Notice pursuant to Article 19(3) of Council Regulation No 17(1)

Case COMP/38.170 - REIMS II Terminal Dues

(2003/C 94/03)

(Text with EEA relevance)

1. INTRODUCTION

1. On 18 June 2001, the REIMS II Agreement was renotified to the Commission pursuant to Regulation No 17 with a view to obtaining a negative clearance under Article 81(1) of the EC Treaty/53(1) of the EEA Agreement or an exemption under Article 81(3) of the EC Treaty/53(3) of the EEA Agreement, upon the expiry of the exemption decision adopted by the Commission on 15 September 1999 ("the 1999 Exemption Decision")(2).

2. The REIMS II agreement ("the Agreement") is the instrument by which certain Public Postal Operators(3) (PPOs) collectively determine Terminal Dues (TDs). TDs are the remuneration that PPOs pay each other for the delivery of incoming cross-border mail. The receiving PPO is remunerated by the sending operator for the delivery of the latter's cross-border mail.

3. In the Agreement, TDs are expressed as a percentage of domestic tariffs in the receiving country. The original REIMS II agreement was first notified to the Commission in 1997 which exempted it under Article 81(3) by Decision of 15 September 1999. According to the original REIMS II-agreement, TDs were to increase over a transitional period until they reached a maximum of 80 % of domestic tariffs in 2001. In the 1999 Exemption Decision, however, the Commission only exempted the Agreement until the end of 2001 and limited the exemption to a level of TD not higher than 70 %.

4. The re-notification in 2001 included a request for a renewal of the exemption. In the renotified version, the 80 % level would not be reached until 1 January 2004 and two intermediate steps were introduced (73,3 % on 1 January 2002 and 76,6 % on 1 January 2003). A short summary of the notification was published in the Official Journal of the European Communities inviting third parties to comment(4).

2. THE PARTIES

5. Thirteen public postal operators ("PPOs"(5)) had signed the original REIMS II Agreement. Four more PPOs have since joined. The 17 REIMS II parties ("the Parties")(6) now comprise the PPOs of all the Member States of the EU other than the Netherlands, and the PPOs of Norway, Iceland and Switzerland(7).

6. Participation in the Agreement is open to public and private operators of a mandatory, universal postal service, provided that they have, or contract to have, an obligation to provide this service to the other Parties.

3. THE MARKETS CONCERNED

7. The notified Agreement concerns the markets for normal, as opposed to express, cross-border mail between the countries concerned, i.e. cross-border mail exchanged between "REIMS II" countries. More specifically, the Agreement covers all letter-post items as defined in Article 8 of the Universal Postal Convention(8). This definition comprises items which in general weigh up to 2 kg. The importance of cross-border mail varies from country to country. In smaller Member States, cross-border mail generally represents a higher share of the overall mail market than in larger Member States. On average, cross-border mail has been estimated to represent well under 10 % of the overall mail market in the Community.

8. The relevant market can be further divided into a market for the forwarding of outgoing cross-border mail, on which PPOs and private companies collect mail from customers in the originating country for delivery in other countries, and a sub-market for delivery of incoming cross-border mail on which PPOs (and for a very small part other postal operators) offer mail delivery services for cross-border mail to PPOs and private mail companies(9).

9. The distinction between these two sub-markets has been reinforced by the recent amendments made to the 97/67 Postal Directive(10) by the new Postal Directive (the new Postal Directive)(11). Under the new Postal Directive, as of January 2003, outgoing cross-border mail will be liberalised in all Member States where it is not necessary to maintain the monopoly in order to sustain the provision of the universal services.

10. The new regulatory rules will therefore expose PPOs to increased competition regarding the forwarding of cross-border mail from one EU country to another. This circumstance confirms and reinforces the different competitive conditions which characterise the two markets.

4. THE EVOLUTION OF THE REIMS II AGREEMENT UNTIL THE RE-NOTIFICATION

4.1. The original REIMS II Agreement

11. The original REIMS II Agreement was notified to the Commission in 1997. On that occasion, after a preliminary examination, the Commission indicated to the parties several aspects which had to be changed, adapted or clarified before it could consider adopting a positive attitude with regard to the agreement.

12. The Parties, in order to qualify for exemption, prepared a first amendment to the Agreement (the First Supplementary Agreement) which entered into force on 1 October 1998.

13. On 15 September 1999, the Commission granted an exemption pursuant to Article 81(3) (Article 53(3) of the EEA Treaty) in respect of the REIMS II Agreement on TDs, until 31 December 2001. The Commission thereby limited the increase of TDs up to 70 % of the domestic tariffs. The Commission stated that the final increase up to 80 % of the domestic tariffs should only take place after the Commission had the opportunity to review the system on the basis of proper cost accounting data, which was not available in 1999.

4.2. Assessment of the REIMS II Agreement in the 1999 Exemption Decision

4.2.1. Applicability of Article 81(1) (Article 53(1) of the EEA Treaty)

14. In the 1999 Exemption Decision, the Commission considered that the Agreement constituted a restriction of competition falling within the scope of Article 81(1) (Article 53(1) of the EEA Treaty) because it collectively established a common level of TDs expressed as a percentage of the domestic tariff in the receiving country. The Commission concluded that, although the amounts in absolute terms were not fixed, the Agreement had the effect of jointly fixing prices. By linking the price for the cross-border delivery service to the price for the domestic service, whose price is determined primarily by domestic considerations, the Parties eliminated or reduced their freedom to set the prices they charge for the delivery of incoming cross-border mail. In fact, the Agreement eliminated any incentive to conclude separate agreements on a bilateral basis between the Parties, although contractually this remained possible.

4.2.2. Applicability of Article 81(3) (Article 53(3) of the EEA Treaty)

15. In the 1999 Exemption Decision, the Commission found that the Agreement fulfilled the four cumulative criteria required for exemption under Article 81(3) EC (Article 53(3) of the EEA Treaty). The Commission's reasoning may be summarised as follows.

16. The Agreement improves the production and/or distribution of goods. A transition towards a more cost-based system and the quality-of-service incentives would improve the financial situation for the participating PPOs and allow them to improve the quality of their cross-border mail services.

17. The higher quality for cross-border mail services would benefit consumers, and remuneration based on actual delivery costs would reduce cross-subsidises previously necessary to cover losses incurred in delivery of cross-border mail. However, the Commission obliged the REIMS II parties to accept that the full rate of TDs would only be paid if quality-of-service actually improved.

18. In order to make the benefits fully available to consumers, the Commission imposed the condition that the Parties provide each other with a low cost alternative to TDs for bulk and commercial mail (the so-called Level 3 access)(12).

19. Finally, the Commission considered that an agreement collectively fixing TDs as a common maximum percentage of domestic tariffs was indispensable to attain the desired benefits of the Agreement. However, the Commission could not verify whether the ultimate level of remuneration agreed upon - 80 % of domestic tariffs - was indispensable in this respect. The duration of the exemption was therefore limited to 31 December 2001, and the parties were allowed to increase the common percentage to a maximum level of 70 % in 2001, until adequate cost accounting data provided by them would prove the proposed level of 80 %.

20. In this regard, in the 1999 Exemption Decision the Commission obliged the Parties to introduce, by the end of 1999, a transparent cost-accounting system ensuring that all significant cost elements could be identified, quantified, compared and controlled.

4.3. Amendments to the Agreement following the 1999 Exemption Decision

21. On 14 January 2000, the Parties concluded the Second Supplementary Agreement whose aim was, on the one hand, to implement the Commission's conditions set forth in the 1999 Exemption Decision and, on the other hand, to take into account the accession of Swiss Post to the agreement.

22. On 4 April 2000, the Parties signed the Third Supplementary Agreement whose key feature were mainly: (i) to ensure end-to-end quality of service: The agreement contemplated the inclusion of the measurement of the performance of sending PPOs with respect to outgoing mail in a future model refinement and to apply appropriate quality of service targets and penalties as of 2002; (ii) The review of the quality of service standards. The previous version of the Agreement identified two groups of parties (A and B) each one with a different quality of service target (95 % for the parties in Group A and 90 % for the parties in Group B), the new agreement led to a convergence of the groups to a universal standard of 93 %.

23. On 7 June 2001, most of the Parties executed a Fourth Supplementary Agreement. In the meantime, 17 Parties have signed this agreement. The main objective of the Fourth Supplementary Agreement was to extend the transitional period by another three years. According to the Fourth Supplementary Agreement, TDs would reach 80 % of domestic tariffs in the year 2004, i.e., two years later than planned. The 80 % rate would be replaced by 73,3 % in 2002 and by 76,6 % in 2003(13).

24. In addition to extending the transitional period, the Parties also agreed on a freeze of the domestic tariffs used as a basis for the calculation of TDs until the end of the year 2004. Therefore, increases of a Party's domestic tariff after 1 September 2001 will not be taken into account in the calculation of TDs(14). However, decreases of domestic tariffs will be taken into account, so that the "freeze" effectively creates a ceiling, but allows for downward adjustments(15).

25. Finally, the Fourth Amendment Agreement introduced a "geographic coverage". If a Party whose domestic market is liberalised can prove that the geographical structure of incoming mail from a sending PPO has changed to such an extent that the percentage of the domestic tariff used under the REIMS II Agreement is insufficient to meet the costs incurred by the Party in question as a receiving PPO for the delivery of that mail, the Party can ask for a re-negotiation of the TDs paid by the sending PPO(16).

5. THE RE-NOTIFIED AGREEMENT

5.1. Purpose

26. According to the Parties, the main aims of the REIMS II Agreement are 1. to provide the Parties with fair compensation for the delivery of cross-border mail which reflects more closely the real costs of delivery of each party, and 2. to improve the quality of the cross-border mail service.

5.2. Products covered

27. The Agreement covers all mail items as defined in Article 8 of the UPU Convention (with the exception of so-called "M bags")(17).

5.3. Terminal dues

5.3.1. Principle

28. The REIMS II Agreement links TDs to domestic mail tariffs in the country of destination and to the quality of service provided by the PPO that delivers the mail. According to the notified version of the Agreement, TDs are to increase over a transitional period until they reach a maximum of 80 % of domestic tariffs in 2004, subject to penalties which will accrue if the requisite quality-of-service target is not met.

5.3.2. Domestic tariffs serving as reference

29. Domestic tariffs usually distinguish between different weight steps (e. g. 20, 50 and 100 g for letters). According to the Agreement, these different tariffs are converted, on the basis of a standard structure, into so-called linear tariffs for the purpose of calculating TDs(18).

5.3.3. Levels of terminal dues

30. The Agreement distinguished between four different levels of TDs:

- Level 1: Priority mail items presented in mixed bags (which may contain letters, flats and packets). TDs for such items will ultimately be 80 % of domestic tariffs excluding VAT(19).

- Level 2: The receiving PPO may offer rebates on the Level 1 remuneration on the basis of work sharing/preparation of mail (e. g. by pre-sorting mail according to format or destination). The same discounts must be offered to all sending PPOs when equal conditions are met.

- Level 3: All the parties are obliged to grant each other access to the "generally available domestic rates" (such as bulk rates for direct mail, printed matter or periodicals) in the country of delivery. This remuneration level (which will normally be lower than the other levels) is of particular importance for a significant volume of cross-border business mail.

- Non-priority mail: To mail designated as "non-priority" TDs will be applied that are 10 % less than the TDs for Level 1 mail.

5.3.4. Transitional period

31. In the notified agreement TDs are to be increased, subject to penalties which will accrue if the required quality-of-service target is not met over a transitional period as follows:

2002: 73,3 % of domestic tariffs,

2003: 76,6 % of domestic tariffs,

2004: 80 % of domestic tariffs.

5.3.5. Quality of service/penalties' system

32. The REIMS II Agreement introduces a system of quality-of-service standards for Level 1 and Level 2 mail in order to improve the quality of service. The standards are defined as the percentage of incoming cross-border mail (from a particular PPO) which has to be delivered within one working day after the day of its arrival (J) in the office of exchange of the receiving PPO, provided that it arrives there before the Latest Arrival Time(20). A standard of "80 % J+1" for example means that 80 % of the incoming mail will have to be delivered to its final destination within one working day following its arrival at the office of exchange. The performance of the individual Parties is measured by means of diagnostic systems set up by IPC(21).

33. A penalty system, or curve, is applied when the agreed standards are not met The level of TDs which would otherwise be payable is reduced by 11/2 % where the actual result amounts to between 90 % and 100 % of the target to be reached and 31/2 % where the actual result amounts to between 80 % and 90 % of the target to be reached respectively for each percentage point by which the PPO concerned fails to reach the requisite quality-of-service standard(22). In the worst case, if the result actually achieved by the delivering PPO amounts to no more than 80 % of the target, these penalties will thus reduce the TDs to which a PPO is entitled by 50 %.

5.3.6. Non-discrimination rule

34. According to the Agreement(23) "each Party shall apply the same rates of terminal dues to all other parties provided that the transactions are equivalent." This means that, in principle and provided that no special bilateral agreement has been signed, two REIMS II PPOs competing for outgoing cross-border mail in a given REIMS II country would bear the same costs for the delivery of this mail in the country of destination. The same rate, however, will not be available to non-REIMS II operators competing in the same market which will be obliged to pay the full domestic tariff in the State of origin minus any available discount(24).

35. This circumstance is particularly important since, according to the new Postal Directive, outgoing cross-border mail is liberalised as from 1 January 2003 in most of the EU Member States.

5.4. Articles 25 and 49 of the UPU Convention

36. Article 43 of the UPU Convention contains provisions on the treatment of domestic mail posted abroad, so-called remail. Article 49(4) concerns TDs for incoming bulk mail. According to the notified Agreement, after the end of the transitional period, Articles 25 and 49(4) of the UPU Convention will no longer be applied between the Parties(25).

5.5. Term

37. The Agreement is entered into for an indefinite period of time. Any Party may however withdraw from the Agreement at any time. Such withdrawal becomes effective at the end of the first full calendar year after notice has been given. In particular circumstances, a Party may also withdraw from the Agreement by giving six months notice.

5.6. Link between TDs and quality of service

38. The Agreement establishes the principle that no increase in TDs will take place during the transitional period if the quality of service of the party concerned goes down. In order to determine whether this is the case, the quality-of-service performance in a given year is compared to the average quality-of-service performance achieved by that Party in preceding years. There will be no margin of interpretation. This rule does not apply to those PPOs for which transitional arrangements exist. It will naturally also not be applicable if the quality-of-service of a PPO deteriorates but still matches the relevant standard set by the Agreement. TDs may also be increased if it can be shown that a deterioration of a Party's quality of service is caused by special efforts undertaken by this Party to improve its delivery system and is only temporary in nature.

5.7. Level 3

39. The parties have clarified that they are bound under the REIMS II Agreement to grant Level 3 access (i.e. access to domestic bulk mail rates) to each other. In order to facilitate such access, the 1999 Exemption Decision obliged the Parties to relax domestic regulations for other Parties where these regulations are not justified and which would in reality bar the other Parties from access to domestic bulk mail rates. Where the domestic regulations concerned have been set by the State, the Parties are meant to use their best efforts to remove them in cooperation with the competent national authorities.

40. All the tariffs and conditions relevant for Level 3 access have to be made available to all the parties through a database managed by IPC. The Parties have undertaken to update this database without delay when their respective tariffs and conditions change.

5.8. Bilateral agreements

41. The REIMS II Agreement clarifies that the Parties are free to conclude bilateral or multilateral agreements on TDs between themselves in which different conditions, in particular other levels of TDs, may be fixed. Where a Party grants another Party, or other Parties, lower TDs in such an agreement, it is obliged to apply the same TDs to all the Parties, provided the transactions are equivalent.

5.9. Late, lost and damaged mail

42. The Parties have introduced provisions on late, lost and damaged mail according to which a proper system for dealing with and analysing complaints will be introduced, including an acknowledgement of receipt for each complaint and standard time limits for the reply to such complaints. Customer services and access to such services will thus be improved, for example by introducing a "green number" for complaints and by cooperating with consumer organisations.

6. MAIN DEVELOPMENTS SINCE THE 1999 EXEMPTION DECISION

6.1. Improvements in cross-border mail quality of service

43. According to the 1999 Exemption Decision "The most substantial advantage which the (REIMS II) Agreement is expected to produce consists in a substantial increase in the quality of cross-border mail services." The information gathered in the course of the procedure shows that, during the period of the exemption, the overall quality of the service of cross-border mail delivery provided by the Parties has indeed improved substantially(26).

6.2. Other important developments

44. After the adoption of the 1999 Exemption Decision, there have been important developments which have partially modified the elements on the basis of which it was adopted. These new elements have accordingly influenced the Commission's current preliminary assessment of the Agreement. In particular, as a consequence of those developments, the Commission considers that the conditions under which an exemption can be granted need to be different from those imposed in the 1999 Exemption Decision.

45. The following are the most important new elements taken into consideration: (i) The accounting data on the Parties costs for the delivery of cross-border mail items coming from other REIMS II countries; (ii) The experience of the implementation of the Agreement during the period of the exemption; (iii) The adoption by the Council and the European Parliament of the new Postal Directive.

6.2.1. The Parties' cost data

46. Further to the implementation by the Parties of the obligation imposed in the 1999 Exemption Decision to introduce a transparent cost accounting system, the Commission has obtained detailed accounting data regarding each Party's costs for the inbound delivery of cross-border mail items coming from REIMS II countries.

47. This information, which was not available when the 1999 Exemption Decision was adopted, has permitted a more thorough evaluation of the levels of TDs(27).

48. In particular, it appears that the TDs to be applied for the delivery of REIMS II cross-border mail as defined in the notified Agreement(28) are not in line with the cost data provided by the Parties. Accordingly these levels of TDs are not indispensable for the attainment of the positive effects that the agreement is meant to bring about.

6.2.2. Level 3 access

49. The 1999 Exemption Decision obliged the Parties to take all the necessary steps in order to grant each other effective Level 3 access(29).

50. The investigation carried out in the course of the current procedure has shown that Level 3 access does not function as desired by the Commission in the 1999 Exemption Decision. Although the Parties have offered each other Level 3 access, it is still extremely difficult for most of them to take advantage of this opportunity. Thus, the Commission considers that Level 3 access does not function as a viable, less costly alternative to REIMS II TDs.

6.2.3. The new Postal Directive

51. On 10 June 2002 the Council of the European Union and the European Parliament adopted the new Postal Directive on further liberalisation of the European postal markets.

52. One of the major changes introduced by this Directive is that, as from 1 January 2003, Member States are no more allowed to include the market for outgoing cross-border mail in the reserved area(30) unless it is necessary to ensure the provision of the universal postal service. Accordingly, as from 1 January 2003, PPOs will face competition with regard to the forwarding of cross-border mail from one REIMS II country to another.

7. REMEDIES REQUIRED BY THE COMMISSION AS A PREREQUISITE FOR A FAVOURABLE ATTITUDE

53. The arrangements as notified presented a number of problems from the point of view of competition policy which stood in the way of a favourable attitude on the part of the Commission. During the course of the notification procedure, the following issues were resolved in a satisfactory manner, subject to third party comments:

- Level of TDs to be applied between the Parties according to the Agreement;

- Introduction by the parties of an effective low price alternative to REIMS II TDs for direct mail;

- Non-discrimination between REIMS II Parties and their competitors in the newly emerging markets for forwarding of outgoing cross-border mail from one REIMS II country to another.

7.1. Amendments to the Agreement

54. The first two points have been dealt with by means of amendments to the Agreement. Following discussions with the Commission, on 24 January 2003 14 out of the 17 Parties(31) signed the Fifth Supplementary Agreement. This agreement amends the notified Agreement with regard to 1. the TDs to be applied during the transitional period and, 2. the introduction by the Parties of an effective low cost alternative to TDs for direct mail.

7.1.1. Level of TDs

55. The Fifth Supplementary Agreement modifies Annex 4 to the notified Agreement both as regards the duration of the Transitional Period and the level of TDs to be applied. The duration of the Transitional Period has been prolonged from for 31 December 2004 to 31 December 2006.

56. The TDs to be applied from 1 January 2002 to the end of the Transitional Period have been modified as follows:

2002: 73,3 %;

2003: 74,5 %;

2004: 75,7 %;

2005: 78,5 %;

2006: 78,5 %.

57. The Commission, having revised the cost data provided by the parties with regard to the delivery of incoming cross-border mail, considers that these rates correspond to a sufficiently accurate approximation of parties' costs.

7.1.2. Low price alternative to TDs for direct mail

58. As regards the introduction of a low price alternative to TDs for direct mail, Article 2 of the Fifth Supplementary Agreement obliges the Parties, "within six months of the second exemption decision of the Commission..." to deliver international direct mail items.

59. On 24 January 2003, the Parties with the exception of Royal Mail Group plc. and An Post signed the separate "Agreement for the Delivery of REIMS International Direct Mail" ("the REIMS IDM Agreement") which creates the IDM product(32) with the following features:

Core product specifications

- common product specifications that obviate the need to conform with national product requirements,

- direct mail as defined in Directive 97/67/EC,

- maximum weight of 2 kg/item,

- a common minimum volume of 500 items,

- a best effort quality of service standard of J+5,

- pure cross-border mail product,

- UPU specifications for maximum and minimum size,

- no pre-sorting required.

Remuneration

The remuneration for the delivery of the IDM product is calculated as the lower of the domestic tariff for comparable unsorted mail and non priority REIMS II TDs minus [...] %. If there is no unsorted bulk mail rate, the sorted bulk mail rate plus a mark-up of [...] % will be used.

7.1.3. Other amendments

60. Other minor amendments introduced by the Fifth Supplementary Agreement at the initiative of the Parties are:

Application of Articles 43 of the UPU Convention(33)

According to Article 5 of the notified Agreement, after the end of the Transitional Period, Articles 25 and 49(4) of the 1994 UPU Convention will no longer be applied between the Parties. This clause has been modified. The new version of Article 5 reads as follows: "Nothing in the REIMS II Agreement shall keep a Party from applying Article 43 of the UPU Convention against another Party."

Withdrawal from the Agreement

According to Article 11 of the notified Agreement, the withdrawal from the Agreement takes effect at the end of the first full calendar year following the notice of the withdrawal. The new version of the provision states that the Party may withdraw from the agreement by giving not less than six months written notice to the end of the calendar month.

7.2. Other requirements

61. As regards the third problem identified during the investigative phase, the Commission considers that, further to the liberalisation of outgoing cross-border mail, the mechanism contained in the REIMS II agreement for the remuneration of the inbound delivery of cross-border mail leads to price discrimination in favour of the Parties and to the detriment of third party operators carrying outbound cross-border mail from one REIMS II country to another. Pursuant to Article 2.3 of the Agreement, the REIMS II Party in the country of delivery charges REIMS II TDs for the delivery of mail items forwarded by any other REIMS II Party. Third party operators engaged in forwarding outgoing cross-border mail must, however, pay the full domestic tariff for the delivery of the mail items in the country of destination.

62. The Commission is therefore of the opinion that any new exemption would have to require that each REIMS II Party will provide to any third party postal operator competing with any other REIMS II Party for the provision of outgoing cross-border mail services in any REIMS II country, delivery of inbound cross-border mail in its country at TDs and on conditions which are non-discriminatory as compared to those offered to the REIMS II Party in the sender's country. The Parties have been informed of this necessity.

63. The Commission has elaborated the text of such a requirement to be introduced in a future exemption decision which is available as an annex to this Notice.

8. CONCLUSION

64. On the basis of the above, the Commission intends to take a favourable view in respect of the notified Agreement as amended by the Fifth Supplementary Agreement. Before adopting a favourable opinion, the Commission invites third parties to send their observations within four weeks of the publication of this Notice by e-mail (Rosario.Baratta@cec.eu.int), by fax ((+32-2) 296 70 81) or by mail to the following address, quoting the reference Case No COMP/C2/38.170-REIMS II: European Commission, Directorate-General for Competition,

Anti-trust Registry,

J 70,

Office 0/28,

B - 1049 Brussels.

If a party considers that its observations contain business secrets, it must indicate the passages which in its opinion ought not to be disclosed on the ground that they contain business secrets or other confidential material, and state the reasons. If the Commission does not receive a request with reasons it will assume that the observations do not contain any business secret.

(1) OJ 13, 21.2.1962, p. 204/62.

(2) Commission Decision of 15 September 1999 relating to a proceeding under Article 81 of the EC Treaty and Article 53 of the EEA Agreement (Case No COMP/36.748 - REIMS II) (OJ L 275, 26.10.1999, p. 17).

(3) The Parties comprise the PPOs of all Member States of the Community (except for the Netherlands) and the PPOs of Norway, Iceland and Switzerland.

(4) OJ C 195, 11.7.2001, p. 11.

(5) Public Postal Operators (PPOs) are corporations or government departments with the primary obligation of providing universal postal services across the national territory, often at a unitary price. They are also obliged to provide international postal services passing international mail to PPOs in other countries for distribution and delivery of incoming international mail. In the context of the notified Agreement, PPO refers to both public and private postal operators which are subject to a universal delivery service obligation.

(6) Austrian Post, La Poste/De Post (Belgium), Post Danmark, Finland Post, La Poste (France), Deutsche Post, Hellenic Posts ELTA, Iceland Post, An Post (Ireland), Poste Italiane, Entreprise des Postes & Télécommunications (Luxembourg), Norway Post, CTT Correios de Portugal, Correos y Telegrafos (Spain), Sweden Post, Swiss Post (Switzerland) and The Post Office (United Kingdom).

(7) The notification has been filed by all the Parties except for Swiss Post, Switzerland, and Entreprise des Postes & Télécommunications, Luxembourg which are aware of the notification and have received a copy of it.

(8) The Universal Postal Union (UPU), a specialised agency sorting under the United Nations, is the international organisation responsible for international cooperation for postal affairs. The UPU convention (UPC) provides the regulatory framework for the international exchange of mail. Since 1969 the UPC contains provisions stipulating that member countries remunerate each other for the delivery of international mail by paying TDs.

(9) Concerning the definition of the relevant markets, see also "Deutsche Post II", Commission Decision of 25 July 2001, OJ [2001] L-331/40, points 84 to 87. The reasoning there builds upon but is consistent with the definitions made for the purposes of the Exemption Decision.

(10) Directive 97/67/EC of the European Parliament and of the Council of 15 December 1997 on common rules for the development of the internal market of Community postal services and the improvement of quality of service (OJ L 15, 21.1.1998 p. 14).

(11) Directive 2002/39/EC of the European Parliament and of the Council of 10 June 2002 amending Directive 97/67/EC with regard to the further opening to competition of Community postal services (OJ L 176, 5.7.2002, p. 21).

(12) See point 5(7).

(13) In view of the discounts that they will grant until the end of 2004 (see below), Deutsche Post AG and Poste Italiane SpA would only reach the full 80 % level in 2005.

(14) Subparagraph 4 of paragraph 3 of Annex 4 to the REIMS II Agreement as added by Article 3(3) of the Fourth Supplementary Agreement.

(15) Deutsche Post AG continues to grant the discount agreed in the Third Supplementary Agreement until the end of 2004. Poste Italiane SpA has also agreed to give a discount until that date: Paragraphs 9 and 10 of Annex 4 to the REIMS II Agreement as amended by the Fourth Supplementary Agreement.

(16) Article 11(4) to (7) of the REIMS II Agreement as added by Article 2.2 of the Fourth Supplementary Agreement.

(17) Bags containing bulk mail for one addressee.

(18) In doing so, the Agreement distinguishes between three categories: (i) Letters up to C5 size and a maximum weight of 100 grams; (ii) Flats up to C4 size and a maximum weight of 500 grams; (iii) Packets of all shapes up to limits of weight and size set by the UPU. Linear tariffs are calculated on the basis of this standard structure, using the so-called "least squares" statistical method.

(19) In countries where postal services have been fully liberalised, where a uniform tariff is applied throughout the country and where VAT is applied to domestic postal services, the domestic tariff to be used for the calculation of TDs is to be increased by a percentage equivalent to half the rate of VAT, subject to a maximum of 12,5 %.

(20) The LAT is defined as the latest acceptable time of touchdown, permitting delivery of airmail items the next working day.

(21) The International Post Corporation is a company co-owned by a number of PPOs (including all the REIMS II Parties). Inter alia, it provides administrative and practical services to the REIMS II Parties. The UNEX quality-of-service measurement system, which serves as the basis for the REIMS II quality targets and determines penalties, is operated by the IPC.

(22) For example if the quality-of-service target provides that 90 % of incoming cross-border mail must be delivered the next day, and that the actual result is that only 87 % of the mail is delivered within this time, then only 97 % of the target is reached (87 is 97 % of 90). Thus, the loss of quality is 3 %. Since this figure is within the 90 % to 100 % range, a penalty of 11/2 % for each percentage point accrues. The penalty is thus 3 x 11/2 % = 41/2 % of TDs payable. This means that the delivering PPO concerned is allowed to charge only 951/2 (100 %-41/2 %) of the full TDs to which it would otherwise be entitled. In 1998 when TDs for Level 1 amounted to 55 % of domestic rates, the PPO would thus receive TDs amounting to 521/2 % of domestic rates (i. e. 951/2 % of 55 %).

(23) Article 2.11 of the REIMS II Agreement.

(24) This is the interpretation of this clause that the Parties have given in the course of the investigation.

(25) See point 7.1.3.

(26) Information gathered from answers to Article 11 letters to the Parties show a substantial increase of quality of service in terms of J+1 delivery for most of the Parties.

(27) See point 5.3.3.

(28) See point 5.3.4.

(29) See Article 2 of the 1999 Exemption Decision which also stated that: "In order to facilitate this (Level 3) access, the Parties must relax domestic conditions for other Parties where those rules are not justified and could in practice bar other Parties from access to the domestic rates or (where it is not in their power to do so) they must use their best efforts vis-à-vis the relevant national authorities to remove those rules."

(30) Article 1(1) of the new Postal Directive.

(31) The Agreement has not been signed yet by La Poste/De Post Belgium and An Post Ireland.

(32) International Direct Mail (IDM) is the name the Parties have given to this cross-border mail product.

(33) The notified agreement makes reference to Articles 25 and 49 of the UPU Convention signed in 1994. The Fifth Supplementary Agreement makes reference to the UPU Convention signed in 1999. In this new version of the UPU Convention Article 25 has changed its numeration in Article 43.

ANNEX

ON TPA

General

Each REIMS II party shall provide to any third party postal operator competing with REIMS II parties for the provision of outgoing cross-border mail services in any other REIMS II country, delivery of inbound cross-border mail in its country at terminal dues and on conditions which are non discriminatory as compared to those that the REIMS II party offers to the REIMS II party in the sender's country. This obligation is limited to mail from senders in REIMS II countries and to requests from third party postal operators

(i) that are entitled to provide outgoing cross-border mail services under the domestic rules applicable in the sender's country and provided that outbound cross-border mail has been liberalised for the mail items in question in the country in which the mail was produced and those through which it may have transitted;

(ii) that are competitors of the REIMS II parties for the provision of these services; and

(iii) that enter into an agreement with the delivering REIMS II party, pursuant to which they agree

- to comply with REIMS operational conditions and requirements, including participation in the quality of service measurement systems(1),

- to pay the terminal dues offered to the REIMS II party in the sender's country plus an appropriate share of the cost of administering REIMS and the extra cost incurred by handling their mail as compared to mail from other REIMS parties, if any,

- to pay the delivering REIMS II party's internal rates for mail items tendered under this obligation that fall under the exception set out below,

- upon request to post adequate security for such payments,

- to endeavour to provide specimens of larger quantities of business mail items,

- and to respect the reserved area of the REIMS II party and provide all their incoming reserved mail to be delivered by the REIMS II party.

Exceptions

This obligation does not apply to domestic mail. Further, this obligation shall not apply to mail items that senders residing in the country of the delivering REIMS II party post or cause to be posted in a foreign country with the object of benefiting from lower rates available through this obligation. Within the limits of the present and future case law of the Court of Justice, the latter exception to the obligation shall apply both to mail items made up in the sender's country of residence and then carried across the frontier and to mail items made up in a foreign country.

Interface with Article 5 of the consolidated REIMS II Agreement

When Article 5 of the consolidated REIMS II agreement as notified takes effect, the REIMS II parties will no longer be entitled to invoke the above exceptions to the obligation imposed by this Decision.

(1) Currently UNEX and Diagnostic.