PROPOSAL FOR A REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL ON THE GRANTING OF COMMUNITY FINANCIAL ASSISTANCE TO IMPROVE THE ENVIRONMENTAL PERFORMANCE OF THE FREIGHT TRANSPORT SYSTEM

(PRESENTED BY THE COMMISSION)

TABLE OF CONTENTS

EXPLANATORY MEMORANDUM

Introduction and Summary

Chapter 1: Lessons from the PACT programme 1997 - 2001

Chapter 2: Identifying Objectives: Current Market Developments and Needs

Chapter 3: The Marco Polo Programme: a new concept to improve the environmental

performance of the transport system

Chapter 4: Subsidiarity and Proportionality

Chapter 5: External Consultation

Chapter 6: Explanation of the Single Articles

Annex I: Executive Summary of the Independent Evaluation of PACT Programme

Annex II: Commission calculation of the environmental premium

EXPLANATORY MEMORANDUM

Introduction and Summary

The present proposal for a Parliament and Council Regulation features in the Commission work programme 2001 under the reference 2001/175. The programme was announced in the Commission White Paper "European transport policy for 2010: time to decide" of 12 September 2001. [1]

[1] See p. 46 of the Commission White Paper "European transport policy for 2010: time to decide" of 12 September 2001, COM 2001(370) final.

Taking into account the positive experiences with the PACT programme, [2] the Community should dispose of a practical and market-oriented instrument, which supports its fight against congestion in the road freight sector and its ambitious goals to improve the environmental performance of the transport system as a whole. The present proposal intends to set up such an instrument. It is based on Art. 71 and Art. 80 of the EC-Treaty.

[2] O.J. L 177, 14.10.1998 p.1

The explanatory memorandum first presents lessons learnt in the current PACT programme, which ends in 2001. An external evaluation of the programme also brings important insights as to future directions for promotion activities aimed at transferring freight from road to other modes. In order to optimise promotion, it is necessary to assess the developments in the different market segments and pinpoint specific difficulties. Based on this analysis, the programme, named "Marco Polo", is proposed. Its main goal is to reduce road congestion and improve the environmental performance of the whole transport system by shifting freight from road transport to short sea, rail and inland waterway transport. The programme thus aims to support one essential transport policy direction outlined in the Commission White Paper "European transport policy for 2010: time to decide."

Like PACT, Marco Polo intends to support commercial actions in the market for freight transport services. It is therefore different from the support given through research and development programmes and the Trans-European Network programme. Marco Polo will foster modal shift projects in all segments of the freight market, not only in combined transport. The programme will also be able to fund actions involving countries, which are candidates to accession to the European Union. However, taking into account the principle of subsidiarity, it will focus in international, rather than national, projects. Three main orientations are foreseen:

* Start-up support for new non-road freight transport services, which should be viable in the mid-term ("modal shift actions");

* Support for launching freight services or facilities of strategic European interest ("catalyst actions");

* Stimulating co-operative behaviour in the freight logistics market ("common learning actions").

The main objective of Marco Polo is to help shift an amount of cargo corresponding to the anticipated growth of international road haulage, to other modes. The programme will support the major policy initiatives in the freight sector foreseen for the horizon 2010, and should therefore be in place until that date. Mechanisms for flexibility will be introduced, which should allow reaction to changing market trends not foreseen today.

Chapter 1: Lessons from the PACT programme 1997 - 2001

1. In order to propose the most efficient and effective promotion programme on Community level, it is important to properly evaluate the promotion programme currently running. Some features of the PACT programme have shown their value. Others need to be abandoned or adapted to the changes in the market and the new policy requirements. Chapter 1 thus draws some lessons from the PACT programme 1997 - 2001.

2. Chapter 1 in conjunction with the Commission Staff Working Paper "Results of the PACT Programme 1997 - 2001"also presents the report requested by Art. 13 of Regulation 2196/98, under which the Commission shall issue a report on the execution of the programme.

Objectives and assumptions of the PACT programme

3. The PACT programme set out to increase the use of combined transport by supporting market-driven innovative initiatives in the combined transport services sector. The increased use of combined transport is seen as a means to make the transport system more sustainable.

4. Actions have to relate to combined transport, as defined in Art. 2 of Council Regulation 2196/98. They have to be international in terms of geography and consortium. Further, innovation in terms of technology and/or route is required. Supported actions should not distort competition between non-road modes.

5. The budgetary envelope for the PACT programme is relatively modest, as it amounts to 35 million EUR for the five-year period of its existence. As of 30 September 2001, 30 million EUR are committed. [3] To markedly increase the use of combined transport with such a budget, it is necessary that the actions financed are acting as a pilot for the market. They should thus have a "snow-ball" effect or a "replication potential". Thus, their effect would be multiplied, with corresponding modal shift effects.

[3] Including 7.5 million "pre-commitment" for 2001.

6. The programme also assumes that combined transport can be economically viable and competitive vis-à-vis road on its own after a relatively short period of start-up aid.

Quantitative results

7. For projects newly funded between 1997 to 30 September 2001, the PACT programme provided subsidies amounting to 30 million EUR. The total financial volume of all actions funded from 1997 to 2001 amounts to about 120 million EUR. The subsidy volume requested in the five selection procedures 1997 to 2001 amounts to 203 million EUR.

8. 92 actions are currently listed in the PACT programme. For the 11 new actions chosen in the 2001 selection procedure, contracts are currently being negotiated. Out of the remaing 81 actions, 65 are technically closed, and 16 are ongoing. The following table gives an aggregate repartition of funding to the different modes:

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9. If one looks at the overall success rate of the 65 PACT actions technically terminated on 30 September 2001, the percentage is as follows:

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10. A full account of all PACT actions from 1997 to 2001 can be found in the Commission Staff Working Paper "Results of the PACT Programme 1997 - 2001", adopted in parallel to this proposal for a Regulation.

11. Two relevant conclusions can be drawn at this point:

* Launching and maintaining innovative intermodal actions in the market is a venture fraught with risk.

* The commercial success of new services is not always guaranteed even with initial public financing. However, start-up aid can contribute, to a large extent successfully, to transport projects becoming viable on their own.

The External Evaluation of the PACT Programme

12. In line with Art. 13 of Council Regulation 2196/98, the Commission requested an external evaluation of the PACT programme for the period 1997 to 1999. This evaluation was finished in December 2000. The most relevant conclusions of the evaluation in the present context are as follows:

* Most operational measures supported by the PACT programme are cost-effective in terms of avoided carbon dioxide emissions, even without replication.

* Commercial viability of the intermodal projects is difficult to achieve, even with the start-up support provided by PACT. This is due to the challenging market conditions for combined transport in Europe.

* Asking for technological or logistics innovation in conjunction with achieving commercial viability under current market conditions may expose projects to inordinate risk and ultimate failure.

* Receiving Community funding was of course important to the project partners. Moreover, beneficiaries reported that the commitment created by the PACT contract with the Commission and the political and operational support provided through the programme was essential for reaching the goals of the project.

13. The evaluation recommended:

* Stopping the funding of feasibility studies as precursors to operational projects. Instead, some funding should be allocated to fund generic studies aimed at market enablement.

* Strengthening the dissemination aspects of the promotion programme through the development of a targeted programme-level strategy, which would also encourage more widespread replication of pilot actions.

* The evaluation also suggested to generate some large-scale projects which could help lower the market barriers for intermodal transport in Europe.

14. The Executive Summary of the evaluation is attached to this Explanatory Memorandum as Annex I. In line with the requirements of Art. 13(3) of Council Regulation 2196/98, the full evaluation has been published by the Commission on the following Website address http://europa.eu.int/comm/transport /themes/land/ english/lt_28_en.html.

15. The present proposal for the Marco Polo programme has taken all the recommendations of the external evaluation into account.

Conclusion

16. The PACT Programme has provided evidence that setting up new intermodal freight services in Europe is fraught with risk. Community funding for start-up of new operations seems therefore still appropriate. Community funding can also be envisaged as a good policy option, because the limited funding of start-up measures in intermodal transport is cost-effective for society at large. If the supported action stays viable, the positive effects of the subsidy continue, even after the subsidy itself has stopped. Finally, the close contractual relationship between the Commission and the beneficiary allows for individualised arrangements to reach the objectives, and produces good results in terms of monitoring and steering of projects. The funding should therefore continue to be based on contracts.

17. As there is evidence that requiring innovation on top of starting new services may "overload" the project objectives, one should dissociate innovation funding from start-up aid. To further maximise cost-effectiveness of Community funding, stronger dissemination mechanisms should be integrated into the future programme. These conclusions are in line with the recommendations of the external evaluation of the PACT programme.

Chapter 2: Identifying Objectives: Current Market Developments and Needs

18. This section identifies market developments and needs, which a new programme should take into account for optimal effectiveness.

19. The non-road modes to be considered for a programme to ease road freight congestion are rail, short sea and inland navigation. Freight transport by air is more polluting than road transport. The airspace is also plagued by congestion. Therefore, a transport programme intended to help reduce pollution and congestion in Europe should not promote air transport.

Short Sea Shipping

20. Maritime transport services between Member States have been liberalised in the Community since the 1980's. Furthermore, the principle of free maritime cabotage has been in force since 1993. The last temporary derogation for cabotage (certain island services in Greece) will expire in 2004.

21. In the 1990's short sea shipping grew by 27 % while road transport grew by 35 %. Especially in transport between Member States - where 50 % of goods are today carried on the road - short sea shipping has the greatest growth potential.

22. To become a real success, intermodal short sea shipping should be as easy to use as single road transport. It should be managed and commercialised through one-stop shops.

23. Any obstacles hampering the optimal development of short sea shipping need to be tackled as a matter of priority. The major obstacles identified so far belong to the following categories:

* The image of short sea shipping needs to become that of a dynamic element in an intermodal chain. The obvious way to deal with this is distribution of information on the use of the mode and its modern capabilities.

* Interoperability is still not achieved today in intermodal chains making use of short sea shipping. The lack of uniformity in intermodal loading units, lack of logistics management, difficulties in organising intermodal chains and the price of door-to-door short sea shipping are a few examples.

* The complexity of documentary and administrative procedures is a fact in the every-day life of short sea shipping, and does not help its competitiveness vis-à-vis road.

* Ports are irreplaceable interconnection points between land and sea. They need to work optimally and give high level of service to all users. Also, hinterland connections are vital for short sea shipping. But also here, the state of play is not yet allowing optimal intermodal short sea shipping chains. Importantly, many ports are still focussing their services on the needs and requirements of deep sea shipping. This results in sub-optimal conditions for short sea.

Rail

24. Since 1 July 1993, international combined transport services by rail have access rights to other Member States' networks. However, in practice, rail freight transport is still today characterised by a juxtaposition of national infrastructures and services.

25. The most notable result of this unsatisfactory situation is the lack of interoperability in terms of equipment, infrastructure, communication systems and operational rules across the various national networks. By the same token, lack of interoperability also stands in the way of creating a real internal market for rail transport. This is being addressed by decisive legislative Community action. In commercial terms, the juxtaposition of national networks results in the strong position of the former national railways in their territory. Linked with low rates of return in the industry, this creates strong barriers to entry. High differences in the rail infrastructure charging systems and the lack of a European traction market (traction services and locomotives) constitute further impediments to rail market development.

26. Especially international rail freight services currently display quality problems in terms of punctuality and flexibility. In the end of the year 2000, the punctuality of international combined transport trains on the central European trans-alpine routes was down to 50%. Every second train is now delayed. The lack of a European market strategy by the railway undertakings frustrates, for instance, attempts to co-operate in order to put in place European-wide schemes for exchanges of operational data or modern and performing tracking and tracing systems. The railway undertakings consequently have difficulties to ensure a quality level that meets the customers' requirements leading the clients to abandon rail in favour of road haulage.

27. However, the regulatory framework for the European railways is going to change substantially, since the rail infrastructure Directives entered into force on 15 March 2001. International rail freight service providers will have open access to the trans-European rail freight network (TERFN) during a transitory period. At the latest from 2008 onwards access will be open to the whole European rail freight network. The European Directives further harmonise the conditions of access to the European rail infrastructure, for instance for train path allocation, infrastructure charging, and the issuing of railway licenses and safety certificates. On the other hand, market access for domestic rail freight services and passenger services still remains regulated by national legislation. The new regulatory framework is complemented by measures to improve the technical and operational interoperability of conventional rail systems on the trans-European networks through the recently adopted interoperability Directive 2001/16/EC. The regulatory changes towards market opening are likely to have a profound impact on the structures of the rail sector. These changes will create more room for competition between operators. This will help the rail industry as a whole to become more competitive against other modes of transport. Without real competition between the incumbent railway services operators, the rail freight sector will not be in a position to contribute to the wider Community policy objective of sustainable mobility.

Inland navigation

28. Market access for inland waterway has been open since January 2000. Intermodal inland waterway services have seen strong growth rates, especially along the Rhine waterway system. There are also promising signs of a further rationalisation in the sector, such as the setting up of inland waterway hub-and-spoke systems or short distance inland navigation services.

29. Lack of harmonisation of technical regulation for inland waterway vessels and of boatmaster certificates throughout the Community's waterway networks still remain obstacles to the functioning of the single market in this sector. Further, numerous bilateral agreements between Member States and third countries restrict the opportunities for inland waterway and have the potential to hinder freedom to provide services in this sector.

30. The lack of interchangeable equipment between inland waterway, rail and short sea, especially concerning loading units, limits the competitiveness of inland waterway in the intermodal transport chain. Also, the inland ports need to change to become real logistics platforms in their own right. A strong effort has to be made to integrate the inland waterway infrastructures better with the ones of the other modes. Interconnection should also be improved through cost-efficient interoperable transshipment systems. Finally, similar to short sea shipping, inland waterway needs to present itself in a more dynamic light.

The intermodal terminal sector

31. The EC terminal market is today fully liberalised under the Treaty rules on freedom of establishment and freedom to provide services. However, most terminal operators still operate regionally or locally.

32. While large-scale facilities, sometimes coupled with new rapid transshipment technologies, have not brought the efficiency gains expected, small-scale and relatively cheap terminals have had success. It is important to adapt terminal size and outlay to its function (regional, international, hub).

33. Various studies have shown that there is still room for improvements in terminal operations. This concerns the actual handling, pre- and post-haulage and the communication systems with the modes.

Information technologies

34. Today, there is a proliferation of electronic communication and information systems. Some systems are closed and just give access to a restricted number of users. Others tend to be more open. To a certain extent, the variety of the systems has been mitigated by the setting up of repositories, which can translate various messages and render them interoperable. But still, data exchange, essential in the intermodal transport chain, is too complex and cumbersome.

The road freight sector

35. Free market access to the EC road freight sector has been achieved on 1 July 1998. The full introduction of market forces has given the road freight sector a further boost to become more innovative and competitive in terms of equipment and service performance. Further, road transport has benefited from changed global production patterns, which favour rapid and flexible means of transport with relatively limited unit capacity. Conversely, these changes have added new challenges for the competitiveness and continuing viability of intermodal services. Finally, road freight transport does not pay the full costs it causes to society, which produces a further, unfair, competitive advantage.

36. The international rail combined transport sector has fared worst under the competitive pressure from road. Prices for international rail transport went sharply up since 1998, and quality decreased. As a result, rail freight has lost further clients to road transport. Short sea shipping and inland waterway have sustained continued considerable growth rates also throughout the end of the 1990s.

Conclusion

37. One can draw three conclusions from the previous overview.

* First, the regulatory framework for access to the non-road freight transport markets is to a large extent in place or in progress.

* Second, many factual, commercial and operational barriers exist in all road-alternatives and have to be overcome to unleash the full potential of these freight markets.

* Third, in order to provide high-quality intermodal freight transport chains, also modal deficiencies and problems must be addressed.

Chapter 3: The Marco Polo Programme: a new concept to improve the environmental performance of the freight transport system

Policy Context

38. Since 1975, combined transport policy has endeavoured to encourage a modal shift from road freight transport to rail, inland waterway and, later, short sea shipping. The motivation behind this policy has been, and still is, the improvement of the environmental performance and a better safety record of the whole transport system. Coping with the negative impacts of growing road traffic is one of the central current and future challenges of the common transport policy. The Gothenburg European Council of June 2001 placed shifting the balance between modes of transport at the heart of the sustainable development strategy.

39. If no decisive action is taken, total road freight transport in the European Union is set to grow by about 50% until 2010. Cross-border traffic is expected to double by 2020 [4]. For cross-border road freight, this means a foreseen growth of about 12 billion tkm [5] per year. It translates into further congestion, pollution and accidents. The socio-economic cost of the additional 12 billion tkm on roads has been estimated at more than 3 billion EUR per year. [6]

[4] Final report of SCENES - European Transport Scenarios, project funded under the 4th Framework Transport Research Programme, http://europa.eu.int/comm/transport/extra/home.html.

[5] tkm = tonne-kilometre; the transport of one tonne (1.000 kg) of cargo over the distance of one kilometre.

[6] RECORDIT - External cost calculations for selected corridors. Deliverable 4. Project funded under the 5th Framework Research Project.

40. This is not acceptable. Coping with this growth implies using alternatives to road transport more intensively and systematically than hitherto. The Commission White Paper " European transport policy for 2010: time to decide" of 12 September 2001 therefore proposes more than 60 concrete and effective measures for a more performing transport system. More specifically, as a benchmark, it sets the ambitious objective to maintain the traffic share between the various transport modes for the year 2010 at its 1998 level. The Marco Polo programme is one of the measures to achieve this objective in the international freight transport sector.

41. The central challenge is: can short sea, inland waterway and rail absorb about 12 billion tkm more per year and thus limit the growth of international road transport considerably or even reduce it- A sensible Community programme for easing road congestion and improving the environmental performance of the freight transport system must take up this challenge. It must lead to actual and sustained shifts from road freight to the less congested modes. The goal of the Marco Polo programme is to shift the whole aggregate growth of international road freight transport to rail, short sea and inland waterway modes.

42. In pursuing these objectives, the Marco Polo programme is not engaged in an "anti-road" strategy. First and foremost, relieving road congestion by shifting traffic to other, less utilised modes, will obviously increase the fluidity of the road system to the benefit of all road users. Second, fostering alternatives to road transport will enable the road sector to use its equipment and personnel better: the truck will be used mostly in the short regional hauls, while short sea shipping, rail and inland waterway are well suited for the longer distance. Local distribution is the market segment where the truck's competitive advantage of flexibility and versatility are used best. Using the truck in this segment allows better capacity utilisation and better social conditions for the driving personnel, who can be home in the evenings. Third, the road haulage sector is to a large extent already present in the combined transport market. Road haulage companies are shareholders in the various European combined transport operators. As such, they should directly benefit from Marco Polo actions. Fourth, the proposed Regulation does not in any way limit the circle of potential applicants and beneficiaries. Road haulage companies can therefore fully participate in any action to be fostered by Marco Polo.

Scope of the Marco Polo programme

43. Compared to PACT, Marco Polo should be broadened in scope. As the objective is to move, in aggregate, the total growth of international road freight transport to alternative modes, the programme must be able to address all segments of the freight market. Therefore, not only combined transport options should be considered. Opportunities abound for modal shift in the bulk, conventional, or unimodal containerised transport segments. For instance, large quantities of chemicals and even fossil fuels are transported long-distance by road, not necessarily in containers.

Delimitation to other support initiatives

44. Like the PACT programme, the Marco Polo programme will be geared towards promoting commercially oriented services in the freight transport market. Neither research and development nor infrastructure measures are its focus. For these activities, appropriate programmes exist already. An overlap with their instruments should be avoided.

45. On the other hand, the optimal performance of a transport service may require certain ancillary measures, which may extend beyond funding service-related activities or items. One should not refuse requests for funding for such items on the formal ground, that they imply some infrastructure works It would be unhelpful to refer applicants asking for funding of ancillary measures for actions covered by the new programme to other programmes. Their procedures, cycles and funding instruments are not geared towards short- or medium term actions in the market.

46. Marco Polo should set out the strategic road-map for fostering alternatives to road transport in the coming years. This does not exclude that Member States support measures to ease road congestion or improve the environmental performance of the transport system financially or through specific regulatory instruments. However, such support must be in line with the State aid rules of the EC Treaty.

47. Experience suggests that unilateral national measures, even when in line with the requirements of the EC Treaty, are often operationally suboptimal, especially in intermodal freight transport. The strength of this type of transport lies in the long-distance segment. It will therefore often be of an international nature. Thus, if one Member State embarks on an ambitious regime to foster the construction of new intermodal terminals or railway sidings, but the infrastructure at the end of the link in the other Member States is old-fashioned, the results are far from optimal.

48. Therefore, the Marco Polo programme should also offer guidance as to the type of financing that can be regarded in the "common interest" within the meaning of the State aid rules of the Treaty. This approach has already been successfully implemented in the current State aid concerning the combined transport sector, taking the PACT programme as a guideline. The projects identified in the programme could benefit from co-financing by the Member States, within the foreseen aid ceiling, in order to speed up their success.

Types of intervention

49. The Marco Polo programme should feature three main support targets. They are based on the experiences and the evaluation of the PACT programme, the perceived market needs and should concretely support overriding transport policy goals:

* start-up aid for actions shifting freight traffic from road ("modal shift actions");

* catalyst actions in the freight logistics market;

* common learning actions in the freight logistics market.

Marco Polo actions will involve parties from at least two different States, which will need to work closely together to attain the objectives of the action. The Commission will closely analyse, under Article 81 and 82 of the Treaty, any form of co-operation seeking Marco Polo support, especially in markets, which are not yet fully liberalised, or which feature oligopolistic structures. The purpose of Marco Polo is, amongst others, to fully unleash the potential of the short sea shipping, rail and inland waterway markets. It is not the purpose of the programme to foster market foreclosure.

Start-up aid for new non-road freight transport services - modal shift actions

50. Setting up new non-road freight transport services is, by its very nature, more risky than setting up new road services. Regular maritime, rail and inland waterway services need a load factor of about 70 to 90% to stay viable. In order to compete with road, a transport service must be offered regularly, more than once a week, and ideally, daily. As a very general rule of thumb, a minimum of about 200 containers on a short sea ship, 50 containers on an inland barge and 25 containers on a train are needed to ensure commercial viability of such services. The logistics and financial challenge to gather the necessary load every day is evidently much higher than organising a daily truck service with one or two consignments. In order to make the switch from road to other modes, potential users need to be convinced that the intermodal service is frequent, regular and will stay in the market. When an intermodal service is launched, the public therefore often adopts a "wait and see" attitude before relying on it. Regular and frequent intermodal services are consequently loss-making for their start-up time.

51. Due to the very keen competition from the road market and changing production and distribution patterns, setting up intermodal services has even become more risky in recent years. Today, if market actors' willingness to take risks is not stimulated beyond the traditional commercial incentives, traffic will stay on road. Taking into account the key transport policy objective to combat congestion outlined in the Commission's White Paper "European transport policy for 2010: time to decide", this is not an acceptable policy option.

52. The start-up aid provided for by PACT has shown that operators are willing to take a commercial risk for setting-up new non-road transport services, if some Community funding can be provided for. Most importantly, the evaluation of the PACT programme has indicated that Community funding for alternatives for road transport services, if properly calculated and executed, can bring forth net savings for society at large.

53. The Marco Polo programme will therefore continue to provide for start-up aid for transport services shifting cargo from road, under the conditions mentioned in the Instrument. The financial assistance for modal shift actions takes the form of an "external cost savings award". The financial assistance is thus calculated according to the environmental, congestion and other benefits that the actions produce. Annex II to this Explanatory Memorandum sets out the calculation of the Commission.

Catalyst actions

54. As shown above, market access to the inland waterway and maritime sector is largely achieved, and considerable progress is made in the railway sector in this respect. However, despite growing possibilities for market access, private initiative is not always able to tackle all existing factual barriers in the freight market on its own or only relying on its own financial resources. The commercial rewards, in terms of rates of return, for trying to overcome structural impediments and imperfections, are often too limited to convince entrepreneurs to take such major risks. Thus, there are still many obstacles, which have to be solved by using political and commercial strategies simultaneously.

55. The PACT programme did not provide the instruments to help overcome structural deficiencies in the market. Thus, the PACT subsidy was sometimes used only to "cure the symptoms", but not to attack core problems of running efficient transport chains. For example, an unforeseen price increase by a railway company could, at once, annihilate the whole benefit of a PACT subsidy in a combined transport action. The market structure would not allow the PACT beneficiary to choose another railway operator. The project, while promising, would have to be abandoned. This was obviously a sad result for the project. It was also unsatisfactory for the programme management, which had committed a budget for this project, often to the detriment of another good project, which had not been chosen in the selection procedure.

56. In such a situation, a "catalyst action" could help set up a new railway service guaranteeing price stability or performance. The introduction of the concept of the catalyst action in the programme follows one of the recommendations of the external evaluation of the PACT programme.

57. The Marco Polo programme thus should support actions in the market, which act as a catalyst to structural change. The support will, of course, be financial, in order to stimulate risk-taking by private entrepreneurs. However, the Commission will accompany the progress of these projects. If problems occur, which cannot be resolved by operational or commercial means alone, steering committee meetings involving all commercial partners, but also public bodies and other stakeholders, will decide on the appropriate short-term actions.

58. Catalyst actions should underpin and enforce priority transport policies, especially the ones indicated in the Commission Transport Policy White Paper "European transport policy for 2010: time to decide". They should as a rule take place on the Trans-European Transport networks or the Pan-European corridors. Examples could include:

(1) The Motorways of the Sea: Maritime services featuring frequent and regular departures with adapted port services to relieve congestion in ecologically sensitive regions;

(2) Making use of legally available opportunities to offer international non-stop railway services without change of locomotives and with appropriately trained driving teams; this could include the commercial use of cost-efficient and innovative interoperable equipment, rolling stock, communication systems and infrastructures; traditional co-operation in the form of "international groupings" would not be considered as catalyst actions in this sense;

(3) Introduction of high speed freight trains on international routes to develop state of the art competitive concepts in the high quality end of the freight market;

(4) High quality, well integrated inland waterway services, for instance on the route Black Sea - North Sea Ports;

(5) Improving user access, connections and logistics opportunities in the inland waterway sector;

(6) Quantum progress in organisation and technology of "rolling motorways" or barge-based "swimming motorways" especially in ecologically sensitive regions;

(7) Setting up equipment pools for tri-modally compatible intermodal loading units;

(8) Setting up reliable transport and logistics information systems, allowing open and non-discriminatory access to all potential users at low cost;

Common learning actions

59. Freight transport today is an integrated part of the supply chain. Operators must manage this in a network approach. Operating in a network means co-operation. This is especially true of intermodal transport. It is a more complex transport option than its main competitor, road. Certain deeply rooted business cultures, the fragmentation of the market and the intense commercial pressure resulting from the road freight transport are not always conducive to simultaneous co-operation and competition in the market for non-road freight transport.

60. On the other hand, the freight sector is constantly producing, through exemplary co-operative ventures, innovative ideas and commercial successes. The question for a Community programme seeking to ensure a large-scale sustainable modal shift is: are there ways in which it could contribute to an improvement in the co-operative mentality of the sector-

61. The logistics sector may wish to avail itself of some Community support for help in attaining ambitious goals on the basis of common action plans for transport services which improve the environmental performance of the transport sector. A precursor of this line of support was a PACT project jointly developed by the European combined transport operators with their railway partners. The parties analysed together, on the basis of common criteria, the reasons for quality problems in international combined transport. A "manual" was presented at a workshop. It listed the problems and relatively easy short-term solutions to many of the problems. The PACT project stopped at this point. The Marco Polo programme, however, should give industry an opportunity to ask for Commission endorsement and financial assistance for translating action plans and manuals into reality.

62. PACT experience has shown that mutual trust and co-operative spirit in the fragmented and complex intermodal sector must sometimes be built up, where acrimonious business relationships with ill-defined responsibilities prevailed before. In these instances, a neutral "honest broker" role of the Commission can greatly contribute to building better working relationships between the parties and the achievement of ambitious goals. As shown, many PACT beneficiaries had the view that the PACT support created higher than usual commitment in the consortia to attain the envisaged objectives. [7] There thus seems to be a real need for commitment-building support. This finding is also endorsed by the external evaluation of the PACT programme.

[7] See above, point 11, fourth bullet.

63. The overall objective of these "common learning actions" is to achieve a level of co-operation in the transport sector, which is necessary to optimise work methods and procedures in order to improve the environmental performance of the transport sector. Obviously, beyond this stage, competition between operators will be needed to improve services and products. Mature industries, also in the transport sector, have achieved a good balance between necessary co-operation concerning largely technical matters, work flows and procedures, while leaving the essential service provision to the field of competition.

64. The Commission would like to foster common learning actions especially in the following fields:

(1) Improving procedures and methods in sea and inland ports to better integrate short-sea shipping and inland waterway into the transport chain;

(2) Developing co-operation models between railways and inland waterway, which make use of the competitive advantage of both modes;

(3) New co-operation and capacity management models in rail transport;

(4) Adapting, in co-operation with the transport users, procedures and methods in the rail, short sea and inland waterway transport systems to meet today's logistics requirements;

(5) Improving pricing, procedures and methods in the terminal pre- and endhaul;

(6) Setting up European training centres for rail, inland waterway and freight forwarding professionals, and train drivers and inland waterway boat masters;

(7) Actions to increase the general level of demand for non-road transport services;

(8) Actions aiming to improve shippers' understanding of intermodal freight transport.

A strong focus on dissemination

65. In general, the key to ensure a consistent improvement in business practices and co-operative performance is as old as markets themselves: emulation of good ideas. One answer to impediments to the free circulation and easy replication of good ideas can be the Government-sponsored dissemination of results. As stated above, [8] the PACT programme largely assumed that good modal shift ideas would be replicated in the market. This was one reason why it proposed only a relatively limited budget for its goal to increase the use of combined transport.

[8] See above, point 4.

66. However, in fact, replication was quite limited. The main reason was that the supported action was conducted in the core business of the beneficiary. The latter thus did not have a strong interest in emulation by other companies, as this would have limited its competitive advantage stemming from the innovative actions. Second, as many PACT projects were route-related and had thus very specific features, their replication potential was low. Last, there was no programme-level dissemination strategy.

67. Not all commercial projects lend themselves to dissemination. However, some types of commercial projects can have a high replication value. The following types come to mind:

* Today, an increasing number of production companies, large transport users in their own right, seek to make better use of alternatives to road freight transport. They are willing to change their logistics systems or seek new ways of co-operation with transport providers. Such user-led projects could lend themselves well to dissemination, as transport users do not compete in the field of provision of transport services. Rather, they may have an interest that other transport users share with them the alternative transport option. This will result in economies of scale.

* Some PACT projects have begun to develop models of co-operation, where data to be disseminated are neutralised and aggregated by an independent project manager. At the same time, such data can still provide valuable insight for third parties. The future programme would encourage the further development of such "confidentiality shields", which still allow concrete lessons and replication models.

* Finally, the Commission would require that the catalyst actions described above disseminate as much as possible their results and the ways to achieve them. Evaluation and dissemination would go hand in hand with progress in the action. In return for substantial financial and political help in overcoming structural market barriers, the partners of a catalyst action should give information on the project which will enable other market participants to make use of the experience gained. Indeed, without dissemination and replication, catalyst actions will not fully reach their objectives.

68. In line with the recommendations of the external evaluation of the PACT programme, the Commission will ensure a strong programme-level evaluation and dissemination of all the activities fostered. Dissemination activities must be targetted in order to take account of the different interests of audiences. Dissemination could be focused on different technical, political, strategic or customer themes. The Marco Polo dissemination activities will draw on the proven mechanisms developed in other programmes, such as the "thematic networks" or "marketing groups" known from R&D in the energy sector, which promoted the introduction of new technologies in the market. The dissemination activities would also rely heavily on workshops, where concrete avenues to application of the commonly attained knowledge would be explored. "Best practices" would be presented.

Relationship between the three types of actions

69. The difference between the catalyst actions and the start-up aid is as follows: start-up projects will typically occur in situations where freight markets function already reasonably well. Their goal is to maximise traffic shift. They will thus typically be commercially robust, but not necessarily innovative. Catalyst actions, as described above, will contribute to a better structural functioning of the market. Their goal is not to maximise traffic shift, but to overcome market barriers with the help of the Community. Catalyst actions will be able to address market barriers not only in the, technically speaking, intermodal sector. They should also tackle structural problems in the different modes. This, in turn, will benefit the performance of the intermodal transport chain.

70. By contrast to the start-up actions, the catalyst actions will have to be innovative on a European scale, either in terms of logistics concepts or in terms of technology used. They will also be larger in funding size and will, due to their possible complexity, require more intensive steering and possibly more time to achieve their objectives.

71. The other difference is the scope of the catalyst actions. While start-up projects will be limited to transport services, catalyst actions do not necessarily need to be confined to the transportation of goods, in the sense of their physical movement. Catalyst actions may also be performed in other markets, whose functioning is essential for an improved transport performance of the non-road modes. Experience has shown that some Government assistance may be needed in order to allow markets to start functioning according to market principles. The setting-up of pools for the Europe-wide introduction of innovative or interoperable equipment, or setting up Europe-wide tracking systems could figure as an example of such actions.

72. Successful catalyst actions will concretely change the way transport services are performed in Europe. Once they have established new ways of doing transport business in Europe, there is scope for the less innovative, but highly effective start-up actions to make use of the new opportunities created by catalyst actions. Catalyst actions may thus be the forerunner for start-up actions, and will constantly enlarge the scope for the latter. This will create a strong dynamic and increasing opportunities for start-up actions. Direct improvements to road congestion and the environmental performance of freight transport will follow.

73. By contrast to start-up and catalyst actions, common learning actions would not have direct effects in terms of traffic shift. They are tailored to improving the "ingredients", the know-how, the co-operation and the intelligence input in logistics services, while start-up and catalyst actions should clearly result in traffic shifts brought about by viable transport services. The impact of common learning actions will not be immediately visible, but long-term and structural. For common learning actions will improve the knowledge of market participants on improving the performance of transport chains to the benefit of users and society at large.

74. However, despite these differences, there are clear links between catalyst and common learning actions. Market participants may first engage in a common learning action in order to be able to tackle structural barriers in the market through a catalyst action. Thus, if large producers have taken the decision to use rail transport more for their European distribution, they will need to engage in a common learning action with their logistics service and transport providers to tailor the ordering, delivery, stock and warehousing systems and habits to the new transport system. Only then will they be able to engage together through a catalyst action to achieve better and more reliable international transport options. Properly disseminated, this catalyst action will then result in wider knowledge spread to other market participants, who will make use of the ideas.

75. One may view the relationship between the actions as a sequence in time: The "common learning" action creates the knowledge and procedures to introduce structural change in the market. The "catalyst action" makes use of this knowledge and effectively introduces this change by removing structural barriers standing in the way to efficient transport systems. The "modal shift" action finally reaps the benefits of the catalyst action, by making full use of the newly created market conditions. It optimises modal shift.

76. The effect of the different actions can be summarised as follows: [9]

[9] "3" is given for high effect/impact, "2" for medium effect/impact, "1" for low and "0" for no effect/impact.

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77. This mix of actions will enable the Marco Polo programme to deliver both measurable short-term successes in terms of relieving road congestion and long-term structural improvements in the way how alternative transport services are performed in Europe. In terms of programme output, its impact on structural change and its long-term Community wide effects should be most notable.

Chapter 4: Subsidiarity and Proportionality

* What are the objectives of the planned measure in relation to the Community's obligations-

Under Art. 71(1)(c) of the Treaty, the Community's transport policy includes measures to improve transport safety and the adoption of any other appropriate provision. Further, under Art. 2 and 3(1)(l) of the Treaty, the Community has the obligation to promote the improvement of the quality of the environment through an environmental policy.

The objective of the planned measure is to combat road freight congestion and improve the environmental performance of the freight transport system, by making more efficient use of short sea shipping, rail and inland waterway. The planned measure should help shifting the aggregate expected increase of the growth of international road freight transport to short sea shipping, rail and inland waterway. This will contribute to increased transport safety and to a better environmental performance of the whole transport system.

* Does the measure fall within the Community's exclusive competence or is competence shared with the Member States-

According to Art. 71(1) of the Treaty, the competence is shared with the Member States. Art. 80(2) is the legal basis needed to include the maritime sector in the programme.

* What is the Community dimension of the problem-

Congestion caused by road freight is a problem facing, to varying degrees, all Member States. A large percentage of road freight transport, about 20%, is international. This segment presents the highest growth rates. Member States, on their own, cannot resolve, in an optimal way, the problems related to the constant increase in international road freight. Therefore, there is a clear Community dimension of the problem.

The planned measure also foresees financial assistance for projects aiming at reducing market barriers. It thus contributes to achieving the internal market for the transport sector.

A practical instrument needs to be developed on Community level to ensure that short sea, rail and inland waterway are not suffering in their competitiveness from the fact that road freight transport does not pay the full costs that it generates for society.

* Can the objectives not be adequately achieved by the Member States-

On a purely national or regional level, the objective of reducing road congestion can be adequately tackled by Member States. However, reducing the level of congestion caused by international road freight cannot be achieved by the Member States in a satisfactory way. Here, there is a need for a Community initiative.

If the promotion of international non-road freight services is left to Member States alone, the danger of unacceptable distortions of competition resulting from un-coordinated and possible double funding is especially great.

* What is the most effective solution, that achieved by Community means or that achieved by national means- What specific added value is contributed by the planned Community measure and what would be the cost of taking no action-

As stated above, Community means are more effective for reducing international road freight than Member States' measures alone. The specific added value of the planned measure is that it will provide a means and a framework, for transport and logistics industry, to tackle structural problems, which impede the functioning of the internal market for transport. No other actual or planned measure provides such a framework. There is no other Community programme which offers support for improving the performance of the logistics market, leading to a better environmental performance of transport.

If no action is taken, road freight transport will continue to increase, leading to more congestion, accidents and environmental damage. The cost of the yearly increase of additional external costs of road transport is estimated at EUR 3 billion EUR.

* Are the means of Community action proportionate to the objectives-

The objective of the planned measure is to contribute directly and immediately, in the market for freight transport and logistics services, to easing road congestion and to improving the environmental performance of freight transport.

- What is the most suitable act for achieving the objectives- (Recommendation, financial support, mutual recognition, legislation, etc.).

Financial support, based on a Parliament and Council Regulation, is the most suitable act for achieving these objectives. As stated above, the regulatory framework for the EU transport market is today largely in place. There is now a need for practical and financial support to industry to overcome the structural barriers in the market. Furthermore, tailored financial support can ensure that short sea, rail and inland waterway are not suffering in their competitiveness from the fact that road freight transport does not pay the full costs that it generates for society.

- In the case of legislation, is the scope, duration or intensity greater than what is necessary-

The scope of the intended instrument is enlarged compared to the current PACT programme. The enlarged substantial scope is necessary to achieve the ambitious modal shift goals. The duration of the planned measure has been fixed for 2010, with a mid-term review provided for in 2006. This is in line with the policy horizon set out in the White Paper "European transport policy for 2010: time to decide."

As a rule, Community financial support has to be based on Parliament and Council Regulation. The planned measure foresees the formulation of essential rules concerning financial assistance, without going into excessive details. Detailed implementing rules of the Commission will be issued according to Art. 10 of the Regulation.

Chapter 5: External Consultation

The transport and logistics industry has been consulted on the planned measure. On 22 June 2001, the Directorate for Inland Transport of the Directorate General for Energy and Transport issued a consultation paper on the planned Marco Polo Programme. This consultation paper was sent, with a request for comments, to 23 European transport industry associations. [10] The consultation document was also published on the Combined Transport Website of the Directorate General for Energy and Transport, with an invitation to submit comments.

[10] These are: CCFE-CER-GEB, EC Association of Ship Brokers & Agents (ECASBA); EC Shipowners' Association (ECSA); European Car-Transport Group of Interest (ECG);European Chemical Industry Council (CEFIC); European Federation of Inland Ports (EFIP); European Intermodal Association (EIA); European Sea Ports Organisation (ESPO); European Shippers Council (ESC); Federation of European Private Port Operators (FEPORT); FreightForward Europe; Groupement Européen de Transport Combiné (GETC); Inland Navigation Europe (INE); International Road Union (IRU); Liaison Committee of European Freight Forwarders (CLECAT); Maritime Industries Forum (MIF); Organisation européenne de bateliers (O.E.B./E.S.O); Union internationale de la navigation fluviale (U.I.N.F./I.B.U); Union Internationale des Chemins de Fer - UIC/Combined Transport Group; Union Internationale des sociétés de transport combiné Rail-Route (UIRR); Union of Industrial and Employer's Confederations of Europe (UNICE).

* 16 comments were received from the industry associations addressed in the letter of 22 June 2001.

* 3 comments were received from other industry associations (BSL, Netzwerk Privatbahnen, ZDS).

* 3 comments were received from single entities (EWS; Hansestadt Hamburg; Trenitalia).

* 1 comment was received from think tanks or consultancies (SGKV).

* 5 comments were received from national transport administrations.

* Comments were also received from the short sea shipping promotion centres.

On 25 July 2001, the Commission held a formal consultation meeting with industry on the programme. Representatives of 17 industry associations participated in the meeting. Commission staff also held several bilateral meetings with various industry associations between June and September 2001.

In summary, industry associations took a favourable view on the orientations of the programme. However, the IRU was not in favour of fostering unimodal transport actions. UNICE voiced some reservations concerning the modal shift approach in general, and proposed to also include actions to improve the efficiency of the road sector into the programme.

Chapter 6: Explanation of the Single Articles

Article 1

This article spells out the general objective of the instrument: contribute to maintaining, by 2010, the modal repartition in freight transport at its 1998 levels. This is the overriding quantifiable transport policy goal, which the Commission has identified in its White Paper of 12 September 2001:"European transport policy for 2010: time to decide".

The specific objective of the programme is achieving a measurable result by 2010: having shifted the expected aggregate increase of international road freight traffic to short sea shipping, rail and inland waterway.

This goal, while ambitious, seems attainable. The Commission estimates that the yearly increase of international road freight traffic until 2010 will be about 12 billion tonne-kilometres. The PACT programme has shown that relatively modest amounts of financial assistance, if spent on promising projects, can shift important volumes of cargo from road. Thus, in the PACT 2001 selection procedure, the average value for money of the selected projects was a forecast shift of 700 tkm per 1 EUR support given. Some projects, especially in the short sea shipping sector, are forecast to shift about 1400 tkm per 1 EUR support given.

As further explained in the financial statement, the Commission is confident that a yearly budget of 23 million EUR should be able to help shifting an aggregate of 12 billion tkm of freight per year during the life time of the programme. But even if this goal is not attained, a quantified objective for the instrument will substantially increase the possibilities for monitoring performance of the programme, and is thus in any case, positive.

Accurate data and knowledge on the macro-economically and socially ideal balance between the modes is today not available. Given the grave congestion and environmental problems in the road sector, the Commission is of the opinion that, in any case, decongesting road transport by shifting the aggregate increase of international road freight to other modes, will deliver socio-economic benefits. As already indicated in its Transport White Paper of 12 September 2001, the Commission has undertaken to conduct further research into socio-economic assessment and measurements of the transport sector.

Article 2

This article contains definitions of important terms used in the Regulation. The purpose and scope of these definitions will be explained in the discussion of the various articles.

Article 3

This article deals with the geographic and substantial scope of the Regulation. An action must involve the territory of at least two States. In line with the subsidiarity principle, this ensures that only actions of an international character are eligible for support. The geographic scope covers the European Union. If an action is implemented partically outside the European Union, the territory of at least one Member State must be involved. Actions may also involve the territories of States outside the EU, having a common border with the Union. However, costs arising in such States should not be re-imbursed under the Marco Polo programme, in order not to dilute the scarce resources of the programme.

The reference to "actions" within the meaning of Art. 2(a) delimits also the substantial scope of the Regulation.

Article 3 also spells out the mechanisms and conditions, under which the Marco Polo programme will fund actions involving third countries not belonging to the European Union.

Article 4

This article delimits the group of applicants. A project must be submitted by a consortium consisting of at least two undertakings established in different Member States. This requirement furthers the international nature of the project, and is conducive to enforcing the co-operative spirit needed in the sector.

The proposal allows any undertaking established in the Community to submit a project to the Commission. The notion of "undertaking" is a very broad one, in accordance with applicable jurisprudence of the European Court of Justice. Art. 2(g) defines it as any entity pursuing an economic activity. This broad definition ensures that projects can be proposed from a wide range of private or public bodies from all sectors of the economy wishing to contribute to the goals of the programme.

Undertakings established outside the Community may be associated with a project. In order not to dilute the scarce resources of the programme, they would, however, not be able to receive funding. This rule is identical in substance to Art. 4(1), third subparagraph, of Regulation 2196/98. The application of this rule within the PACT programme has been satisfactory. It has allowed commercial co-operation between various companies, and has at the same time focussed the budget on the territorial scope of the programme.

Article 5

Article 5 spells out the conditions, under which modal shift actions within the meaning of Art. 2(b) can be selected.

The general term "action" is defined in Art. 2(a): this delimitates the scope of the instrument. "Actions" within the Marco Polo programme have to be (1) related to the freight logistics market, (2) executed by undertakings, and (3) contribute to reducing congestion in the road freight transport market and/or to a better environmental performance of the freight transport system.

Throughout the Regulation, and especially in defining the actions receiving funding, the legislator will have to strike a careful balance between operationally sound and clear regulatory language and the crucial need to leave as much room as possible for two key components of the success of the Marco Programme: (1) industry's imagination and willingness to present good and timely projects to further the goals of the programme; (2) keeping the programme open, flexible and rapidly adaptable to a fast-changing freight transport and logistics market.

The conditions are based on the positive administrative experience in the PACT programme with such conditions. On the one hand, Marco Polo as a market-driven programme should not have too detailed funding conditions, in order not to stifle or neglect good ideas coming from the market. On the other hand, with the basic funding conditions mentioned, unacceptable distortions of competition can be largely avoided. This has been ascertained by the external evaluation of the PACT. The policy goal of reducing road congestion and improving the environmental performance of the whole transport system through modal shift is feasible, as shown in the many positive examples from the PACT programme.

Around 73% of the PACT projects were successful, and, with the separation of innovative projects from pure "hard and fast" modal shift projects in the current instrument, it can be assumed that the success rate will grow.

Modal shift actions will receive a subsidy according to the external cost savings they present. This will assure, to the largest extent possible, a mode-neutral and objective rationale for the intensity of the financial assistance. The Commission will re-examine the ratio between tonne-kilometres shifted and 1 EUR support granted, as mentioned by the "award" in Art. 5(3), from time to time. It is thus not for the applicants to provide external cost calculations. They should, however, provide detailed estimates on traffic shift.

Annex II to this Explanatory Memorandum sets out the calculation of the Commission. As the figures show, a subsidy of 1 EUR for shifting 500 tkm should compensate for the unpaid external costs of road. It will produce benefits for society. Finally, this figure should also make it possible to achieve the overall objectives of shifting 12 billlion tkm per year with a budget of 23 million EUR.

PACT experience suggests that opening up a new line in the short sea shipping, rail or inland waterway sector generates average start-up costs of around 3 to 5 million EUR in the initial two to three year period of the project. In the consultation process for the Marco Polo programme, most industry associations indicated that new services should be viable within a maximum of three years in order to keep the financial risk controllable.

The 30% intervention intensity, taken over from the PACT programme, was also largely welcomed as giving enough financial leverage to secure mid-term viability. At the same time, this aid intensity has proven not to unduly distort the competitive situation in the market. The external evaluation of the PACT programme concluded that undue distortions of competition resulting from the interventions were not noted. Therefore, the Commission proposes in Article 6(5) a minimum subsidy threshold of 1 million EUR per modal shift action (30% of 3 million EUR). The duration of the subsidy agreement must not be longer than 38 months.

Article 6

The core purpose of catalyst actions is to overcome, through freight market actions, structural barriers, as defined in Art. 2(c). The proposal of catalyst actions is also a direct lesson from the PACT programme. If concrete structural deficiencies in the many markets, which are concerned with creating transport chains, are not considerably improved by market opening alone, it is for industry, backed up by the Community, to propose practical solutions to make the internal market for transport a reality. The Community may identify, in line with its political priorities, some areas for catalyst actions. The setting up of maritime highways is of prime importance in this context. However, it is for industry itself to decide how this action is structured. In this optic, Commission steering becomes an essential part of catalyst actions.

"Structual market barriers", as defined in Art. 2(c), will have to relate to factual barriers in the market, and only to such barriers, where regulatory action is inappropriate. For example, as far as customs procedures for short sea shipping have to be simplified, this has to be done by regulatory means, and there is no place for a catalyst action. However, the smooth co-operation between customs, agents, freight forwarders, terminal operators and shipowners in a port, brought about by better electronic data interchange, could well be the subject of a catalyst action.

In order not to stifle ideas and approaches to solve problems, the funding conditions are, again, phrased in general terms.

Catalyst actions will also be the main junction with ongoing and future projects related to the Trans-European networks (TEN). This is clearly spelt out in Art. 6(1)(g). Bottleneck identification exercises have shown the weak links in the networks, and thus give important pointers to structural barriers for logistics services. Further, without functioning and modern infrastructures, the best idea to improve transport services can be severely hampered in its execution. Therefore, catalyst actions should as a rule dovetail with Trans-European network projects. A mutually influencing dynamic could result from a better co-ordination of the respective instruments. Thus, if the responsible administration or undertaking for an infrastructure project is aware that a large scale logistics project is eager to use the new infrastructure, and there are possibly other commercial or political links between the projects, this may improve the finalisation speed of the infrastructure work.

Art. 6(3) mentions the notion of "ancillary", as defined in Art. 2(h). A sound interpretation of this notion will prevent any unwanted overlap with other Community programmes, such as the TEN financing instrument or R&D programmes. An "ancillary" measure within the meaning of the Marco Polo programme features two necessary and sufficient conditions. First, it must be necessary for the good success of an "action" within the meaning of Art. 2(a). Second, it must be subordinate to the implementation of this very action. The term "subordinate" implies a limited time frame for the execution of the ancillary measure. It should be executed in a relatively short term. As a rule of thumb, its execution should not take more than one third of the contractual period. It also includes a budgetary element, and should thus not be the main cost item of an action.

For example, a catalyst action envisages high-quality inland waterway services from Rotterdam to Budapest. The action will take 36 months. The envisaged overall budget is 10 million EUR. Optimising loading and unloading of the vessels will reduce time and costs of the service. For smooth transshipment operations, the quay walls in Budapest harbour need to be strengthened and partially rebuilt. The applicants request 3 million EUR subsidy, in line with Art. 6(3). Quay works in Budapest harbour would cost 1 million EUR, and take about four months work. 300.000 EUR subsidy are requested for the infrastructure item. In line with the above explanations, this infrastructure measure is ancillary to setting up the new service and therefore a measure eligible for funding under the Marco Polo programme.

Catalyst actions are a new feature in the promotion of alternatives to road freight. However, PACT has, on some occasions, also stimulated the setting up of innovative services, which achieved an organisational break-through. [11] Based on the experience in these cases, total project cost for such type of projects can range from 10 to 15 million EUR. If specific equipment and infrastructure is to be constructed, this figure can rise to more than 20 million EUR.

[11] See projects N° 8 and 82 in the Commission Staff Working Paper "Results of the PACT Programme 1997 - 2001., SEC(2002), 91 final

These projects will be challenging in terms of execution and they will be more risky than modal shift actions. As their impact will be structural, such actions must be carefully planned in order to induce the right structural changes and not generated unwanted ones, for instance distortions of competition. Catalyst actions will, like modal shift actions, happen in the market place. Similar considerations for funding intensity as in the case of modal shift actions apply. However, taking into account the increased risk of catalyst actions, funding intensity could reach 35% of eligible costs. The minimum subsidy threshold proposed in Article 6(6) is therefore 3 million EUR per catalyst action. The duration of the subsidy agreement should not be longer than 50 months.

Article 7

Article 7 describes the third direction of the proposed instrument. According to the definition in Art. 2(d), common learning actions will have to introduce and fine-tune state of the art industrial logistics processes into the transport chains relying on short sea, rail and inland waterway transport. Such a procedural, methodical and "internal" impetus into the co-operative aspects of creating and maintaining complex transport chains is essential, if the transport user is to be convinced to switch from the highly organised road-mode transport to other transport alternatives.

The core idea of common learning actions is a widespread introduction of the same industrial logic and standards into the transport sector as the one prevailing in the production sector, which has to rely on optimal distribution systems.

In line with the fundamental direction of the proposed instrument, also common learning actions will have to come forward with concrete goals.

PACT did not provide for common learning-type support. However, two PACT projects can be seen as a forerunner to this type of intervention. [12] The funding requested was moderate, and therefore budgeting around 500.000 EUR per action should be chosen, in accordance with Article 7(5), as the minimum subsidy threshold for these actions. Given that these actions do not have immediate market impact, a subsidy intensity of 50% seems warranted. This subsidy intensity was given to feasibility studies under PACT. The duration of the subsidy agreement should not be more than 26 months.

[12] See projects N° 64 and 65 in the above-named Working Paper.

Article 8

The provisions in this article have a two-fold purpose: First, inform the applicants in proper detail about the procedures and requirements for receiving funding and executing projects. Insofar, it guarantees the transparency of the programme. Second, the issuing of implementing rules will also give the Commission a flexible tool to monitor the competitive impact of the funded projects. This gives assurance that the risk of unacceptable distortions of competitions is minimised.

Articles 9 and 10

These articles explain the submission and selection of projects.

Article 10 ensures that the selection criteria of the Commission are in line with the objectives and conditions laid down in the proposed instrument.

Article 11

Based on the Comitology Decision of the Council of 28 June 1999, the Commission considers that an advisory committee according to Art. 3 of the said decision is most appropriate in the context of funding commercial services in the market. The White Paper "European Governance" of 25 July 2001, COM (2001) 428 states the principle that the execution of Community policies is the responsibility of the Commission. Given that the funding amounts proposed here are relatively limited in comparison to the overall Community budget (ca. 0.04%), the reason for installing management committees according to Art. 4 of the said comitology decision do not apply. As the sixth "whereas" of the Comitology decision states, such management committees are appropriate for programmes with notable budgetary incidents.

The evaluation of proposals will be conducted under the sole responsibility of the Commission.

Articles 12 and 13

These articles relate to financial provisions for the planned measure. Article 12 indicates the financial reference amount. As explained elsewhere, an average budget of 23 million EUR per year is requested for the programme. The financial reference amount is 115 million EUR until 31 December 2007.

Article 13 reserves up to 5% of the budget for accompanying measures, as defined in Art. 2(1), and independent programme evaluation, which the Commission needs in order to fulfil its obligations under Art. 14.

As further detailed in the attached financial statement, the largest part of this set-aside shall be used for accompanying measures, in particular dissemination and monitoring activities of the projects.

It is estimated that the mid-term review of the programme, foreseen for 2006, can be fully executed for an amount of around 1 million EUR, ie. less than 1% of the financial reference amount.

Article 14

This article relates to programme evaluation and to the Commission's information obligations vis-à-vis the other institutions. It features standard language.

Articles 15

This article regulates the entry into force of the Regulation. Departing from the general rule of entry into force 20 days after publication of the Regulation, the article provides that the Regulation will enter into force on the day after publication. The Commission would like to grant financial assistance under the Regulation as quickly as possible. In order to minimise the waiting times for execution of the budget of the year 2003, it seems reasonable to reduce the time limit for entry into force to a minimum.

Annex I: Executive Summary of the Independent Evaluation of PACT Programme

"This report describes AEA Technology's evaluation, on behalf of DG TREN, of the implementation of Council Regulation 2196/98. This provides a mid-term evaluation of the PACT (Pilot Actions on Combined Transport) programme, covering projects initiated between 1997 and 1999.

Our key conclusions from the evaluation of the current PACT programme are as follows.

* The PACT programme is managed very efficiently and the programme team is highly regarded for its professionalism and enthusiasm.

* Most operational measures supported by the PACT programme are cost-effective in terms of avoided carbon dioxide emissions, even without replication.

* Commercial viability is difficult to achieve, even with the start-up support provided by PACT, due to challenging market conditions for combined transport in Europe.

* Member State representatives have questioned the effectiveness of the PACT programme in addressing key market barriers, but appropriate action is being undertaken elsewhere in the Commission.

* There is good awareness of the PACT programme within the existing combined transport community but project results are not adequately evaluated and disseminated in support of Programme objectives such as replication and policy assessment.

* The dissemination aspects of PACT need to be strengthened. This requires a clear strategy defining the roles of the project teams, programme management, Member States and possibly a specialist team for dissemination based in or outside of the Commission.

Our recommendations for improving the efficiency and effectiveness of the PACT programme are as follows.

1. Retain an open, flexible approach to the selection procedure but provide some additional time for proposal preparation and ensure consistent presentation of key data.

2. Introduce more structured project monitoring procedures but take care to avoid unnecessary bureaucracy. For example, a system for reviewing contractor performance at the end of each contract is recommended.

3. Allow multi-year project approvals as well as single year contracts, with continued support dependent on meeting specific milestone targets.

4. Discontinue funding of feasibility studies as precursors to operational projects but allocate some funding to generic studies aimed at market enablement.

5. Improve dissemination by developing a targeted programme-level strategy, issuing new guidelines on reporting to project managers and earmarking resources for independent project analysis and dissemination within the PACT programme budget.

6. Improve monitoring of impacts, including project follow-up for a 3-year period. This would form part of the analysis and dissemination, aimed at providing the evidence to stimulate replication in the market.

7. Adopt better reporting protocols for future PACT projects to improve the quality of analysis of environmental performance."

Annex II: Commission calculation of the external cost savings award according to Article 5(3) of the draft Regulation

In order to be transparent, objective and clearly limited, the start-up aid granted under Art. 5 of the Regulation should be based on the cost savings to society resulting from the use of short sea shipping, rail and inland waterway instead road. As further explained below, short sea shipping, rail and inland waterway impose lower external costs to society than a comparable transport by road. The social cost of intermodal freight transport in comparison to road are typically 60-80% lower for accidents and 40-65% lower in terms of CO2 emissions. Overall, intermodal transport shows savings in terms of social costs between 33-72% compared to all road transport. [13]

[13] RECORDIT - External cost calculations for selected corridors. Deliverable 4. Project funded under the 5th Framework Research Project.

As the road freight sector does not yet fully pay the costs it imposes on society, start-up aid formulated as an external cost savings award is warranted.

In comparing and calculating the external costs of the different modes, the Commission included the following cost components:

- congestion;

- use of infrastructure;

- accidents;

- noise;

- pollutants (health, buildings, plants);

- climate costs (C0 ).

It excluded the following costs, because the costs are either not relevant in relation to shifting individual freight loads or because the data for assessing their costs are not currently sufficient to provide scientifically valid results:

- soil and water pollution;

- land use;

Using best available evidence, the Commission makes the following average estimates on the external costs of the different modes:

Marginal average external costs of transport by mode, EUR/ 1000 tkm [14]

[14] Tkm = tonne-kilometre; performing one kilometre of transport with one tonne (1000 kg).

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1 HGV on motorway 2 TRL draft final report

Each time 85 tkm of freight are shifted from road to rail, there are external cost savings of 1 EUR. For inland waterway, the shift of 52 tkm generates savings of 1 EUR, and the corresponding figure is 50 tkm for short sea shipping.

The Commission has taken into account that certain costs generated by rail, inland waterway and short sea shipping vary widely with local circumstances and cannot be reasonably included in average calculations for the whole of Europe. The range of costs provided offer an estimate of the minimum difference between the modes. The subsidy is therefore based on a conservative estimate of the difference in the external costs of transport.

The actual award should consider all the above elements. It should also make allowance for possibly varying rates of cost recovery. Further, the Commission must also take into consideration that modal shift actions according to Art. 6 of the Regulation will have to shoulder the largest part of the required yearly 12 billion tkm shift from road to other modes. This is particularly true in the first years of the programme, when the catalyst and common learning actions have not yet developed their full impact in terms of modal shift. The subsidy should thus be geared towards projects with a very high modal shift potential.

A subsidy of 1 EUR per 500 tkm transfer generated through modal shift actions will help to achieve the traffic shift goals of the Marco Polo programme with the limited budget available. At the same time, it will create a benefit for society in terms of saved external costs. The savings from reductions in external costs should be larger than the conservative subsidy actually given. [15] In calculating the subsidy according to Art. 5 of the Regulation, the Commission will therefore apply the formula

[15] In order to assess the net benefit to the society of the modal shift, the external costs should be compared with charges levied to internalise them. This information, however, is currently not available for all the modes. The UNITE and RECORDIT projects, funded under the 5th Framework Research Programme, will produce the required information for recalculating the environmental premium in 2002.

"EUR1 subsidy for each shift of 500 tkm from road, to be adjusted according to the actual external cost savings resulting from the use of rail, short sea shipping, or inland waterway modes".

The Commission intends to re-calculate the cost difference from time to time, in order to re-assess the external cost savings award. For the amounts may change as transport charging regimes begin to incorporate the external costs of transport. For instance, it is true that road has seen progress towards covering its external costs mentioned above. In particular the infrastructure damage costs are in some cases covered through axle-number/weight related charges and climate change costs through fuel taxes. However, this progress has been relatively slow. In congested areas, heavy goods vehicles cover between 44-64% of costs while the figure for off-peak cost recovery can be up to 90%. The latest ECMT evidence suggests that charging structures must change significantly. In some regions, average charges per tkm could almost double before efficient prices are reached which internalise external costs.

Conversely, the external costs generated by short sea, rail and inland waterway may also be subject to change, once these transport sectors will carry larger volumes of goods. In line with the relatively slow progress towards cost-recovery, and depending on the results achieved in terms of traffic shift, the Commission considers that the external cost savings award should be re-calculated every two years.

Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the granting of Community financial assistance to improve the environmental performance of the freight transport system

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Articles 71(1) and 80 (2) thereof,

Having regard to the proposal from the Commission [16],

[16] OJ C [...], [...], p. [...].

Having regard to the opinion of the Economic and Social Committee [17],

[17] OJ C [...], [...], p. [...].

Having regard to the opinion of the Committee of the Regions [18],

[18] OJ C [...], [...], p. [...].

Acting in accordance with the procedure laid down in Article 251 of the Treaty [19],

[19] OJ C [...], [...], p. [...].

Whereas:

(1) The European Council held at Gothenburg on 15 and 16 June 2001 has declared that shifting the balance between the modes is at the heart of the sustainable development strategy.

(2) If no decisive action is taken, total road freight transport in Europe is set to grow by about 50% by 2010. The effect would be a growth of international road freight of about 12 billion tonne-kilometres per year.

(3) In its White Paper - European Transport Policy for 2010: time to decide [20], the Commission proposed to take measures which should make the market shares of the modes of transport return, by 2010, to their 1998 levels. This will prepare the ground for a shift of balance from 2010 onwards.

[20] COM/2001/370final.

(4) It is necessary to establish a programme, hereinafter referred to as the"Marco Polo programme", to improve the environmental performance of the freight transport system within the Community. The programme should contribute to shifting the expected aggregate increase of international road freight traffic to short sea shipping, rail and inland waterways.

(5) The Marco Polo programme features three types of action: (1) modal shift actions, which should focus on shifting as much cargo as possible under current market conditions from road to short sea shipping, rail and inland waterways; (2) catalyst actions, which should change the way non-road freight transport is conducted in the Community; and (3) common learning actions, which should enhance knowledge in the freight logistics sector and foster advanced methods and procedures of co-operation in the freight market.

(6) Actions must involve the territory of at least two countries. If these two countries are Member States or other countries participating in the programme according to the conditions laid down in the Regulation, the programme will re-imburse the costs accrued to the participating undertakings within the limits laid down in the Regulation.

(7) Applicants should be able to submit projects which best match current market needs. Suitable projects should therefore not be discouraged by any over-rigid definition of allowable actions.

(8) The results of the catalyst and common learning actions of the programme should be adequately disseminated, in order to ascertain replication, publicity and transparency.

(9) During the project selection procedure and during the life time of the project, it is necessary to ensure that the project chosen makes a real contribution to the common transport policy and does not cause unacceptable distortions of competition. The Commission shall therefore evaluate the implementation of this Regulation. It shall present, not later than 31 December 2006, an assessment report on the results of the Marco Polo programme, accompanied if necessary by a proposal for the amendment of this Regulation

(10) Since the objective of the proposed programme, cannot be sufficiently achieved by the Member States and can therefore, by reason of the scope of the programme, be better achieved at Community level, the Community may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve that objective.

(11) In accordance with Article 2 of Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission [21], measures for the implementation of this Regulation should be adopted by use of the advisory procedure provided for in Article 3 of that Decision.

[21] OJ L 184, 17.7.1999, p. 23.

(12) A financial reference amount, within the meaning of point 33 of the Interinstitutional Agreement of 6 May 1999 between the European Parliament, the Council and the Commission on budgetary discipline and improvement of the budgetary procedure is inserted in this Regulation for the entire duration of the programme, without the powers of the budgetary authority as defined by the Treaty being affected thereby.

(13) In order to administer funding under this Regulation in the most expedient and speedy way, this Regulation should enter into force as fast as possible after its adoption.

HAVE ADOPTED THIS REGULATION:

Chapter I Subject-matter, definitions and scope

Article 1 Subject-matter

1. This Regulation establishes a single financing instrument for actions reducing road congestion and improving the environmental performance of the transport system, hereinafter referred to as the "Marco Polo programme", for the period from 1 January 2003 to 31 December 2010.

2. The Marco Polo programme shall contribute to maintaining the modal repartition in freight transport at its 1998 levels. To achieve this objective, it shall support actions in the freight transport, logistics and other relevant markets. These actions should contribute to reducing environmental impacts from freight transport. By the end of the programme, a traffic shift of the expected yearly aggregate increase of international road freight traffic, measured in tonne-kilometres, to short sea shipping, rail and inland waterways should be achieved. The implementation of the programme shall aim at maximising the environmental benefits achieved, given the resources available

Article 2 Definitions

For the purposes of this Regulation:

(a) "action" means any project related to the logistics market, executed by undertakings, which contributes to reducing congestion in the road freight transport system and/or to a better environmental performance of the transport system;

(b) "modal shift action" means any action directly and immediately shifting freight from road to short sea shipping, rail or inland waterways, without being catalyst actions;

(c) "catalyst action" means any innovative action aimed at overcoming Community-relevant structural barriers in the market for freight transport, which impede the efficient functioning of the markets, the competitiveness of short sea shipping, rail, or inland waterways, and/or the efficiency of transport chains making use of these modes; for the purpose of this definition, "structural market barrier" means any non-regulatory, factual and not only temporary impediment to the proper functioning of the freight transport chain;

(d) "common learning action" means any action aimed at improving co-operation for optimising working methods and procedures in the freight transport chain, taking into account the requirements of logistics;

(e) "accompanying measure" means any measure which seeks to prepare for or to support current or future actions, inter alia dissemination activities and project monitoring and evaluation, and the collection and analysis of statistical data. Measures devoted to the commercialisation of products, processes or services, marketing activities and sales promotion are not "accompanying measures";

(f) "consortium" means any formal or informal arrangement by which at least two undertakings execute together and share the risk concerning, an action;

(g) "undertaking" means any entity engaged in an economic activity, regardless of the legal status of the entity and the way in which it is financed;

(h) "ancillary" means necessary, but sub-ordinate, to achieve the goals of "modal shift actions" or "catalyst actions".

Article 3 Scope

1. This Regulation is applicable to modal shift actions, catalyst actions and common learning actions:

(a) involving the territory of at least two Member States;

(b) involving the territory of at least one Member State and the territory of a third country.

2. Where an action involves the territory of a third country, costs arising in the territory of such a country shall not be covered by the programme, except in the circumstances mentioned in paragraphs 3 and 4 of this article.

3. The present programme is open to participation of Eastern and Central European countries, which are candidates to the adhesion. The participation will be governed by the conditions laid down in the Association Agreements with these countries, and on the basis of the rules foreseen in the decision of the Association Council for each country concerned.

4. The present programme is also open to participation of the countries being members of the EFTA and the EEA, and to Cyprus, Malta and Turkey on the basis of supplementary credits and in conformity with the procedures to be agreed with these countries.

Chapter II Eligible Applicants and Actions

Article 4

Eligible applicants

1. Projects shall be submitted by a consortium of two or more undertakings, established in at least two different Member States or participant countries according to Article 3(3) and 3(4) of the Regulation.

2 Undertakings established outside the Community and outside a participant country according to Article 3(3) and 3(4) of the Regulation may be associated to the project. They may not be recipient of Community funding under this Regulation.

Article 5 Modal shift actions

1. Modal shift actions shall be eligible for funding under the present Regulation under the following conditions:

(a) The modal shift action is forecast to lead to an actual, substantial and sustainable modal shift of freight transport from road to short sea, rail or inland waterways;

(b) According to its realistic business plan, the modal shift action is viable on its own after a maximum of 36 months of Community funding;

(c) The modal shift action does not lead to unacceptable distortions of competition in the relevant markets;

(d) When the action requires reliance on services provided by third parties not part of the consortium, the applicant it submits proof of tendering or market inquiry for such services, evidenced by at least two competitive bids.

2. Community financial assistance for modal shift actions shall be limited to a maximum of 30% of all expenditure necessary to achieve the objectives of, and caused by, the action. Such expenditure shall be eligible for Community financial assistance, as far as it relates directly to the implementation of the action. Ancillary infrastructure expenditure shall also be re-imbursable to a maximum of 30%. Expenditure incurred as of the date of the submission of an application in the selection procedure is reimbursable. Contribution towards to costs of assets is contingent on the obligation to use such assets, for the duration of the assistance, for the action only, as defined by the subsidy agreement.

3. The Community financial assistance under paragraph 2 shall take the form of an external cost savings award. This award means Community financial assistance, calculated by the Commission on the basis of savings of external costs resulting from the use of short sea, inland waterways and rail transport instead of road freight transport. The award shall take the form of a lump sum payment based on the tonne-kilometres shifted from road and shall not surpass 30% of the eligible costs for an action.

The Commission may re-examine, from time to time as necessary, the developments concerning the external cost items, on which the award according to this Article is based.

4. The Community financial assistance for modal shift actions shall be granted on the basis of subvention contracts. As a rule, the maximum duration of these contracts shall not be longer than 38 months.

5. The minimum subsidy threshold per modal shift action shall be 1 million EUR.

Article 6 Catalyst actions

1. Catalyst actions shall be eligible for funding under the present Regulation under the following conditions:

(a) The catalyst action achieves its objectives within a period of a maximum of 48 months, and stays viable after that period, as ascertained by its realistic business plan;

(b) The catalyst action is innovative on a European level, in terms of logistics, technology, methods, equipment, products or services rendered. In this context, catalyst actions enforcing the concept of "motorways of the seas" deserve special attention;

(c) The catalyst action is forecast to lead to an actual and sustainable modal shift from road to short sea shipping, inland waterways, or rail;

(d) The catalyst action proposes a realistic plan with concrete milestones towards its objectives and identifies the need for Commission steering assistance;

(e) The catalyst action does not lead to unacceptable distortions of competition in the relevant markets;

(f) When the action requires reliance on services provided by third parties not part of the consortium, the applicant submits proof of tendering or market inquiry for such services, evidenced by at least two competitive bids;

(g) Catalyst actions in transport markets take place on the Trans-European networks, within the meaning of the Decision of Council and Parliament N°