1999/695/EC: Commission Decision of 15 September 1999 relating to a proceeding under Article 81 of the EC Treaty and Article 53 of the EEA Agreement (Case No IV/36.748 - REIMS II) (notified under document number C(1999) 2596) (Text with EEA relevance)
Date: 1999-09-15
Institutions: European Commission
Subjects: Universal Postal Union, agreement (EU), application of EU law, postal service, provision of services

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 15 September 1999

relating to a proceeding under Article 81 of the EC Treaty and Article 53 of the EEA Agreement

(Case No IV/36.748 — REIMS II)

(notified under document number C(1999) 2596)

(Text with EEA relevance)

(1999/695/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community,

Having regard to the Agreement on the European Economic
Area,

Having regard to Council Regulation No 17 of 6 February
1962, first Regulation implementing Articles 85 and 86 of the
Treaty (1), as last amended by Regulation (EC) No 1216/
1999 (2), and in particular Articles 6 and 8 thereof,

Having regard to the application for negative clearance and the
notification for exemption submitted pursuant to Articles 2
and 4 of Regulation No 17 on 31 October 1997 and the
supplementary notifications submitted on 12 January 1998, 2
February 1998 and 28 September 1998,

Having regard to the summary of the application and noti-
fication published pursuant to Article 19(3) of Regulation No
17 (3),

After consultation with the Advisory Committee for Restrictive
Practices and Dominant Positions,

17 with a view to obtaining a negative clearance or an
exemption under Article 81(3) of
the EC Treaty.
Following the accession of several other postal operators
to the Agreement, the information contained in that
notification was supplemented and amended by letters
dated 12 January 1998 and 2 February 1998 respec-
tively. Finally, a first supplementary agreement was noti-
fied to the Commission by a letter dated 28 September
In a letter of 30 July 1998 the parties have
1998.
clarified that their application is also based on the rele-
vant rules of the EEA Agreement (Article 53).

II. THE PARTIES

Whereas:

(2)

A. FACTS

I. INTRODUCTION

(1)

On 31 October 1997, an agreement on terminal dues
between postal operators (the REIMS II Agreement) was
notified to the Commission pursuant to Regulation No

(1) OJ 13, 21.2.1962, p.204/62.
(2) OJ L 148, 15.6.1999, p. 5.
(3) OJ C 371, 1.12.1998, p. 7.

At the date of its notification, 13 public postal operators
(PPOs) had signed the REIMS II Agreement. Three more
PPOs have since joined the Agreement. The parties now
comprise the PPOs of all the Member States of the
Community other than the Netherlands, and the PPOs of
Norway and Iceland: Austrian Post, La Poste/De Post
(Belgium), Post Danmark, Finland Post, La Poste (France),
Deutsche Post, Hellenic Post ELTA, Iceland Post, An Post
(Ireland), Poste Italiane, Entreprise des Postes & Télécom-
munications (Luxembourg), Norway Post, CTT Correios
de Portugal, Correos y Telégrafos (Spain), Sweden Post
and The Post Office (United Kingdom). The parties are
the incumbent postal operators in their respective states.

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(3)

the Member States of

the
So far, only two of
Community (Sweden and Finland) have fully liberalised
the postal sector. The PPOs in all the other countries
concerned dispose of a reserved area by virtue of
national law in which they have the exclusive right to
services. Directive 97/67/EC of 15
provide postal
December 1997 (4) of the European Parliament and of
the Council on common rules for the development of
the internal market of Community postal services and
the improvement of quality of
service (the Postal
Directive) provides in Article 7(1) and (2):

for

the universal

To the extent necessary to ensure the maintenance
‘1.
of universal service, the services which may be reserved
by each Member State
service
provider(s) shall be the clearance, sorting, transport and
delivery of items of domestic correspondence, whether
by accelerated delivery or not, the price of which is less
than five times the public tariff for an item of correspon-
dence in the first weight step of the fastest standard
category where such category exists, provided that they
weigh less than 350 g. In the case of the free postal
service for blind and partially sighted persons, excep-
tions to the weight and price restrictions may be
permitted.

To the extent necessary to ensure the maintenance
2.
of universal service, crossborder mail and direct mail
may continue to be reserved within the price and weight
limits laid down in paragraph 1.’

At least part of the postal services (in particular express
courier services) is thus open to competition in all the
countries concerned. Each of the parties is by far the
most important postal operator in its state. Some of the
parties have a very large turnover. In 1997, for example,
these operators, Deutsche Post AG,
the largest of
achieved
billion
of DEM 27,136
turnover
a
(EUR 13,874 billion).

III. THE MARKETS CONCERNED

(4)

the markets

for
The notified Agreement concerns
normal
(as opposed to express) cross-border mail
between the countries concerned, i.e. mail sent from one
of those countries to one of the other countries. More
specifically, the Agreement covers all letter-post items as
defined in Article 8 of the Universal Postal Convention
(see recital 7) with the exception of ‘M bags’ (5). This
definition comprises items which in general weigh up to
2 kg (6). According to a study recently commissioned by

(4) OJ L 15, 21.1.1998, p. 14.
(5) Bags containing bulk mail for one addressee.
(6) The definition also includes printed papers and items containing
books and pamphlets weighing up to 5 kg and literature for the
blind weighing up to 7 kg.

the Commission (7), the Community market for cross-
border mail comprises 5,5 billion letter items (1996)
with an estimated value of ECU 1 to 1,2 billion (65 % of
the total cross-border market). The importance of cross-
border mail varies from country to country. In smaller
Member States, cross-border mail generally represents a
higher share of the overall mail market than in larger
Member States. On average, cross-border mail has been
estimated to represent well under 10 % of the overall
mail market (8) in the Community.

The relevant market can be further divided into a market
for cross-border mail on which PPOs and private
companies collect mail from customers in the origin-
ating country for delivery in other countries, and a
sub-market for incoming cross-border mail on which
PPOs offer mail delivery services for cross-border mail to
PPOs and private mail companies.

For historical reasons (including the existence of national
monopolies), cross-border mail has traditionally been
the domain of the PPOs. However, private companies
have entered the market for cross-border mail via remail.
This term describes the activities of companies which
collect mail in country A and transport it to country B
where it is put in the regular mailstream. It is customary
to distinguish between three
remail
services (9): ‘ABC remail’ (where the final addressee of the
mail resides in country C), ‘ABB remail’ (where the the
final addressee of the mail resides in country B) and
‘ABA remail’
the mail
resides in country A). At least some of the PPOs are also
providing remail services.

(where the final addressee of

categories of

IV. BACKGROUND

1. Terminal dues

Nearly all the countries in the world are members of the
Universal Postal Union (UPU) which was founded in
1874. The UPU holds a congress every five years at
which the Universal Postal Convention (UPU Conven-
tion) which provides the framework for the operational
relations between the postal administrations is reviewed.
Under the UPU Convention the members of the UPU
agree to provide domestic delivery services for incoming
cross-border mail.

Prior to 1969 postal administrations did not directly
compensate each other for the delivery of international
mail since it was assumed that each mail item generated
a reciprocal response, resulting in a broad balance of
traffic. This assumption of an equilibrium became
however invalid as imbalances developed.

The UPU reacted to these developments by introducing,
in 1969, a system providing for remuneration for the
costs of handling and delivering cross-border mail in the
country of destination. The fees which have to be paid
for these services are commonly referred to as ‘terminal

(5)

(6)

(7)

(8)

(9)

(7) PriceWaterhouseCoopers, Liberalisation of

incoming and outgoing

intra-Community cross-border mail, December 1998.

(8) The PriceWaterhouseCoopers study referred to above (footnote 7)
gives a figure of 6,3 %. However,
take into
account the situation in all the Member States of the Community.
(9) See the judgment of the Court of First Instance of the European
Communities in Case T-110/95 IECC v Commission [1998] ECR II-
3605, at paragraph 2.

the study did not

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(10)

(11)

dues’. The method used consisted in fixing a rate per
kilogram which was the same for all postal operators
concerned. This system was not satisfactory since it did
not properly reflect the cost structures of the individual
operators. Furthermore the method was
inherently
flawed since it ignored the real cost of delivery, given
that it is normally cheaper to deliver one item of mail
weighing 1 kg than 50 letters weighing 20 g each.

The inadequacies of this system led the postal adminis-
trations of several European countries to work out a
different formula in the framework of the European
Conference of Postal and Telecommunications Adminis-
trations (CEPT), a subgrouping within the UPU. The
result of these discussions in 1987 was a method (the
CEPT system) under which the remuneration to be paid
consisted of two elements, a rate per item (ultimately
SDR 0,147 (10)) and a rate per kilogramme (ultimately
SDR 1,491). For a standard letter (11), this results in
terminal dues of EUR 0,205. Compared to the previous
remuneration level pursuant to the UPU system, the
CEPT system resulted in considerable increases for most
of the mail concerned. However, the CEPT system still
did not reflect the real costs of delivery in the country of
destination.

(IECC),

Express Carriers Conference

In 1993, following a complaint lodged by the Inter-
national
the
Commission issued a statement of objections in which it
expressed the view that the CEPT system was contrary to
Article 81(1) of the EC Treaty since it fixed a uniform
rate for the delivery of incoming international mail. The
Commission also considered that Article 81(3) was not
applicable since the terminal dues agreed on were not
cost-based. In this context the Commission expressed
the view that the method for calculating terminal dues
should be fully cost-based or at least involve a more
accurate approximation of costs, for example by calcu-
lating terminal dues as a percentage of domestic tariffs
in the country of destination. However, in view of subse-
quent developments (which will be described in the
following paragraphs) the Commission decided not to
proceed to a prohibition decision in that case. That
approach adopted by the Commission was endorsed by
Instance in its judgment of 16
the Court of First

(10) Special drawing right.

In 1997, SDR 1 was the equivalent of

(11) Weighing (on the basis of the figures used in the REIMS II Agree-

ECU 0,824.

ment) 14,63 g.

September 1998 in Case T-110/95 (IECC v Commis-
sion) (12).

2. The first REIMS Agreement (REIMS I)

(12) On 2 June 1995, 14 PPOs entered into an Agreement
for the Remuneration of Mandatory Deliveries of Cross-
Border Mails (the REIMS I Agreement) which was
resigned in an amended form by 16 PPOs on 13
December 1995. The parties included the PPOs from all
the Member States of the Community apart from Spain
and the PPOs from Norway and Iceland. An application
for a negative clearance/exemption was lodged with the
Commission in December 1995 (13).

(13) Under the REIMS I Agreement, terminal dues were for
the first time to be linked to domestic tariffs on a
Europe-wide basis (14). Terminal dues were
to be
increased to 80 % of the domestic tariffs in yearly steps,
using as their starting point the remuneration paid under
the CEPT system. The increase would have been 15 % in
both 1997 and 1998 and 20 % in 1999 and 2000 (15).
A final increase in 2001 would have brought terminal
dues up to the final level (i.e., 80 % of domestic tariffs).
These increases were strictly linked to specific improve-
ments in quality of service. A postal operator which did
not reach the targets set was not allowed to increase his
terminal dues.

(14)

The validity of the REIMS I Agreement had been made
dependent on the condition that
the Spanish PPO
acceded to it by 31 May 1997. Since this condition was
not fulfilled, the REIMS I Agreement expired on 30
September 1997.

V. THE REIMS II AGREEMENT

1. Membership

(15) Membership in the Agreement is open to public and
private operators of a mandatory, universal postal
service provided that they have or contract to have an
obligation to provide this service to the other parties.

2. Contents of the Agreement

a) Purpose

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

(12) An appeal against this judgment is pending before the Court of

Justice (C-449/98 P).

(13) Case No IV/35.849. A notice on this Agreement was published in

OJ C 42, 14.2.1996, p. 7.

(14) The five member countries of the Nordic Postal Union (Denmark,
Finland, Iceland, Norway and Sweden) have applied, since 1989, a
system under which their postal operators pay each other a remu-
neration for mail exchanged between these countries which is a
percentage (first 60 %, then 70 %) of the domestic postage in the
country of delivery. The level of payment is linked to the quality
of service provided with regard to both incoming and outbound
mail.
the
payment is reduced.

the quality-of-service standards are not achieved,

If

(15) For Greece, the increases were to be 7 %, 11 %, 15 % and 20 %

respectively.

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b) Terminal dues

aa) Principle

(17)

(18)

The REIMS II Agreement links terminal dues to domestic
mail tariffs in the country of destination and to the
quality of service provided by the postal operator that
delivers the mail. According to the Agreement, terminal
dues are to increase over a transitional period until they
reach (subject to penalties which will accrue if the requi-
site quality-of-service target is not met) a maximum of
80 % of domestic tariffs in 2001.

The parties acknowledge that at present they are not
able to prove that 80 % of domestic rates correspond to
the costs of delivering incoming cross-border mail. They
argue that this is due to the differences between the
costs incurred by the individual parties and the lack of a
cost accounting system enabling them to calculate
precisely the cost of a particular service. The parties
maintain, however, that the figure chosen is a suffi-
ciently reliable proxy for the costs actually incurred by
the operators. In this context data for several operators
was submitted in order to support the conclusion drawn
by the parties.

bb) Domestic tariffs serving as reference

(19) Domestic tariffs usually distinguish between different
weight steps (such as 20, 50 and 100 g for letters).
According to the Agreement, these different tariffs are
into
converted, on the basis of a standard structure,
linear tariffs for the purpose of calculating terminal dues.
In doing so, the Agreement distinguishes between three
categories:

Letters up to C5 size and a maximum weight of 100 g;

Flats up to C4 size and a maximum weight of 500 g;

Packets of all shapes up to limits of weight and size set
by the UPU.

(20) An example will suffice to illustrate this approach.
According to the standard structure used in the Agree-
ment, 1 t (or, more precisely, 999,9 kg) of letter mail
comprises 68 336 items of which 83,01 % are letters
weighing up to 20 g, 15,71 % letters weighing between
20 and 50 g and 1,28 % letters weighing between 50
and 100 g. An average letter thus weighs 14,63 g.
Similar figures and calculations are provided for flats
and packets. Linear tariffs are calculated on the basis of
this standard structure.

(21)

Changes in domestic tariffs will only be taken into
account for the purpose of calculating terminal dues if
they are notified by 1 September of the year preceding
the year concerned.

cc) Levels of terminal dues

(22)

The Agreement distinguishes between four different
levels of terminal dues:

— Level 1: priority mail items presented in mixed bags
flats and packets).

(which may contain letters,

Terminal dues for such items will ultimately be 80 %
of domestic tariffs excluding VAT (16),

— Level 2: the receiving PPO may offer rebates on the
Level 1 remuneration on the basis of work sharing/
preparation of mail (for example, by presorting mail
according to format or destination). The same
discounts must be offered to all sending PPOs when
equal conditions are met. The parties will have to
inform IPC (17) by 31 December 1998 about the
rates and conditions for such rebates,

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

— Non-priority mail: to mail designated as ‘non-prior-
ity’, terminal dues will be applied that are 10 % less
than the terminal dues for Level 1 mail (18).

(23)

The terminal dues to which a party is entitled must in
any event (and after deduction of penalties) never be
lower than terminal dues under the CEPT system, except
in countries where 80 % of domestic rates of
the
receiving PPO is lower than the CEPT rate. In those
countries, terminal dues must never be lower than 80 %
of the domestic rate.

dd) Transitional period

(24)

Terminal dues were to be increased (subject to penalties
which will accrue if the requisite quality-of-service target
is not met) over a transitional period as follows:

1997: CEPT level + 15 % (19)

1998: 55 % of domestic tariffs

1999: 65 % of domestic tariffs

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

the rate of VAT,

the domestic tariff

to half

subject

(17) International Post Corporation, a Brussels-based entity used by the
inter alia, for the purpose of assisting them in implemen-

parties,
ting the REIMS II Agreement.

(18) As an exception, terminal dues for non-priority mail delivered by
in view of the low
The Post Office, of the United Kingdom, will,
domestic rates for priority mail
in the United Kingdom, be only
5 % less than the terminal dues payable for priority mail until the
end of 2000. The Post Office will however have to submit, before
31 October 2000, a new offer for terminal dues payable as of 1
January 2001. As a further exception, the PPOs of Iceland, Luxem-
bourg, Greece (until the end of 2003) and Spain (until the end of
2005) are authorised to treat all
incoming mail as priority mail
and thus to receive priority-mail terminal dues.

(19) This increase would only have occurred if the PPO concerned had
met the quality-of-service target. On the other hand, no penalties
would have applied.

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2000: 70 % of domestic tariffs

(29)

2001: 80 % of domestic tariffs.

(25)

(26)

(27)

The purpose of the transitional period is to allow postal
operators and their customers to adapt
to the new
system and to avoid market disturbance by sudden,
sharp tariff increases for outward cross-border mail.

For the period until the end of 1999, terminal dues will
be calculated on the basis of the domestic tariffs applied
by 1 September 1997 at the latest. Increases which have
since occurred (or may still occur) are therefore not
taken into account (20).

ee) Quality of service

(‘J’)

The REIMS II Agreement
introduces a system of
quality-of-service standards for Level 1 (and Level 2)
in order to improve the quality of service. The
mail
standards are defined as the percentage of
incoming
cross-border mail (from a particular PPO) which has to
be delivered within one working day after the day of its
in the office of exchange of the receiving
arrival
PPO (21), provided that it arrives there by the Latest
arrival time (LAT), the Critical entry time (CET) and/or
the Critical tag time (CTT) (22). A standard of 80 % J + 1,
for example, means that 80 % of the incoming mail will
have to be delivered to its final destination within one
working day. The rules pursuant to which the LAT, the
CET and the CTT are to be set, are to be determined by
IPC after consultation with the parties. According to the
information provided by the parties, only rules regarding
the LAT were established (23).

(28)

The performance (as to the delivery of incoming cross-
border mail) of the individual parties is measured by
means of diagnostic systems set up by IPC. These meas-
urements have already begun. The earliest available
figures are those for 1997.

(20) An exception was made for the PPO from Luxembourg in case this
operator should have decided to apply new tariffs before 1 October
1998. However, no use was made of this exception which has thus
become devoid of purpose.

(21) Saturdays are considered as working days for those PPOs who offer

Saturday delivery for domestic mails.

(22) The LAT is defined as the latest acceptable time of touchdown,
permitting delivery of airmail items the next working day. The CET
is the latest acceptable time of delivery at the platform of an office
of exchange or an airmail unit equipped with sensor gates. The
CTT is defined as the latest time at which the transponders must
go through the sensor gates.

(23) According to these rules, none of the parties can apply an earlier
CTT than 4 p.m. from Monday to Saturday in their main once of
exchange in the capital or in another main city. Earlier CTTs in
other offices of exchange can be justified for operational reasons.
Finally, the CTT in the airmail unit can be earlier than 4 p.m., but
not earlier than 3 p.m.

For the purpose of setting quality-of-service standards,
the parties have been divided into three groups.
According to the parties,
this division is based on
geographic and demographic factors. The Spanish and
Greek (24) PPOs are in Group C. Group B comprises the
Italy, Portugal and the
PPOs from Germany, France,
United Kingdom. All the other parties are in Group A. In
1998, Group A had to attain 90 %, Group B 85 % and
Group C 80 % J + 1. The respective targets for 1999
and 2000 are 95 %, 90 % and 85 %.

(30)

The quality of service standards and grouping are to be
reviewed and renegotiated before 31 December 2000.

(31) A penalty system (penalty-curve) is applied when the
agreed standards are not met (25). The level of terminal
dues which would otherwise be payable is reduced by
1,5 % (where the actual result amounts to between 90 %
and 100 % of the target to be reached) and 3,5 % (where
the actual result amounts to between 80 % and 90 % of
the target to be reached) respectively for each percentage
point by which the PPO concerned fails to reach the
requisite quality-of-service standard (26).
In the worst
case (that is to say, if the result actually achieved by the
PPO concerned amounts to no more than 80 % of the
target), these penalties will thus reduce the terminal dues
to which a PPO is entitled by 50 %.

ff) Special transitional rules for the PPOs from Greece, Italy,

Spain and Portugal

(32)

Special arrangements have been made for some parties
in order to ease the transition towards the new terminal
dues system. These provisions apply to mail sent to and
from Greece, Spain and Italy. The PPOs concerned may
however terminate the transitional arrangements and
join the normal terminal dues regime. There is also a
special provision for postcards sent from Portugal.

(24) Notwithstanding this classification, special rules apply to Spain and

Greece (see recital 33 and following).

(25) For the time being, the penalties will be calculated on the basis of
the quality of service globally (that is to say, with regard to all the
mail it receives from the other parties) achieved by each PPO. After
the transitional period these penalties will be based on the quality
of service achieved by a receiving PPO with regard to each indivi-
dual sending PPO.

(26) Suppose that the quality-of-service target says that 90 % of inco-
ming cross-border mail must be delivered next day, and that the
actual result is that only 87 % of this mail is delivered within this
time. This means that 97 % of the target is reached (87 is 97 % of
90). Thus, the loss of quality is 3 %. Since this figure is within the
90 % to 100 % range, a penalty of 1,5 % for each percentage point
terminal dues
accrues. The penalty is thus 3 x 1,5 % = 4,5 % of
payable. This means that the PPO concerned is allowed to charge
the terminal dues to which it
only 95,5 % (100 % to 4,5 %) of
would otherwise be entitled.
In 1998 (where terminal dues for
Level 1 amount to 55 % of domestic rates), the PPO would thus
receive terminal dues amounting to 52,5 % of domestic rates (i.e.
95,5 % of 55 %).

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1 ) G r e e c e

1.1. Outbound mail

(33)

Terminal dues for priority mail were to amount to 40 %
of domestic tariff in 1998. The level was to be raised to
45 % in 1999, to 50 % in 2000, to 60 % in 2001, to
70 % in 2002 and finally to 80 % in 2003. If pursuant
to these rules the Greek PPO would have to pay higher
terminal dues than parties not subject to the transitional
arrangements, then the Greek PPO will only have to pay
the terminal dues payable by these parties.

1.2. Inbound mail

(34)

For inbound mail, progressively increased quality-of-
service targets are set, which,
if achieved, will trigger
increases of the terminal dues payable to the Greek PPO
by other parties. The quality-of-service target for 1998
was 50 % which, if achieved, would have resulted in an
increase in terminal dues of 7 %. The corresponding
figures for the quality-of-service targets (and increases in
terminal dues) are 60 % (10 %) for 1999, 70 % (15 %)
for 2000, 80 % (15 %) for 2001 and 85 % (20 %) for
2002. In 2003 terminal dues would be increased to
80 % of domestic rates if the Greek PPO manages to
maintain the quality-of-service standard of the preceding
year (85 %).

will be increased by one third of the remaining differ-
ence between the level reached in 2003 and the final
level of terminal dues under the REIMS II Agreement (i.e.
80 % of domestic tariffs). Consequently,
the normal
terminal dues level will be reached in 2006.

2.2. Inbound mail

(36)

For incoming priority mail, the Spanish PPO will be paid
the current CEPT rate as long as this rate is higher than
80 % of the Spanish interurban domestic tariff.

3 )

I t a l y

3.1. Outbound mail

(37)

their targets but

The terminal dues with regard to priority mail and post-
cards to be paid by the Italian PPO to the other parties
will be increased annually, provided that the receiving
the relevant quality-of-service targets.
operators meet
The annual increase rates were to be 15 % in 1998 and
20 % in both 1999 and 2000. If the receiving PPOs do
not meet
improve their quality of
service to a certain extent (28), the increase was to be
limited to 5 % in 1998 and 7 % in both 1999 and 2000.
These increases may not lead to terminal dues which are
higher than the terminal dues payable to the PPO
concerned by other parties not subject to the transitional
arrangements. A final increase on 1 January 2001 will
bring the terminal dues payable by the Italian PPO up to
the final
level of terminal dues under the REIMS II
Agreement (i.e. 80 % of domestic tariffs).

3.2. Inbound mail

(38)

The rules set out above for outbound mail will also
apply to inbound mail from the other parties.

2 ) S p a i n

4 ) C a p s y s t e m

2.1. Outbound mail

(35)

Terminal dues for priority mail and postcards will
increase at specified rates each year, starting from the
current CEPT rate in 1998 (27). If the quality-of-service
targets of the receiving PPOs are reached, the terminal
dues which they are entitled to receive from the Spanish
PPO will increase by 10 % in both 1999 and 2000 and
by 15 % in 2001, 2002 and 2003 respectively. These
lead to terminal dues which are
increases may not
higher than the terminal dues payable to the PPO
concerned by other parties not subject to the transitional
arrangements. From 2004 onwards these terminal dues

(27) The same terminal dues will apply to postcards from Portugal.

(39) A ‘cap’ system has been designed to ensure that the
PPOs of Greece, Spain and Italy do not abuse the advan-
tages granted to them under the transitional arrange-
ments described above. Under the system, outbound
mail-flows towards other REIMS II parties are divided
into three categories; postcards, stock and new flows.
‘Postcards’ are not subject to the cap system. They may
thus benefit from the lower terminal dues set for these
PPOs
in the transitional arrangements. The ‘stock’
comprises the current volume of all mail other than
postcards. It also comprises a yearly addition of 5 % (‘the
organic growth rate’) (29). The ‘stock’ also benefits from

(28) The increase in quality-of-service required is by 10 percentage
points or more if the performance was under or equal to 55 % (for
example, going from 31 % to 41 % or more), by 5 percentage
points or more if the performance was between 55 % and 80 %
(for example, going from 62 % to 67 % or more) and by 3 percen-
tage points or more if
to or above
80 % (for example, going from 81 % to 84 % or more).

the performance was equal

(29) The Spanish PPO may increase its ‘organic growth rate’ by another

5 % in one of the years 1999, 2000 or 2001.

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the lower terminal dues. ‘New flows’ are defined as the
mail volume (excluding postcards)
that exceeds the
‘Stock’ volume (after addition of the organic growth
rate). This volume of mail will be subject to the normal
terminal dues to which receiving PPOs are entitled
pursuant to the REIMS II Agreement.

Agreement at a later stage (30). This supplementary
agreement contains the following changes and clarifica-
tions.

(40)

The cap system will not be applied to mail exchanged
between the countries with transitional arrangements,
i.e. Greece, Spain and Italy.

1. Link between terminal dues and quality of

service

c) Articles 25 and 49(4) of the UPU Convention

(41) Article 25 of the UPU Convention contains provisions
on the treatment of domestic mail posted abroad
(remail). Article 49(4) concerns
for
incoming bulk mail. After the end of the transitional
period, Articles 25 and 49(4) of the UPU Convention
will no longer be applied between the Parties.

terminal dues

(42)

(43)

d) Term

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

e) Relationship to other agreements

The REIMS II Agreement as amended by the supplemen-
tary agreement provides that
the parties are free to
conclude between themselves bilateral or multilateral
agreements on terminal dues in which different condi-
tions, in particular other levels of terminal dues, may be
fixed. Where a party concludes with another party (or
other parties) an agreement on lower terminal dues, it is
however obliged (subject to the rules on penalties and
the special transitional rules described at paragraphs 32
to 40) to apply the same terminal dues to all the parties
provided the transactions are equivalent.

is

the case,

this
in a given year

(46) Under the REIMS II Agreement as originally notified, it
was possible that terminal dues would rise even if the
quality of service provided by the PPO concerned
actually deteriorated. The Agreement as amended now
establishes the principle that no increase in terminal
dues will take place during the transitional period if the
quality of service of the party concerned goes down. In
the
order
to determine whether
quality-of-service performance
is
compared to the average quality-of-service performance
achieved by that party in preceding years, beginning
with 1997. There will be no margin of interpretation.
This rule does not apply to those PPOs for which special
transitional arrangements exist. It will naturally also not
be applicable if the quality-of-service of a PPO deterior-
ates but still matches the relevant standard set by the
Agreement. Terminal dues may also be increased if (and
to the extent that) it can be shown that a deterioration
of a party's quality of service is caused by special efforts
undertaken by this party to improve its delivery system
and is only temporary in nature. The decision as to
whether these conditions are met ultimately rests with
the Commission, which may entrust this task to an
expert.

(47)

their quality-of-service targets

Finally, as a special rule, those parties which did not
meet
for 1998 were
exceptionally to be allowed to increase their terminal
dues in 1998 by 15 % over the CEPT level (but to no
more than 55 % of domestic tariffs) if they had reached
their quality-of-service target in 1997.

VI. CHANGES AND CLARIFICATIONS AFTER NOTIFICATION

(48)

(44) After a preliminary examination of the Agreement, the
Commission indicated to the parties several aspects
which in its view had to be changed, adapted or clarified
before it could consider adopting a positive attitude with
regard to the Agreement.

(45)

The parties thereupon prepared a first supplementary
agreement to the REIMS II Agreement (supplementary
agreement). This supplementary agreement was entered
into on 22 September 1998 by 11 of the 16 REIMS II
parties. The remaining five REIMS II parties signed the

2. Level 3

The parties have clarified that they are legally bound
under the REIMS II Agreement to grant Level 3 access to
each other. In order to facilitate such access, the parties
will, to the extent that this is within their power, relax
domestic regulations for other parties where these regu-
lations are not justified and could in practice bar the
other parties from access to domestic rates. Where the
domestic regulations concerned have been set by the
state, the parties will use their best efforts to remove
them in cooperation with the competent national
authorities.

(30) The Spanish PPO (which was the last one to join) signed the

Supplementary Agreement on 28 January 1999.

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(49) All the tariffs and conditions relevant for Level 3 access
will be available to all the parties through a database
managed by IPC. The parties have undertaken to update
this database without delay when their tariffs and condi-
tions change.

(55)

(50)

(51)

(52)

3. Late, lost and damaged mail

The parties have introduced provisions on late, lost and
damaged mail according to which a proper system for
dealing with and analysing complaints will be intro-
duced, including an acknowledgment of receipt for each
complaint and standard time limits for the reply to such
complaints. Customer
to such
services will thus be improved, for example by intro-
ducing a ‘freephone line’ for complaints and by cooper-
ating with consumer organisations.

services and access

4. Transparent cost accounting and annual reports

The parties undertake to comply with obligations to be
imposed on them by the Commission according to
which they will have to introduce a transparent cost
the
accounting system as required by Article 14 of
Postal Directive by the end of 1999 and to provide
annual reports on the development of international and
domestic tariffs and costs and on the development of
cross-border flows,
including information on Level 3
access.

5. Further issues

The parties have furthermore agreed to use their best
efforts to negotiate quality-of-service standards and a
penalty system for non-priority mail. For 1998 and
1999 the reference standards were to be J + 3 or the
standard already established by a party (but in any event
no more than J + 4). Finally, the parties agree to use
their best efforts to afford outgoing cross-border mail a
service which conforms to certain standards set out in
the supplementary agreement.

VII. COMMENTS FROM THIRD PARTIES AND THE COMMIS-

SION'S SECTION

(53) On 1 December 1998, the Commission published a
notice (31) in the Official Journal of the European Communi-
ties pursuant to Article 19(3) of Regulation No 17 in
which it set out the details of the notified Agreement
and indicated that it proposed to adopt a positive view
of that Agreement.

(54)

In total 35 replies were received by the Commission.
Only two of
the third parties submitting comments
recommended that the REIMS II Agreement be author-
ised. All the others were, to some extent or other, critical
of the Agreement. Among the latter was The Post Office
of the United Kingdom, one of the parties to the REIMS
II Agreement. That PPO has, however, clarified in the
mean-time that in view of the compromise reached by
the parties with regard to the duration of the transitional
period (see recital 61), it continues to support the Agree-
ment. The most important comments are summarised in
the following paragraphs.

(31) See footnote 3.

(56)

(57)

(58)

The most important objection concerned the temporal
consequences of an exemption of
the Agreement.
Pursuant to the timetable envisaged by the REIMS II
Agreement, terminal dues were to be increased to up to
65 % of domestic tariffs in 1999 and to reach the final
amount of 80 % on 1 January 2001. A considerable
number of third parties expressed the view that such a
retroactive effect (as it is called by some of them) would
have serious negative effects for customers. In particular,
it is argued that the present timetable would shorten the
transitional period to well under two years and result in
significant price increases over a short period of time.
Most of those who made submissions in this regard
argued that the transitional period of four years origi-
nally envisaged by the REIMS II Agreement should be
maintained and that this period should only start to run
once the Commission had authorised the Agreement.

Several comments alleged that the terminal dues were
not cost-based, but tariff oriented and queried whether
the figure of 80 % of domestic tariffs did indeed repre-
sent a reliable proxy for costs.

Several third parties argued that the conditions to be
fulfilled for Level 3 access to be granted were still not
clear enough. There was concern that, in the absence of
quality-of-service standards (and penalties) for such mail,
there would be little incentive to provide a good service.

third parties claimed that

there should be
Several
quality-of-service standards
for end-to-end transport
(and penalties with regard to outgoing mail), and not
just standards for the PPO receiving and delivering the
cross-border mail. Some of the commentators argued
that the standards should apply to non-priority mail and
Level 3 mail as well. The exception granted to the parties
(according to which terminal dues can be increased in
certain, specific circumstances even if the quality of the
service deteriorates) was considered to be dangerous and
open to abuse. A considerable number of third parties
claimed that the system for the measurement of the
quality of service achieved needed to be monitored care-
‘optical’
fully.
improvements in quality of service could easily be
brought about by bringing forward the latest arrival time
by which mail has to reach the receiving PPO. The
relevant rules should therefore be uniform for all the
parties concerned and applied throughout the term of
the Agreement. The actual measurement had to be
carried out
in an independent, accurate and repres-
entative way.

it was pointed out

In particular,

that

(59)

(60)

It was argued that the system concerning late, lost and
damaged mail provided in the Agreement so far was not
an adequate or practical solution. A harmonised system
(with a standardised system of monitoring) would be
preferable.

Several third parties expressed concern at the fact that
the Dutch PPO would remain outside the Agreement. It
was claimed that this would lead to discrimination (since
the Dutch PPO would pay different terminal dues). There
was also concern that the REIMS parties would in the
future treat mail coming from each other first, some-
thing which could result in a poorer quality for mail
from third parties.

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Official Journal of the European Communities

L 275/25

(61) After having examined these comments, the Commis-
sion came to the conclusion that the transitional period
had to be lengthened in order to avoid the negative
effects feared by third parties. It also concluded that the
final increase to 80 % of domestic tariffs should not be
information was available
accepted before sufficient
which would allow the Commission to ascertain
whether this increase was necessary in order to bring
terminal dues in line with costs. The parties were
informed accordingly. At a meeting on 4 March 1999,
the parties informed the Commission that they accepted
the concerns underlying the approach of the Commis-
sion. They announced that they would begin to imple-
ment the Agreement on 1 April 1999 and that terminal
dues for 1999 would be increased to a maximum of
55 % of domestic tariffs. They also accepted that the
duration of a possible exemption should be limited to
the period expiring on 31 December 2001, i.e. before
the final
increase to 80 % of domestic tariffs would
occur.

B. LEGAL ASSESSMENT

I. ARTICLE 81(1) OF THE EC TREATY AND ARTICLE 53(1) OF
THE EEA AGREEMENT

1. Agreement between undertakings

(62)

Regardless of their specific legal form, all the parties to
the REIMS II Agreement carry on an economic activity
and are therefore to be considered as undertakings
within the meaning of the competition rules of the EC
Treaty (32). The REIMS II Agreement is thus an agree-
ment within the meaning of Article 81(1) of the EC
Treaty and Article 53(1) of the EEA Agreement.

2. Restrictions of competition

a) Price fixing

(63)

(64)

The Agreement fixes the terminal dues which the parties
have to pay each other on the market for inbound
cross-border mail. These terminal dues are the price the
PPO in the country of origin pays to the PPO in the
country of destination for the service of delivering cross-
border mail. Therefore,
fails to be
considered as an agreement fixing selling prices within
the meaning of Article 81(1) of
the EC Treaty and
Article 53(1) of the EEA Agreement.

this Agreement

It is true that the REIMS II Agreement does not fix the
actual amounts
to be paid but only establishes a
percentage. However, since this percentage is linked to
domestic tariffs, the Agreement has the result of fixing
prices. It is true that the parties remain free to set their
own domestic tariffs. In theory, they could thus modify

(32) See for example the judgment of

Justice in Case
C-41/90 Höfner and Elser v Macrotron [1991] ECR I-1979, at para-
graph 21.

the Court of

(65)

is of

cross-border mail

the terminal dues payable under the REIMS II Agreement
by altering these domestic tariffs. However, for most
PPOs,
limited importance
compared to the volume of domestic mail. Furthermore,
in many Member States any amendment to domestic
tariffs is subject to approval by the national regulatory
body. The level of domestic tariffs is therefore highly
likely to be governed primarily by domestic considera-
tions. By fixing, in an agreement entered into between
themselves, terminal dues as a percentage of domestic
tariffs the parties thus eliminate or reduce their freedom
to determine the level of remuneration for the delivery
of inward cross-border mail.

It has to be acknowledged that the REIMS II Agreement
is a price-fixing agreement with unusual characteristics.
It concerns the price of a service (delivery in the country
of destination) which the PPO in the country of origin
needs in order to ensure that
the mail reaches its
addressee and which this PPO is not (or not yet) capable
of providing itself (33). Since it is obvious that a postal
operator is entitled to receive remuneration for deliv-
ering mail coming in from another country, it is clear
that some sort of arrangement is necessary in order to
determine the level of this remuneration. However, this
could be achieved by concluding a bilateral agreement
with the PPO from whose country the mail is sent in
which the two parties agree on the terminal dues to be
paid. This approach would result in a network of bilat-
eral agreements the contents of which would not neces-
sarily be identical (34). The REIMS II Agreement sets
terminal dues for all the parties in a uniform way at a
certain percentage of domestic tariffs. It is true that the
Agreement (as amended by the supplementary agree-
ment) expressly allows the parties to enter into bilateral
or multilateral agreements on terminal dues between
themselves. However, it is very unlikely that the parties
will make use of this possibility as the conclusion of the
to
REIMS II Agreement
conclude separate agreements between the parties. This
would appear to be confirmed by the fact that, to the
knowledge of the Commission, there is only one such
bilateral or multilateral agreement between some of the
REIMS II parties, i.e. the Nordic Agreement which was
concluded long before the REIMS II Agreement saw the
light of day. It is worth noting that no other REIMS II
party appears
to have joined the Agreement. The
Commission concludes therefore that, notwithstanding
the specific clause in the Agreement allowing bilateral or
multilateral agreements between the parties, in practice,
the REIMS II Agreement to a very large extent, reduces
the incentive to conclude such agreements which could
lead to different tariffs which might be more favourable
from a customer point of view.

any incentive

eliminates

(66)

In view of the fact that the REIMS II parties account for
the major part of cross-border mail between their
respective countries, the restriction of competition iden-
tified above must also be considered as being appre-
ciable.

(33) A certain parallel may be drawn with the agreements in the tele-
communications sector by which the telecommunications operators
from different countries
traditionally agreed on the price (the
‘accounting rate’) to be charged for the termination of international
calls.
(34) This

indeed what has happened in the telecommunications
sector. The accounting rates (see footnote 33) applied by a given
operator varied from country to country.

is

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b) Restricted membership

(67) Membership in the REIMS II Agreement is limited to
postal operators (private or public) which operate a
mandatory universal service. This could be interpreted as
precluding other operators from benefiting from the
same rates as the parties to the REIMS II Agreement.
However, nothing in the Agreement prevents the parties
from entering into identical or similar agreements on
terminal dues with third parties. The condition for
membership in the REIMS II Agreement thus does not
appear to represent a restriction of competition.

3. Effect on trade

The REIMS Agreement concerns the remuneration for
inbound cross-border mail services between PPOs and
has thus by definition an effect on trade between
Member States and on trade between the contracting
parties within the meaning of the EEA Agreement. In
view of the importance of the REIMS II parties on the
markets for inbound cross-border mail between their
respective countries,
this effect must be regarded as
appreciable. In this context one should also bear in mind
that business customers produce the most part of cross-
border mail and that this mail is in general connected to
trade between Member States. Although the increase in
terminal dues does not necessarily imply a similar
increase in overall tariffs, these tariffs are likely to be
raised, at least for some kinds of mail. An increase of the
tariffs for international mail clearly has a negative effect
on trade between Member States.

II. ARTICLE 81(3) OF THE EC TREATY AND ARTICLE 53(3)

OF THE EEA AGREEMENT

(68)

(69)

1. Improvement

in the distribution of goods/

promotion of technical or economic progress

(72)

It is clear that the CEPT levels of terminal dues often
resulted in a remuneration for the delivery of cross-
border mail which did not cover costs. The consequence
of this was that the resulting deficit on incoming cross-
border mail had to be covered by the PPOs by profits
obtained from the provision of domestic mail services or
outward cross-border mail services. Such cross-subsidisa-
tion would be unsustainable in the long run, particularly
in view of the increasing liberalisation of the postal
sector. There is no doubt that postal operators are en-
titled to receive a remuneration for the delivery of cross-
border mail which covers the costs caused by this
activity. A move towards a more cost-based system leads
to a more secure financial position and therefore allows
the postal operators to maintain and improve this
service. This is an advantage which may be considered as
representing an improvement in the provision of the

(70)

(71)

(73)

services concerned as required by Article 81(3) of the EC
Treaty and Article 53(3) of the EEA Agreement.

The most substantial advantage which the Agreement is
expected to produce consists in a substantial increase in
the quality of cross-border mail services. This is most
obvious with regard to the receiving operator, i.e. the
PPO delivering the mail. By linking increases in terminal
dues to improvements in the quality of service,
the
REIMS II Agreement produces a strong incentive for the
parties to improve their performance. The receiving
operator will only be able to claim higher terminal dues
from the other parties if he manages to meet the ambi-
tious quality-of-service targets set out in the Agreement.
If the targets are not met, penalties will be applicable
which can considerably reduce the terminal dues to
which a party is entitled. The incentive thus created for
the receiving operator to improve his quality is not
affected by the fact that the quality of service achieved
by the parties is measured on a yearly basis. Far from
delaying the incentive to improve the quality of mail
services,
logical
this would appear to be the most
method to ensure that the terminal dues payable with
respect to a particular year are in line with the quality of
service achieved during that year.

For the purpose of setting quality-of-service targets, the
parties have created different groups to which different
thresholds apply (35). Since the Agreement provides for
special transitional measures with regard to all the PPOs
in group C, there are in effect only two groups, A and B.
The quality of service to be achieved by the PPOs classed
in group A is somewhat higher than the respective target
for the parties in group B. However, the parties have
explained that this distinction is based on demographic
and geographic criteria in the sense that group A
consists of parties from countries that are either compar-
atively small or have a large part of their population
concentrated in a comparatively small area. Although
this division (which according to the Agreement is to be
reviewed in the near future) ultimately appears to have
been the result of a compromise between the parties, it
does not seem to have been carried out in an arbitrary
way. In any event it has to be recalled that even the
target set for the PPOs in group B (90 % J + 1 in 1999)
is high. This distinction therefore does not affect the
incentive to increase the quality of the service.

The specific transitional rules for some of the parties are
also based on the principle that increases in terminal
dues are linked to an improvement in the quality of
service. In view of the particular problems facing the
PPOs concerned the Commission considers that the fact
that these transitional rules provide for a slower increase
in terminal dues (and thus,
indirectly, of quality of
service) does not appear to be objectionable.

It is true that the linkage between increases in terminal
dues and an improvement in quality of service estab-
lished by the REIMS II Agreement depends heavily on
the system for the measurement of the quality of service.
As some of the third parties have pointed out in their
comments, it is important to ascertain that this system is
functioning properly. The Commission was alerted to
the risk that an ‘improvement’ in the quality of service
might be produced by simply bringing forward the time

(35) See recital 29.

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Official Journal of the European Communities

L 275/27

by which the mail to be delivered has to reach the
receiving operator. The Commission has therefore exam-
ined whether this risk could materialise in practice. It
found that the parties have established rules only with
regard to the LAT (36), which cannot be earlier than
4 p.m. and 3 p.m. for the main offices of exchange and
the
respectively. The parties have
confirmed, in reply to a question of the Commission,
that any mail which complies with the LAT thus set will
be regarded as having arrived on time for the purposes
of the REIMS II Agreement, irrespective of whether this
mail has also complied with the CET and/or CTT which
some of the parties may apply.

airmail units

It is true that no specific quality-of-service targets have
been agreed in respect of mail for which Level 3 access
is used. However, the very essence of Level 3 access is
that such mail is treated, to all intents and purposes, like
domestic mail. Where there are quality-of-service targets
for domestic mail, they will thus equally be applicable to
the relevant incoming cross-border mail.

The Agreement will also contribute towards improving
the overall quality of cross-border mail. Article 3(8) of
the REIMS II Agreement
(introduced by the supple-
mentary agreement) obliges the sending operators to use
their best efforts to afford outgoing priority mail a
quality of service which conforms to the standards set
out in Annex 7 thereto. According to those provisions,
the parties are aiming at achieving a standard of 85 %
J + 1 by 2002, that is to say, 85 % of outgoing priority
cross-border mail should arrive at the receiving oper-
ator's office of exchange within one day of having been
posted (37).

The conclusion that the REIMS II Agreement may be
expected to result in considerable improvements with
regard to cross-border mail is not affected by the fact
that not all the PPOs from the Community and the EEA
(or from other countries) participate in the Agreement.
As the Netherlands Post Office has decided not to join
the other parties, the Agreement will of course not be
applicable to cross-border mail exchanged between the
Netherlands and the REIMS II parties. However, this does
not alter the fact that the Agreement is likely to produce
benefits in respect of the cross-border mail exchanged
between the parties to the REIMS II Agreement.

2. Benefits to consumers

The improvements described above (and in particular
the better quality of service for cross-border mail) would
also be beneficial towards consumers. For the reasons set
out
the Commission
considers that the Agreement will allow consumers a fair
share of the benefits resulting from it.

in the following paragraphs,

It appears likely that as a consequence of the REIMS II
Agreement at least some of the operators will be paying
substantially increased terminal dues. It is to be expected
that, as a result, prices for cross-border mail will be
increased in at least some of the countries concerned.

(74)

(75)

(76)

(77)

(78)

(36) See recital 27.
(37) The target is slightly lower (80 %) for Greece, Iceland, Portugal and

Spain.

(79)

(80)

However, on the basis of the information collected by
the Commission in the course of its examination, it can
be concluded that
these possible increases will not
prevent consumers from receiving a fair share of the
benefits which the Agreement is expected to produce,
and this for a number of reasons.

First, to the extent that the increases in terminal dues
result in a level of terminal dues which is closer to real
costs of delivering the mail, the Agreement will merely
entail a reduction of the cross-subsidisation which must
take place under the current arrangements. Since the
users of domestic mail or outgoing cross-border mail
would thus no longer (or at least to a lesser extent) have
to contribute towards the cost of incoming cross-border
mail, the PPOs would be able to adjust the tariffs for
domestic mail and outgoing cross-border mail where
appropriate.

the quality of

the benefits if

Second, since the Commission has insisted that terminal
dues can only be increased if the quality of service
improves, any increases in tariffs for cross-border mail
would be accompanied by improvements in the service
rendered. It can be expected that consumers get a fair
the service
share of
improves, provided that the increase in tariffs is not
excessive. As mentioned above, there is only one excep-
tion where terminal dues can be increased in a case
where the quality of service deteriorates. This is where
such deterioration: (a) can be proved to be due to special
efforts undertaken in order to speed up delivery, (b) is
only temporary in nature, and (c) has only been caused
by the said efforts. An example for such a situation
could be the installation of a new sorting centre, which
could temporarily affect the quality of the service. It is
clear that the relevant criteria will in any event have to
be strictly interpreted. Furthermore, as the parties have
agreed in the supplementary agreement,
the final
decision as to whether these conditions are fulfilled will
remain with the Commission (or an independent expert
to be appointed by it).
In these circumstances the
Commission considers that this exception does not jeop-
ardise the principle that
increases in terminal dues
presuppose an improvement of the quality of service.

(81)

Third,
the Commission has required the parties to
specify in writing any increases in their tariffs for cross-
border mail, which they intend or envisage introducing
until the end of 2001. It can be concluded from the
reply of the parties that any such increases will on
average be modest. Furthermore the Commission will of
course closely monitor the developments in this area. In
order to allow it to do so, an obligation to report will be
imposed on the parties in this Decision (38). Where
appropriate, the Commission will use its powers under
Article 82 of the EC Treaty if a party to the REIMS II
Agreement introduces price increases which appear to
be excessive and which do not appear to be justified by
costs.

(38) See recital 98.

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26. 10. 1999

(82)

(83)

(84)

(85)

the Agreement

itself provides a possibility,
Fourth,
which should considerably reduce the negative financial
impact, which may arise for customers, that is to say the
Level 3 access. Whereas the level of terminal dues estab-
lished pursuant
is based on the
to the Agreement
domestic tariffs for priority mail, Level 3 access affords
the possibility of benefiting from reduced domestic
tariffs. Cross-border mail for which the sending PPOs
claim such access is thus to be treated just like domestic
mail. This possibility is of particular significance for bulk
mail but also for items such as newspapers. It is obvious
that such access could easily be impeded or even
prevented by imposing inappropriate conditions. For
example, making the possibility of using Level 3 access
for newspapers dependent on the relevant item being
printed in the Member State of destination would render
such access illusory for publications from other states.
At the Commission's express request, the parties have
therefore agreed to remove such obstacles to the extent
that this is within their power. It appears necessary, in
view of the importance of Level 3 access to customers,
to make the granting of the present exemption depend
on satisfactory Level 3 access being granted (39).

Fifth, the Commission agrees with the view expressed by
a great number of third parties according to which, in
view of the delay which has occurred, the original time-
table envisaged by the REIMS II Agreement could have
resulted in considerable increases of
terminal dues
within a very short period of time. This could have had
serious negative effects on the interests of consumers.
The Commission therefore insisted that the transitional
period be postponed by one year. The present exemp-
tion is subject to a condition, which ensures this (40). The
ultimate level of terminal dues envisaged by the parties
would therefore not be reached before 1 January 2002.
Furthermore, the Commission insisted that the period of
exemption should end before this final level of terminal
dues was reached. In the Commission's view this repre-
sents a reasonable compromise which should ensure
that the interests of consumers are safeguarded.

lost and damaged mail

intro-
The provisions on late,
duced by the supplementary agreement shall also con-
tribute towards reserving a fair share of the benefits to
consumers. Although it is true that the measures intro-
duced are capable of being improved, at least for some
of the countries concerned, they mark an important step
towards protecting the rights of consumers.

The fact that the Agreement only applies to cross-border
mail between the parties does not affect
the above
conclusion. Nothing in the Agreement prevents the
forwarded to
parties from treating cross-border mail
them by third parties in the same expeditious way as
cross-border mail received from the REIMS II parties.

(86)

(87)

3. Indispensability

In order to qualify for an exemption under Article 81(3)
of the EC Treaty and Article 53(3) of the EEA Agree-
ment, the restriction of competition must be indispens-
able to the attainment of the relevant objectives. This
presupposes that the levels of terminal dues agreed on
by the parties do indeed reflect the costs, which the
delivery of cross-border mail causes to the delivering
operator. The REIMS II Agreement does not establish a
direct link between terminal dues and the actual costs
but expresses terminal dues as a percentage of domestic
tariffs. This is mainly due to the fact that even today
there is not enough reliable information on the costs
incurred by the parties concerned. Most of the parties
are still
in the process of setting up proper cost-
accounting systems. In the absence of reliable informa-
tion as to costs, the principle of linking terminal dues to
domestic rates appears to be acceptable (and has in fact
been suggested by the Commission). Although the tariffs
charged for domestic services have inevitably in the past
been influenced to some extent by political considera-
tions,
logical yardstick for
the most
assessing the costs of delivery.

they represent

The Commission is of the opinion that under present
circumstances the conclusion of an agreement setting
terminal dues at the same percentage of domestic tariffs
and (if one disregards the special transitional measures
agreed for some of the parties) on the same conditions
for all the parties is indispensable in order to attain the
benefits aimed at by the parties. As the summary of the
historical background under Part A (41) has shown, the
process of elaborating the REIMS II Agreement has been
protracted and laborious. Since the CEPT arrangement
adopted more than a decade ago, only one other
to have been
terminal dues
concluded between some of the parties to the present
Agreement. It appears significant that this other agree-
ment
is also a multilateral
arrangement. Unlike the operators in the telecommun-
ications sector, the PPOs in the postal sector appear
rarely to have made use of bilateral agreements on
terminal dues. The Commission considers that although
the parties could have concluded bilateral or multilateral
it appears unlikely that
agreements on terminal dues,
such negotiations would have made it possible to attain
the benefits which the present Agreement may be
expected to produce as quickly and as efficiently.

(the Nordic Agreement)

agreement

appears

(88) However, although the Commission accepts that the
conclusion of the REIMS II Agreement may be consid-
ered indispensable for attaining the objectives pursued, it
needs to be verified whether the actual level agreed is
appropriate. The parties have not adduced convincing
evidence, which would allow the conclusion that
terminal dues have to be set at 80 % of domestic rates.
On the contrary, the parties have admitted that the
figure of 80 % is an approximation only. It has however
not been established that this figure is a sufficiently
accurate approximation of costs. On the other hand, the
Commission accepts that the level of terminal dues has

(39) See recital 96.
(40) See recital 95.

(41) See recital 7 and following.

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Official Journal of the European Communities

L 275/29

so far generally been too low and has not allowed
operators to cover the costs of delivery. In view of these
circumstances the Commission considers that the most
reasonable solution is to allow increases in terminal dues
while ensuring that
increase to 80 % of
the final
domestic tariffs can only take place once the Commis-
sion has had a possibility to re-examine the question on
the basis of proper cost accounting data. Limiting the
exemption to the period expiring on 31 December 2001
will enable the Commission to ascertain the appropriate-
ness of the proposed final increase before it is imple-
mented. The maximum level of terminal dues allowed
pursuant to this Decision will therefore not exceed 70 %
of domestic tariffs, a level which does not appear to be
unreasonable (42).

(89) Article 14 of the Postal Directive obliges Member States
to ensure that appropriate accounting systems will be
introduced within two years of the date of entry into
force of that Directive, i.e. by 10 February 2000 at the
latest. However, there is no guarantee that sufficiently
reliable figures which should cover at
least one full
calendar year would thus be available in the second half
of 2001 when the Commission is likely to be asked to
extend the present exemption and authorise the increase
to 80 % of domestic tariffs. The Postal Directive is in any
event only binding on the Member States of
the
Community but not Iceland and Norway. It therefore
appears necessary to make this exemption Decision
dependent on the condition that the parties introduce a
proper cost-accounting system by the end of 1999 (43).

4. Elimination of competition

(90)

By relating terminal dues to domestic tariffs and setting
their final
level at up to 80 % thereof, the REIMS II
Agreement may be expected to reduce to a very large
It would, however, be
extent arbitrage-based remail.
inappropriate to regard this as an elimination of
competition since the establishment of a cost-based
remuneration system would only
restore normal
competitive conditions.

III. ARTICLE 86(2) OF THE EC TREATY AND ARTICLE 59(2)

OF THE EEA AGREEMENT

(91) According to Article 86(2) of the EC Treaty and Article
59(2) of
the EEA Agreement undertakings entrusted
with the operation of services of general economic
interest are to be subject to the rules on competition, in
so far as the application of such rules does not obstruct
the performance, in law or in fact, of the particular tasks
assigned to them.

(92)

The parties argue that the REIMS II Agreement is neces-
sary in order to achieve a cost-oriented remuneration for
the delivery of international mail financing the universal
service obligation, which the parties have to perform. In
the parties' view, a strict application of the competition
rules could endanger their economic equilibrium and
obstruct
the service of general
the
economic interest assigned to them. However,
parties have not provided any evidence which would

the performance of

(42) It will be remembered that this is also the percentage used in the

Nordic Agreement.

(43) See recital 97.

allow the conclusion that the application of Article 81
of the EC Treaty or Article 53 of the EEA Agreement to
the REIMS II Agreement on cross-border mail services
(which on average account for a small portion of the
mail handled by the parties) would jeopardise their
economic equilibrium. Neither have they established that
the application of those provisions (including paragraph
3 thereof) would obstruct the performance of the par-
ticular tasks assigned to them. In any event, it has to be
borne in mind that Article 86(2) of the EC Treaty repre-
sents an exception and has therefore to be interpreted
strictly (44). The same holds true for Article 59(2) of the
EEA Agreement.

IV. DURATION OF THE EXEMPTION; CONDITIONS AND

OBLIGATIONS

(93) According to Article 8 of Regulation No 17, a decision
pursuant to Article 81(3) of the EC Treaty is to be issued
for a specified period of time and conditions and obliga-
tions may be attached thereto.

1. Duration of the exemption

(94) Normally the exemption period covers at least the time
which is necessary for the Agreement to take full effect.
In the present case the Commission has come to the
the exemption period
conclusion that exceptionally,
increase in
should come to an end before the final
terminal dues (from 70 to 80 % domestic tariffs)
is
implemented. The reason for this is that while the
Commission generally agrees that terminal dues have to
be increased to a level which covers the costs of the
service rendered, there is not enough evidence at present
to support the claim that this means that terminal dues
have to be increased to a level of 80 % of domestic
tariffs. Since this lack of supporting evidence is mainly
due to the fact that most of the parties do not yet
dispose of a sufficiently reliable and precise cost-
it does not seem unreasonable to
accounting system,
postpone the final
increase until such data becomes
available and until the Commission has had the oppor-
tunity to assess this data. The exemption will thus be
limited to the period starting with the implementation
date, i.e. 1 April 1999, and expiring on 31 December
2001.

2. Conditions

a) Implementation of the Agreement

(95) As explained above (45), the Commission considered that
it was necessary to change the timetable originally envis-
aged by the parties and delay the transitional period by
one year in order to avoid as much as possible any
immediate, negative repercussions on tariffs. The parties
have agreed (46) and proposed 1 April 1999 as the date
for implementing their agreement. Since this is not
reflected in the Agreement as it stands, it is necessary to
make this Decision subject to a condition to this effect.

(44) See for example the judgment of

Justice in Case
C-157/94 Commission v Netherlands [1997] ECR I-5699, at para-
graph 37.
(45) At recital 83.
(46) See letter of the parties of 4 June 1999.

the Court of

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Official Journal of the European Communities

26. 10. 1999

(96)

(97)

Terminal dues will thus reach a maximum of 55 % of
domestic dues for the rest of 1999. This maximum will
be 65 % in 2000 and 70 % in 2001. The parties will
have to amend their agreement accordingly as soon as
possible and at the latest by the time the final account
settlement for the terminal dues for 1999 is due.

b) Level 3 access

Level 3 access will be of considerable importance to the
consumer. It may safely be assumed that bulk mail and
other types of commercial mail account for the most
important part of cross-border mail. Enabling sending
PPOs to benefit from the delivering operator's domestic
tariffs for such mail will therefore be an essential step to
balance the negative effects of the Agreement. Article
2(6) of the Agreement obliges all the parties to grant
such Level 3 access (47). In order to facilitate this access,
the parties are under an obligation to relax domestic
conditions for other parties where those regulations are
not justified and could in practice bar other parties from
access to the domestic rates or (where it is not in their
power to do so) to use their best efforts to remove these
regulations with the relevant national authorities.
In
order to ensure that the parties comply with this require-
ment and grant each other effective Level 3 access, it is
necessary to subject this exemption Decision to a condi-
tion to that effect.

flows by 31 March of each year at the latest. Those
reports should include information on the implementa-
tion of Level 3 access (including, for example, examples
of contracts under Level 3 conditions concluded with
operators
from other countries and of comparable
contracts concluded with domestic customers). For the
same reasons, the parties should inform the Commission
of the amendment made to comply with the condition
set out in recital 95 as soon as that amendment is
signed,

HAS ADOPTED THIS DECISION:

Article 1

Pursuant to Article 81(3) of the EC Treaty and Article 53(3) of
the EEA Agreement, the provisions of Article 81(1) of the EC
Treaty and Article 53(1) of the EEA Agreement are hereby
declared inapplicable to the REIMS II Agreement on terminal
dues, as amended by the supplementary agreement, for the
period between 1 April 1999 and 31 December 2001.

Article 2

3. Obligations

The following conditions and obligations are attached to the
exemption provided for in Article 1:

a) Cost accounting systems

1. Conditions

In order to be able to ascertain whether the levels of
terminal dues agreed on by the parties do indeed reflect
the actual costs of the delivery of cross-border mail, the
Commission needs to be able to dispose of reliable and
accurate cost data. It is therefore appropriate to oblige
the parties to introduce, by the end of 1999, a trans-
parent cost accounting system ensuring that all signifi-
cant
identified, quantified,
can be
compared and controlled. This obligation should ensure
that the parties introduce already in 1999 an appro-
priate cost accounting system as defined by Article 14 of
the Postal Directive.

elements

cost

b) Annual reports

(98)

In order to enable the Commission to assess whether the
Agreement works satisfactorily and particularly whether
the abovementioned conditions are complied with, the
parties should provide annual reports on the develop-
ment of domestic tariffs, tariffs for cross-border mail and
costs and on the development of cross-border traffic

(47) Article 2(6) of

the Agreement obliges the parties to grant such
access to the other parties. In so far as access for third parties is
concerned, see point 2(8) of the postal notice of the Commission
(OJ C 39, 6.2.1998, p. 2).

(a) The Agreement must not be implemented before 1
April 1999. The transitional period provided for in the
Agreement must be postponed in order to ensure that
terminal dues for the rest of 1999 are not increased
beyond 55 % of domestic tariffs, and that the maximum
increase of terminal dues is to 65 % of domestic tariffs
in 2000 and to 70 % of domestic tariffs in 2001. The
parties must amend their agreement accordingly as soon
the latest by the time the final
as possible and at
account settlement for the terminal dues for 1999 is
due.

(b) The parties must take all the necessary steps in order to
grant each other effective Level 3 access. In order to
facilitate this access, the parties must relax domestic
conditions for other parties where those rules are not
justified and could in practice bar other parties from
access to the domestic rates or (where it is not in their
power to do so) they must use their best efforts vis-à-vis
the relevant national authorities to remove those rules.

2. Obligations

(a) The parties shall

introduce, by the end of 1999, a
transparent cost-accounting system as provided for in
Directive 97/67/EC ensuring that all significant cost
elements can be identified, quantified, compared and
controlled.

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Official Journal of the European Communities

L 275/31

(b) The parties shall provide annual reports on the develop-
ment of domestic tariffs, tariffs for cross-border mail
and costs and on the development of cross-border
traffic flows by 31 March of each year at the latest.
Those reports shall include information on the imple-
mentation of Level 3 access (including, for example,
examples of
contracts under Level 3 conditions
concluded with operators from other countries and of
comparable
domestic
customers). The parties shall inform the Commission of
the amendment made to comply with the condition set
out in point 1(a) as soon as that amendment is signed.

concluded with

contracts

Article 3

This Decision is addressed to:

Post and Telekom Austria AG
Postgasse 8
A-1011 Wien

Post Danmark
Tietgensgade 37
DK-1566 Copenhagen

Suomen Posti OyPosten Finland Ab
Mannerheiminaukio 1A
P.O. Box 102
FIN-00011 Posti

La Poste
4, Quai du Point du Jour
F-92777 Boulogne Billancourt Cedex

Deutsche Post AG
Generaldirektion
Heinrich-von-Stephan-Straße 1
D-53175 Bonn

Hellenic Post—ELTA
Apellou l
GR-101 88 Athens

Post and Telecom Iceland
Posthusstraati 5
IS-150 Reykjavik

Poste Italiane SpA
Viale Europa, 190
I-00144 Roma

Entreprise des Postes & Télécommunications
8a, avenue Monterey
L-2020 Luxembourg

Norway Post
Dronningens gate 15
N-0107 Oslo

CTT Correios de Portugal, SA
Rua de S. José, 20
P-1166 Lisboa Codex

Correos y Telegrafos
c/Aduana 29
E-28070 Madrid

The Post Office
Royal Mail International Headquarters
49 Featherstone Street
London EC1Y 8SY
United Kingdom

La Poste/De Post
Centre Monnaie/Muntcentrum
B-1000 Bruxelles/Brussel

Posten AB
Vasagatan 7
S-105 00 Stockholm

An Post
General Post Office
O'Connell Street
Dublin 1
Ireland

Done at Brussels, 15 September 1999.

For the Commission

Karel VAN MIERT

Member of the Commission