at least worthwhile to think of alternative scenarios. Even though it seems to be politically hard to master, an alternative strategy could involve to start with the modernisation of the railway sector by accelerating the introduction of market forces and focusing investment plans first

27 on the railway sector. This leads also to a typical dilemma, namely that of the lead time needed for upgrading rail or intermodal systems. It conflicts with the short- to medium-term needs to promote economic development. Even though the leapfrogging strategy sounds appealing, it might be difficult to pursue in the current position of the CEEC. First, it would be difficult to justify why the CEEC should play the role of showcases for future transport systems. In other words, the EU can not ask the CEEC to implement principles of sustainable mobility and transport which are not even met by the majority of member states. Second, leapfrogging might be an expensive strategy in the current situation requiring priority shifts and presumably new approaches for influencing transport demands. In the face of a very dynamic economic development on the one hand and clear need to modernise infrastructures to cope with the expected future demand growth, the space for alternative transport policy approaches is limited. There is nevertheless the possibility to trigger moderate priority shifts from the side of the EU. On the one hand the EU contributes to the upgrading of the infrastructure and can thus influence priority settings. On the other hand the requirements of the EU implicitly set priorities as they bind or unleash resources for activities beyond the EU framework. For example the required upgrading of the secondary road network in order to meet EU standards of axle width and weight may be rather costly compared with the expected benefits for the national economy and efficiency for regional traffic, which still accounts for the biggest share of transport volumes. Here a lead-time policy which takes more account of longer terms costs and benefits for required adaptations could open new perspectives for the CEEC. Again, what the leapfrogging strategy might make a risky venture is the fact, that the common EUtransport policy of the coming years is currently in flux. There is no certainty that the objectives outlined in the recent policy documents of the Commission will finally be translated into EU legislation. Against this background it is not necessarily wise to follow a leapfrogging strategy as long as there is no clear consensus on the long-term development of EU-transport policy. International versus regional transport policy The concentration of economic activities around agglomerations and capitals gives rise to one of the main transport problems at present. Transport infrastructures are on the one hand one of the driving forces for economic development of agglomerations, but on the other also a limiting factor and a cause of negative impacts on the quality of life. Furthermore the concentration of economic activities in agglomeration centres is likely to attract economic resources and people from less developed regions. In the long term this development increases regional disparities. Current economic and infrastructure development strategies of the CEEC as well as of the EU do not seem to tackle this problem in its full ramifications, due to a lack of resources and a focus on the improvement of international connections. The new Trans European Network (TEN) and other main links determine the quality of location and spatial structures, whilst the accessibility of regions is an under-represented issue.

28 The economic importance of the quality of the secondary transport network can also be seen when we look at the average transport distances (table 3). As shown the biggest share of transport demand in the CEEC is still short distance (see table 3 and 4). This particularly holds for road transport. Table 3: Czech Republic: average distances (from 1998 prognosis) 1990 1991 1992 1993 1994 1995 1996 1997 road km 22,6 29,5 34,9 43,2 49,6 51,8 50,4 77,9 rail km 205 210,2 222,6 203,2 208,1 224,5 199,6 188,3 Water km 212,7 254,2 261,7 249 238,9 300,7 424,5 422,9 Source: country report As can be seen in table 4, more than 70 % of road transports in Hungary takes place within a radius of 50 kilometres. Table 4: Hungary: Road transport by kilometre-zones Kilometre zones < 50 51 149 150 499 > 500 Total Bio t 190,398 47,870 23,549 641 262,458 Source: country report Against this background improving the capillarity of the transport system as a whole could become a major task for future transport policy in the CEEC. Given the current investment strategies it seems necessary to anticipate this future investment requirements and to define second wave investment priorities in transport which aim to improve the balance between international big scale transport corridors and the secondary network. This would also require to systematically assess costs and benefits of the regional network development as it is done now just for the TEN projects. In this context one has to be aware that improvements of the capillarity of the transport system as a whole goes beyond the sphere of EU-transport policy as the regional transport development lies most of all in the realm of national or even regional authorities. Nevertheless EU-integration could ease the access of the CEEC to the knowledge base and know how on regional transport development which is currently build up within the EU R&D initiatives, in particular within the fifth framework program. Here the CEEC could be supported by accelerating the diffusion of state of the art knowledge and technology. Internalisation of external costs Another issue that seems to be left out in the current discussion on the integration of the CEEC concerns the internalisation of external costs. The rapid modal split towards road freight transport and the substantial decrease of transport volumes in rail transport does not only reflect the changes in the economic specialisation of CEEC but is also the result of cost disparities between rail and road. To a large extent this goes also back to the lack of internalising external costs. The privatisation and

29 liberalisation of road transport markets lead to the entry of numerous small firms and, as a consequence, to excess capacity in road transport. This triggered price competition, which again increased cost discrepancies between road and rail transport. These general statements about trends in the internalisation of external costs need to be seen in conjunction with the major discrepancies in terms of taxation and level of infrastructure charging in the individual CEECs. Overall there seems to be no explicit strategy on internalising external costs, even more so as environmental damage caused by transport still has a relatively low priority in the CEEC. In this context the CEEC are not necessarily an exception because the internalisation of external costs is still in the very beginning in most member states. While this is partly due to measurement problems and practicalities of pricing, the delay in forming a political consensus seems to be the main obstacle. Again, the current situation in the CEEC where new infrastructure is set up and new regulation is introduced can also be seen as an opportunity to introduce principles and concepts for internalising external costs from the beginning.

30

31 5 CONCLUSIONS

In this chapter the main findings on the state of the transport systems in the accession countries are synthesised (section 5.1). Furthermore the main future key issues and derived challenges to policy are highlighted (section 5.2). Given the complexity of the situation and the exploratory character of the results, the development and formulation of more specific recommendations to policy have to be left to more comprehensive exercises.

5.1

Key findings on the state of affairs

Privatisation The privatisation process for road freight transport is almost finished. In the course of market liberalisation mostly small firms with weak financial standing entered the market. Privatisation in rail transport has come on the policy agenda in the last years. The separation of infrastructure and operational business has been the first step in the introduction of transparent business principals into the national railway sector. However across the CEEC remarkable differences in terms of speed and approach can be observed. Privatisation in inland waterway transport has proved to be difficult for poor economic prospects and bad condition of infrastructure in place.

Market access For road freight transport free market access (on the base of licences) is more or less guaranteed and comparable to standards in EU countries. Financial requirements are generally lower than within the EU. There is no free access to the rail networks. Even though on legal terms the use of rail infrastructure by new entrants is possible in principle, the actual procedures and practice seem to impose high entry barriers (like in the EU). Adjustments of the implementation practice are currently under preparation in several accession countries.

Infrastructure There is a strong demand for expanding the road network as road freight transport is growing fast and is expected to continue to do so in the future. The adoption of EU standards on transport weights and dimensions is likely to cause problems as the existing network is to some extent not in the condition to deal with the required standards. As far as rail and inland waterway networks are concerned the existing capacity seems to be sufficient. Moreover, rail freight transport and inland shipping have experienced considerable losses of market share. However, there is a high demand for modernisation of capital stock in rail transport and building up of transhipment facilities for intermodal transport. The improvement and extension of the inland waterway network has low priority as the required investments does not seem to be justified in the face of decreasing production volumes and the high environmental impacts of waterway construction.

32 The infrastructure plans developed in the course of the TINA (Transport Infrastructure Needs Assessment) process address crucial future needs and provide valuable information. Although TINA seems to provide a well-integrated co-ordination and planing platform, problems arise with the co-ordination of infrastructure investment plans for CEEC and the neighbouring member states. In the case of Austria the national masterplan for transport infrastructure development seems to set different priorities and does not link up to the TINA planning process.

Financing In the case of financing road infrastructure projects the adoption to the EU acquis seems to be unproblematic because no major discrepancies have been identified. However, the vast amount of investments needed may require new ways of financing and new models of infrastructure operation. Difficulties can be expected in financing of rail transport. High state subsidies and the current accounting practice which does not allow proper cost accounting make it difficult to meet EU requirements, even more so in the light of the high expected social costs of introducing the new regulatory framework.

Taxation/Pricing Until now taxation and pricing systems differ from those in EU countries (although also among EU countries there are still considerable differences). At the level of legislation, harmonisation does not seem to be difficult. However, at the level of implementation the reduction of discrepancies in taxation levels with much lower taxation levels in the CEEC may cause considerable adaptation costs. Working conditions Working condition regulation tends to be less strict in CEEC than in some EU countries, but harmonisation with EU norms does not seem to be a difficult task. The main problem will be to implement an effective control system (both within the EU and in the accession countries). Here the two most affected neighbouring countries, Germany and Austria, have strong concerns about potential unfair competitive conditions for their transport companies. A general difference between CEEC and EU members, characterising competition conditions, is that in CEEC labour is cheap while labour productivity is relatively low. There is a parallel with the accession of Portugal and Spain: Northern hauliers feared the cheap labour, Spanish and Portuguese hauliers feared the efficient northern hauliers. Interestingly, in the course of the EU-integration the raised fears on both sides proved to be overdrawn. This experience should be taken into account when similar fears come up in the course of the current discussion on the integration of the CEEC transport systems. Environment Truck fleets were modernised during the last years. However, there are still many vehicles that do not meet the environmental standards of the EU. Due to the large number of small firms on the road freight transport market in the accession countries it seems unlikely that a modernisation of these vehicles can be realised in the short term. Beyond the problem of upgrading the fleets in order to meet EU emission standards environmental concerns arise most of all with the ongoing

33 increase in road transport volumes. With the introduction of liberalised cross-border transport and the abolishment of transit restrictions with Austria and Germany environmental concerns are likely to become more important.

5.2

Challenges for the future

At the moment the first priority concerns include: Infrastructure development, particularly road links between CEEC and the current EU member states; Adaptation of national legislation to bring it in conformance with the EU acquis; Reducing traffic congestion at border-crossings; Liberalisation of transport markets and privatisation of state companies; Harmonisation of taxation systems.

Achieving these goals will mark the first step towards integration of the accession countries in the EU transport system. At the same time new policy issues emerge, three of which have been discussed in this report: Catching-up versus leapfrogging, i.e. in how far will it be possible for the accession countries to avoid going through the same phase of expansion of road transport as the EU Member States did, and move immediately towards a sustainable transport system; International versus regional transport policy, i.e. finding the appropriate balance between improving international transport links and the upgrading of the regional infrastructure to promote a balanced economic development across regions; Internalisation of external costs, i.e. implementing a pricing framework which takes the environmental challenges into consideration while upgrading the transport system to enable economic convergence with the EU.

Derived from these three key issues, a number of more specific new challenges to policy makers in both the EU and the accession countries can be formulated: Implement legislation and control procedures On the level of legislation the CEEC have made big progress in adapting EU standards. The remaining discrepancies do not seem to constitute major obstacles in the accession process. Most problems are expected to occur in the implementation of the new regulation by national authorities. At the current stage little information is available on expected implementation costs and envisaged implementation and control procedures. Find a balance in infrastructure development for different modes At the moment the main resources available for infrastructure development are used for upgrading the road network. This is legitimate in the light of the growing demand for road transport as a result of changes in production and the relative higher quality of rail infrastructure compared to road infrastructure in the CEEC. However, the policies of the EU and of independent member states are currently moving towards stimulation of sustainable transport. A challenge for the CEEC is embarking

34 immediately on a strategy of multi-modal and sustainable transport, as the lost market shares of rail transport might be hard to win back in the future. Provide a reliable framework for transport pricing Although the fair pricing of infrastructure use is already on the Euroepan policy agendas, the implementation of a reliable and general pricing framework for transport (including the internalisation of external costs) would be important for investors in CEECs in order to dispose of a reliable planning base for the major investments to be made over the coming years. Harmonise European and national infrastructure development plans Although TINA seems to provide a well-integrated co-ordination and planing platform, problems arise with the co-ordination of infrastructure investment plans for CEEC and the neighbouring member states. In the case of Austria the national masterplan for transport infrastructure development seems to set different priorities and does not link up to the TINA planning process. For an efficient allocation of resources, harmonisation of plans on the European level and on the level of member states is needed. Introduce competition in railway transport In the EU the introduction of competition in the railway sector has proved to be a difficult and timeconsuming process. To a large extent this is due to the resistance of railway companies and reluctance of national governments to implement changes. Introducing competition on railways in CEEC requires even more drastic reorganisations than in the current member states, as real privatisation has not started yet in the CEEC. These reorganisations will have social side-effects (employment) which are difficult to accept. Keeping in mind the experiences in the current EU, policy makers face the challenge to find an approach bringing the decline in railways market to a halt, while minimising the negative social side-effects. Increase capillarity of the infrastructure network The relative low density of the motorway network in the CEEC and the current focus on improving international links contribute to the concentration of economic activities around agglomerations and capitals. In the long term this development may cause negative impacts on standard of living and increase regional disparities. Against this background improving the capillarity of the transport system as a whole could become a major task for future transport policy in the CEEC. Given the current investment strategies it seems necessary to anticipate this future investment requirements and to define second wave investment priorities in transport which aim to improve the balance between international big scale transport corridors and the secondary network. This would also require to systematically assess costs and benefits of the regional network as it is done now just for the TEN projects.

35 6 REFERENCES

Country reports produced within the project CDV, 1999 KTI, 1999 UOG, 1999 CDV Transport Research Centre, Deregulation and Transport in an Enlarged European Union Status review Czech republic, Prague/Brno, 1999 KTI Institute for Transport Sciences, Deregulation and Transport in an Enlarged European Union Status review Hungary, Budapest, 1999 University of Gdansk Department of Transport Policy, Deregulation and Transport in an Enlarged European Union Status review Poland, Gdansk, 1999

Other references CEC, 1996 CEC, 1998/1 CEC, 1998/2 CEC, 1999 ECMT, 1995 ECMT, 1997 Commission of the European Communities, A Strategy for Revitalising the Community's Railways, White Paper, Brussels, 1996 Commission of the European Communities, Fair Payment for Infrastructure Use, White Paper, Brussels, 1998 Commission of the European Communities, The Common Transport Policy Sustainable Mobility: Perspectives for the Future, Brussels, 1998 Commission of the European Communities - DG VII, Guide to the transport acquis, Brussels, 1999 European Conference of Ministers of Transport, Transport infrastructure in Central and Eastern European countries, Paris, 1995 European Conference of Ministers of Transport, Selected elements of Polish transport policy in the light of activities of ECMT new member states, Prepared by Monika Bak of the University of Gdansk, Gdansk, 1997 European Conference of Ministers of Transport, Rail restructuring in Europe, Paris, 1998 European Conference of Ministers of Transport, Report on the Current State of Combined transport in Europe, Paris, 1998 Hall, Derek R., Transport and economic development in the new Central and Eastern Europe, Belheven Press, London 1993 International Road Union, CEEC Manual - IRU Handbook on the European Harmonisation of Road Transport Legislation, 2nd edition, Geneva, 1998 Jokomin, L. and I. Trupac, Transport - Ein Faktor der Verbindung von Slovenien und Europa, in: Internationales Verkehrswesen (50), November 1998 Informationen zur Umweltpolitik (126): Osterweiterung Umwelt- und Verkehrsfragen, AK, Vienna 1998

ECMT, 1998 ECMT, 1998 Hall, 1993 IRU, 1998 Jakomin, 1998 Lauber, 1998

36 Lowe, D., Legislative Barriers to Pan-European Logistics, in: Pan-European Logistics: Strategies for success in supply chain management, Financial Times, London, 1998 NEA, 1998 NEA, Verkenning van de Europese wet- en regelgeving marges voor nationaal verkeer & vervoerbeleid, Rijswijk, 1998 OECD, 1997/1 Organisation for Economic Co-operation and Development, Liberalisation and Structural Reform in the Freight Sector in Europe, Paris, 1997 OECD, 1997/2 Organisation for Economic Co-operation and Development, Freight and the Environment: effects of trade liberalisation and transport sector reforms, OCDE/GD(97)213, Paris, 1997 Rydzkowski, 1998 Rydzkowski, W., Major directions of transport policy in Poland, prepared for TNO Inro Workshop on August 24, 1998 TRANS-POR, 1998 TRANS-POR, Passenger Transport Policies - Freight Transport Policies, Deliverable D14 & D15 of the SCENARIOS project, February 1998 WSE, 1997 Warsaw School of Economics - World Economy Faculty, Common Europe Economic Dilemmas of Transport and Ecology, TRANS 97 Conference, Warsaw, 1997 EUROSTAT, 1998 Office for Official Publications of the European Communities, EU Transport in Figures, Luxemburg 1997 TINA, 1998 Transport Infrastructure Needs Assessment Central and Eastern Europe, Progress Report, Vienna 1998 Lowe, 1998

37 ANNEX I WORKSHOP PARTICIPANTS

Participants of the project workshop, held in Dsseldorf, May 28, 1999: Petra Chvlov (Ministry of Transport and Communications, Czech Republic) Reg Evans (Halcrow Fox, United Kingdom) Endre Gelenscr (Ministry of Transport, Communication and Water Management, Hungary) Christian Heschtera (Institut fr Finanzwissenschaft und Infrastrukturpolitik, TU Wien, Austria) Roland van der Klauw (TNO Inro, The Netherlands) Miroslav Kubsek (CDV Transport research Centre, Czech Republic - Brno) Frank Markschat (TNT Logistik, Germany) Jzsef Plfalvi (KTI Institute for Transport Sciences, Hungary) Peter Schneidewind (sterreichisches Institut fr Raumplanung, Austria) Wim Smolders (International Road Transport Union, Belgium) Miroslav Vanura (CDV Transport research Centre, Czech Republic - Prague) Matthias Weber (IPTS, Spain) Dirk Henstra (TNO Inro, The Netherlands) Leonhard Jrg (Austrian Research Centres Seibersdord, Austria) Petra Dx (VDI Technology Centre, Germany)

38

39 ANNEX II SUMMARY OF EUROPEAN TRANSPORT POLICY INITIATIVES In the following a brief overview of the most relevant policy documents and initiatives concerning these priorities is given. Attention is paid to: Trans European Networks; Towards Fair and Efficient pricing in transport; Charging for Infrastructure; A strategy for revitalising the communitys railways; Road safety programme; Emission standards.

Trans European Networks (TENs) In the Maastricht Treaty, signed in 1991 the establishment of TENs for the main modes: road, rail, combined transport, airports, seaports and inland waterways is announced. The objective of these networks is to ensure sustainable and safe mobility of persons and goods within the EU under the best social conditions. Infrastructures must be of high quality, with fares and rates acceptable. In the construction of these networks the comparative advantage of the different modes and the connections between the peripheral regions and central regions should be taken into account Priority projects were identified (The Essen 14 projects) and include road links, rail links and inland waterway links, About 80% of the budget concerned with these infrastructure investments is used for rail links. Important to notice is the fact that the proposed road and rail networks are based on existing national investment programmes and that EU funding is only available where support is necessary to overcome financial obstacles. In preparation for the enlargement of the European Union, in 1996 the European Commission set up the Transport Infrastructure Needs Assessment (TINA) to oversee and co-ordinate the development of an integrated transport network in the 11 countries that have applied for EU membership, and to ensure coherence with the TENs within the EU. As in the EU, the idea is to upgrade existing infrastructure or build anew in order to create a coherent network out of the current patchwork of transport links and achieve safe and speedy connections between countries that are necessary to increase the efficiency of the Single Market and maximise the potential of European trade. The existing framework for the network in eastern Europe is the 10 Pan-European corridors and four Pan-European transport areas which have been endorsed at a series of pan-European Transport Conferences, the latest of which took place in Helsinki in June 1997.

In the TINA process, the Transport Ministries, the European Commission and the TINA Secretariat have worked to define the precise transport links that should make up the eastern transport network, which means translating the multimodal corridors into specific rail, road and other projects and, where appropriate, adding extra links to complete a coherent network. The result of this exercise is the TINA network in its present outline which comprises 18,030 kilometres of roads, 20,290 kilometres of railway line, and 49 river ports.

40 Towards fair and efficient pricing in transport (1995) The essential message of this Green Paper that transport users should pay the full costs that are caused by a particular transport mode. Paying full costs means paying for pollution and other external effects in order to encourage environmentally friendly, fairer and more efficient use of transport. In this Green Paper a number of short term policy measures are suggested. Important measures are: adjusting existing EU legislation on road charges for heavy goods vehicles; introducing electronic kilometre charges for heavy goods vehicles based on infrastructure damage and other parameters; introducing road tolls in congested and/or sensitive areas; setting differentiated fuel taxes based on differences in fuel quality setting differentiated vehicle taxes in accordance with the vehicles environmental and noise characteristics.

Fair Payment for Infrastructure Use (1998) In this White Paper a phased approach to a common transport infrastructure charging framework in the EU is described. This approach is necessary because the great diversity of infrastructure charging systems across modes of transport and Member States undermines the efficiency and the sustainability of Europes transport system. The actual charging systems leads to distortions of competition within and between modes. The proposed charging system is based on the user pays principle (already mentioned in the Green paper Towards Fair and Efficient Pricing ). In order to give transport users and providers the time to adjust to the new situation a phased approach is suggested. Restricting ourselves to the inland infrastructure (roads, railways and inland waterways) the Community Rules and actions on infrastructure charging in transport are summarised in the table below.

41
First stage (1998-2000) Establish charging approach All infrastructure Development of methods to estimate marginal costs of transport Promote development of transport account as Member State level Develop accounting principles to safeguard cost recovery for terminals promote road pricing Urban road pricing R&D Demonstration city road pricing projects Promote harmonised electronic charging schemes Develop standards electronic charging for Cost related charges for commercial operators mandatory Second stage (2001-2004) Consolidate consistent charging basis As in phase 1 plus the review of charging practices Third stage From 2004 Transition Operate

Roads

Facilitate the introduction of km charging for HGV Proposal for a Council Directive based on distance related charging for marginal costs, and compensatory payments for uncovered external costs of competing modes

Examine options for reduction in transport related charges and other taxes Investigate possible noise charges Update and propose extension of marginal cost charging regime to passenger rail operators covering infrastructure costs and externalities Infrastructure charging directive covering infrastructure costs and externalities

Railways

Inland waterways

Next to these infrastructure related charges attention is paid to prevent that energy taxation systems and State aid rules distort transport decisions or inhibit the development of efficient transport charges. A Strategy for revitalising the communitys railways (1996) Essential in this White Paper is the belief of the European Commission that the railways could do much to sustain mobility in the next century. However, the falling market share of rail transport gives reason for urgent action to revitalise the sector. Recognising the fact that Member States and the railway companies themselves have the most important task in this, the Community has set a range of actions in its own area of responsibility. The actions are summarised in the table below.

42
Issue Finances Introduction of market forces Objective Relieving debts of railway companies Improve efficiency performance and Action Integration of national systems Breaking barriers down national Social aspects Competitive railway companies by reducing workforces Ensure that railways can exploit their comparative advantage Ensure application of Community Rules on railway finances and on State aids Creating access rights for international traffic Separation of infrastructure management and transport operations General principles for capacity allocation and infrastructure charges Promote creation of international rail freight freeways (TERFFs) Promote interoperability for conventional rail, Advance technical harmonisation to create a single market for railway equipment Strengthen railway research Personnel policies to retrain redundant workers

Wider policy

Support intermodal terminals and the development of intermodal systems by Pilot Actions for Combined Transport (PACT) Inclusion of all costs in the price paid by transport users of all modes

Promoting road safety in the European Union: the programme for 1997-2001 This programme recognises the high social cost of road accidents and proposes a cost benefit approach to the task of improving road safety. Specifically it proposes several measures to facilitate the gathering and dissemination of information and best practice and other measures to enable motorists to avoid accidents (alcohol and drug restrictions and the use of telematics) and to reduce the consequences of accidents where they do occur (safety ratings for various car models and the development of further design improvements on the front and side of vehicles to protect vulnerable road users, like pedestrians and cyclists). The programme includes the adoption of co-ordinated standards, controls and penalties in areas such as vehicle roadworthiness, the granting and withdrawal of driving licences, and professional drivers' driving time and rest periods. Emission standards heavy goods vehicles (Ecopoint Inc.) The European regulations for heavy-duty diesel engines are commonly referred to as Euro I to V. The Euro I standards for medium and heavy-duty engines were introduced in 1992. The Euro II regulations came to power in 1996. On December 21, 1998, the European Council of Environment Ministers reached a political agreement on the final Euro III standard (amendment of Directive 88/77/EEC) and also adopted Euro IV and V standards for the year 2005/2008. The standards have been by the European Parliament. The text agreed by the Council also sets specific, stricter values for extra low emission vehicles (also known as "enhanced environmentally friendly vehicles" or EEVs) in view of their contribution to reducing atmospheric pollution in cities.

43 It is expected that the emission limit values set for 2005 and 2008 will require all new diesel-powered heavy duty vehicles to be fitted with exhaust gas aftertreatment devices, such as particulate traps and DeNOx catalysts. The 2008 NOx standard will be reviewed by December 31, 2002 and either confirmed or modified, depending on the available emission control technology. The following table contains a summary of the emission standards and their implementation dates. Table 3: EU Emission Standards for HD Diesel Engines, g/kWh (smoke in m-1) Tier Euro I Euro II Euro III Date & Category 1992, <85 kW 1992, >85 kW 1996.10 1998.10 1999.10, EEVs only 2000.10 2005.10 2008.10 Test Cycle CO ECE R-49 4.5 4.5 4.0 4.0 ESC & 1.5 ELR ESC & 2.1 ELR 1.5 1.5 HC NOx PM Smoke 1.1 8.0 0.612 1.1 8.0 0.36 1.1 7.0 0.25 1.1 7.0 0.15 0.25 2.0 0.02 0.15 0.66 0.46 0.46 5.0 0.10 0.13* 3.5 0.02 2.0 0.02 0.8 0.5 0.5

Euro IV Euro V

* - for engines of less than 0.75 dm3 swept volume per cylinder and a rated power speed of > 3000 min-1

Changes in the engine test cycles have been introduced in the Euro III standard (year 2000). The old steady-state engine test cycle ECE R-49 will be replaced by two cycles: a stationary cycle ESC (European Stationary Cycle) and a transient cycle ETC (European Transient Cycle). Smoke opacity is measured on the ELR (European Load Response) test. For the type approval of new vehicles with diesel engines according to the Euro III standard (year 2000), manufacturers have the choice between either of these tests. For type approval according to the Euro IV (year 2005) limit values and for EEVs, the emissions have to be determined on both the ETC and the ESC/ELR tests. Emission standards for diesel engines that are tested on the ETC test cycle, as well as for heavy-duty gas engines, are summarised in table 4.

Table 4: Emission Standards for Diesel and Gas Engines, ETC Test, g/kWh Tier Euro III Date & Category Test Cycle 1999.10, EEVs only ETC 2000.10 ETC 2005.10 2008.10 CO NMHC 3.0 0.40 5.45 0.78 4.0 4.0 0.55 0.55 CH4a 0.65 1.6 1.1 1.1 NOx 2.0 5.0 3.5 2.0 PMb 0.02 0.16 0.21c 0.03 0.03

Euro IV Euro V

a for natural gas engines only b not applicable for gas fueled engines at the year 2000 and 2005 stages c for engines of less than 0.75 dm3 swept volume per cylinder and a rated power speed of > 3000 min-1

44 EU Member States will be allowed to use tax incentives in order to speed up the marketing of vehicles meeting the new standards. Such incentives have to comply with the following conditions: they apply to all new vehicles offered for sale on the market of a Member State which comply in advance with the mandatory limit values set out by the Directive, they cease when the new limit values come into effect (i.e. in 2000, 2005 or 2008) for each type of vehicle they do not exceed the additional cost of the technical solutions introduced to ensure compliance with the limit values.

A new proposal, to be submitted by the European Commission by 31 December 2000, should include: rules pertaining to the introduction of an on-board diagnostic system (OBD) for heavy-duty vehicles from October 1, 2005 (similarly as provided for in Directive 98/69/EC on the reduction of exhaust emissions from passenger cars and light commercial vehicles), provisions on the durability of emission control devices with effect from October 1, 2005 (to ensure that they operate correctly during the normal life of a vehicle), provisions to ensure the conformity of in-service vehicles which are properly maintained and used, appropriate limits for pollutants currently non-regulated as a consequence of the widespread introduction of new alternative fuels.

45 ANNEX III THE TINA PROJECT The definition of the TINA network is based on several assumptions: The network should be in line with the criteria laid down in the EU guidelines for the development of the TENs (Council decision 1692/96/EC). Technical standards of the future infrastructure should be in line with the recommendations of the UN/ECE Working Party on Transport Trends and Economic (WP.5) on the definition of transport infrastructure capacities (Trans/WP5/R.60), ensure consistency between the capacity of network components and their expected traffic. The time horizon for achievement of the network should be 2015. The cost of the network should be consistent with realistic forecasts of financial resources, so that average costs should not exceed 1.5% of each country's annual GDP over the period up to 2015. The TINA network distinguishes two types of infrastructure networks: the so-called backbone network, i.e. the 10 Pan-European transport corridors endorsed by the Third Pan-European Transport Converence in Helsinki, and the additional network components, selected in the course of the TINA process. The TINA network consists of links (road, rail and inland waterway sections), nodes (terminals, ports, airports) and some components of logistic infrastructure and safety measures. For the five first-round accession countries in CEE, the backbone network embraces approximately 6400 km road sections, 7200 km railway sections and 570 km waterway sections (excluding the Danube). TINA estimates the total investment cost for the upgrading of these sections to amount to more than 34 billions Euro. Including additional network components the total costs of investment are more than 48 billions Euro. Furthermore, infrastructure investment in sea ports, airports and terminals account for ca. 5 billions Euro. Table 5 shows that the total costs of investment remain below the upper limit of 1.5% of the annual GDP accumulated over the time period 1998-2015 for each of the five countries considered whereas for all other CEEC infrastructure investment according to the TINA network represents a serious financial burden. A tentative assessment of the TINA network in the five countries considered may be summarised as follows: The backbone network addresses all major bottlenecks existing in road and railway infrastructure between EU countries and accession countries. Despite one North-South corridor in Poland all backbone network components follow East-West direction and connect major economic areas with EU countries. The additional network components seem to be of less priority and sometimes of little relevance for the adaptation of transport infrastructures to EU membership. Some of them, however, are a precondition for increased trade and economic interaction among the accession countries after full integration in the common market.

46 The balance between road and railway investment differs strongly across countries with Hungary and Slovenia having a clear concentration in road infrastructure (see Table 5). In the first report little attention is paid to intermodality and interoperability, terminal infrastructure, and organisational and logistic aspects where major shortcomings do exist. These issues will be addressed in the next phase of the TINA project but nevertheless should be regarded as crucial points in developing an improved freight transport infrastructure supply in the accession countries.

Table 5: TINA network investment costs for the first-round CEE accession countries
1.5% of accumulated GDP 19982015 Total costs for TINA network Share in accumulated 1.5% of GDP Road Rail Inland waterway incl. river ports

Czech Rep. Estonia Hungary Poland Slovenia

Source: TINA

MECU 17,400 11,00 13,900 48,200 6,600

MECU 9,357 524 5,437 34,231 3,614

% 53,8 47,6 39,1 71,0 54,8

MECU 4,295 216 3,617 15,504 2,583

% MECU 45,9 4,117 41,1 248 66,5 999 45,3 14,607 71,5 844

% MECU 44,0 714 47,2 0 18,4 400 42,7 412 23,3 0

% 7,6 0,0 7,3 1,2 0,0