COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT - Towards an integrated European railway area

Contents

Introduction: The White Paper and the need for a new railway package

1. Five proposals for rapid progress towards an integrated European railway area

1.1. Developing a common approach to rail safety

1.2. Bolstering the fundamental principles of interoperability

1.3. Setting up an effective steering body: the European Railway Agency

1.4. Clarifying the role of the Community in OTIF

1.5. Completing the internal market in rail freight services

List of measures proposed in this package

2. Ways to make the railway market more dynamic and improve quality: future action

2.1. Conditions for success for rail freight

2.2. Developing high-quality international passenger services

List of measures proposed

ANNEX 1: Lines of action to improve the performance of European rail freight

Developments and shortcomings in the rail freight market

The alarming deterioration in the performance and quality of rail freight

Overcoming entry barriers to the rail freight market

Providing high-quality infrastructure for a more efficient rail freight sector in Europe

Improving the environmental performance of rail freight services

ANNEX 2: Situation with international rail passenger services

The existing Community legal framework

Current market situation for international rail passenger services 55

Improving the quality of international passenger services 57

Abbreviations

Introduction: the White Paper and the need for a new railway package

The Stockholm and Göteborg European Councils established further reform of Europe's railways, with the presentation of a second package of measures by the end of 2001, as a priority objective.

This was taken a step further in the White Paper "European transport policy for 2010: time to decide" adopted by the Commission on 12 September 2001 [1], in which revitalising the railways is one of the key components in the strategy proposed by the Commission to shift the balance between modes.

[1] COM(2001) 370. See, in particular, the action programme (p. 105) and Chapter I.B "Revitalising the railways".

However, the situation reported in the White Paper is patchy, to say the least. Rail's market share is continuing to decline, while quality standards for goods services remain far from sufficient and, in some cases, are deteriorating. Beyond doubt the greatest cause for concern is the state of rail freight services since their share of traffic, taking all modes together, stands at 8% today compared with 21% in 1970 and, looking at inland transport alone, at 14% from 35%. Despite a number of promising developments, new initiatives on the market and restructuring of the historic railway undertakings in various Member States, the pace of change has not been fast enough.

For this reason, the White Paper proposes an ambitious action programme revolving around three types of measures to revitalise the railways:

- First, a fair system for charging for all modes of transport must be put in place to reflect the full value of the cleanest modes.

- Next, development of the trans-European transport network must continue, giving strong priority to rail and concentrating on removing bottlenecks and adding new major railway projects to the list of priority projects adopted in Essen, taking account of the need to improve access to the outlying regions and to regions suffering from geographical handicaps.

- Finally, a legally and technically integrated European railway area must be constructed.

The measures proposed in this communication come under the third of these lines of action in the White Paper.

One key phase in progress: implementation of the infrastructure package

The measures proposed in this communication presuppose establishment without delay of the framework mapped out by the "infrastructure package" - Directives 2001/12/EC, 2001/13/EC and 2001/14/EC [2] - which entered into force on 15 March 2001 and must be implemented by 15 March 2003 at the latest.

[2] OJ L 75, 15.3.2001.

These directives clarify the roles and responsibilities of all the players, i.e. of the railway undertakings providing the transport services, of the infrastructure managers responsible for developing the infrastructure and providing access to it on clear, appropriate terms and, finally, of the supervisory bodies with the task of arbitrating potential conflicts between railway undertakings and infrastructure managers. Relations between these three players must be set in a framework ensuring a transparent flow of information to the operators, legal certainty in contractual relations between them and neutrality in essential functions such as licensing railway undertakings, allocating infrastructure capacity and charging for use of infrastructure. These are the minimum preconditions if existing operators are to mount pan-European services and new prospective operators are to start running railway services.

Beyond that, the financial relations between these different activities must be clearly identified by effective separation of the accounts to enable railway undertakings to keep closer tracker of the costs of their operations and to avoid cross-subsidisation. Such clarity in the accounts is the minimum which European taxpayers can expect as they see 35 billion euros injected into Europe's railway system every year in the form of investment in infrastructure and compensation for public service obligations. Here too transparency is a must.

The legal framework must ensure this, both in the form of the clear rules in the European directives which the States have to incorporate into their national legislation equally clearly as early as possible and by implementing the Community rules on competition applicable to undertakings and State aid.

Directive 2001/12/EC also provided for the Commission to set up a system for permanently monitoring developments on Europe's railways.

Accordingly, the Commission has laid the foundation for a market surveillance mechanism based on permanent monitoring of relevant statistics and indicators allowing rapid detection of trends in the railway sector as a result of the measures already taken.

This mechanism, devised together with the Member States and all involved in the railway industry, is a valuable means of gauging how fast the railway industry is adapting to its new European dimension. It will be extended to the candidate countries from the start of 2002. It can be used to underpin the new measures proposed in this second package and to monitor them in the field.

Shortcomings remain in the legal and technical framework.

Lack of interoperability on the European network is one of the biggest obstacles to providing pan-European services, particularly for goods. Since the early '90s the European Community has been working intensively in this field, starting with the high-speed network now being developed. Adoption in the near future of the technical specifications for interoperability for high-speed rail services, the fruit of five years' work by hundreds of experts from the railway industry, railway undertakings and infrastructure managers mobilised by Directive 96/48/EC, will clear the way for transferring this expertise to the conventional railway network. Adoption of Directive 2001/16/EC by the Council and the European Parliament allowed an immediate start to be made on the necessary technical work, which is now underway.

The discussions within the Council and the European Parliament on the infrastructure package and on the interoperability of conventional rail services coupled with the experience gained from developing the technical specifications for interoperability for high-speed rail services have brought to light a number of shortcomings which could seriously impair effective implementation of the rules decided. In particular, it is time vigorously to tackle the complexity of the railway system which is still suffering too much from the conservatism and protectionism of a century ago. Admittedly, the railways have a long history and the excuse of the long service life of their infrastructure and equipment. But to give railways a chance in the new Europe being built, a sense of urgency must be breathed into them and a framework set up to galvanise the industry to seek solutions to problems which are difficult but not insurmountable if appropriate mechanisms are put in place.

In this context, there is a need to reinforce the existing framework in the following areas:

- rail safety, currently based on national rules adopted at different levels or by the undertakings themselves, must be guaranteed by rules which are made public and which everyone can understand and the national systems in force should move towards mutual recognition or towards European harmonisation;

- interoperability implies participation by all concerned in order to adopt optimum specifications and ensure effective application; it is currently limited to the trans-European network, but must be extended to the entire railway network on which free access to provide international freight services will have to be opened up by 15 March 2008;

- effective implementation of the rules on safety and interoperability calls for establishing mechanisms for rapid intervention in the event of differences of opinion between the various national authorities responsible for these fields in order to find the most appropriate solutions to the problems created by the internationalisation of railway services; this role will be delegated to the railway agency which must provide a constant driving force for progress towards harmonisation of the technical regulations and safety rules;

- accession by the Community to OTIF (Intergovernmental Organisation for International Carriage by Rail) which can draft rules of law providing useful additions to the Community provisions and/or extending them to other European and non-European states;

- extension of rights of access to infrastructure for domestic freight services to reduce empty journeys to the absolute minimum;

- opening-up the international passenger market, taking account of the links between these services and the public service obligations applicable to national and cross-border services;

- guaranteeing the quality of service to be provided by means of recognition of the rights and obligations of customers vis-à-vis railway undertakings.

Scope of this communication and of the proposals made

This communication is divided into two parts:

- part 1 entitled "five proposals for rapid progress towards an integrated European railway area" provides a concise, consistent overview of all the legislative measures proposed by the Commission in this package. There are five proposals forming a whole: (1) the proposal for a Directive on safety, (2) amendments to the Directives on interoperability on the high-speed and conventional rail systems, (3) the proposal for a Regulation on the European Railway Safety and Interoperability Agency, (4) the draft recommendation for a Council Decision authorising the Commission to negotiate the conditions for Community accession to the Convention concerning International Carriage by Rail (COTIF) and (5) amendments to Directive 91/440 to extend rights of access to railway infrastructure to domestic freight services;

- part 2 entitled "ways to make the railway market more dynamic and improve quality: future action" contains analyses of the situation with rail freight and international passenger services which have prompted the Commission to consider taking legislative and other non-binding measures in due course to improve the quality of service and make rail transport in general more attractive. These measures follow up the White Paper "European transport policy for 2010: time to decide" [3].

[3] COM(2001) 370.

All the measures proposed or planned in the railway sector must, of course, fit in with the other measures not covered by this communication such as the Community programmes to promote the trans-European railway networks (TEN budget, support from the Structural Funds, including the Cohesion Fund and ISPA, EIB loans), intermodality (Marco Polo) and measures for other modes, particularly for charging for use of road infrastructure. Of particular importance is the role of both technical and strategic research and innovation, which are of critical importance to the success of the New Railway Package. The continued development of the European Research Area together with the Research Framework Programmes and the establishment of European Rail research Advisory Council (ERRAC) will provide the necessary instruments in that field. Finally, all the measures proposed take full account of the railway systems in the accession countries.

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1. Five proposals for rapid progress towards an integrated European railway area

1.1. Developing a common approach to rail safety

1.1.1. Safety in an integrated area: the need for a common approach

Since the first steps towards a single market for rail transport services were taken with Directive 91/440 it has been evident that safety is one of the main obstacles on the way to further market opening. Differences in railway safety regulation and different national safety requirements are principal reasons behind the fact that international rail transport still is mainly managed in the old way, by national operators handing over trains and responsibilities at the borders.

Through the directives on interoperability, 96/48 (on the high-speed rail system) and 2001/16 (on the conventional rail system), essential requirements for safety on sub-system level have been defined and further specified by technical specifications for interoperability (TSI). The TSI are, however, not applicable to the existing railway equipment and do not cover overall requirements on safety and the managerial and regulatory aspects.

Directives 95/18, on licensing, and 95/19, which among other issues deals with safety certification of railway undertakings, did very little to improve the situation. They provide that an EU licence should be issued and that it could be combined with national safety certificates covering the different territories of operation by a railway undertaking. However, there are few - if any - examples of a railway undertaking carrying out international services under the provisions of the directives.

The infrastructure package, Directives 2001/12, 2001/13 and 2001/14, introduced only minor adjustments to the safety regulatory framework by obliging the Member States to take responsibility for laying down and enforcing safety rules and standards and for ensuring that accidents would be investigated. When agreement was reached by the Council on the infrastructure package in December 1999 the Commission consequently announced its intention to complete the legislative framework with a Directive on railway safety.

Currently there are different national approaches to railway safety, different targets and different methods applied. Technical standards as well as requirements on staff and management organisation differ from Member State to Member State and the process to approve rolling stock or certify staff or railway undertakings has not been adapted to the needs of an integrated European rail system. Even though there are many safety requirements that emanate from technical and operational differences of the networks there is also in the sector a lack of understanding of the different national approaches and sometimes mutual suspicion that have their origins in lack of knowledge and absence of transparency.

The restructuring of European railways has led to the separation of functions between infrastructure managers and railway undertakings, a process that is still evolving. Many regulatory functions have been transferred from the railway bodies themselves to public authorities, bringing rapid changes also to the way safety is regulated and managed in the sector. During this transition it is essential that the roles of the different players be clearly defined and that responsibilities for managing, regulating and enforcing safety are redistributed in a similar and harmonised way in Europe.

Safety performance of the rail transport mode in Europe is generally very good, in particular in comparison with its main competitor, road transport. Introduction of centralised traffic control, automatic train protection systems, more crashworthy vehicles and modern safety management has reduced fatality rates substantially during the last 30 years. The number of passengers killed in accidents average around 100 a year in the Member States and total fatalities (primarily car occupants on level crossings) are about 800-900, whereas more than 40 000 people are killed on the roads each year.

Safety levels of rail as compared to other modes

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Exposure data for travel risk assessment: current practice & future needs in the EU, ETSC, Brussels, 1999

Accidents happen however and whenever they occur they reveal weaknesses in railway safety and illustrate further risk reduction potentials. The high impact on public opinion of multiple-fatality rail crashes is evident and pictures from the accident scenes of Eschede (Germany) and Ladbroke Grove (Paddington Station, United Kingdom) remind us of the possible catastrophic consequences of human errors or technical failures in rail transport. In a society where such accidents are less and less tolerated, efforts should be made to further reduce risks without endangering the competitiveness of the rail mode. With the emerging single market for rail transport services and supply of railway equipment such efforts need to be coordinated and harmonised at European level.

1.1.2. The proposal for a directive on rail safety

The proposed directive on the regulation of safety and investigation of accidents and incidents on the Community's railways addresses four main problem areas related to the development of safe railways in Europe. It applies a gradual approach to harmonisation and the development of common principles, taking into account the great differences that exist between the Member States.

The first and most important task in the evolving restructuring of European railways is to modernise and harmonise the safety regulatory structure and the content of safety rules in the Member States and at European level. This is to ensure that responsibilities are defined and distributed in a common manner and that safety is ensured through the restructuring process. The directive states that infrastructure managers and railway undertakings bear the immediate and operational responsibility for safety on the railway networks and for the control of risks. It provides for the creation of authorities in the Member States with responsibility to regulate and supervise safety and for their coordination at European level. A common minimum set of tasks for these authorities is outlined.

By applying the gradual approach the directive defines procedures for the development of common inspection and assessment methods, common safety methods (CSM). It establishes a mechanism for migration towards common safety rules by a notification procedure, which requires European acceptance of new national safety rules.

The second problem addressed by the directive is the removal of barriers to further market opening and the creation of a single European rail system. The safety certificate, granted to the railway undertaking for operation on a specific network, is still recognised as the means to achieve access to infrastructure. In this directive the concept is further developed by introducing common requirements for and common elements of a safety management system that must be implemented also by infrastructure managers.

With a common safety management system for railway operations a certificate granted in one Member State, accepting the safety management system of a given railway undertaking, should be valid throughout the Community for equivalent rail transport operations. In addition the railway undertaking would still need to declare its intention to adhere to national rules and be granted an acceptance of the rolling stock and staff used for each of the networks it intends to operate on.

For the creation of the single European rail system it is equally important to increase confidence between players on the market and between Member States. For that purpose the directive introduces a mechanism to adopt common safety targets (CST) that all railway systems should be able to meet. The common safety methods (CSM) will also be used to assess if the targets are met.

The third problem area addressed by the directive concerns transparency, information and the application of due process in railway regulation. The world of the old state-owned monopoly railways was from many aspects a closed world. It was mainly self-regulatory and there was no real need to give information to the public on safety and to apply transparent decision-making rules. With an open market and regulation by public authorities the requirements on the rail sector will increase. It must develop in the same direction as other modes of transport.

The directive introduces common principles for decisions by the railway authorities, requires availability of rules and regulations, stages timetables and makes mandatory provisions for players to be allowed to appeal against all decisions.

Common safety indicators (CSI) are laid down by the directive and will be further developed through the committee procedure. These indicators will render it possible to monitor the development of railway safety in the Member States and at Community level. Railway undertakings and infrastructure managers will be obliged to submit annual reports on the development of safety to their national safety authority which in turn must publish a report each year and make it available to the European Rail Agency. This will further open up the closed structure and enable all players to share experience and gain confidence.

The fourth area addressed by the directive is investigation of accidents and incidents. It has showed that there is a great variety in Member State legislation on accident investigations. In many cases accidents are still investigated by the national state railway, or by the police, whereas in some Member States independent accident investigation bodies have been set up. Influenced by legislation for accident investigation in aviation, as provided for at Community level by Directive 94/56, many Member States are moving towards independent accident investigation for other transport modes as well and, in some cases, towards the creation of multi-modal investigation boards, modelled on the National Transportation Safety Board (NTSB) in the USA.

The creation of a single market for rail transport and railway equipment renders it more important to share information and learn lessons from accidents and incidents. Technical failures and operational and managerial deficiencies could be more easily detected and avoided if information were available and spread within the sector. To achieve this it is important to separate the safety investigation from the judicial (police) inquiry. The safety investigation aims at establishing root causes to avoid future occurrences, whereas the police investigation aims at finding the person responsible for a criminal offence, if there is one. The two types of investigations deal with different problems, apply different methodologies and require different skills by their investigators. If they are not kept apart the appropriate lessons will never be learned.

For the sake of public trust in a safety investigation, as well as the confidence of parties involved, an independent body must carry it out. Since root causes of an accident often can be traced back to the regulatory framework for safety the investigation body should also be independent of the safety regulator. The directive sets out the principles of mandatory investigations of serious accidents and incidents, above a defined threshold level, and provides for the establishment of independent investigation bodies in the Member States.

The safety directive should not be seen as an isolated piece of legislation. It continues on system level what the interoperability directives introduced on sub-system level and it relies on the same committee as is used for the development of the TSI. Thus interoperability and safety will be developed in a consistent and coherent way. The gradual approach is similar to that introduced by Directive 2001/16 on the interoperability of the conventional rail system and will depend heavily on the support of players in the sector and on the European Rail Agency, proposed in this same package. The migration from national rail networks to a single European rail system will take time and require great efforts from all involved and interested in the development. With simultaneous progress of market and safety performance the rail transport mode will be strengthened and given the possibility to exploit its inherent advantages on the transport market.

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1.2. Bolstering the fundamental principles of interoperability

In addition to putting into place a clear framework for safety, construction of an integrated railway area also entails putting interoperability into action for both high-speed and conventional rail.

High-speed rail

Adoption of Directive 96/48/EC of 23 July 1996 set in motion the process of developing the technical specifications for interoperability (TSI) essential in order to achieve interoperability on the high-speed rail network. First, however, this literal revolution in technical harmonisation in the railway sector called for new working methods and for striking new balances between the various players involved. In particular, infrastructure managers, railway undertakings and the railway industry met within the European Association for Railway Interoperability (AEIF) and had to learn to work together to draft TSI. Since these new procedures and instruments had to be fine-tuned, it took longer than the original estimate of three years to develop the TSI. They are now expected to be adopted by the end of 2001 and to enter into force towards mid-2002. A programme for developing the corresponding European standards was launched in 1998 and is updated regularly in the light of the preparatory work on the TSI.

Meanwhile the network continues to develop, with a series of new services expected to be introduced in the next five years, and the process of putting interoperability into action must be speeded up by taking measures on three fronts:

- coordinate investment by different Member States in cross-border projects more closely: the return on such projects is greater if the full capacity of the infrastructure can be used as soon as it is brought into service. In 2002 a mechanism for coordinating investment will be proposed as part of the measures to coordinate the policies, as provided for in Article 155(2) of the EC Treaty;

- apply the TSI before they are published to major maintenance work and renewal of high-speed lines already in service. This was not explicitly provided for in Directive 96/48/EC but was added for conventional rail. It has been included in the annexed proposed amendments to Directive 96/48/EC;

- provide financial support for application of the TSI from the budget for trans-European networks.

Conventional rail

Like the directive on high-speed rail, the directive on the interoperability of the conventional rail system [4], adopted on 19 March 2001, introduced Community procedures for preparing and adopting TSI and common rules for assessing conformity with them.

[4] 2001/16/EC.

The directive requires a first group of priority TSI to be adopted within three years, i.e. in 2004, in the following areas: control/command and signalling; telematic applications for freight services; traffic operation and management (including staff qualifications for cross-border services); freight wagons; and noise problems deriving from rolling stock and infrastructure.

Drawing on the experience gained with high-speed rail, the Commission did not wait until the directive was published to make a start with the preparatory work. The AEIF experts are already working on identifying the critical components in terms of interoperability. Six months after the directive was published, the Commission has already obtained formal agreement from the regulatory committee on the first work programme, on the designation of the AEIF as the joint representative body and on the AEIF's mandate to develop the first group of TSI.

Although lessons can be learned from the experience already acquired, the difficulties of adoption of TSI for conventional rail should not be underestimated. The system already exists and is not yet to be built, there are more and bigger technical and operational differences and the players involved are more diverse.

These reasons have led the Commission to propose progressive adoption of the TSI, starting with those expected to bring the greatest socio-economic benefits. Nevertheless, care must be taken to manage firmly the process of drafting and revising the TSI.

The need to update the interoperability directives

Several factors prompted the Commission to propose amendments to the two interoperability directives:

- in its resolution of 17 May 2000 the European Parliament called on the Commission to present proposals for revision of Directive 96/48/EC along the lines adopted for the directive on interoperability of the conventional railway system;

- a number of lessons learned from the work on developing TSI in the high-speed sector led the Commission to propose amendments to the two interoperability directives;

- the annexed proposals to establish an agency and adopt a directive on railway safety mean that some provisions of the two interoperability directives need to be reformulated;

- the complete opening up of the railway network to freight services implies the need for interoperability on the whole network. It is therefore necessary to extend the geographical scope.

For this reason, this package includes a proposal for a directive amending Directives 96/48/EC and 2001/16/EC and giving full details of the reasons for each individual amendment.

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1.3. Setting up an effective steering body: the European Railway Agency

1.3.1. The need for neutral expertise at European level

One feature of the reform of the railways has been redefinition of the roles of the players on the market and of the public authorities. In the past when national public monopolies existed side by side it was impossible to distinguish clearly how these responsibilities were shared. In most cases technical standards and safety regulations were set by the railway undertakings themselves. This posed no problem from the competition point of view since the markets were not open in any case. At international level, this model gave rise to private cooperation between national operators who laid down the technical regulations and rules on international traffic jointly within the UIC.

With the opening-up of rights of access and the progressive establishment of a truly European rail market, regulation by the public authorities has become necessary to create equal conditions of competition for all operators on the market. Direct regulation by the historic operators must therefore be replaced by regulation by the public authorities at European level, particularly for drafting technical and safety rules.

Naturally, rules of this kind cannot be conceived and drafted without direct participation by experts from the industry. A new balance will therefore have to be struck ensuring not only representative participation by the industry in drafting European rules but also that these rules fit into the Community legal system and are adopted by the public authorities within that framework.

In response to this new demand, the public authorities must be given the means to perform this regulatory task in a balanced dialogue with the industry. In order to achieve this, the first step must be to put an end to one major imbalance in terms of expertise: at the moment there is no public centre of technical expertise at European level while in many Member States the Ministry of Transport or regulatory agencies do not always have the resources to conduct technical talks with the industry on equal terms.

For this reason the Commission proposes creating a centre of technical expertise on railways at European level in the form of an agency.

In particular, the specialisation and expertise required are arguments against direct involvement by the Commission. The White Paper on European governance [5] served as a reminder that the Commission must concentrate on the tasks conferred on it by the Treaties and avoid having to assign resources to over-technical tasks.

[5] COM(2001) 428, 25 July 2001.

It therefore became clear that the most appropriate instrument for performing these technical tasks with experts from the industry would be an agency. This solution had been under consideration since 1996 [6] and was recommended again in NERA's study for the Commission on railway safety [7]. This approach was confirmed by the September 2001 White Paper on "European transport policy for 2010: time to decide" [8] which opted for the principle of a Community structure.

[6] Commission White Paper "A strategy for revitalising the Community's railways" (COM (96) 421 final).

[7] NERA final report "Safety regulations and standards for European railways" (February 2000).

[8] COM(2001) 370.

1.3.2. An agency to serve all players

The Community spends approximately EUR 2 600 million a year on financing railway projects (TEN, Cohesion Fund, Structural Funds, ISPA, Research Programme, etc). The Agency's estimated annual budget is equivalent to less than 0.6% of this total and will allow far more efficient use of the Community resources by ensuring the interoperability of the projects funded and allowing a common approach to safety.

The proposed railway agency will have no autonomous decision-making powers. It will provide technical support for decision-making and act as an advisory body.

In order to draft the texts provided for by the directive on rail safety and to steer the work on interoperability, the public authorities need a technical body to prepare and support decision-making. The Agency will therefore be responsible for steering and coordinating all these tasks and for maintaining contacts on technical matters with the relevant professional bodies.

The figure below shows how the Agency's primary technical support function fits into the decision-making process.

The procedure is the same for all recommendations made by the Agency: the technical parts will be prepared and drafted by groups of experts from organisations representing the industry, such as the AEIF for the work on interoperability today. These groups will be steered and coordinated by the Agency. The drafts will be submitted to the Commission for approval following the procedure laid down by the relevant directives, i.e. with the approval of a committee of representatives of the Member States.

In this role of supporting decision-making the Agency will have to consult the social partners through the existing channels for social dialogue and will have to consult representatives of railway customers.

The Agency's second function is to advise on matters relating to rail safety and interoperability. Primarily this entails giving the Commission and the Member States technical advice within the committee set up by the interoperability and safety directives.

Directive 2001/14/EC calls on the Member States to set up regulatory bodies to monitor the conditions for access to the market in particular. In addition, the committee set up by Directive 2001/14/EC could be asked to give an opinion on cases concerning rights of access to infrastructure. Safety or interoperability issues could arise in the cases drawn to the attention of these regulatory bodies or of this committee when players from several Member States are involved.

It is therefore essential to be able to ask for a neutral technical opinion in such cases. The national authorities will be able to ask the Agency for an independent technical opinion.

Finally, the Agency must be at the hub of a network for gradually building up greater mutual knowledge of the national railway systems, making it possible to build up confidence and dynamic working relations between all concerned. In order to achieve this, the Agency will, for example, be responsible for organising cooperation between the national safety authorities or between the notified bodies designated under the interoperability directives.

The Agency will therefore serve all players in this sector, whether institutions or on the market. In all its tasks, the Agency must take full account of the enlargement process and of rail links with third countries. The Agency will also be open to participation by non-EU European countries.

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1.4. Clarifying the role of the Community in OTIF

The Intergovernmental Organisation for International Carriage by Rail (OTIF) has as its members all the Member States of the Union, all the candidate countries which have railways and some countries in Africa and Asia (40 countries in all). The instrument applied by OTIF is the Convention concerning International Carriage by Rail, signed in Bern on 9 May 1980 and amended by the Vilnius Protocol signed in Vilnius on 3 June 1999.

The Convention, as amended by the Vilnius Protocol, covers:

- Uniform rules concerning the international carriage of passengers by rail (CIV), a field in which the Community has not yet taken action but intends to do so to reinforce passengers' rights, as it has done already in the case of air transport;

- Uniform rules concerning the international carriage of goods by rail (CIM), a field in which the Community has not yet taken action but intends to do so to promote the quality of rail freight services;

- Regulation concerning the international carriage of dangerous goods by rail (RID), a field in which the Community has incorporated the results of the work done by the OTIF into the Community legislation (cf. Directive 96/49);

- Uniform rules concerning contracts of use of vehicles in international rail traffic (CUV);

- Uniform rules concerning the contract for use of infrastructure in international rail traffic (CUI): this field is partly covered by Directive 2001/14 which contains rules on relations between the infrastructure manager and the railway undertakings; the Community intends to go far further than provided for in the CUI;

- Uniform rules concerning the validation of technical standards and the adoption of uniform technical prescriptions applicable to railway material intended to be used in international traffic (APTU) and uniform rules concerning the technical admission of railway material used in international traffic (ATMF): these fields are now covered by Directives 96/48 (interoperability of high-speed rail system) and 2001/16 (interoperability of conventional rail) and can be considered the exclusive responsibility of the Community.

The Vilnius Protocol is open for ratification, but no Member State has ratified it to date.

Community competence in the railway sector has evolved considerably since the signature of the Vilnius Protocol, as the Council and the European Parliament have adopted the railway "infrastructure package" (Directives 2001/12/EC, 2001/13/EC and 2001/14/EC) and Directive 2001/16 on the interoperability of the conventional rail system. A number of areas in these fields are now the exclusive responsibility of the Community, particularly matters concerning railway interoperability.

Consequently, the Member States can no longer ratify the Vilnius Protocol on their own outside the framework of the Community institutions now that some of the provisions fall within the Community's exclusive responsibility. To allow ratification of the Vilnius Protocol, it is therefore essential that the Community accede to this protocol.

To add to the interest of accession to the OTIF by the Community, a large number of the remaining members of the OTIF will be joining the Community in the near future.

Article 38 of the 1999 Protocol provides that accession to the Convention is open to regional economic integration organisations, an explicit reference to the Community. This directly raises the question of the Community becoming a party to the Convention and to the organisation that administers it. The question was clearly posed in

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communication COM(1999)617 presenting the proposal for a directive on the interoperability of the conventional rail system, which has now become Directive 2001/16. This stated that: "The Commission will study the case for Community membership of the Central Office for International Carriage by Rail (OTIF) and present its position in 2001".

The Commission recommends that the Community accede to the COTIF and OTIF in order to exercise its exclusive powers in the railway sector and to coordinate the Member States' positions more closely in the areas for which they share responsibility.

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1.5. Completing the internal market in rail freight services

The proposal is to bring forward the timetable for opening the rail freight market, for reasons which have become far clearer since adoption of the infrastructure package opened up the market for international freight services only, sending a clear signal on this emerging market. The White Paper "European transport policy for 2010: time to decide" adopted by the Commission on 12 September 2001 [9] sheds light the present shortcomings as well as the potentialities for rail.

[9] COM(2001) 370. See, in particular, the action programme (p. 105) and Chapter I.B "Revitalising the railways".

This fits also into the context created by the clear and urgent request made to the Commission by the European Parliament, during the conciliation procedure with the Council, to propose opening the freight market without restrictions to build on the measures already taken to open it in a number of Member States.

Potential operators and investors cannot understand why restrictions still prevent wagons from taking on loads, a situation which cannot fail to put rail at a competitive disadvantage over road. Innovative, encouraging schemes in a number of Member States, where new rail operators of all sizes are appearing, must be allowed to develop without economically unfounded legal restrictions in order to instil confidence in all stakeholders, particularly consignors, who expect this opening of the market to improve quality of service and take greater account of their requirements. It is also important for Candidate countries to take the suppression of these barriers into account, in order to maintain their present modal shift for rail freight, that is already threaten by road transport.

All these arguments are discussed in greater depth below.

1.5.1. The freight market and the rail freight sector in the EU

>REFERENCE TO A GRAPHIC>

Quantitative data illustrate the particularly dynamic development of freight activities in Europe and the poor performance of rail freight. In the 1990s, freight transport in Europe was growing significantly faster (ca. 3% per year) than GDP (ca. 2 % per year) hence underlining the high freight mobility intensity of economic growth. In 1999, transport demand was 2970 billion tkm or on average about 20 tkm per person and day. Since 1970, this corresponds to a growth of 121%. Rail freight could not participate in this transport boom. Its modal share dropped from 21% in 1970 to 8% in 1999 and even absolute transport volumes decreased over this period (see graph). At the same time, road haulage increased its share from 31% to 44% reflecting its relative strong competitive position on the market.

The decrease of rail freight transport volumes goes hand in hand with a reduction of the length of the rail network in the Community by ca. 10% since 1970. Also the number of private sidings and terminals in Europe is in sharp decline (5% per annum), with the rate in the EU consistently exceeding the European average [10]. Many customers abandon existing private sidings or do not construct them when setting up a new plant due to relatively high construction and maintenance cost as well as land use legislation often lacking any requirement to set up the plants near railway infrastructure.

[10] Symonds Group (2001), A study of single wagonload rail traffic, commissioned by the European Commission Directorate-General for Energy and Transport.

Up to the year 2010, the Commission expects an increase of the goods transport volume in the EU by 38% in a business as usual scenario without taking any specific policy measures. The volume of road haulage would rise by 50% whereas rail freight would perform much lower growth (13%) which would result in a modal share of 7%. Against the background of an enlarged Community and further globalisation it is important to underline that international traffic will continue to grow in significance in the years ahead.

Such a development would clearly threaten the efficiency of the European transport system, as congestion effects would aggravate due to serious infrastructure capacity constraints. In the same vein, the trend of the "all road" runs counter the objective of sustainable mobility as the contribution from road transport to environmental degradation is the highest of all modes. As the 2001 White Paper has clearly pointed out, modal contributions to freight transport must be more balanced than in the past. Modes whose potential is not being fully exploited (such as rail freight) should be put in a position to absorb a higher share of future transport growth. For this to happen rail freight in Europe has to increase its competitiveness.

1.5.2. Opening of domestic rail freight markets including the possibility of cabotage to stimulate competition and innovation

The completion of an integrated market for rail freight services remains a major aim of the Community's transport policy. The possibility to enter the rail freight market should lead to a more efficient and competitive industry, that is closer to the customer. It should attract new capital and enterprises, and stimulate the development of new services responding to the requirements of the customers. This is necessary if the continuing decline in the railways' modal share is to be stopped and their financial situation to improve.

In the case of rail transport, the application of the principle of freedom to provide services implies rights of access for individual railway undertakings to the EU rail network. Directive 91/440 took a first step in this direction by establishing rights of access for individual railway undertakings operating international combined transport services. Directive 2001/12, part of the first railway package, extended these rights to all types of international rail freight network, albeit confined to a specified trans-European rail freight network for a transitional period until 2008. In fact, the rights of access set down in Directive 2001/12 represent the culmination of a long debate stretching back to a 1995 Commission proposal for the liberalisation of both international and domestic freight and for international passenger services. Directive 2001/12 was as far as the Council was prepared to go in the context of the railway package as a whole and as the basis for an overall compromise at that time.

Be that as it may, there nevertheless remains a pressing need to apply single market disciplines right across the railway market. The need is particularly acute in the rail freight sector which, by virtue of continuing restrictions on market entry, is hampered by the lack of effective spurs to improvement in performance which competition, or merely the threat of it, are typically able to provide. Moreover, protectionism renders rail freight unable to compete effectively with other modes, especially road, which are no longer constrained by territorial considerations. The next step, therefore, is to facilitate greater parity of competition with road haulage, where the artificial distinction between international, cabotage and domestic hauls has effectively disappeared. Accordingly, we propose the opening up of all domestic and cabotage rail freight markets. The need to act is given added urgency by the conclusions of the Lisbon European Council of June 2000 that liberalisation of sectors such as transport should be speeded up. In addition, there are increasing calls not only from rail freight customers, but from railway undertakings themselves, for full implementation of the right to provide rail freight services.

Access to rail freight networks for domestic services by railway undertakings other than the national operators is already possible in a number of Member States such as Austria, Italy, Germany, the Netherlands, Sweden and the UK, on the basis of national law. The experience with the effects of market opening on competitiveness and service innovation are generally positive. There are good reasons for this:

* The liberalisation of access for both international and domestic services is necessary to allow operators to offer comprehensive services with full logistic support;

* Competition for international and domestic services will provide incentives to improve the quality of the services;

* The opening of domestic markets would promote the emergence of short line operators with a local base and provide incentives to improve the performance of feeder services to increase, for instance, the viability of (European) wagonload services;

* The possibility of cabotage would increase the scope for increasing the wagon load factor through a reduction of empty backhauls. This would help the railway undertakings to increase the efficiency of wagon use.

Hence, the Commission proposes that all railway undertakings established and licensed in the European Union will be granted access to the railway network for domestic and international rail freight services from the date of implementation of this Directive on. The concept of limiting access for international rail freight services to the trans-European rail freight network (TERFN), introduced in Directive 2001/12/EC as a transitional arrangement until 2008 at the latest, will be repealed.

Proposal No 5

Proposal amending Directive 91/440/EC to open up access to the infrastructure for national services in order to open up the rail freight market completely

List of measures announced in the White Paper "European transport policy for 2010: time to decide" [11] and proposed in this package:

[11] COM(2001) 370.

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2. Ways to make the railway market more dynamic and improve quality: future action

2.1. Conditions for success for rail freight

The foregoing analysis of the rail freight situation and the further details set out in Annex 1.1 point to the need for further action to make this sector truly dynamic. Quality is the key to attaining the desired shift of the balance between modes. The legislative measures proposed in Part 1 are the essential conditions for creating the framework needed for developing rail freight. However, they are not enough and must be backed up by a series of legislative and other measures already announced in the White Paper "European transport policy for 2010: time to decide" [12] and discussed in further detail here to open a dialogue with all concerned.

[12] COM(2001) 370.

2.1.1. Ensuring high-quality rail freight services

According to customer surveys [13] one of the most important reasons for customers' dissatisfaction with rail freight services is the mediocre and still worsening service quality, especially for international services. The average commercial speed of international rail freight services, punctuality and reliability of service are far from satisfactory. The operators of combined transport report a dramatic deterioration of the punctuality of combined transport trains over the last few years (see table x) causing significant costs to railway undertakings due to claims from unsatisfied customers, inefficient asset utilisation and profit on lost turnover.

[13] See, for instance, Symonds Group (2001), A study on single wagonload rail traffic, p. 95 et seq.

The importance of high-quality rail freight services for improving the environmental performance of freight transport, in particular in mountainous regions

Rail freight transport has to contribute more than hitherto to easing the environmental pressures of road transport, particularly in sensitive areas such as mountainous regions (e.g. Alps and Pyrenees). The eco-point system for road haulage crossing the Austrian Alps is trying to cap environmental impacts on the Austrian Alpine valleys. This scheme will expire in 2003. Therefore, alternative measures to marry the needs for environmental protection of mountainous areas with the traffic needs of an efficient transport system will have to be found.

The Community already supports, in the framework of the trans-European network policy, the development of major new rail infrastructure across the Alps (Mont-Cenis and Brenner tunnels). However, the size and the cost of the projects are very high and it is of vital importance that rail operators are able to draw maximum benefit from this future infrastructure to make them profitable. Moreover, these projects will be completed only in the long term. It is therefore necessary to improve the existing infrastructure (by the removal of bottlenecks on the lines crossing the Alps and on their accesses) as well as quality of services on these axes to make rail more attractive against road.

Both the Alps and Pyrenees present a natural barrier between important economic regions of Europe, which witness strong traffic growth. Combined rail transport through the Alps accounts for 25% of total traffic; for the Pyrenees, the figure is much lower, around 5%. These figures show that road transport still has a prominent part in this traffic. On the other hand, the traffic flows crossing these mountains lend themselves well to combined transport. The overwhelming part is long-distance transport, and consists of manufactured or semi-manufactured goods. As there are only a few passes through the mountains, traffic tends to be concentrated naturally, and thus offers good opportunity for block trains and shuttles.

It is now time that the service quality of rail improves so that it can make full use of its competitive and environmental advantages to take traffic from road.

The quality problem is particularly acute on certain corridors such as the North-South Alpine crossing between Germany, Austria and Italy where the lack of locomotives frequently causes huge delays at the border. The appalling performance of rail freight has serious repercussions on the other transport sectors and thus on environmental impacts of transport activities in Alpine regions. As road haulage generally takes over the goods transport lost by rail, Alpine countries such as Austria, France and Switzerland suffer increasingly from air pollution and noise emissions from road transport. These countries claim urgent and effective measures for reducing the number of trucks crossing their territory and for shifting freight from road to other more environmentally friendly modes such as rail.

A study [14] commissioned by UIRR, the international association of combined transport, and co-financed by the Commission under its PACT programme analysed the quality problems of rail-based combined transport on 8 major European transport corridors taking into account more than 18 000 annual train movements. The study highlighted clearly that 2/3 of the punctuality problems are caused by malfunctioning rail operations. The report issued a number of recommendations at structural level, at institutional level and at operational/procedural level. The major recommendation on structural measures is to open rail freight markets in order to promote competition. The Commission fully shares this conclusion. The policy advocated by the Commission of charging for the use of transport infrastructure, on the basis of the "user pays" principle, can only be fully effective, if there is a competitive alternative to road transport through the Alps. In order to fulfil the expectations, adequate rail infrastructure capacity has to be ensured, investment in appropriate rolling stock has to be made and most important of all the quality of rail services has to be improved swiftly. Wider introduction of piggyback services (Rollende Landstraße) can be seen as a quick solution to Alpine transport problems; however, it does not constitute a strategy to stimulate modal shift for long-distance traffic. On the contrary, it tends to add to the attraction of long-distance road haulage.

[14] UIRR (2000), A Quality Strategy for Combined Transport - The beginning of a transformation, Final report, 21 November.

The Commission proposes a number of measures to address the issues of environmental impacts of goods transport and modal shift in mountainous regions and in particular in Austria as announced in the report from the Commission on the transit of goods by road through Austria (COM(2000) 862, paragraph 1.6.3):

- A European approach to securing a high level of quality for rail freight services in Europe is explained in more detail in this chapter.

- The Commission intends to present a Framework Directive on transport infrastructure charging including the pricing for environmental effects of transport activities for all transport modes.

- In the context of the trans-European transport network policy, the Commission has decided to intensify its support for the development of cross-border rail infrastructure in areas characterised by natural barriers.

- The Commission has launched a large-scale thematic network "Alpnet" within the fifth framework programme for R&D activities and will, after conclusion of this exercise at the end of 2002, make full use of the knowledge gained to encourage further rail transport in and through the mountains.

- The Marco Polo programme, which should be operational by 2003, will give important support to all suitable actions in the market improving the quality and performance of rail transport in these sensitive areas.

Punctuality of UIRR trains compared to programmed arrival time 1999 - 2001 (in %)

>TABLE POSITION>

Source: UIRR (2001)

One major reason for the low quality performance is the lack of responsibility of any one railway undertaking for the good execution of the entire international service in the traditional cooperation mode. Various quality initiatives by the railways [15] have shown that rigorous quality management on specific corridors can improve quality significantly. However, railway undertakings have not generally applied such quality management to all international services. The objective for railways must be to regain an image as a reliable, high-quality service in order to compete successfully and to absorb a higher share of expected future growth on the freight transport market.

[15] For instance, the UIC quality project SAPPI Gmbh in 1999 and various national projects.

The Commission expects that the complete opening of rail freight markets and the ensuing increase of competition will provide the necessary incentives to railway undertakings to improve the quality of their services. However, market opening is likely to show tangible effects only in the medium term, as the rise of competition will be gradual. In the short term, specific measures to improve service quality must be taken in order to re-establish the confidence of customers in rail freight services. The Rail Market Monitoring Scheme set up by Directive 2001/12 will closely monitor the development of service quality on the European rail freight markets on the basis of a number of key indicators.

The Commission proposes three specific measures to address the quality issue.

(i) The Commission intends to propose an amendment of Directive 2001/14 in order to enable authorised applicants other than railway undertakings to apply for train paths. An authorised applicant in rail freight could be, for instance, a shipper or a forwarder with an interest to use the rail mode to transport significant and, over time, fairly stable cargo volumes. If the shipper cannot find an offer from a railway undertaking on the market place satisfying his needs, he himself might apply for a train path. This would enable him to design and organise a service, for which he would subcontract the traction to a railway undertaking. The provision of authorised applicants in the regulatory framework would significantly strengthen the position of rail freight customers vis-à-vis the railway undertakings and thus contribute to improving service quality.

(ii) The Commission expects the European rail industry to undertake a number of voluntary measures to improve the incentive structure for service quality. In particular, the European railway undertakings should undertake systematically to include service quality commitments in their contracts with customers in a fair and non-discriminatory way. Based on a common understanding between railway undertakings and customers such quality criteria shall include, for instance, regular and reliable service, market conform arrival and departure time, punctuality, transparent invoicing, etc. (for railway undertakings) and timely presentation of wagons and cargo to the take-over point, etc. (for customers). Performance regimes between cooperating railway undertakings should provide effective incentives for ensuring high quality and making all partners responsible for those risks under their control. Furthermore, European railway undertakings should undertake voluntary action to improve their operational procedures especially for international services in a joint effort with their customers.

(iii) Complementarily, the Commission intends to propose a Regulation that will lay down the terms of compensation in case of non-compliance with contractual service requirements. This legal act will provide effective incentives to both parties, railway undertaking and customer, for ensuring a high level of service quality. Such incentives will be defined according to common principles. They should be financial in the form of a compensation scheme or a "bonus/malus" performance scheme with appropriate sharing of risk and reward, avoiding rewards for simply doing what was contracted. The incentives should apply to the whole product rather than to just parts and they should embrace risks that are controllable by the railways and the customers respectively.

The elements of a future European approach to service quality in rail freight are discussed further in Annex 1.2.

2.1.2. Overcoming entry barriers to pan-European rail freight services

The past experience with attempts by railway undertakings to enter the market for rail freight services, either at national level or at international level, has shown that new entrants, including existing operators outside their country of origin, face a multitude of entry barriers. Especially newcomers have to spend a considerable amount of time and resources to overcome such hurdles before they can start providing services. Here is a typical example: each railway undertaking needs traction for its wagons, but newcomers will have difficulties to obtain the traction they need, as there are only a few, very small second-hand markets or markets for leasing locomotives. If they get a locomotive, the locomotive driver cannot cross borders routinely as national regulations governing their training curricula and examination conditions are different. The locomotive has to be equipped with an automatic train protection system (ATP) to obtain the safety certificate. However, ATP systems usually all differ from country to country and it is difficult, especially for a small railway undertaking, to buy and to fit such a system to its locomotives as there are no second-hand markets. In addition, monopolistic suppliers charge very high prices and have long delivery times.

Once operational and after having received a train path the railway undertaking also needs access to service facilities to get, for instance, traction current, diesel fuel, access to stations and to shunting services as well as maintenance and repair services. Often there is a risk that the independent railway undertaking does not obtain the service for a competitive price or not on the same conditions as the national rail operator.

A further challenge for railway undertakings that want to carry out international services can be the customs transit procedures. National railway undertakings have been taking advantage of a specific simplified transit procedure. This procedure provides among other facilities for the waiver of guarantee and of transit-related border formalities that ease the provision of international services significantly. However, the conditions that have to be complied with to qualify for the simplified procedure (e.g. the requirement to carry goods in each country by a separate railway undertaking, to break down transport costs for each of the countries whose territory is entered during a given transport operation and to hold records for inspection by customs in a central accounting centre to be set up by the railway undertaking in each country) cannot be fulfilled, or only under economically unreasonable conditions, by independent railway undertakings or for transport operations under open access conditions. Thus these conditions are hindering the development of open European rail freight markets and impeding competition.

In order to reduce market entry barriers, the Commission proposed three concrete actions:

i) Swift, coordinated implementation of the European Rail Transport Management System ERTMS will be instrumental in overcoming the entry problem with national ATP systems. The ERTMS command and control system will be able to fulfil the same functions as the national ATP systems. Coordinated implementation would also have the advantage of reducing the costs of backward compatibility with existing national command and control systems. Therefore, the Commission, in cooperation with the Interoperability Committee, intends to ensure coherent national ERTMS deployment plans for conventional rail systems.

ii) The Commission considers that non-discriminatory access to service facilities is vital to foster competition on rail freight markets. Regulatory bodies will have to play a decisive role in this. In order to enable national regulatory bodies to fulfil this role, the Commission intends to make a proposal to amend Directive 2001/14 to reinforce the powers of rail regulators with respect to ensuring non-discriminatory access to services and service facilities.

iii) The Commission intends to make proposals in 2002 for defining the conditions under which all railway undertakings can benefit from simplifications of the Community customs transit procedure in a transparent and non-discriminatory manner taking due account of the liberalised regulatory framework for European rail freight. This would also foster the competitiveness of transit traffic by rail in particular through Switzerland.

Entry barriers and measures to overcome them are discussed in more detail in Annex 1.3.

2.1.3. Developing the infrastructure for efficient European rail freight services

Inefficient use, lacking interoperability, low priority for freight in train path allocation as well as technical and physical insufficiencies are major stumbling blocks to the development of European rail freight. In order to promote swift penetration of interoperability specifications, the Commission will establish a link with Community financial support to trans-European rail infrastructure projects, i.e. introduce an interoperability condition for Community funding. Rail infrastructure managers have to cooperate internationally in order to ensure better utilisation of existing infrastructure. Instrumental in that would be better harmonisation of (slow and fast) traffic flows when allocating international and national train paths while attributing due importance to international freight. In order to optimise the network, the concept of a European core network for high-quality rail freight services should be further developed. The concept envisages using the existing infrastructure but attempting to separate where possible the different types of traffic, mainly according to speed, and to give priority to freight on certain major axes. Upward harmonisation of key quality parameters such as train length, loading gauge and axle load, in the framework of the interoperability process, would allow a significant improvement of service economics and performance.

The Europeanisation of rail freight services increases the needs of competitive railway undertakings and infrastructure managers for efficient data exchange and information systems (e.g. for fleet management, timetabling, tracking and tracing, customer relations, etc.). Although there are national information systems, problems arise when it comes to international traffic. The protocols defining the data format and the network interfaces generally do not match. In order to address the technical aspects of interoperable information systems the Commission has mandated AEIF swiftly to develop the technical specifications for a European rail data exchange system in the framework of the interoperability process for conventional rail systems. Turning to the operational aspect, the Commission encourages the enterprise sector (e.g. railway undertakings, logistics integrators, or forwarders) to take the initiative to set up a commercially managed data exchange platform once the technical specifications for freight telematics applications become available. For implementation of such a concept fostering intermodal transfer, the industry could request Community support under the future Marco Polo programme.

Annex 1.4 provides further details on the measures envisaged to improve the infrastructure for European rail freight.

2.1.4. Improving the environmental performance of rail freight to foster its contribution to sustainable mobility

Rail is a relatively environmentally friendly mode of transport. However, rail freight must improve its performance in terms of noise emissions and diesel engine emissions if it does not want to fall behind other modes such as road haulage that recently have been making significant progress in their environmental performance. Noisy freight wagons that wake up urban dwellers when passing through the city at night and smoking diesel locomotives are at the centre of criticism from a European population that is becoming more and more aware of environmental issues.

The Commission intends to address the noise issue for new freight rolling stock through ambitious noise limit values set in the framework of the interoperability process. The Commission also intends to take account of cost effectiveness when working towards such values. In order to exploit the potential for reducing atmospheric emissions from diesel locomotives, the Commission will propose to amend Directive 97/68 on emissions from internal combustion engines to include (light duty) rail diesel engines and to set cost-effective but bold emission limit values. Emissions from heavy-duty diesel rail engines will be tackled through limit values within the interoperability process for conventional rail. Member States are encouraged to combine the limit value approach defining a minimum abatement level with an economic instrument such as an emission-based infrastructure charge in order to reach higher levels of abatement if desired.

However, it is essential for an effective policy on rail freight noise to act also on the existing fleet especially as the investment cycles for rail rolling stock are particularly long. The Commission will enter into a dialogue with the industry to assess cost-effective options including voluntary measures by the industry for rolling stock noise abatement (e.g. through retrofitting with less noisy composite brake blocks) and the reduction of atmospheric emissions from diesel rail engines (e.g. through retrofitting or ex-post engine optimisation).

The environmental measures for European rail freight are discussed in more detail in Annex 1.5.

2.2. Developing high-quality international passenger services

Active provision of high-quality passenger services will be one of the best means to achieve a modal transfer from car and plane towards train services and to contribute to the objectives of the common transport policy and the White Paper. To achieve this transfer, it will be necessary to have a common analysis and understanding of the problems which occur in the provision of passenger services, and to develop and implement measures to address these problems and to solve them. For the Commission, this is not a new problem. As a matter of fact, the Commission has received and still continues to receive many complaints and requests from individual citizens and interest groups to address the problems in this sector and to draft proposals aimed at improving the current service levels. The complaints and suggestions vary, but mostly address the punctuality of services; the availability of information on fares, timetables and delays; the accessibility of trains for persons with reduced mobility (PRMs) or for persons travelling with their bikes. Healthy and secure travel conditions as well as security and safety in trains and on stations are frequently mentioned in complaints addressed to the Commission. Finally, complaint handling procedures for insufficient service levels or unfair contracts as well as the lack of involvement of the users in consultation procedures concerning timetables and opening or closures of services or entire lines have been quoted by different user organisations.

This leads the Commission to consider two aspects to improve the situation. First, the introduction of regulated competition for both national and international passenger services and, second, the affirmation of passenger rights. A detailed description of the current situation in relation to international passenger services, the Community's existing legal framework as well as the new proposals is given in Annex 2 to this communication. A substantial input to the description of the current situation has been provided by a study carried out by OGM-consultants and a hearing for user and passenger organisations organised by the Commission in Brussels on 15 October 2001.

2.2.1. The case for a progressive opening of the market

First of all, the present legal situation allows for access rights for international groupings. Directive 91/440 gives access rights for international groupings which provide international rail passenger transport. According to Directive 95/18, a licensed railway undertaking may request a licence in a Member State and form a grouping with another licensed railway undertaking or even with an affiliated railway undertaking.

Second, experience within the Member States shows that regulated competition is associated with more efficient and attractive passenger rail services. Sweden and the UK, the two States that have made most use of regulated competition, are also the States where passenger rail traffic has grown most rapidly since the mid-1990s. Other Member States that have used regulated competition on a smaller scale for regional services - including Germany, Portugal and the Netherlands - also report good results.

For these reasons, in 2000 the Commission adopted a draft Regulation [16] on public services in public transport. This states that in almost all cases financial compensation or exclusive rights for the operation of passenger rail services should be awarded through regulated competition. This proposal is currently under consideration by the Council and the European Parliament. Not only will it lead to better rail service, it will also substantially reduce the risk of existing subsidies and exclusive rights for rail operators being challenged and overturned under the provisions of Community competition law.

[16] COM(2000)0007 Proposal for a Regulation of the European Parliament and of the Council on action by Member States concerning public service requirements and the award of public service contracts in passenger transport by rail, road and inland waterway (presented by the Commission), OJ C365E, 19 December 2000, p. 169.

The provisions of this draft Regulation apply to international as well as domestic services. However, a study on the development of international rail passengers markets by OGM [17] showed that there is a widespread view that international rail services do not receive financial compensation and are not protected by exclusive rights. This assessment will need to be revisited following the adoption of the draft Regulation.

[17] OGM study on the development of (international) rail passengers markets and policy, to be published in 2002.

In the light of this situation, it is appropriate to consider the options available for a meaningful opening of the market for international rail passenger services.

The thorough assessment of the structure and size of the market for international passenger services, as made in the OGM study, allows the identification of 5 segments with distinct features and addressing different users. The first segment is made up of the regional cross-border services for commuting or tourist trips, which do not go beyond 80-90 km. These services mainly serve citizens living in border areas of one Member State who work in another. Long-distance intercity services are to be found in the second segment. This type of services is, together with the international high-speed services, the best known, and mainly serves the leisure and business traveller markets. The high-speed services segment only started with the introduction of dedicated high-speed lines. It is a segment which has been very successful in achieving a modal transfer. The best example of this can be provided by the dramatic shift from air and car travel to rail on the Brussels-Paris link. A fourth segment is made up of "regular niches": night trains and car-sleeper trains, which are of great importance to the leisure market. Finally, the market for occasional services should be mentioned, which consists of seasonal services to wintersport areas or coastal resorts.

Besides the possibilities for market opening offered by the existing Directive 91/440 and the Regulation on public service obligations, additional measures for enhancement of rail passenger services would be more efficient once the regulatory structures foreseen by the infrastructure package directives [18] are implemented. Such enhancement could be achieved through the following steps:

[18] Directives 2001/12, 2001/13 and 2001/14 of 26 February 2001, OJ L 75 of 15 March 2001.

- The first step consists of full opening of the market for regular niches, such as night trains and car sleepers, with the possibility for cabotage, as well as the occasional services. The Paris-Vienna night service for example has many domestic travellers without whom this service could not be run on a profitable basis. This market segment is very limited: less than 20% of all international services are night services, many of which do not allow domestic passengers. Private operators who hire staff and equipment for the service from the incumbent operator already carry out occasional services;

- A second step to further market opening is the full opening of all international services, including long-distance and high-speed services, without cabotage. The high-speed services between Brussels, Paris and London are a good example of this segment: the proportion of domestic passengers on these services is extremely small;

- The last step of the market opening process could then be full opening of the market for all international services with the possibility for cabotage - at least in cases where this would not undermine the effectiveness of exclusive rights awarded following the regulated competition to be introduced by the Regulation on public services in public transport.

The question of the availability of and fair access to rolling stock for new operators should also be examined in further measures to be considered for ensuring fair market access. The Commission will examine further all these issues with a view to making proposals as appropriate.

2.2.2. Improving passenger rights

As announced in the White Paper, the Commission intends to propose in 2003 a Regulation on passenger rights which would include provisions on fair terms and conditions of contracts and their transparency; consumer consultation; complaint handling and out-of-court dispute settlement, as well as compensation and assistance for delays, cancellations, missed connections and seat reservations not being honoured. Improved availability of information in electronic form on fares, tickets, timetables and services will be addressed as well.

In this context, it will examine the links between national and international rail travel with a view to determining whether and to what extent the rights of consumers in international and national rail travel can in practice be separated. The effects of the proposed Regulation on consumer rights in the candidate countries will also be examined.

The Commission will also examine the case for legislation requiring transport operators to offer passengers minimum standards of service integration.

The rail industry, notably the operators and the manufacturers, will be encouraged to improve service levels by providing better information in electronic form on fares, tickets and timetables. They will also be encouraged to improve quality, safety and security on international services and at stations by providing safe, comfortable and accessible rolling stock for these services.

In particular, rail operators will be encouraged to develop a voluntary charter on service quality covering such issues as punctuality, provision of information in electronic form, accessibility for groups with special needs, such as persons with reduced mobility or persons travelling with their bike, and protection of non-smokers.

In addition, the Commission will promote the setting-up of a European platform of rail passengers organisations, which would negotiate with and be consulted by the railway undertakings and participate in the establishment of regular customer satisfaction surveys.

* * *

List of measures announced in the White Paper "European transport policy for 2010: time to decide" [19] and proposed in Part 2 "Ways to make the railway market more dynamic and improve quality: future action"

[19] COM(2001) 370.

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1. ANNEX 1: Lines of action to improve the performance of European rail freight

1.1. Developments and shortcomings in the rail freight market

As a result of nationally organised markets rail freight can be described as a very fragmented sector with often outdated operational techniques and incompatible equipment and, where they exist, largely outdated and incompatible IT systems. It often fails to respond to the needs of customers, and delivers services that are often not competitive especially in international transport. Railway undertakings are often not able to tell their customers the whereabouts of their consignments and services are astonishingly unreliable. Rail freight despite some good examples is on the whole not a benchmark for others. Of course, global figures hide differing performance whether it is between different segments of the rail market or different companies operating in that market [20].

[20] See, for instance, Observatoire des politiques et des stratégies de transport en Europe (2001), Dossier n°2 Le fret ferroviaire en Europe, October.

Wagonload formed the traditional core of rail freight traffic. Wagonload services by railways compete with road haulage for the market of small to medium-sized, high-value shipments. This freight market segment achieves a particularly dynamic growth rate and is expected to do so in the future. However, wagonload services are not competitive for various reasons (e.g. high cost especially for marshalling and delivery services at the end point of production, unreliability, lack of customer focus, inappropriate rolling stock, lack of wagon positioning information for customers, etc.). As a consequence, their relative importance has declined considerably, particularly over the past four decades. Even as recently as the late 1980s, wagonload traffic in the EU accounted for nearly 45% of all rail freight traffic. By the late 1990s, its share had declined to about 35%.

Some railway undertakings are abandoning low-volume customers and reducing the number of sidings and stations that their wagonload system serves with the objective of cutting costs. A reduction of traffic volumes and of connected customer sidings has a negative effect on the economics of the system, hence on its cost competitiveness. Clearly, this market segment needs a new European vision to be developed by the market players and better framework conditions to improve its performance on the transport market.

Combined transport was perceived by many railways as a solution to the traditional problems of wagonload operations. The tendency was to establish autonomous combined transport organisations within railway companies (frequently selling space on trains to third parties for retail to customers). However, the inherent change of mode adds extra costs, which cannot be recouped over short-distance rail movements. Furthermore, the payloads which can be carried by each unit are less than those which can be carried by modern wagons, limiting the suitability of combined transport solutions for bulk traffic, particularly for low-value traffic. The greatest success for intermodality has not been in supplanting wagonload traffic, but in entirely new traffic to and from ports, driven by the continuing growth of deep-sea container traffic. This is growing at sustained high rates and is not penalised by a modal transfer to road at the port end.

Trainload operations are well suited to rail, and it has been in this sector of the freight market that rail has performed best over past decades to the extent that it now comprises almost two-thirds of all rail freight traffic. These services have lower total operating costs than equivalent wagonload or intermodal services, and usually offer faster and more reliable transit times. It is also this segment where new entrants - in general, independent railway undertakings - usually try to position themselves.

It is clear that the freight market is not homogenous. Different sectors have substantially differing requirements with regard for example to price, speed, reliability and punctuality. The economics of shipment to the final destination mean that in the vast majority of situations at least a part of the journey will be carried out by road. The economics of rail freight seem to indicate that larger loads over longer distances ought to show a relative advantage for rail freight. However, the level of infrastructure charges affects the ability of railway undertakings to compete with road haulage to a great extent. With low infrastructure charges based on social marginal cost, the break-even point between road and rail corresponds to a distance of ca. 450 km for a single wagonload in international traffic. With high infrastructure charges covering full costs, break-even is around 700 km [21].

[21] Nelldal/Troche/Wajsman (1999). How the railways should solve Europe's transportation headaches, Centre for Research and Education in Railway Engineering, Stockholm.

The ability of the sector to compete in the various market segments will be influenced by many factors. Effective management and understanding of costs and their drivers, as well as measures to control and reduce costs are primary requirements for competitive rail freight services.

Factors that contribute to the poor performance of rail freight:

i) Railway undertakings are often out of tune with customers' quality requirements in terms of speed, reliability (e.g. to ensure just-in-time delivery) and other service characteristics such as additional value-added services (e.g. packaging, warehousing, distribution, customer information, etc.). For instance, punctuality of trains operated for combined transport on major European corridors has deteriorated dramatically in the last few years. In 1999, only 60% of all trains were on time (i.e. they were delayed by less than 30 minutes) [22]. In the first half of 2001, the percentage of trains on time dropped further to 42%. The quality problem is particularly acute on certain corridors such as the North-South Alpine crossing between Germany, Austria and Italy where the lack of locomotives frequently causes huge delays at the border.

[22] Letter dated 29 August 2001 from UIRR to Commissioner Loyola de Palacio.

ii) Service prices are often not competitive either and vary significantly from operator to operator. Case studies on transport of petrochemical goods comparing prices between national railway undertakings and new entrants show that prices of national "flag carriers" can be double those charged by new entrant companies for the same type of service requiring similar resources [23].

[23] IG&H Management Consultants (2001), EPCA rail benchmarking study, 30 October.

iii) Inefficiencies in operation, the use of rolling stock and of infrastructure, are still an important handicap for the railway sector. According to the findings of a Community research project [24], potential cost savings (i.e. some 25% of total current costs or 15 billion per year) could be achieved if all players performed as well as the best. Of this, one third could be allocated to the operation of services and two thirds to the operation of the infrastructure. Mercer consultants [25] estimated the potential savings from better utilisation of rolling stock and staff including a potential to increase loads per wagon by 30%, to reduce maintenance costs per wagon by 40%, to increase locomotive productivity by 25% and to increase crew productivity by 15%. Clearly, some railway undertakings have made considerable efforts in recent years to tap this potential. However, a long road still remains ahead to realise the full potential.

[24] Halcrow Fox (1999), Profitability of rail transport and adaptability of railways (PRORATA). Project funded by the European Commission under the 4th Framework Programme for transport research.

[25] Reinhardt M./D. Schneiderbauer/M. Kadar (1998), Levers of Value Creation for Freight Railways, Mercer on Transport, Volume VI, Number 2.

iv) There is still very little competition on national and international rail freight markets. Although the national legislation allows competition in some countries only very few companies are actually competing with the national railway undertakings. Their market share seldom exceeds a couple of percentage points. According to current European legislation, international groupings and combined transport operators could run international services in open access mode. Only very few examples of such services have materialised. Due to the low market share of competitors to the national rail carriers the market provides little incentive for innovation and productivity increases.

v) National railway companies or infrastructure managers - often at the request of Member States' governments - have employed priority rules to determine the use of rail infrastructure. These generally favour passenger over freight services and vary from country to country. Implications for freight are that rail freight services are slower, less reliable and make poorer use of capacity. This makes a discussion at European level desirable to render existing priority rules more consistent and less anti-freight.

vi) Infrastructure charges represent a significant proportion of overall production costs for rail. The proportion depends on the level of utilisation of the infrastructure and the type of service but realistically can reach about 30%. A good understanding and the correct attribution of these costs are essential to ensure that rational decisions are made about the operation of services. It is important that this is carried out in a way that does not price marginal traffic off the infrastructure.

vii) Where trains cross from the network of one infrastructure manager to another, or trains are exchanged between two railway undertakings, or control authorities (e.g. safety, customs) are involved, then there is likely to be a need for electronic data exchange. These data needs may increase as more railway undertakings perform services, but in any case today's paper-based systems of data transfer are not appropriate to the needs of the 21st century and lead to delays and unreliable services.

viii) Capacity constraints may constitute a threat to the development of rail freight. Even at modest growth rates the situation will arise where for certain parts of the rail infrastructure commercially attractive capacity can no longer be found, even after steps have been taken to rearrange traffic.

ix) Rail freight's competitiveness suffers to some extent from unbalanced intermodal framework conditions. The absence of a consistent and comprehensive infrastructure charging framework and non-internalised external costs in other sectors such as road haulage leads to a certain distortion of competition between the modes. Additionally, rail freight is put at a disadvantage by the insufficiently enforced social legislation in other sectors such as road haulage.

1.2. The alarming deterioration in the performance and quality of rail freight

According to customer surveys [26], the competitiveness of European railways suffers from a number of problems such as uncompetitive prices, unacceptably late fare quotes, lack of customer orientation and often unavailable information about the whereabouts of wagons and cargo. However, the most important reason for customers' dissatisfaction with rail freight services is the mediocre and still worsening service quality, especially for international services. According to estimates by the Symonds Group the average commercial speed of international rail freight services on major North-South and East-West corridors is typically around 20 km/h in Europe [27]. The punctuality and reliability of service are also far from satisfactory.

[26] See for instance Symonds Group (2001), A study on single wagonload rail traffic, p. 95 et seq.

[27] Symonds Group (2001), A study on single wagonload rail traffic, p. 43.

In 1999, only 60% of all combined transport trains were on time (i.e. they were delayed by less than 30 minutes). In the first half of 2001, the percentage of trains on time dropped further to 42%. The quality problem is particularly acute on certain corridors such as the North-South Alpine crossing between Germany, Austria and Italy where the lack of locomotives frequently causes huge delays at the border.

Lacking service quality causes significant cost to the railways. For instance, it has been estimated that under-performance of rail-based, UIRR-sponsored international combined transport operations caused a total cost of EUR 41 million in 1999 [28] (including asset utilisation inefficiency, claims by combined transport operators and profit on lost turnover). [29] It is sometimes argued that this situation is satisfactory as long as the customers have a choice, for instance by turning to a road haulier. From a broader policy perspective, however, this is not acceptable as the poor performance by a dominant railway company results in additional burdens on society.

[28] The sum corresponds to some 6% of total international UIRR revenues of around EUR 650 million.

[29] UIRR/Booz Allen & Hamilton (2000), A quality strategy for combined transport, The beginning of a transformation, final report, 21 November, p. 40.

It is vital for the future of rail freight to take a consistent set of measures to introduce incentives for high-quality service provision into the business relationships between railway undertakings and with other market players such as the clients and the infrastructure managers. For this purpose, the Commission proposes a comprehensive European approach to service quality in rail freight, which addresses railway undertakings, infrastructure managers and rail freight customers.

Directive 2001/14/EC requires establishment of performance regimes that make infrastructure managers and railway undertakings responsible for the quality of their services and contribute to efficient utilisation of the rail network. Such incentives have to be extended to all providers of international rail freight services. In the absence of a sufficient level of competition such a mandatory scheme based on a legal act would provide incentives to improve the performance of European rail freight operations. Some railway undertakings have already agreed to sign performance contracts with their clients for national services [30]. However, in many countries this is not yet the case. Only very few performance contracts for international freight services have been concluded.

[30] Mainly for combined transport operations but also for some big customers.

Alternatively, the Community could take a compensation approach and determine through Community legislation the conditions and level of compensation payments in case of non-compliance with service obligations.

The European Commission intends to propose legal measures and suggest complementary voluntary actions to provide a comprehensive system of quality incentives.

This European approach to rail freight service quality consists of 5 elements:

1) Monitoring of rail service quality

The Rail Market Monitoring Scheme (RMMS) will monitor implementation of this European approach to rail freight service quality with the help of appropriate indicators that it will collect. If this approach turns out not to be viable, the Community will legislate in order to establish rail freight service indicators.

2) Voluntary contractual quality commitments

The European railway companies undertake systematically to include service quality commitments in their contracts with customers in a fair and non-discriminatory way. Based on a common understanding between railway undertakings and customers contractual quality criteria shall at least include:

For railway undertakings:

* a well defined schedule for departure and arrival times (obligatory)

* punctuality (obligatory)

* clear responsibility towards the customer for the entire transport chain (obligatory)

* safe and damage-free transport (obligatory)

* providing appropriate and timely information to the customer (obligatory)

* regular and reliable service (obligatory)

* market-conform transport times (optional)