EUROPEAN COMMISSION Brussels, 31.5.2017 SWD(2017) 194 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Accompanying the document Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EC) No 1071/2009 and Regulation (EC) No 1072/2009 with a view to adapting them to developments in the sector

{COM(2017) 281 final}

{SWD(2017) 195 final}



Contents 1 What is the problem and why is it a problem? 1.1 Context 1.2 Description of the main problems 1.3 Underlying drivers of the problems 1.3.1 Problem Driver 1: Inconsistent and ineffective enforcement of legal framework 1.3.1.1 Root cause A: Differing levels of monitoring/control of compliance among Member States 1.3.1.2 Root cause B: Limited and ineffective cooperation between Member States 1.3.1.3 Root cause C: Difficulties to enforce current rules on cabotage 1.3.1.4 Root cause D: Insufficient information available to authorities for enforcement 1.3.2 Driver 2: Different implementation of the rules 1.3.2.1 Different interpretations of certain cabotage provisions in Regulation (EC) No 1072/2009 1.3.2.2 Different practices related to the conditions for access to the occupation in Regulation (EC) No 1071/2009 1.3.2.4 Additional requirements for establishment in some Member States 1.3.2.5 Different approaches adopted regarding transport of empty containers / pallets 1.3.3 Driver 3: Different scope of application of the rules 1.4 How would the problem evolve, all things being equal (baseline scenario) 1.4.1 Cabotage activity 1.4.2 Letterbox companies

1.4.3 Administrative costs 1.4.4 Use of light commercial vehicles (LCV) 2 Why should the EU act? 3 What should be achieved? 4 What are the various options to achieve the objectives? 4.1 Step 1: Considered policy measures & mapping with problem drivers 4.2 Step 2: Consider policy measures which are retained after a preliminary assessment by drivers and root causes 4.3 Step 3: Combining the policy measures into policy options 5 What are the impacts of the different policy options and who will be affected? 5.1 Analysis of economic impacts 5.1.1 Impact on business (cost of operation) 5.1.2 Impacts on level of transport activity 5.1.3 Impacts on the level of compliance with the Regulations 5.1.4 Impacts on costs and benefits (costs savings) for national authorities 5.1.5 Specific impact on SMEs 5.1.6 Impact on competition and functioning of the market 5.1.7 Impact on prices to users of hauliers services and to consumers 5.2 Analysis of social impacts 5.2.1 Impacts on working conditions 5.2.2 Impacts on EU integration/free movement

6 How do the options compare? 6.1 Effectiveness and efficiency 6.2 Coherence 6.3 Conclusion – preferred policy options 7 How would actual impacts be monitored and evaluated? 1What is the problem and why is it a problem? 1.1Context Market context In 2014 road freight transport accounted for around 49% of freight volume moved in the EU-28, a share which has remained largely unchanged over the past decade. Around two thirds (64%) of road freight movements are within Member States and around one third (36%) is between Member States. According to Eurostat data, the total volume of road freight transport in the EU-28 was around 1,725 billion t-km in 2014, some 10% less than during its peak in 2007, but showing a small increase compared to 2009 (1,700 billion t-km). This development has been shaped by the global financial and economic crisis, which has had severe impacts on the EU. Cross-trade has grown significantly in recent years due to the fact that international transport activities are completely liberalised within the EU. Vehicles registered in the EU-13 perform a far greater share of international operations, including cross-trade and cabotage, than vehicles registered in the EU-15, which haul almost 80% of their freight within their national boundaries. Cabotage accounted for 1.8% of national transport activity in 2014 (in terms of t-km). The share of cabotage has roughly doubled between 2004 and 2013, but this seems to be mainly due to the lifting of special transitional restrictions in 2009 and 2012 on hauliers from most countries that joined the EU in 2004 and 2007, respectively, rather than by the adoption of Regulation (EC) No 1072/2009. Cabotage grew by 80% between 2010 and 2014 alone. Germany, France, Italy, the UK and Sweden are the main Member States where cabotage operations take place, accounting for 82% of total cabotage in the EU. Two thirds of all EU-28 cabotage (67%) is carried out in Germany and France. The share of cabotage carried out in EU-13 states is virtually zero. In 2014, around 29% of all cabotage activity was carried out by Polish operators. In 2016 there were 563,598 registered road freight transport enterprises in Europe, employing around 2.9 million people. Policy context Regulation (EC) No 1071/2009 on access to the occupation of road transport operator (hereafter "Regulation (EC) No 1071/2009") and Regulation (EC) No 1072/2009 on access to the international road transport market (hereafter "Regulation (EC) No 1072/2009") were adopted as a part of a package of measures aimed at modernising the rules governing admission to the occupation of road transport operator and access to the road transport market. As a global objective, the Regulations aim to support the completion of the internal market in road transport, its efficiency and competitiveness. While international transport operations have been fully liberalised, national transport is still partly restricted for non-resident hauliers through restrictions on cabotage operations. Regulation (EC) No 1071/2009 sets the provisions that undertakings must comply with in order to access the occupation of road transport operator (passenger and freight). It also lays down certain provisions to regulate and facilitate enforcement by Member States, including by establishing a European Register of Road transport Undertakings (ERRU). Regulation (EC) No 1072/2009 lays down the provisions to be complied with by undertakings that wish to operate on the international road haulage market and on national markets other than their own (cabotage). It includes provisions related to the documents to be issued to such undertakings by the Member State of registration (Community Licence), as well as to drivers from third countries (driver attestation). Finally, it also sets down provisions regarding the sanctioning of infringements and cooperation between Member States in that context. A REFIT ex post evaluation of the Regulations which was carried out in 2014-2015 concluded that the Regulations were only partly effective in achieving their original objective of creating balanced conditions for competition between resident and non-resident hauliers. The main difficulties encountered were linked to the practical application and enforcement of these principles. Differences in interpretation of the provisions of the Regulations by Member States and hauliers, inconsistencies in enforcement practices and lack of cooperation between Member States have hindered the effective enforcement of the Regulations and brought about legal uncertainty for transport operators. However, the Regulations did not have any discernible effect in terms of reinforcing the level of compliance with the social and safety rules due to the indirect nature of this relationship.

This impact assessment concerns a REFIT initiative, whose objectives are to reduce the regulatory burden both for public authorities and private operators. The adoption of the Regulations in 2009 already had these objectives, but the ex post evaluation showed a potential room for improvement in terms of reduction of the compliance costs for transport operators and of enforcement costs for national authorities. Besides from the REFIT nature of the initiative, the main objective of this impact assessment is to consider possible improvements of the competitive conditions in the road haulage market and achieve an adequate balance between the different interests of stakeholders. The two objectives are inter-linked, in the sense that improving the efficiency of hauliers contributes to a better internal market. Even small improvements in the cost structure of hauliers may have very significant impacts in the overall structure of the market, given the size of the sector at stake. The initiative is also part of a broader review of the road transport legislation, further described in annex 9. Together with Directive 2006/1/EC on the use on the use of hired vehicles for the carriage of goods by road, the Regulations set the legal framework for hauliers to operate in the EU. 1.2Description of the main problems The main problems and their underlying drivers are summarised below. Following the assessment of the evaluation results and further Commission work, two main problems have been identified in relation to the EU rules on access to the occupation of road haulier and to the intenational road transport market: factors undermining fair competition between resident and non-resident transport operators and high costs for the industry and for Member State enforcement authorities. There are several factors contributing to these problems which are outside the scope of EU competence, notably the significant labour cost differentials between Member States and the limited national resources available for enforcement of the rules on access to the profession and to the market. For example, in the context of the support study for the ex post evaluation of the Regulations, enforcers from Bulgaria (480 staff), Latvia (28 staff), Sweden (160 staff), Ireland (11 staff), Spain (400 traffic agents and 150 employees of the administrative organs), Romania (317 staff) and the Netherlands (unknown number of staff) considered that they have an insufficient number of staff. Although there are no quantitative estimates of the costs of enforcing the Regulations, an indication thereof may be found in the cost of enforcement of the rules on working time, driving time and rest periods ("the social rules") as reported by Member States. This cost was around €10.6 million per year on average per Member State (in the period 2011-2012) and varied from less than €1 million in some Member States to €127 million in one Member State. The estimated total staff costs for enforcement of the social rules in the EU27 was €501 million in 2012. While these factors are considered as important exogenous elements to the present initiative, they are external to the Commission intervention. The specific causes of the main problems and the related provisions are discussed further in the section below describing the “problem drivers”. 1.2.1Factors undermining fair competition between resident and non-resident transport operators The road freight transport sector is composed largely of small firms and is characterised by thin profit margins. Balanced conditions for competition between resident and non-resident hauliers and the respective enforcement are therefore vital to ensure the benefits of a single EU market. The Regulations aimed to set out a common framework for access to the EU road transport market. Ensuring consistent regulatory standards for market access is needed to prevent transport firms located in Member States with lower standards gaining an unwarranted competitive advantage over firms in Member States with higher standards. However, the Regulations leave certain aspects open for interpretation. In addition, differences in the monitoring and enforcement practices can introduce competitive distortion by providing inconsistent incentives for compliance with the rules. This situation contributes to higher risks of illegal activities, such as illegal cabotage and the setting-up of letterbox companies, although it is difficult to quantify the extent of infringements due to the poor availability of relevant data. The cost differentials between transport operators are a factor to consider while discussing the incentives for carrying out cabotage operations (including illegal ones), as well as establishing letterbox companies and/or out flagging activities. In this context, the diversity of administrative requirements under company law and fiscal rules across the EU Member States, particularly as regards corporate income taxation may play an important role in influencing business decisions on the country of establishment for their companies. Likewise, driver costs, including wage and social security contributions, play a very important role, since they represent a significant part of the operating costs of hauliers, ranging from around 20% to around 40% of overall operating costs, depending on the Member State of hiring. Letterbox companies The term "letterbox companies" refers to companies "established" in a Member State where they do not carry out their administrative functions or commercial activities, in violation of Article 5 of Regulation (EC) No 1071/2009. They are usually set-up by hauliers operating in high-wage Member States, but seeking to benefit from the lower labour costs or taxes in place in other Member States. They are a key concern for many stakeholders. These fraudulent practices can create unfair competition and potentially undercut legitimate businesses by avoiding certain costs (such as social contributions and taxes). They are also usually associated with poor working conditions of drivers. Member State Reported infringements of establishment criterion Infringement rate (as % of total authorisations granted) BG 47 0.22% DE 13 0.04% PL 65 0.41% SI 94 0.81% UK 50 0.20% Source: Member States reports for period Jan 2013 to Dec 2014.

The ex-post evaluation support study estimated that there were at least 430 letterbox companies in 2012 in the EU. Although the absolute number of companies infringing the requirement of stable and effective establishment being detected is relatively low (below 1% of companies investigated), these figures do not capture companies that were able to avoid detection. This suggests that the official infringement rates may not be a reliable indicator of the extent of letterbox companies being set up. Also, specific cases of letterbox companies have been brought to the attention of the Commission. For example, in 2014 the Belgian authorities requested the Commission to intervene on their behalf in order for the Slovak authorities to investigate suspected letterbox subsidiaries set up by Belgian hauliers in Slovakia. The Slovak authorities carried out on-site inspections concerning 42 companies. Several companies were found not to comply with the establishment provisions of Regulation (EC) No 1071/2009. In one case, the authorisation had already been withdrawn and for nine other companies the respective authorisations were withdrawn following the inspections. In March 2017, there was an investigation by the Belgian authorities into Belgian hauliers having established letterbox companies in Portugal and Slovakia. The Belgian authorities found 25 letterbox companies registered in the same address in Slovakia, 3 people were arrested and the estimated unpaid social contributions in Belgium amounted to €6-€7 million. Moreover, 75 (43%) of respondents to the open public consultation considered that the setting up of letterbox companies to be a widespread practice, whilst only 9% (16) considered this to be only a minor issue. 88% of respondents from associations representing road transport workers (29 out of 33) considered that this was a widespread practice, a much greater percentage than from any other respondent category (mostly between 25-44%). According to the ex-post evaluation, the cost advantage of setting up a letterbox company for hauliers is 31% in relation to a properly-established company. Within a highly competitive industry such as road transport, this level of cost differential is very significant. The fiscal loss per vehicle per year for the Member State where the company should be established (where the haulier actually operates) is around €6,000. Labour-related losses per driver per year for the Member State where the drivers should be paying social contributions are in the range of €30,000-€40,000. For example, a French driver's salary costs are up to 2.4 times higher than those of a Polish driver. If it is assumed that letterbox companies employ, on average, the same number of workers as legally-established hauliers (5 workers per haulier, i.e. approx. 3 million workers divided by 600,000 hauliers), this would yield an EU-wide annual loss of income for the Member States where the drivers should be paying social contributions in the range of €64.5-€86 million. However, these estimates must be taken with great prudence. They are not based on an EU-wide study of the impacts of letterbox companies, but rather on partial data analysis. Therefore, they are just intended to give an indication of the order of magnitude of the impact that letterbox companies have on fiscal revenues for Member States. In any event, these figures show a high incentive for companies to set-up letterbox companies, a very significant impact on hauliers' costs and considerable fiscal losses for the Member States where the companies should be established. The negative impacts of letterbox companies appear to be disproportionately large due to the cost advantage they have over competing firms which comply with the legislation. According to the results of the open public consultation, 63% of respondents (110) felt that the presence of letterbox companies leads to a competitive disadvantage for hauliers established in some Member States, which have to compete with other hauliers operating in the same Member State but illegally established elsewhere. There is a clear divide between EU-15 respondents (77% indicating very important or significant impact) and EU-13 (31% indicating very important or significant impact). Among different categories of stakeholders, most medium and large hauliers (14 out of 22) did not consider this as an important problem. In contrast, transport workers (27 out of 32 respondents) and their representatives consider this as an important problem. Illegal cabotage The available statistics suggest that the level of illegal cabotage detected by checks might not be of a significant size in most Member States for which data are available. In particular, the infringement rate is less than 1% in Germany, the UK, Poland, Italy and Denmark. In Sweden, data collected through a smartphone application suggested that there were 1,590 trucks engaged in cabotage and potentially 379 engaged in illegal cabotage (24%). In France, 7% of vehicles stopped for cabotage controls were issued an infringement. An Austrian study reports that illegal cabotage represents 3.28% of national transports in Austrian commercial freight traffic. More generally, there have also been significant concerns expressed over the low levels of effectiveness of cabotage checks, which could affect the detection of illegal cabotage and underestimate the respective share. The calculations based on the cost differentials (see section 1.4) suggest that currently illegal cabotage represents 0.56% of cabotage activity at the EU aggregate level, but that it will continue to affect some Member States more than others (with illegal cabotage rates ranging from close to zero, up to 6.4%). Even though the level of illegal cabotage is reported to be relatively low (below 1% of all cabotage activity) this practice has a significant economic impact on the sector. Cabotage represented 1.8% of national traffic in 2014. The overall volume of cabotage in the EU in 2014 was around 29,500 million tonne-kilometres. Cabotage has increased 80% between 2010 and 2014 alone. It is concentrated in only a few Member States (82% of cabotage activity takes place in France and Germany), with cabotage penetration rates ranging from 0% in Croatia to over 8% in Belgium). Thus, illegal cabotage has the potential to affect seriously national operators established in the Member States where most illegal activity takes place. As regards the economic damage generated by illegal cabotage, an indirect estimate can be made when looking at national studies and practices. In Denmark, the sanction for a cabotage infringement has been calculated in relation to the estimated economic benefit of the operation, so that the sanction has a dissuasive effect. The Danish authorities have calculated that the cost advantage of each cabotage operation was around €4,700 for each single operation and have set the indicative fine in accordance. The Austrian study referred to above indicates that cabotage activity generates damages of around €50,000 per vehicle per year and around €500 million in damages annually for the Austrian economy, in terms of lost business for Austrian hauliers. If the estimated EU aggregate level of illegal cabotage (0.56%) is applied to the annual damage calculated for the Austrian industry for all of the cabotage activity (€500 million), this yields an annual damage due to illegal cabotage of €2.8 million in Austria. Taking into account that Austria accounts for around 1.2% of cabotage in the EU, the estimated annual amount of damage, in terms of lost business for national hauliers, from illegal cabotage activity would be around €230 million per year at the EU aggregate level. However, these estimates must be taken with great prudence. They are not based on an EU-wide study of the impacts of illegal cabotage, but rather on specific national studies and partial data analysis. They are just intended to give an indication of the order of magnitude of the impact that illegal cabotage has on the road haulage industry. While the prevalence of illegal cabotage and letterbox companies may seem relatively limited based on the data presented above, these illegal practices have wider-reaching consequences. Several Member States have adopted national uncoordinated measures to fight illegal cabotage and letterbox companies, such as the systematic application of the national minimum wage laws to hauliers providing international transport services and cabotage in their territory. These national measures have significant consequences on the internal market in terms of high costs for non-resident hauliers. Part of these practices which undermine fair competition between resident and non-resident transport operators is attributable to the implementation and enforcement of the Regulations. This is further discussed in the section below describing the “problem drivers”. 1.2.2High costs for the industry and for Member State enforcement authorities Input from the hauliers' survey carried out in support of this impact assessment suggests that the costs of complying with Regulation (EC) No 1071/2009 and Regulation (EC) No 1072/2009 represent today around 8% and 7% of the hauliers' operating costs, respectively. Data from the ex post evaluation of the Regulations shows the following costs of complying with the rules for the whole industry: ·The professional competence criterion on access to the profession costs between €15 and €21 million due to the need for training of the transport manager, which is broadly in line with the ex ante estimated cost before the adoption of the legislation; ·The requirement to have a transport manager was reported to cost between €0 and €13 million to the industry, which is also in line with the ex ante estimated cost before the adoption of the legislation; ·The requirement of financial standing, which was expected to generate savings of €33 million for the industry before the adoption of the legislation due to the possibility to provide bank guarantees, actually resulted in additional costs of between €6 and €8 million, based on the undertaking survey; ·The introduction of harmonised control documents (Community licence and driver attestation) generated savings of between €11 and €18 million due to faster road side checks (reduction of 15 minutes on the road side and 45 minutes of back office time for hauliers); ·The criterion for a stable and effective establishment was found not to trigger any additional costs by 81% of the undertakings replying to the survey.

Moreover, the analysis performed in support of this impact assessment suggests some additional sources of ineffieciency. This in particular refers to the use of paper transport documents, which generates operating costs for businesses. The switch from paper to electronic transport documents is associated with cost savings from €4.34 in the Netherlands to €6.21 in Belgium. There are around 377 million international paper transport documents being used annually in Europe. The opportunity cost of not changing to electronic transport documents is therefore estimated at €1.6-€2.3 billion per year. For the industry, insufficiently specific rules or rules which leave open too many options also lead to costs to locate information on, and understand, national rules, especially where there are language barriers, as well as a higher risk of unintentional non-compliance and subsequent fines. These problems affect in particular small hauliers, which have limited resources available. However, it has not been possible to quantify these costs. Regarding Member State authorities and enforcers, data from the ex post evaluation of the Regulations shows that the main implementation cost concerned the setting up or upgrading of national electronic registers. The overall costs amounted to €18 million, falling short of the anticipated €53 million. In accordance with Article 16(5) of Regulation (EC) No 1071/2009, Member States were required to interconnect their national electronic registers by 31 December 2012. In order to better monitor the compliance of road transport with the rules in force, the Commission has set up ERRU, a system that allows a better exchange of information between Member States. The ERRU allows exchange of information between Member States about: 1) transport managers who are declared unfit to manage the activities of a road transport undertaking; 2) the most serious infringements committed by hauliers in any Member State, which may lead to the loss of good repute; and 3) other infringements committed by hauliers in any Member State. The ERRU system provides a means to interconnect the national registries through the exchange of structured messages to a central hub. The interconnection of the registers via ERRU did not generate significant costs. However, the benefits of using this system have been uneven. Moreover, implementation and progress towards achieving more cooperative and effective enforcement is unequal across the Member States, for example given difficulties in securing timely cooperation from Member States. ERRU has not yet reached its full potential in terms of benefits for national authorities, because not all Member States are interconnected yet and because the system is underused. The first issue has been tackled by the Commission through infringement procedures against the Member States concerned. The second issue is mostly due to slow uptake by Member States. Among stakeholders that responded to the open public consultation, 43% (65) indicated that the costs incurred by hauliers to meet the requirements of the Regulations were important or very important, whereas 40% (62) consider the costs to be of little importance or not significant at all. Hauliers, national authorities and consumers consider that these compliance costs for transport operators are important. Medium and large hauliers display the greatest agreement, with 13 of 18 respondents (72%) considering these costs as at least important to road transport operators (4 respondents suggested that they were very important). By contrast, responses from associations representing road transport workers and individual workers consider the costs to be of little importance, with 10 out of 16 (63%) of respondents indicating this. Whereas respondents did not report on the reasons why they think that costs for hauliers to comply with the Regulations are high or not, it can be presumed that hauliers are in a better position to judge about the importance of the costs they incur to comply with the Regulations than other categories of stakeholders. This could be the situation in particular in the case of drivers hired by medium and large hauliers, who are less acquainted with the administrative and accounting parts of the business. 1.3Underlying drivers of the problems The underlying problem-drivers (1) inconsistent and ineffective enforcement; and (2) shortcomings of the rules, are causes of the current regulatory deficiencies. They are inter-linked, because the shortcomings of the rules lead to different enforcement practices. Both contribute to legal uncertainties for all those concerned by the rules and further lead to higher risk of non-compliance and to additional costs for national authorities and businesses. Problem-driver (3) different scope of application of the rules, could in principle be treated within the problem driver concerning different implementation of the rules (2). However, due to the political importance of the subject, it was decided to present this issue as an isolated element and treat it separately in the assessment. 1.3.1Problem Driver 1: Inconsistent and ineffective enforcement of legal framework Enforcement of the different provisions of the Regulations is mainly a responsibility of Member States. Enforcement practices across different Member States differ widely in terms of the number and stringency of checks carried out. This is in part due to different levels of political priority given to control of the legislation, as well as to variations in the level of resources and experience available in the enforcement agencies. A lack of effective enforcement is a major concern among stakeholders, as evidenced by the research carried out in the ex-post evaluation support study carried out by Ricardo et al (2015). One of the major concerns over social and safety issues in the sector relates to the practice by some hauliers of setting up letterbox companies. Controlling such practices frequently requires cross-border cooperation and access to specific information that may not be readily available to all enforcement officers (see root causes B, C and D below). 1.3.1.1Root cause A: Differing levels of monitoring/control of compliance among Member States The number of checks carried out in each Member State with regard to the four criteria on access to the occupation of road transport operator under Regulation (EC) No 1071/2009 varies widely, and are clearly not in proportion, even after allowing for different Member State size and the industry's relevance.For example, in Bulgaria, 5,640 undertakings were checked for stable and effective establishment in 2014, whereas in Estonia, 120 checks were carried out in the period 2013-2014. In Estonia, 50 checks of good repute and 50 checks of professional competence were carried out in the period 2013-2014. In Romania, 2,543 checks of good repute were carried out in 2013 and 2,760 in 2014. In Spain, 12,415 investigations were carried out regarding the four criteria on access to the occupation of road transport operator during the period 2013-2014. Some Member States dedicate substantial resources to the control of illegal cabotage under Regulation (EC) 1072/2009, while other Member States practically do not control cabotage operations at all. For example, 183,200 checks were carried out in Germany in 2014, while only 229 checks were carried out in the UK in the period from March 2012 to March 2013. The majority of respondents to the open public consultation (120 out of 167; 72%) considered that there was significant or very significant variance in the control of cabotage operations and this is a view shared across almost all types of stakeholders (with the exception of transport workers and relevant associations, with only 13 out of 33 considering that there is significant or very significant variance) and both in the case of EU15 and EU13 Member States. The main impacts associated by the stakeholders with this variance include: -Increased compliance costs for hauliers (56% out of a total of 149 respondents); -Competitive disadvantage for hauliers from some Member States (64% out of a total of 153 respondents, but only 44% among 56 EU13 respondents) The official Commission monitoring data and stakeholder evidence show that there are also differences in the stringency of certain controls. For example, regarding checks of good repute, in the first reporting period on the implementation of Regulation (EC) No 1071/2009 (from 4/12/2011 to 31/12/2012), seven Member States reported that there were no declarations of unfitness (loss of good repute). Conversely, in Hungary and Italy declarations of unfitness were quite high (129 and 348, respectively).

In the second reporting period (from 01/01/2013 to 31/12/2014), most Member States which reported data still noted that there were no declarations of unfitness, whereas there were high numbers in other Member States, such as Italy (680) and the United Kingdom (493). This suggests that some Member States are more lenient than others in the application of this criterion (although some differences may also be attributable to different compliance cultures) and that these differences have persisted. 1.3.1.2Root cause B: Limited and ineffective cooperation between Member States Exchanges of information between Member States regarding enforcement of Regulation (EC) No 1071/2009 are limited. Information on exchanges of information in the second reporting period on the implementation of Regulation (EC) No 1071/2009 (from 01/01/2013 to 31/12/2014) shows that in most cases there is very little interaction and the overall situation is highly uneven. Number of notifications of serious infringements Number of requests for checks of good repute Sent to other Member States Received from other Member States Sent to other Member States Received from other Member States Total 17,008 1,477 91,511 559,211 CR2 index* 87% (PL and UK) 61% (BG and SL) 88% (UK and SV) 50% (BG and LV) Share of Member States which reported fewer than 10 incidences 43% 21% 50% 43% Notes: 14 countries reported information: BG, DK, ES, ET, FR, HR, LT, LU, LV, PL, RO, SL, SI, UK Source: European Commission, 2016. *CR2 index is the concentration ratio, representing the share of total activity that is due to the two most active countries. The CR2 index indicates the concentration of total activity in the top two most active Member States. This indicator shows that for all types of information exchange, the majority of total activity is carried out by only two Member States (although the representation of countries in the top two varies). Additionally, a substantial share of Member States report fewer than 10 individual requests in all categories (between 21% and 50% depending on the category), showing that a large number of Member States are not actively exchanging information. Qualitatively, based on the stakeholders' contributions, Ricardo et al (2015) confirms the highly uneven situation, with several Member States, such as Cyprus, Lithuania, Malta, the Czech Republic, the Netherlands and Slovakia indicating that there were no exchanges of information at all. In addition, several Member States (e.g. France, Denmark) have reported difficulties in obtaining responses to queries made to other Member States regarding investigations into letterbox companies. A majority of respondents to the open public consultation (83%; 145) considered that there are at least some instances of lack of cooperation in monitoring compliance with the stable and effective establishment criterion, whilst only 2% (3) considered that Member States are cooperating well in this respect. The stakeholder group which criticised more strongly cooperation between Member States were the associations representing road transport workers, 79% of whom (26 out of 33) considered that Member States were not cooperating at all. Most other respondent categories felt that there were only some instances of lack of cooperation. This lack of cooperation concerning letterbox companies has led to a situation where such companies are being set up in several Member States (see section 1.2.1 above). 1.3.1.3Root cause C: Difficulties to enforce current rules on cabotage Confirming the legality of cabotage operations on the basis of the CMR consignment notes exclusively was highlighted as an issue in Ricardo et al (2015) due to two main factors: ·Firstly, the CMR document does not necessarily contain all of the information needed to verify whether a cabotage operation is in compliance with the rules. A review of the literature confirms that enforcement bodies do not have the means to check for infringements of the cabotage rules. Particular difficulties were mentioned by respondents to the survey of enforcers carried out in the context of the ex-post evaluation support study concerning the verification of the start of cabotage operations, their link to the international carriage, the calculation of the 7-day period (when precisely this should start) and the identification of the number of journeys carried out within that period. ·Secondly, there is a possibility that documents are falsified or hidden. For instance, many industry representatives consider that presentation of consignment note evidence is not reliable, because documents can simply be hidden by drivers in order to conceal cabotage operations. Anecdotal evidence suggests incidents of counterfeit documents in some countries (such as Spain and Austria), although the extent of such practices is unknown in these countries and more widely. Such falsification can only be detected by detailed controls at the hauliers’ offices, but not during roadside checks. Among the respondents to the open public consultation, 41% (72) felt that the cabotage rules are difficult to enforce, 18% (31) very difficult and 11% (19) virtually impossible. Among national authorities, who are directly responsible for their enforcement, these percentages are even higher (only 1 out of 18 indicated that it is easy to enforce cabotage). In contrast, small hauliers and medium and large transport operators are more positive, with 38% (7 out of 18) and 29% (7 out of 23) considering that it is easy to enforce cabotage, respectively. The difficulties described above contribute directly to the driver of ineffective enforcement (of the rules on cabotage), since effective enforcement requires access to necessary information and documents. 1.3.1.4Root cause D: Insufficient information available to authorities for enforcement The development of national electronic registers and the European Register of Road transport Undertakings (ERRU) were key aspects of the Regulations intended to result in more efficient and effective enforcement. ERRU allows exchange of information about transport managers who are declared unfit, information on infringements committed by hauliers in any Member State that may lead to the loss of good repute and other infringements committed by hauliers in any Member State. This type of information is crucial to the enforcement activities of licencing authorities. However, other information which is important for enforcement is not included in the national electronic registers and in ERRU. For example, the registration plate numbers of the vehicles in use by the operator, financial information about the company and its risk rating are not included. When it comes to cross-border enforcement situations (e.g. on-site inspections to check for possible letterbox companies), such information must be requested on a case by case basis and outside of ERRU by the enforcement authorities of one Member State to the enforcement authorities of the other Member State. This is confirmed, for example, by the exchanges between the Commission and the Belgian and Slovak authorities regarding investigations into the existence of letterbox companies in Slovakia mentioned in section 1.3.1.2.

1.3.2Driver 2: Shortcomings of the rules Legally, there can only be one correct interpretation of the rules, in particular given that regulations are directly applicable to Member States and do not require any transposition measures. Whenever a Member State departs from the correct interpretation of the rules, the Commission has the obligation to start an infringement procedure against that Member State. However, practice has shown that certain provisions either leave open too many options for Member States or are not sufficiently specific. There are several specific issues which are linked to this driver and which are elaborated in the following sections. These examples show the extent of the shortcomings of the existing rules. 1.3.2.1Insufficiently specific cabotage provisions in Regulation (EC) No 1072/2009 The cabotage provisions are stipulated in Article 8(2) of Regulation (EC) No 1072/2009. Hauliers may carry out three cabotage operations in the host Member State within seven days following an international journey – known shorthand as the “3 in 7 rule”. Within that period, hauliers may carry out the three cabotage operations in any Member State transited on their return journey under the condition that they are limited to one operation per Member State transited, within three days of the unladen entry into its territory. In any case, cabotage must always be limited to three operations within seven days. Ricardo et al (2015) found that some Member States, such as the Netherlands, allow several loading and unloading points per operation. Conversely, partial loading and/or unloading is regarded as a separate trip in other Member States, such as Denmark. In Poland, it depends on whether the loads are for the same customer (in which case they are counted as one operation) or for different customers (in which case they are counted as separate cabotage operations). The Commission has started infringement procedures against two Member States in this respect (see section 2). This lack of specificity of the rules means that hauliers must be aware of the rules in each individual country, or else risk penalties. Moreover, the lack of clarity in the provisions was identified by enforcers responding to the survey carried out in Ricardo et al (2015) as one of the most important contributing factors to difficulties in enforcement. Among the respondents to the open public consultation, 75% of respondents (131 out of 175) considered that the cabotage rules are not sufficiently clear and the majority felt that the outcome of this lack of clarity and the uncertainty this brings increased costs of compliance and administrative costs for transport operators (56% considered that the impact was at least very important). 1.3.2.2Rules on access to the occupation in Regulation (EC) No 1071/2009 leave open too many questions There are several areas of Regulation (EC) No 1071/2009 which leave open too many questions. Each of these areas is discussed further below. Stable and effective establishment Article 5 of Regulation (EC) No 1071/2009 specifies that undertakings must have an office in which they keep their core business documents and an operating centre with the appropriate technical equipment and facilities in the Member State of establishment. Moreover, once an authorisation is granted, they need to have at least one vehicle at their disposal which is registered in that Member State. Although the minimum requirements of stable and effective establishment have been implemented by all Member States, one of the main difficulties experienced by Member States in the control of letterbox companies is how precisely to define an operating centre. For example, in Luxembourg the establishment has to be proportional to the size of the company, the manager has to be present in the operating centre on a regular basis and the existence of a parking space is checked, although it is not a legal requirement. In Poland, a stable and effective establishment is defined as a place equipped with technical equipment and technical devices appropriate to carry out transport activities in a structured and continuous manner, which includes at least one of the following elements: a parking place, an unloading area or equipment for maintenance of vehicles. Among the respondents to the open public consultation, there is a largely even split between those which consider that the definition of stable and effective establishment is sufficiently clear and those that do not (47% versus 43%, respectively). Associations representing road transport workers and individual workers considered that the definition is not sufficiently clear (76%). In contrast, 65% of small hauliers and 82% of medium-to-large sized hauliers consider that the definition is clear enough. The responses suggest that this can lead to significant impacts on the costs to hauliers, both for compliance and administration (39% and 38% of respondents indicated a significant impact on these costs, respectively). It is also suggested that this may somewhat lead to a competitive disadvantage to hauliers from some Member States. The definition of infringements leading to loss of good repute Under Article 6(2) of Regulation (EC) No 1071/2009, Member States must determine whether loss of good repute would constitute a disproportionate response to an undertaking (or relevant person) committing a criminal offense or one of the most serious road transport offenses. Some Member States report that this analysis is carried out on a case-by-case basis and as such there is no specific procedure (e.g. Bulgaria) or that they are in the process of setting up the respective requirements (e.g. Italy). Other Member States (in particular France and Estonia) have defined very detailed procedures to determine whether loss of good repute is disproportionate. In Spain, there has not been a single case of an operator losing its good repute, since revoking good repute is considered to be a disproportionate punishment in general. Once good repute is lost, there are also different procedures for its reinstatement. For example, the period of time that must elapse before rehabilitation can take place varies widely (6 months in Spain and Italy, 1 year in Romania, 2 years in Belgium, 3 years in Denmark and 10 years in Luxembourg). This may happen automatically (e.g. in Italy, Luxembourg) or through following training and passing an exam (UK, Sweden, Denmark). Finally, some Member States have no specific rehabilitation procedures (e.g. Ireland, Latvia and Bulgaria). The persons checked for good repute also vary. Article 6 of Regulation (EC) No 1071/2009 states that Member States shall consider the conduct of the undertaking, its transport managers and “any other relevant person” in its assessment. To reduce the risk of “front men”, some Member States require other persons to be checked, such as CEOs and general partners in partnerships (Finland) or legal representatives of the undertakings (Latvia). Among the respondents to the consultation, 70% indicated that this is a major problem, a view shared by all categories of respondents. The respondents considered that this leads to a very important impact on the level of competitiveness of hauliers across Member States and important compliance costs. Financial standing

Article 7 of Regulation (EC) No 1071/2009 contains the requirements for demonstrating appropriate financial standing. Undertakings must show that, every year, they have at their disposal capital and reserves totalling at least €9,000 when only one vehicle is used and €5,000 for each additional vehicle used. A number of issues raise doubts according to the national ministries that responded to the consultation carried out in the context of the ex-post evaluation of the Regulations: ·The following terms used in the Regulation were considered unclear: oWhat exactly is meant by professional insurance (Austria); oWhat should be understood by the notion of capital and reserves (Belgium, Finland, Germany); oWho could be the mentioned duly accredited person having a right to certify the annual accounts of the transport undertaking (Estonia); oWith regard to the bank guarantee, it is not clear who is to be declared on the guarantee (Germany, Italy, Slovakia); oWhat liability needs to be covered by the insurance (Latvia, Slovakia). ·Article 13(1)(c) is not clear insofar as it does not explain how it is to be demonstrated that the financial standing requirement will again be satisfied on a permanent basis. The conditions for the derogation enshrined in Article 7(2) are not clear, in particular what is meant by professional liability insurance (Ireland). ·It is not defined how a newly established enterprise, in the absence of annual accounts, has to prove its financial standing (Lithuania, Germany). The diverse responses listed above suggest that many terms used in the Regulation leave open too many options for Member States. 1.3.2.3Significant variation in the penalty systems for non-compliance In terms of the penalties in place for infringements of the Regulations, there is significant variation between Member States. Figure 1 shows the level of fines applicable to cabotage infringements. Converting the fines on a purchasing power parity basis (right-hand graph) makes the discrepancies larger, indicating that socioeconomic differences between the Member States cannot explain the differences. For example, the level of the fine for exceeding the maximum 6-day or fortnightly driving time limits by 25% or more is up to €300 in Latvia and up to €15,000 in Germany.

Source: (Ricardo et al, 2015). Similarly, infringements of Regulation (EC) No 1071/2009 categorised at the same level of seriousness may attract vastly different fines with ten-fold differences reported in some areas. For example, the most serious infringements are fined between €1,001 and €6,000 in Spain, between €2,040 and €2,720 in Romania and up to €200,000 in Germany. Serious infringements are fined between €401 and €1,000 in Spain, between €910 and €1,360 in Romania and up to €100,000 in Germany. Besides from the financial penalties, there are also different types of sanctions applied by Member States to cabotage infringements, as shown in Table 3. Penalty Applicable Not applicable Retention/immobilisation of vehicle Belgium, UK, Netherlands, France, Poland, Germany, Italy Norway, Bulgaria, Czech Republic, Romania, Latvia Retention of trailer UK, Netherlands, France Belgium, Norway, Germany, Bulgaria Retention of goods Norway Belgium, UK, Netherlands, Germany, France, Bulgaria Other Belgium*, UK**, France** * Belgium: requirement to return to the place of loading in order to unload the goods or requirement to reload the goods into another vehicle in order to continue the trip in a legal way. ** In France and in the UK there is the possibility of imposing a one-year ban from performing cabotage. Source: (Ricardo et al, 2015). There are also differences in terms of the persons or undertakings bearing liability. While most Member States consider that the driver/haulier is the sole responsible for infringements of Regulation (EC) No 1072/2009, several Member States have introduced provisions rendering shippers and freight forwarders co-liable for infringements of the cabotage rules. These differences in the level of the financial penalties and in the ancillary sanctions applied to infringements of the Regulations lead, on the one hand, to difficulties for hauliers to understand and cope with the different national legislations and, on the other hand, to some of them being in a less advantageous position, notably those which operate mainly in markets where the penalties are higher. The open public consultation also confirmed that the significant variation between Member States in terms of the level and type of the sanctions applicable to infringements of the Regulations is considered to be a major problem for the road haulage sector. Only 16% of respondents did not consider this to be a problem. There is also strong agreement among respondents that this variation has a very important impact in terms of competitive disadvantage for certain hauliers (83% of respondents considered this). In addition, 59% and 52% felt that this has at least a very important impact on the costs of compliance and administration, respectively. 1.3.2.4Additional requirements for establishment in some Member States Article 3(2) of Regulation (EC) No 1071/2009 allows Member States to impose additional requirements in order for undertakings to have access to the occupation of road transport operator on top of the four requirements laid down in Article 3(1) thereof, as long as these are proportionate and non-discriminatory. This possibility has been taken up by several Member States. The most common additional requirement is for hauliers to have a parking space, which is applied in Austria, Bulgaria, Ireland, Slovakia and the UK. Slovakia added an additional requirement for the transport manager to be at least 21 years old. In Spain there is an additional requirement that applicants must have three vehicles representing at least one payload of 60 tonnes. The possibility for Member States to set additional conditions on access to the profession of road haulier means that the same undertaking can be eligible for entry in the road haulage sector in one Member State, but not in another Member State. A majority of the respondents to the open public consultation (52%) consider that the imposition of additional conditions on access to the occupation of road haulier by some Member States constitutes a major problem for the road haulage sector. This is a view shared by all the respondent categories. Moreover, most respondents consider that this has a number of negative effects on the haulage sector across the EU: 70% of respondents felt that this issue would result in at least an important impact, causing competitive disadvantage to hauliers from some Member States (47% felt that this would have a very significant impact). 53% and 59% felt that this would have at least a very important impact on the costs of administration and of compliance, respectively. 1.3.2.5Insufficiently specific rules regarding transport of empty containers / pallets There are doubts on whether international transport operations involving empty containers or pallets give the hauliers the right to perform cabotage operations. Some Member States, such as the Netherlands, Belgium, Poland and Ireland treat the transport of empty containers or pallets as any other commodity. Other Member States, such as Denmark and Romania do not consider that the transport of empty containers or pallets give the hauliers the right to perform cabotage operations. 1.3.3Driver 3: Different scope of application of the rules Article 1(4)(a) of Regulation (EC) No 1071/2009 excludes from the scope of the Regulation vehicles with a permissible laden mass of up to 3.5 tonnes (light commercial vehicles; henceforth "LCVs"). However, under the same Article Member States are allowed to lower this limit and apply (part of) the provisions of the Regulation to this type of vehicle. This possibility has been used by several Member States. The information collected from the survey of national authorities and input from industry, as well as information from the ex-post evaluation support study shows that LCVs are covered – fully or partly – in a few Member States. Seven Member States apply the same requirements to LCVs and heavy goods vehicles (henceforth "HGVs"). France has introduced specific requirements concerning financial standing in the case of LCVs (€900/vehicle) and a smaller number of hours to prove professional competence (10 hours of training). Requirements related to good repute are also in place in the Czech Republic, but no other provisions are in place.

Regulation (EC) No 1072/2009 does not explicitly exclude LCVs from its scope. Article 1(5)(c) thereof exempts LCVs from the requirement of holding a Community licence or any other type of carriage authorisation for the purpose of international carriage of goods by road for hire and reward within the EU. Eight Member States apply the cabotage restrictions of Regulation (EC) No 1072/2009 to LCVs (Belgium, Czech Republic, Denmark, Greece, Finland, France, Slovakia and Sweden). The ex post evaluation of the Regulations identified a potential switch by operators to LCVs and, as a result, different ways in which Member States extended the Regulations to LCVs, as a potential unintended effect in the internal market. However, due to the restricted focus of the ex-post evaluation, which looked mainly into the vehicles under the scope of the Regulations, the application of the rules to LCVs was not assessed in detail. Therefore, the Commission decided to further investigate this issue in the context of the impact assessment exercise. More generally, there appears to be growing concern over the use of LCVs and the fact that they are not covered by the same legislation as heavy goods vehicles (including rules in other areas, such as the legislation on driving and working times and rest periods). A joint statement made by the Ministers of Transport of Austria, Belgium, Denmark, France, Germany, Italy, Luxemburg and Norway by letter of 27 September 2016 urged the Commission to take "measures to prevent the disproportionate development of the use of LCVs for international transport operations". LCV activity is concentrated in a few Member States. In 2015, four countries accounted for 70% of total EU LCV activity in Gt-km. Conversely, in most other Member States the absolute level of LCV activity is fairly minor. 15 Member States were estimated to have less than 1 Gt-km of LCV activity in 2015. This pattern of high concentration is expected to remain out to 2035. Among the respondents to the open public consultation, there is a fairly even split between respondents who regard the application of some of the provisions of the Regulations to LCVs by some Member States as a problem (36%) and those who do not (30%). While 64% of respondents from associations representing road transport workers and individual workers consider that this is not a problem, 50%, 52% and 53% of respondents from logistics industry representatives, medium and large hauliers and small hauliers, respectively, consider that this is a major problem that needs to be addressed. The regulatory and market trends concerning LCVs are further discussed in section 1.4.4. 1.4How would the problem evolve, all things being equal (baseline scenario) In order to assess how the problems identified above are likely to evolve in case of no policy intervention, several assumptions are made concerning the evolution of the main internal and external problem drivers. The methodological framework used for the purposes of this impact assessment is based on the definition of the cost differentials between transport operators. The costs considered in the model cover both variable costs which depend on vehicle mileage, such as fuel, tyre costs, maintenance & repair, insurance, driver costs including salary, bonuses and other contributions (e.g. pensions) and fixed costs which are independent of vehicle mileage, such as ownership taxes (excise duty, axle tax), vehicle financing & possession costs and overhead costs (costs incurred by hauliers to operate the business, regardless of revenue). In particular, Ricardo et al (2015) found that cost differentials are related to incentives for carrying out cabotage, as well as establishing letterbox companies and/or out-flagging activities. Therefore, quantifying how the cost differentials evolve over time forms the basis of the modelling. These assumptions, as well as a detailed description of the models used and of the results obtained, are further explained in Annex 4. It is important to highlight an important methodological challenge, which was carefully considered while developing this impact assessment. The review of the Regulations is closely linked to the ongoing review of the road social legislation, including the possible clarification of the conditions of application and enforcement of the Posting of Workers Directive (96/71/EC) in the road transport sector. This Directive implies that a driver engaged in international transport, including cabotage, is, under certain circumstances, considered as posted and thus has to be paid the minimum rates of pay set by law or universally applicable collective agreement in the Member State(s) where he or she operates. While this Directive formally applies to the road transport sector, there is a wide consensus on the fact that existing rules are not effectively applied, also due to the lack of sector-specific enforcement tools. The effective application of such rules would have a significant impact on driver costs and consequently on overall operating costs and international transport activity. In the baseline scenario it is considered that the Posting of Workers Directive is not effectively applied and that driver costs thus continue to follow the cost structure of the country of establishment of the international haulier (i.e. driver costs do not change as a result of international/cabotage operations being carried out). On the other hand, an alternative scenario was developed in order to reflect the effective application to transport operations of the host-country minimum wage, in accordance with existing rules under the Posting of Workers Directive, as a consequence of the possible establishment of sector-specific rules and enforcement tools in the medium term. In this alternative scenario, a "time-based approach" is established to determine the potential application of the posting of workers rules to transport operations. Driver costs are assumed to be aligned with the minimum wage of the host Member State after 7 days of activity there, from 2020 onwards (as currently considered in the context of the revision of the road social legislation). This "time-based approach" serves simply as a calculation tool (sensitivity analysis) to isolate the impacts of this initiative from other initiatives, notably the effective application and enforcement of the posting rules under the social road initiative, but does not constitute an alternative baseline scenario. The situation today in terms of driver costs is already somewhere between the two extremes (the baseline scenario and the time-based approach) and with time could move more towards the latter, with existing rules being formally and thoroughly applied, especially in the case of cabotage operations. The baseline scenario and the time-based approach therefore represent the two theoretical extremes in terms of driver costs, for the purpose of the analysis. Whereas the analysis of impacts is made against the baseline scenario exclusively, whenever particular policy measures and policy options are sensitive to the time-based approach, this is acknowledged in the analysis. On 8 March 2016 the Commission adopted a proposal for a targeted revision of the rules on posting of workers. This proposal introduces changes in the areas of remuneration of posted workers, rules on temporary work agencies and long-term posting. The more relevant change for the present initiative is the remuneration of posted workers. The proposal foresees that posted workers are subject to equal rules on pay as local workers, set by law or by universally applicable collective agreements, instead of the "minimum rate of pay" set by the host Member State, as currently is the case. Since the Commission's proposal for a targeted revision of the rules on posting of workers has not been adopted by the European Parliament and the Council yet, the time-based approach assumes simply the application of the minimum wage of the host Member State and not the same rules on pay as local workers. In case the Commission's proposal is adopted, the effective application of posting rules currently considered in the context of the revision of the road social legislation could result in somewhat higher wage costs than those considered in this impact assessment under the time-based approach (the difference being: wage costs of host Member State minus minimum wage of host Member State). The wage cost differentials between different Member States are expected to decrease between 2020 and 2035. As expected, under the time-based approach this decrease would be more significant than under the baseline scenario, given the thorough application of the host-country minimum wage in the former. 1.4.1Cabotage activity The aggregate cabotage penetration rate is expected to decrease by around 9% in the 2012-2035 timeframe in the baseline scenario (or 18% under the time-based approach). In the baseline scenario, this change is largely driven by reductions in labour cost differentials, mainly driven by wage costs, seen in the EU reference scenario. Under the time-based approach, there is a clear effect of a more thorough implementation of the revised rules on the posting of workers (assumed to enter into force in 2020), which effectively forces a higher wage convergence, which may in turn affect the cabotage penetration rates, yet discounting for social security contributions and other taxes, which would continue to be paid in the home Member State. The assumptions for the development of international trade levels in both scenarios are the same (i.e. aligned with the EU reference scenario), so the difference between the two scenarios is purely driven by the wage cost differentials.

In absolute terms, the overall amount of cabotage (expressed in t-km) is forecast to increase by around 30% in the regarded timeframe for the baseline scenario (or by around 20% for the time-based approach). This increase in total activity (despite the reduction in the penetration rate) is due to the projected increases in overall transport activity across the EU up to 2035 (in line with the projections of the EU Reference Scenario). While overall international transport activity is forecast to grow significantly following GDP growth, cabotage activity grows less rapidly, due to the expected moderate wage convergence between Member States, which renders cabotage activity somewhat less attractive. The development of illegal cabotage is estimated to be 0.56% of cabotage activity at the aggregate EU-28 level. Bearing in mind the limitations in the model, the quantitative estimates must be interpreted with some caution. In any event, the baseline scenario estimates can be conservatively interpreted to predict a relatively low (likely less than 1%), but consistent, level of illegal cabotage at the EU level. It should be noted that, contrary to the absolute amount of cabotage, the time-based approach is not expected to have an impact on the relative level of illegal cabotage, provided that the posting rules are adequately enforced. 1.4.2Letterbox companies In a similar way as for illegal cabotage, the official reporting of infringements of the stable and effective establishment criterion was used as a proxy for the extent of letterbox companies. However, infringements could be under-reported (if letterbox companies are able to evade detection). Evidence from Ricardo et al (2015) suggests that the absolute number of companies infringing the requirement of stable and effective establishment being detected is relatively low – around 1% of companies. However, this figure does not capture companies that were able to avoid detection and various anecdotal reports suggest the continued presence of letterbox companies. Ricardo et al (2015) found that incentives for establishment of letterbox companies are strongly related to differences in the costs of operation, notably wage and social security costs, corporate tax regimes and fiscal rules applicable to transport vehicles. International road transport operators conduct transport in many countries, so it is natural to consider where it is most appropriate to register their trucks, hire their workers and pay taxes based on the lowest costs. In a similar way as for illegal cabotage, the estimations are not reported for each Member State due to the lack of data. At the EU level, the average infringement rate (as an indicator of letterbox companies) is 0.19% of total authorisations granted in the base year. This falls to 0.11% of authorisations in 2035, due to the slight convergence of total operating costs foreseen in the baseline. Overall, this equates to an estimated total number of letterbox companies of around 430 in 2012, falling to 270 in 2035. Again, the EU aggregate values smooth out significant variation, ranging from estimated rates of zero letterbox companies (for example in higher cost Member States) to a maximum of 0.4% of authorisations in lower cost Member States. The estimates of letterbox companies do need to be interpreted with great caution, given the limitations discussed above and should be taken as an indicator of risk. The effective application of posting rules currently considered in the context of the revision of the road social legislation is expected to result in higher wage costs for hauliers performing significant international transport and cabotage activities concentrated on few Member States. Since differences in wage costs are one of the main incentives for hauliers to set-up letterbox companies (see section 1.2.1), it can be expected that such hauliers will have less incentives to set-up letterbox companies and therefore that the number of letterbox companies will be reduced. However, the magnitude of this impact cannot be quantified, notably because it depends on how effective the enforcement of the posting rules will be. 1.4.3Costs for national authorities and industry As regards national authorities, data from the support study for the ex-post evaluation of the Regulations suggested that the major enforcement costs (incurred by authorities) are related to the implementation and running of ICT systems and the employment of staff. Given that ERRU is expected to be completed in the next few years, some reductions in enforcement costs are expected in the baseline scenario. According to the estimates, explained further in Annex 4, once ERRU is fully operational in the coming years, the reduction of the current level of total enforcement costs in the baseline is €7.38 million, a reduction of almost €5 million compared to costs in 2015. As regards hauliers, the costs linked to compliance with Regulation (EC) No 1071/2009 and Regulation (EC) No 1072/2009 are expected to remain constant in the baseline scenario, i.e. around 8% and 7% of the hauliers' operating costs respectively (see section 1.2.2). This is because all of the costs and savings linked to compliance with the Regulations have already materialised. In the absence of intervention, the use of paper transport documents is expected to be progressively reduced as more and more Member States move towards the use of electronic transport documents, such as the eCMR. Part of the very significant savings from switching from paper to electronic transport documents (see section 1.2.2) are therefore expected to materialise in the baseline scenario. It is however not posible to quantify which part of those potential benefits will be achieved, since this depends on Member States deciding to accept electronic transport documents, such as the eCMR, and on industry take-up of electronic documents. As regards the shortcomings of the rules which, as explained in section 1.2.2 also lead to costs for hauliers to locate information on, and understand, national rules, it is assumed in the baseline scenario that the current practices will be maintained, in the absence of information that Member States would be considering changes. 1.4.4Use of light commercial vehicles (LCV) The reference scenario is the EU forecast of future trends within the transport sector based on the current policy framework. It can therefore be taken, broadly, as an indication of expected changes in LCV activity due to underlying macroeconomic trends (such as population growth, GDP growth, technology progress etc.). Figure 2 shows that the total activity of LCVs is expected to rise from 95 Gt-km in 2015 to 141 Gt-km in 2035 (an increase of 48%). Source: European Commission reference scenario, 2016a This increase is largely due to the expected growth of the e-commerce sector, which is where LCVs are used the most, from 2.45% (2014) to 6% (2020) of EU GDP. Figures from the UK, which is the only Member State having dedicated LCV statistics, show that transport by LCVs increased by 38% between 2000 and 2016.

The EU reference scenario does not split the share of domestic versus international transport carried out by LCVs. Furthermore, there is typically no monitoring of international goods traffic by LCVs in the EU. Consequently, there is considerable uncertainty about the overall level of activity and number of LCVs active in international traffic throughout the EU. This is clearly a major limitation for the development of the baseline scenario, as the market share of LCVs will likely vary between domestic and international transport. It is to be expected that LCVs are more prevalent in national transport due to their deployment in cities and on shorter routes. There have been various reports of Eastern European LCVs targeting express freight traffic in Germany and France (both international and cabotage). During the interviews carried out in the context of the support study for the impact assessment, a number of stakeholders representing the road haulage industry at the EU (IRU) and national level (France, Germany, and Denmark) referred to an increasing presence of foreign registered LCVs in hire-and-reward traffic. To address this limitation, available data sources related to the use of foreign registered LCVs at national level are used to estimate the levels of use of LCVs in international transport. Since the available data concerning competition between HGVs and LCVs is concentrated on Germany and France, the analysis is restricted to these two Member States, although it can be extrapolated to other Member States. On this basis, the share of LCVs involved in international traffic in terms of kilometres is estimated at 3.2%, corresponding to 0.11% of international traffic in terms of ton/kilometre (a HGV carries on average 28 times the load of a LCV). The number of foreign registered LCVs active in international traffic in Germany and France is expected to rise from 7,061 and 4,802 currently to 9,086 and 7,153, respectively, in 2035. On the basis of the limited available data, assuming a standard share of LCVs in total international transport (3.2% is the best estimate – see above) is considered as an appropriate assumption for defining the baseline scenario. The regulatory landscape concerning the use of LCVs is another important variable that can affect the use of LCVs in both domestic and international transport. The situation concerning application of the Regulations to LCVs across Member States is described in table 4 above. From the 20 Member States which provided information about the application of the Regulations to LCVs, 9 already applied fully or partly Regulation (EC) No 1071/2009 and 10 applied fully Regulation (EC) No 1072/2009 to LCVs (see table 4). In the absence of EU intervention, concerns over the use of LCVs are expected to continue to grow. Some Member States are considering extending Regulation (EC) No 1071/2009 and/or Regulation (EC) No 1072/2009 to these vehicles. Responses received in the interviews with UETR and the Danish hauliers associations indicate that the Danish government is working on a draft law for LCVs which could be adopted in 2018 and preliminary discussions on this issue have also started in the Netherlands. Given the growing concern of Member States with this issue, it can be expected that further Member States will consider similar extensions. 2Why should the EU act? The general competence for this initiative derives from the aim to complete the internal market as stipulated under Title I 'Internal Market' in Article 26 of the Treaty on the Functioning of the European Union ("TFEU"). It is also in line with EU competence under Title VI 'Transport' of the TFEU (in particular Article 91). The applicability of Title VI to road transport is stipulated in Article 100 TFEU. As explained under the problem definition section, efforts made so far both by the Commission and by the Member States to clarify the provisions of the Regulations and facilitate their enforcement have not been effective. The Commission services have been replying informally to interpretation questions by Member States and other stakeholders. They have also published an interpretative document on the cabotage rules ("The new cabotage regime under Regulation (EC) No 1072/2009"). This document, however, has no legally binding character. The Commission services also discussed implementation issues at several Road Transport Committees. However, this has not sufficed to guarantee the harmonised implementation of the rules. Certain Member States have put in place measures to further define the provisions related to cabotage, for example by establishing that one cabotage operation cannot include several loading and unloading operations. The Commission has pursued infringement procedures against these Member States. There are also several Member States complementing the criteria on access to the occupation of road transport operator with additional criteria which are not foreseen in Regulation (EC) No 1071/2009 (e.g. a minimum number of trucks, a minimum age of the transport manager). Whenever these provisions infringe the Regulations, the Commission has acted accordingly. However, these infringement procedures have not been sufficient to address the shortcomings of the rules. They only address implementation measures which are contrary to EU law, but they cannot be used to further specify the rules or to reduce the options available for Member States. Efforts made so far by Member States to spot the existence of letterbox companies and to remedy the issue through enforcement action have not been successful, in particular because of the lack of cooperation between Member States authorities (e.g. requests from one Member State to another Member State to investigate a given company remain unanswered) and because of the different level of control between Member States (some Member States do not systematically check the effective establishment requirement). These Regulations have established new rules which, not least in terms of their shortcomings and divergences in their enforcement, have led to a patchwork of regulatory systems in the EU, a situation the Regulations were designed to prevent. This resulted in significant costs for hauliers, which need to comply with different rules depending on the Member States in which they operate. The road transport market has a strong international character. A third of road freight movements in the EU are between Member States. As a result, a large share of non-resident drivers is active on national roads. For instance, 38% of the kilometres made on German toll roads by trucks in 2013 were made by foreign vehicles. Therefore, the common rules provided for by the Regulations are intended to ensure, for operators wishing to establish themselves in another Member State, equal conditions as compared to domestic operators and better approximation of the conditions under which such establishment may take place in the different Member States. For hauliers operating temporarily within a Member State other than their country of registration and subject to the rules relating to cabotage, the Regulations are meant to ensure competition on an equal footing between all operators. The existing divergent enforcement practices in Member States lead to legal uncertainty and unequal competitive conditions. To this extent, rules adopted unilaterally by Member States would fail to achieve balanced conditions for competition between resident and non-resident hauliers. In any event, in all areas covered by the Regulations, EU competence is exclusive (Article 2(1) TFEU), so that Member State action is anyway excluded. For these reasons, action at the EU level is justified. 3What should be achieved? The present initiative aims at ensuring the effectiveness of the original system put in place through the adoption of the Regulations, namely: 1.To help achieve balanced conditions for competition between resident and non-resident hauliers; and

2.To reduce costs for businesses and ensure efficient enforcement of the rules. The two main specific objectives, which are directly linked to the general objectives indicated above and which mirror the problem drivers, are the following: 1.To ensure coherent and consistent monitoring and enforcement of the existing rules in Member States; and 2.To better specify the rules and reduce the options available for Member States. By better specifying the rules and promoting more coherent and consistent monitoring and enforcement thereof, the effectiveness of enforcement should be improved. This should lead to a reduction of the levels of non-compliance (e.g. illegal cabotage and letterbox companies). Reducing costs for businesses to operate and comply with the rules is expected to lead to more efficient transport operations, while more effective enforcement should lead to a better use of public resources. There are clear synergies between the general and specific objectives of the intervention. Improving the efficiency of hauliers contributes to a better internal market. Even small improvements in the cost structure of hauliers may have very significant impacts in the overall structure of the market, given the size of the sector at stake. Also, more specific rules and less options available for Member States (e.g. similar conditions on access to the occupation) will lead to coherent enforcement of the rules, even if the intensity of enforcement may still differ. There are in principle no trade-offs between the two main specific objectives of the intervention, in the sense that pursuing both objectives in parallel is not expected to jeopardise achievement of either one of them. Both of the stated specific objectives were supported by the large majority of stakeholders in the open public consultation. A large majority of respondents fully agreed with the first objective (80%; 140 out of 175) and with the second (89%; 156 out of 175). There was also no subgroup of respondents that disagreed with any of these two objectives. The objectives of the present intervention are consistent with the objectives of the other road initiatives currently being pursued, in particular the initiative dealing with social issues in road transport. Indeed both initiatives aim at strengthening the internal market for road transport, by promoting a consistent application of the rules throughout the EU and more effective and efficient enforcement thereof. 4What are the various options to achieve the objectives? The stakeholder consultation, the expert meetings, independent research and the Commission's own analysis have allowed the Commission to identify different policy measures, which served as a basis for the identification of the main policy options (policy packages). The following process was applied for establishing the policy options: ·Step 1: Identify an extensive list of policy measures addressing the problems (considered policy measures); ·Step 2: Consider policy measures which are retained after a preliminary assessment; ·Step 3: Combine the considered policy measures into policy options and identify options which can be discarded. 4.1Step 1: Considered policy measures & mapping with problem drivers A long list of policy measures addressing various root causes and drivers was considered after extensive consultations with the stakeholders. This list was subsequently screened on the basis of the following criteria: ·Legal feasibility: Options must respect the principle of conferral. They should also respect any obligation arising from the EU Treaties (and relevant international agreements) and ensure respect of fundamental rights. Legal obligations incorporated in existing primary or secondary EU legislation may also rule out certain options. ·Technical feasibility: Technological and technical constraints may not allow for the implementation, monitoring and/or enforcement of theoretical options. ·Effectiveness and efficiency: It may already be possible to show that some options would uncontrovertibly achieve a worse cost-benefit balance than some alternatives.

·Political feasibility: Options that would clearly fail to garner the necessary political support for legislative adoption and/or implementation can also be discarded. ·Proportionality: Options may clearly restrict the scope for national decision making over and above what is needed to achieve the objectives satisfactorily. As a result of this initial screening, a number of policy measures was discarded from the initial analysis (see Annex 5 for the list of measures and the underlying justification). 4.2Step 2: Consider policy measures which are retained after a preliminary assessment by drivers and root causes Driver 1 - Inconsistent and ineffective enforcement of legal framework Root cause a): Differing levels of monitoring and control among Member States Measures Description 1 Promote common training of enforcement officers A similar approach to that used in the social rules, under which a common EU training curriculum is foreseen, would be followed. 2 Introduce cross-border joint controls Impose a minimum number of concerted cross-border roadisde cabotage checks per year in a similar way to those applicable under the social legislation. Given the lack of experience with this type of check, the minimum number would be 3 per year instead of the 6 per year required under the social rules. The controls could be combined with those under the social rules. 3 Introduce a minimum number of checks of compliance with the cabotage provisions Introduce a minimum number of checks of compliance with the cabotage provisions, like in the social rules. Member States would be required to check 3% of the cabotage operations carried out in their territory. The basis for the calculation would be the statistics on the number of tonnes-Km of cabotage operations in each Memebr State in year t-2 (Eurostat statistics). These controls could be combined with the required controls under the social rules. Root cause b): Limited and ineffective cooperation between Member States Measures Description 4 Open up the national risk-rating systems Article 9 of Directive 2006/22/EC requires Member States to establish a risk classification system covering infringement of the social rules. Article 12(1) of Regulation (EC) No 1071/2009 requires Member States to extend this risk classification system to cover all infringements which may lead to loss of good repute (listed in Article 6 of Regulation (EC) No 1071/2009). This measure would consist in making the national risk rating systems accessible to other Member States' enforcement authorities in order to promote exchange of information on high-risk companies and to target checks. 5 Set a maximum time period for replies to reasoned questions from other Member States A maximum time period for replies to reasoned questions from other Member States regarding stable and effective establishment would be set, along with a procedure for escalation it these timescales are not met. This reinforced cooperation between Member States would be based on the relevant provisions of the Posting of Workers Enforcement Directive (Directive 2014/67/EC). The period would be aligned with Directive 2014/67/EC, i.e. Member States would be obliged to reply to reasoned questions from other Member States within 25 working days, unless a shorter time limit is mutually agreed. This measure would be focused on good repute (which is already the type of information being exchanged via ERRU) and stable and effective establishment (because of the suspected letterbox companies) only. It would not be extended to professional competence and financial standing (since these criteria are easier to check and, if the haulier has a licence, it should be assumed that these criteria are met). 6 Adopt common classification of riskiness of undertakings Adopt common classification of undertakings (green, yellow and red label) used to indicate increasing level of risk of non-compliance and allowing more targeted inspections. Further harmonisation of national risk classification systems would render cooperation between Member States more effective, since there would be a common understanding of the riskiness of hauliers allowing targeted checks. 7 Identify minimum common data/information to be included in risk rating systems A list of factors would be established to determine the risk level of each operator (e.g. no. of infringements of the social rules, the conditions on access to the profession and the cabotage rules). Member States would keep the freedom to determine exactly how to weight these factors in the risk assessment. Root cause c): Difficulties to enforce current rules on cabotage Measures Description 8 Remove maximum number of cabotage operations (now 3) and reduce the maximum period (7 days) Move to a pure time-based limitation to cabotage operations. An unlimited number of operations could be performed within 4 days of the full unloading in the context of an incoming international carriage into the host Member State. Removing the maximum number of cabotage operations, while keeping the maximum period of 7 days is also considered as a sub-option. Note: a shorter period was not considered, as this would likely make it difficult for hauliers to carry out cabotage operations, especially in large Member States. No other possibilities of revising the current cabotage rules were put forward by stakeholders, apart from the introduction of a second restriction, i.e. a waiting period (see section 4.1), and therefore no other measures were considered. 9 Share best practices on how to conduct cabotage checks Set up a platform for Member States to exchange best practices on how to conduct cabotage checks more effectively and efficiently, in particular on how to use evidence other than the transport documents (CMR) to check compliance with the rules (such as tachograph data). 10 Stipulate evidence needed to prove the legality of cabotage operations Clearly stipulate that the haulier must keep on board the vehicle clear evidence of the cabotage operations, as well as of the related incoming international journey. The required documents can be produced during the inspection and the driver must be allowed to contact the head office in order to ask for the relevant evidence, in case it is not immediately available in the truck. 11 Mandatory use of GNSS digital tachograph for enforcement of cabotage rules Tachograph Regulation (Regulation (EU) No 165/2014) establishes the date by which new trucks must be fitted with the digital tachograph. The measure would consist in obliging Member States to use the digital tachograph for control of the legality of cabotage operations in case the inspected trucks are fitted with this technology under the terms set by Regulation (EU) No 165/2014. 12 Mandatory acceptance of electronic consignment notes by enforcers after a certain date Obligation for Member States to accept the evidence transmitted electronically as sufficient proof of the legality of international and cabotage operations. Data transmitted electronically should be in a revisable structured format which can be used directly for storage and processing by computers. Electronic consignment notes allow the enforcers to use the data later and cross-check it with the national electronic register and to develop software to treat the data in a more automatic way. During the roadside check, drivers may contact the head office to request the transmission of the data required as proof of legality of the operation by electronic means, such as the eCMR. Root cause d): Insufficient information available to authorities during enforcement Measures Description 13 Increase the amount of information available in ERRU Currently, ERRU contains general data on transport companies (name, address, type of authorisation, number of vehicles, etc.) and data concerning the number, category and type of serious infringements which may lead to loss of good repute (serious infringements of driving and rest time rules, maximum weights and dimensions, training of drivers, roadworthiness, etc.). This information would be extended to: all infringements of the condition on stable and effective establishment, financial standing and professional competence, registration plate numbers of all vehicles in use by the operator, number of employees of the undertaking, past and current companies managed by transport managers, risk rating of the operator, total assets, liabilities, equity and turnover of the undertaking during the last 2 years. 14 Extend access to additional data in ERRU to road side check officers. Implementing Regulation (EU) 2016/480 requires that road side officers have access to ERRU by 2019. However, this is limited to the Community licence content of ERRU. This measure consists of extending access for road side officers to other information in ERRU (see measure 14). 15 Compare data on operators collected from road side and company checks with official data provided by operators Compare data on operators collected from road side and company checks with official data provided by operators in national electronic registers and ERRU to detect data conflicts and flag them in the national electronic registers, ERRU and the risk rating systems as part of the operator’s compliance record to indicate the need for more in depth checks. Driver 2 – Shortcomings of the rules Issue i: Insufficiently specific cabotage provisions in Regulation (EC) No 1072/2009 Measures Description 16 Clarify the possibility of “groupage” transport in cabotage It would be clarified that one cabotage operation can include several loading and/or unloading operations, following the defintion given in the Q&A which has been published by the Commission services. 17 Creation of an online platform with information about the different national cabotage regimes Member States would post comprehensive information relating to the national rules applicable to cabotage operations in the online platform to be created by the Commission services.

Issue ii): Rules on access to the occupation in Regulation (EC) No 1071/2009 leave open too many options Measures Description 18 Review reference points for effective and stable establishment The reference points for effective and stable establishment are revised to ensure that the establishment in a given Member State is effective and stable. The following points or part of them are added: - the operator must holds assets and employ staff commensurate with the establishment’s scope of activity; - the company must be subject to VAT and pay taxes in the Member State of establishment; - the company must have a significant operational or transport activity in the country of establishment; - the drivers must have the possibility of accessing the office; - the original haulier licence, the labour contracts and other core business documents can be accessed from the physical office (including electronic access); - the company must have a transport manager in the Member State of establishment who can be contacted via different electronic means; - the company must have at least one commercial contract in the country of establishment. Note: this list is based on stakeholders' suggestions, current national practices and further Commission analysis. 19 Clarifying the conditions on good repute, including the relevant persons to be checked for good repute Set a minimum period, i.e. 12 months, before which it is not possible for an operator who has lost his good repute to get his licence back. Clarify that apart from the transport manager, CEOs, general partners in partnerships and legal representative(s) of the undertaking should also to be checked for good repute. 20 Clarifying the conditions on financial standing Clarify that there are several ways to prove financial standing (e.g. bank guarantees/insurances, available balance on company credit cards and others). Thus, newly established enterprises could prove their financial standing without having to submit their accounts. 21 Development of a practical guide A practical guide would be developed for the correct interpretation of the EU rules on access to the occupation of road transport operator. Issue iii): Significant variation in penalty systems for non-compliance with the rules Measures Description 22 Introduce co-liability principle for shippers and freight forwarders Lay down the principle that shippers and freight forwarders are co-liable with the transport operator in case they knowingly commission transport services involving infringements of the Regulations (e.g. illegal cabotage operations). 23 Extend the empowerment of the Commission in relation to the classification of infringements and revise the lists of serious infringements This measure would consist of: 1) extending the empowerment for the Commission to come forward with a classification of infringements which are not related to safety; 2) revising annex IV of Regulation (EC) No 1071/2009 on the most serious infringements; 3) revising the list of serious infringements of national and EU law. This would allow the Commission, by delegated act, to introduce illegal cabotage in the classification of serious infringements (see measure 25) and to further refine the classification of all infringements ("serious" or "most serious"). However, the level of penalties will remain up to Member States, having regard to the subsidiarity principle. 24 Introduce illegal cabotage in the classification of serious infringements leading to the loss of good repute Introduce illegal cabotage in the classification of serious infringements which, in addition to those set out in annex IV of Regulation (EC) No 1071/2009, may lead to the loss of good repute. Issue iv): Additional requirements for access to the profession in some Member States Measures Description 25 Withdraw the right for Member States to add additional requirements for access to the profession Article 3(2) of Regulation (EC) No 1071/2009, which allows Member States to add additional requirements for access to the profession on top of the 4 criteria listed in Article 3(1), would be repealed. 26 Allow Member States to add requirements for access to the profession only in exceptional circumstances Article 3(2) of Regulation (EC) No 1071/2009 would be revised in order to make it more explicit that additional requirements for access to the profession would only be acceptable in exceptional circumstances to be previously notified by Member States to the Commission, which would have the right to vet such additonal criteria through a decision. Issue v): Insufficiently specific rules regarding transport of empty containers / pallets Measures Description 27 Clarify the treatment applicable to the transport of empty containers or pallets Clarify that when