Not cleared from scrutiny; further information requested
(a) Proposal for a Regulation amending Regulation No. 1071/2009 and Regulation 1072/2009 with a view to adapting them to developments in the sector; (b) Proposal for a Directive amending Directive 2006/1/EC on the use of vehicles hired without drivers for the carriage of goods by road
Article 91(1)TFEU; ordinary legislative procedure, QMV
(a) (38781), 9668/17 + ADDs 1–3 COM(17)281 (b) (38782), 9669/17 + ADDs 1–4, COM(17)282
9.1The Commission’s proposals seek to strengthen two Regulations and a Directive relating to the road freight transport market. These form part of the Mobility Package, a set of reforms seeking to improve competition, bolster rules on driving and rest times, mitigate environmental impacts through road charging and use of new technologies, and the use of digital technologies to enable inter-operable services.
9.2By way of background, the Commission informs us that road transport accounted for almost three-quarters of EU inland freight transport activities in 2014, and that there are around 600,000 companies in the EU whose main business is the provision of road freight transport services. Around 1 per cent of EU GDP is generated through the provision of these services.
9.3Around a third of such transport is international in nature, and the EU has been active in strengthening internal market rules in this area. The original Regulations set out the rules to be complied with for undertakings to enter the road transport market, and for those wishing to operate on the international road haulage market and in national markets other than their own. The related Directive sought to open up the market for the use of hired vehicles for the carriage of goods.
9.4The Commission’s proposed revisions make a number of changes such as expanding the scope of the regulations to include light commercial vehicles and removing Member State discretion to impose additional conditions on the use of hired vehicles for the transport of goods.
9.5However, it is the Commission’s proposals to clamp down on illegal cabotage operations and letterbox companies that have attracted political interest, particularly in those Member States which have taken unilateral actions to combat such practices.
9.6The Government informs us that the outcome of the UK’s negotiations with the EU will determine whether these proposals will apply to the UK after it leaves the EU. The timeframe for negotiation on these and other proposals in the Mobility Package certainly suggests that they may not be concluded by the time of the UK’s exit. However, there are areas where, as the Government says, there is likely to be an impact on transport operators from non-EU countries.
9.7The Government further informs us that it is still considering the detail of the proposals, with consultations ongoing with the road transport industry, Devolved Administrations, and other interested parties. The Explanatory Memorandum also identifies a lack of reliable information from the Commission on estimated costs of implementation of the revised Regulation, and we are told that the Government is still scrutinising the detailed figures. We would like to be informed in due course of the outcomes of these consultations and assessments.
9.8However, we are given some helpful analysis of the Government’s preliminary views. These indicate broad support for the Commission’s proposal to crack down on the operation of so-called letterbox companies, provided that this is accompanied by effective enforcement in Member States where the problem is prevalent.
9.9The revisions to cabotage rules are an area where the Government does not think that sufficient consideration has been given by the Commission to the wider economic impact of removing the maximum number of cabotage operations that may be carried out after an incoming international carriage, or to the ability of domestic markets to fill potential gaps. Given reported concerns expressed by UK freight representative bodies to the Government, we would like to know more of the Government’s assessment of a) how the proposed changes would affect UK companies in the event that the Regulation becomes applicable to the UK and b) whether the UK as a future third country would be affected by the Regulation.
9.10We note the Government’s view that the Commission has failed to make a strong case for bringing light commercial vehicles (LCVs) within the scope of the Regulation. We would like to know how it intends to approach this issue, and whether it will oppose the proposal to include LCVs within the scope of the revised legislation.
9.11We also note the Government’s concerns that additional requirements on Member States to conduct a minimum number of compliance and roadside checks on cabotage operations may negatively impact the ability of UK law enforcement bodies to carry out other, more road safety critical activities.
9.12The Government has stated that for road safety reasons it wishes to retain the requirement in national legislation that transport operators have suitable parking vehicles. We would therefore like to be kept informed of the outcome of discussions on the Commission’s proposal to remove Member State discretion to impose additional conditions on access to the profession.
9.13While there is understandable uncertainty over whether these legislative proposals will end up applying to the UK, given the preliminary nature of national consultations, and the several areas where the Government has expressed reservations, we retain the proposed Regulation under scrutiny pending the further information requested and progress on the negotiations.
9.14With regards to the proposed revisions to Directive 2006/1/EC, we do not see any particular issues of significance to the UK, as the UK has not imposed restrictions on the use in the UK of goods vehicles hired from another Member State. However, the Government, in its Explanatory Memorandum, has not provided its views on the revised Directive, and it is not for us to presume that the Government is content with the changes. Therefore, we retain this Directive under scrutiny until the Government can inform us of its views.
(a) Proposal for a Regulation amending Regulation No. 1071/2009 and Regulation 1072/2009 with a view to adapting them to developments in the sector: (38781), + ADDs 1–3, COM(18)281; (b) Proposal for a Directive amending Directive 2006/1/EC on the use of vehicles hired without drivers for the carriage of goods by road: (38782), 9669/17 + ADDs 1–4, COM(17)282.
9.15Regulation 1071/2009 on access to the occupation of road transport operator and Regulation 1072/2009 on access to the international road transport market were adopted as part of a package of measures seeking to modernise EU rules in this area. The Regulations sought to strengthen the efficiency and competitiveness of the internal market in road transport, recognising in particular the existence of restrictions on cabotage operations. Both Regulations set out provisions to be complied with by undertakings engaging in passenger and freight road transport operations, and on undertakings wishing to operate on the international road haulage market and in national markets other than their own.
9.16The Regulations were considered by a previous Committee in July 2007, and were cleared from scrutiny in June 2008.
9.17The Commission conducted an evaluation of the Regulations between 2014 and 2015 and concluded that the Regulations were only partly effective in achieving their original objective of creating balanced conditions for competition between resident and non-resident hauliers. The main difficulties encountered related to application and enforcement of the rules. In particular, the Commission identified the following issues:
9.18The Commission, in its impact assessment, states that inconsistent application and enforcement of the Regulations has contributed to a higher risk of activities such as illegal cabotage and the setting up of “letterbox companies”. It states that the use of letterbox companies by hauliers in high-wage Member States to benefit from lower labour costs and less costly social welfare contributions, was identified as a key concern in the public consultation.
9.19While there is at present a lack of reliable information on the number of letterbox companies, a study for the Commission estimated that in 2012 at least 430 were in operation. The same study estimated that hauliers setting up these illegal entities obtained a 31 per cent cost advantage against competitors who were properly established in their Member State of operation.
9.20The Commission acknowledges that illegal cabotage is a problem affecting some states in particular, and that the infringement rate can vary from less than 1 per cent (in the UK, Germany, Poland, Italy and Denmark) to 7 per cent in France and a potential 24 per cent in Sweden. Its impact assessment qualifies this by noting that these figures are extrapolated from data from random checks as well as other sources, and cannot therefore be considered fully reliable.
9.21The Commission states that
“while the prevalence of illegal cabotage and letterbox companies may seem relatively limited based on the data presented above, these illegal practices have wider-reaching consequnces. Several Member States [Germany, France, Italy and Austria] have adopted national uncoordinated measures to fight illegal cabotage and letterbox companies, such as the systematic application of the national minimum wage laws to hauliers providing international transport services and cabotage in their territory. These national measures have significant consequences on the internal market in terms of high costs for non-resident hauliers”.
9.22The political sensitivities around this issue are highlighted by the Commission’s comments on the negative impacts of letterbox companies that “there is a clear divide between EU-15 respondents (77 per cent indicating very important or significant impact) and EU-13 (31 per cent indicating very important or significant impact)”.
9.23Directive 2006/1/EC on the use of vehicles hired without drivers for the carriage of goods by road was a codification of two earlier Directives, and the Commission informs us that its provisions have not been amended for over 25 years. A previous Committee had considered the Directive in 2003 and cleared it as not having legal or political importance.
9.24The Directive applies to all goods vehicles, and to all forms of hiring (short-term renting or long-term leasing), so long as the vehicle is put at the disposal of the undertaking hiring it. Member States are required to ensure that that undertakings are able to use, for the carriage of goods by road, hired vehicles under the same conditions as vehicles owned by them as long as the hired vehicles are registered or put into circulation in compliance with the laws in their countries.
9.25This general rule was subject to two permitted exceptions. Member States could forbid the use of hired vehicles with a mass above six tonnes for own account transport operations. Member States could also forbid the use of hired goods vehicles on their territories if certain conditions listed in the Directive were not met, but had to permit use if the conditions were met. They were also free to specify less restrictive conditions if they wished.
9.26One of the four listed conditions was that the vehicle is registered or put into circulation in compliance with the law of the Member State where the undertaking hiring it is established. This meant that if a vehicle was hired in a Member State other than the one where the undertaking is established, Member States were not obliged to allow its use in their territory.
9.27A Commission evaluation in 2015 found that the Directive provided a legal framework within which transport operators had more flexibility to respond to temporary or seasonal demand peaks by using hired vehicles, rather than deploying capital to invest in purchasing vehicles. They were also able to make cost savings based on being able to use hired vehicles, which are generally newer, more reliable and more fuel efficient, compared to vehicles owned by operators.
9.28However, the evaluation identified a number of shortcomings related to the discretion available to Member States to restrict the use of hired vehicles.
9.29Four Member States (Greece, Italy, Spain and Portugal) ban the use of hired goods vehicles with a mass above six tonnes for own account operations. These Member States account for 11.5 per cent of total EU road haulage activity on own account. The Commission believes that this restriction hinders the productivity of own account operators, citing the finding that the share of empty runs during own account operations in these four Member States is significantly higher than the corresponding share in Member States without such a restriction.
9.30Another consequence of this restriction has been a comparatively underdeveloped vehicle renting and operational leasing market in these four Member States, leading to a lack of competition and higher prices.
9.31Another problem identified in the evaluation was the ability of Member States to restrict the use of cross-border hiring of goods vehicles. This affected vehicle hiring firms as well as hauliers.
9.32Vehicle hiring firms reported that they were unable to optimise the use of their fleets by shifting them from the Member State where they were registered in order to meet supply gaps and seasonal demand in another Member State. They would instead have to maintain spare capacity in each Member State in order to meet fluctuating demands.
9.33Representatives of haulage operators also responded that the restrictions served to limit the flexibility of transport operations and the competitiveness of the sector. The Commission’s evaluation found that at present there is apparently little cross-border hiring activity, but that this is due to the patchwork of rules across the EU and the consequent legal uncertainty for businesses.
9.34The evaluation reports that eight member states (including the UK) do not place restrictions on the use of vehicles hired in another Member State by national operators. However, the remaining 20 Member States have requirements for national registration of such vehicles. Similarly 18 Member States (including the UK) do not have restrictions on the use of vehicles hired in a third Member State by operators from another Member State.
9.35The evaluation found that a number of Member States were concerned that vehicle hiring companies would engage in tax optimisation by registering their fleet in lower-tax Member States and hiring to operators in higher-tax Member States. The Commission acknowledges that removing the restriction may lead to additional enforcement costs incurred by national authorities in preventing companies from flagging out their whole fleet in this manner.
9.36However, the Commission believes that the proposed changes are necessary so as establish a level playing field in the EU road haulage market, to create a uniform regulatory framework on the use of hired vehicles, to allow transport operators to carry out their activities as efficiently as possible, and to support the reduction of negative social and environmental aspects of transport.
9.37At present, hauliers operating solely with light commercial vehicles (LCVs) are not covered by Regulation 1071/2009. In order to ensure standards and to approximate competitive conditions between operators, it is proposed that they should now to be brought within its scope. However, LCV operators will not be subject to the full regulatory regime: they would need to comply primarily with requirements on effective and stable establishment and appropriate financial standing. Member States would also have discretion to apply other criteria listed in the Regulation, such as being of “good repute” and maintaining “professional competence”.
9.38Member States will be required to report to the Commission information on the activities of hauliers with LCVs operating within their territory.
9.39Member States will not be able to impose additional conditions beyond those listed in the Regulation. At present, there is scope for Member States to do so, which has led to divergences across the internal market in eligibility to enter the profession.
9.40The problem of letterbox companies is addressed by seeking to ensure that undertakings established in a Member State have a real and continuous activity there. Businesses would need to hold assets and employ staff in the Member State of establishment in proportion to the establishment’s activity. Commercial and labour contracts would need to be kept in premises situated in the Member State of establishment. The revised Regulation also seeks to better distinguish between the conduct of administrative and commercial activities, and operations involving vehicles.
9.41The proposal makes amendments to clarify and further harmonise the assessment of good repute and to extend the list of infringements which may lead to loss of good repute.
9.42Serious infringements of national tax rules or EU rules on the posting of workers and the law applicable to contractual obligations are to be taken into account when assessing the good repute of an undertaking. The administrative process to be followed by the competent authority of a Member State in determining whether a transport undertaking or transport manager has lost good repute is also specified.
9.43In addition, the Commission will be empowered to define the degree of seriousness of infringements according to their potential to distort competition.
9.44Additional elements of information regarding undertakings are to be included in national electronic registers, so as to enable better enforcement of rules on access to the profession.
9.45The Regulation specifies a maximum time period (25 days working days from receipt of request) within which Member States must supply information on an undertaking requested by another Member State. It also establishes an obligation on Member States to conduct inspections and investigations on possible non-compliance with the criteria on establishment by undertakings established in their territories. If a Member State considers that a request is insufficiently reasoned, it must inform the requesting Member State within ten working days.
9.46It is also proposed that Member States be required to report to the Commission information on the activities of hauliers operating with LCVs within their territories.
9.47The definitions of a cabotage operation have been clarified, to state that it can involve several loading points, several delivery points or several loading and delivery points.
9.48Amendments are made to existing cabotage restrictions. The proposals remove reference to the maximum number of cabotage operations which may be carried out in a host Member State following an incoming international carriage. It also reduces the maximum number of days permitted to carry out such cabotage operations. Consequently, the restrictions will move from a maximum three operations in a seven day period to an unlimited number of operations in a five day period. The Commission believes that these amendments will make cabotage rules easier to enforce.
9.49The revised Regulation provides that evidence of compliance with cabotage restrictions should be provided during roadside checks and possibly through electronic means, including transmission of information from the undertaking’s head office. This is intended to simplify procedures and remove legal uncertainties over the timing of the presentation of the evidence required.
9.50Member States will be required to carry out checks on a minimum 2 per cent of cabotage operations to determine compliance. They will be also be required to carry out a minimum of three concerted roadside checks per year.
9.51Shippers and freight forwarders will be liable to sanctions if they knowingly commission transport services that involve infringements of the Regulations.
9.52The Commission proposes to allow undertakings to use vehicles hired anywhere in the EU all over the EU. However, in recognition of the fact there are considerable differences in the rates of vehicle taxation, the revised Directive will permit Member States to limit the period of such use to not less than four months.
9.53Member States will also lose their discretion to restrict the use of hired goods vehicles above six tonnes for own account operations.
9.54The Parliamentary Under Secretary of State for Transport (Jesse Norman) informs us that
“in general the Government understands the Commission’s objective to remove impediments to market access and the effective movement of freight, but is still considering the detail of these proposals. The outcome of negotiations will determine whether the measures will apply to the UK once the UK has left the EU, however there would also be an impact on operators from non-EU or EEA countries when operating in EU/EEA countries”.
9.55With regard to specific elements of the proposal, the Explanatory Memorandum sets out the following responses:
9.56The Government welcomes the Commission’s attempts to address the problem of letterbox companies. It believes that the requirement for undertakings to hold assets and employ staff in the Member State of establishment in proportion to the establishment’s activity should help alleviate the problem to a degree. However, it adds that this can only be achieved if enforcement is conducted uniformly across the EU, and in particular in Member States where the problem is more prevalent due to financial benefits.
9.57The Government does not believe that the Commission has made an effective case backed up by firm evidence to bring LCVs within the scope of the legislation. The Memorandum notes that the Commission’s impact assessment contains
“limited analysis on the proposed partial extension however the Impact Assessment claims financial standing and establishment requirements could increase operating costs by up to 10 per cent However limited evidence has been provided to support the claim that there is an issue in the market regarding LCVs or the benefits of the proposal”.
9.58The Parliamentary Under Secretary of State informs us that “the Government will give careful consideration to the proposed changes on cabotage”. It believes that the proposal to remove the maximum number of cabotage operations that can be carried out after an international carriage would simplify the enforcement process. However, freight representative associations have expressed concern that this liberalising measure could give foreign hauliers an unfair advantage by allowing them to operate more extensively in the UK market.
9.59The Government does not that think that the Commission’s impact assessment gives sufficient consideration to the wider economic impact of the proposal and the ability of domestic markets to fill the potential void. With particular relevance to the UK’s position following its withdrawal from the EU, the Memorandum notes that “operators who are not from EU or EEA Member States will be unable to undertake cabotage within such states, and vice versa”.
9.60The Government welcomes clarification of the legal framework allowing the use of electronic documents, as this will help reduce costs and simplify enforcement. The proposed requirement to include additional information on national registers is not expected to present a problem for the UK, as existing processes are robust.
9.61The imposition of mandatory timescales for Member States to respond to information requests has been welcomed cautiously by UK enforcement agencies. However, they believe that the proposed additional requirements for Member States to conduct a minimum number of compliance and roadside checks on cabotage operations could impose an undue enforcement on law enforcement bodies, and could impact on their ability to conduct other, more road safety critical, activity.
9.62The Government notes that at present, for road safety reasons, the UK requires operators to have suitable parking for vehicles, and that the Government wishes to retain this in national legislation. The proposal as currently drafted would not permit this.
9.63The Explanatory Memorandum notes that the Commission’s impact assessments highlight increased aggregate implementation and enforcements costs for Member States.
9.64While there will be savings to businesses arising from the use of electronic documents, other changes will increase operating costs, including of up to 10 per cent for operators of LCVs for complying with the establishment and financial standing criteria.
9.65The Commission also believes that there will be some reduced costs for operators of HGVs due to a reduction in the number of vehicles on cabotage operations, with a corresponding increase in productivity leading to a modest increase in tax revenues.
9.66The Government states that
“thought will have to be given on how this is divided into costs for the UK which may be difficult as some of the evidence used is based on survey data rather than actual figures. Costs may vary significantly between Member States and we are still scrutinising the detailed figures”.
9.67Working Party consideration of the Mobility Package commenced in June. The Estonian Presidency will provide a Progress Report setting out high-level areas of progress at the Transport Council in December.
120 ‘Cabotage’ is defined by the Commission as “national transport operations carried out by non-resident operators …….. in a host Member State”.
121 A letterbox company is one that is set up in one country with the intention of circumventing legal obligations such as tax, social security, VAT and minimum wage rules in another.
122 82 per cent of cabotage activity takes place in France and Germany.
123 Existing member states before 2004.
124 Member states that joined in 2004, 2007 and 2013.
125 The evaluation reported that there was no information from the remaining ten Member States.
1 December 2017