compliance of rail border agreements

Colin Buchanan and Partners Introduction

Study on Compliance of Rail Border Agreements with EU Rail & Competition Legislation 1-1

COLIN

BUCHANAN AND PARTNERS Planning, Transport, Economics Software, Market Research European Commission A study on the compliance of rail border traffic agreements with EU rail and competition legislation

Project No: 78621 June 2005 Newcombe House, 45 Notting Hill Gate London W11 3PB Telephone: 020 7309 7000 Fax: 020 7309 0906 email: [email protected]



Important note In January 2004, the Directorate-General for Energy and Transport of the European Commission appointed a consortium led by Colin Buchanan and Partners in association with Pegasus Transconsult Ltd to undertake a study on compliance of agreements on cross-border rail transport with Community rail and competition legislation. The consortium presented the final report in June 2005. It should be underlined that there is now a wealth of Community legislation in force or in preparation which intends to establish a European Single Market for rail transport services. However, the Community legal framework is still in a transitory period until all the common rules on market access, interoperability and safety will be fully implemented and practically operational. The study takes stock of the existing agreements as of July 2004 with some updates until January 2005 and can hence not take into account regulatory evolutions and events occurring after that date or having an effect on the market at a later stage. Thus, many problems related to the application of border crossing agreements identified by the Buchanan study are likely to vanish once the final European legislative regime is fully in place. However some of the recommended follow-up actions are still relevant during the transitory phase or are likely to remain relevant even after the implementation of a completed EU legal framework. The opinions expressed in the report are entirely those of the consortium and do not commit the European Commission.



CONTENTS 1. EXECUTIVE SUMMARY 1-1 1.1 Overview 1-1 1.2 Purpose of the study 1-1 1.3 Scope of the study 1-1 1.4 Changing patterns of operation 1-2 1.5 Multilateral treaties 1-2 1.6 Bilateral treaties 1-3 1.7 Multilateral inter-railway agreements 1-3 1.8 Bi-lateral inter-railway agreements 1-4 1.9 Projection of services 1-4 1.10 Compliance with other aspects of EU law 1-5 1.11 Remedies 1-5

2. INTRODUCTION 2-1 2.1 Authority & brief 2-1 2.2 Scope of the study 2-2 2.3 The study team 2-2 2.4 Background 2-3 2.5 Study methodology 2-7 2.6 Assistance provided 2-7 2.7 Structure of the report 2-7

3. CONTEXT & STRUCTURE OF AGREEMENTS 3-1 3.1 The environment in which frontier and handover agreements

operate 3-1 3.2 EU Legislative background 3-4 3.3 Changes in the way railway undertakings interrelate 3-8 3.4 Implications of these changes on agreements between railway

undertakings 3-12 3.5 Legal issues 3-1

4. MULTILATERAL INTERGOVERNMENTAL AGREEMENTS 4-1 4.1 An overview 4-1 4.2 Agreements managed by the UNECE 4-2 4.3 Technical Unity 4-8 4.4 Convention concerning International Carriage by Rail (COTIF) 4-9 4.5 Organisation for the Co-operation of Railways and the

agreements it manages 4-14 4.6 The Simplified Procedure for Transit by Rail (Customs) 4-23 4.7 Recommendations 4-27

5. OTHER MULTILATERAL AGREEMENTS 5-1 5.1 Introduction 5-1 5.2 Other multilateral – railway trade associations 5-1 5.3 Other multilateral – The International Union of Railways (UIC) 5-2



5.4 Other multilateral – Brussels Clearing Centre 5-10 5.5 The Community of European railways and Infrastructure

Companies 5-12 5.6 The European Association of Infrastructure Managers (EIM) 5-12 5.7 RailNetEurope (RNE) 5-13 5.8 Forum Train Europe (FTE) 5-14 5.9 International Passenger Routing Agreement (ВМПС) 5-15 5.10 International Rail Transport Committee (CIT) 5-15 5.11 Other multilateral – RIC and RIV 5-26 5.12 PPW 5-35 5.13 Recommendations 5-36

6. BILATERAL INTERGOVERNMENTAL AGREEMENTS 6-1 6.1 Overview 6-1 6.2 Clauses in bilateral treaties 6-6 6.3 Rights and obligations placed on railway organisations 6-17 6.4 Recommendations 6-19

7. OTHER BILATERAL AGREEMENTS 7-1 7.1 Overview 7-1 7.2 Hierarchy of law 7-3 7.3 Classic agreements between railways 7-4 7.4 Classic agreements between railways – problem areas 7-16 7.5 Rewriting of the agreements between railway undertakings 7-18 7.6 Rewriting of agreements between infrastructure managers 7-24 7.7 Recommendations 7-26

8. TECHNICAL AND OPERATIONAL PROBLEMS AT FRONTIERS 8-1 8.1 Overview 8-1 8.2 Practical issues for new entrants 8-3 8.3 Technical issues 8-3 8.4 Safety issues 8-5 8.5 Operational issues 8-5 8.6 Taxation issues 8-6 8.7 Recommendations 8-6

9. COMPARISONS 9-1 9.1 Overview 9-1 9.2 Other industries 9-3 9.3 Lessons to be drawn 9-6 9.4 Recommendations 9-7

10. WHAT AGREEMENTS MUST CONTAIN 10-1 10.1 Overview 10-1 10.2 General elements in treaties 10-2 10.3 Treaties for the construction of a railway 10-3 10.4 Treaties for the award of a concession 10-4 10.5 Treaties for the operation of a railway 10-4 10.6 Agreements between railway undertakings 10-6 10.7 Agreements between infrastructure managers 10-7



10.8 Role of safety authorities for international sections of line 10-8 10.9 Relationships between infrastructure managers and international users of the infrastructure 10-9 10.10 Action to be taken by states 10-9 10.11 Recommendations 10-10

11. RECOMMENDATIONS 11 11.1 Preliminary observation 11 11.2 Recommendations for no action 11 11.3 Recommendations for the Commission 11 11.4 Recommendations for Member States 13

APPENDICES

Appendix A Commission’s Specification for the Study

Appendix B List of Frontier Points

Appendix C Table of Memberships of International Treaties

Appendix D Table of Memberships of Railway Agreements

Appendix E Table of Agreements between States and between the Railway Undertakings

Appendix F Respondents

Appendix G UIC Leaflets mentioned in the text

Appendix H Glossary and Abbreviations



1. EXECUTIVE SUMMARY

1.1 Overview

1.1.1 In January 2004 a consortium led by Colin Buchanan and Partners (CBP) in association with Pegasus Transconsult Ltd (PTC) was appointed by the Directorate-General for Energy and Transport of the European Commission (the Commission) to undertake a study into Compliance of rail border agreements with EU rail and competition legislation (Contract Number ETU/B27040B/E2/SO7.28268/2003 ) (the study).

1.1.2 This executive summary reviews the principal findings of the study.

1.2 Purpose of the study

1.2.1 The purpose of the study was to carry out a survey of the treaties and agreements for cross-frontier rail traffic currently in force at EU internal and external frontiers. The emphasis of the study was on operation of the Single Market within the rail mode, with a particular focus on compliance with EU legislation and policy objectives. In essence the study was to identify failings in market access and in compliance with other aspects of Community law.

1.3 Scope of the study

1.3.1 The study looked at all treaties between states which concerned rail frontier operations, whether they were multilateral (such as COTIF) or bilateral such as the various frontier traffic agreements. The study did not examine agreements which simply concerned policing and similar activities in any detail.

1.3.2 The study examined all the agreements managed by railway trade associations and which concerned frontier operations in some detail. In doing so, it was necessary to look in some detail at the total activity of the trade associations themselves. The study also looked at the agreements between railway undertakings such as they are currently and the manner in which they are transforming.



1.3.3 The study did not however look at general agreements between railway undertakings which did not concern cross border activities per se.

1.3.4 Agreements between railway undertakings concerning frontier issues implies handover of traffic and so the study did not look at long distance penetration by railway undertakings in any depth; as will be explained below, this exclusion is of less importance than might be imagined.

1.4 Changing patterns of operation

1.4.1 As a backdrop, it might be useful to examine how railway undertakings have interfaced at frontiers and how that might develop in the future.

1.4.2 In the classic relationship an integrated railway owned infrastructure up to the state frontier and trains transferred from being a train of one railway to being a train of the other on crossing the frontier. Revenue and safety responsibilities transferred at the same point. Operating and safety issues were resolved by mutual assurances. Operation across the frontier between two equal status frontier stations was shared. This model has clear deficiencies in a liberalised context (and perhaps always did have).

1.4.3 In more modern agreements, the location of handover is less likely to be at the frontier, each undertaking has its own safety relationship with the infrastructure manager and so handover represents a real transfer, commercial and operating responsibility transfer on handover and there is no sharing of operations.

1.4.4 Railway undertakings have been forming groupings for some time, the best known perhaps being Railion with group members in three countries, a subsidiary in a fourth and an alliance in a fifth. It is not alone, new entrant companies are also forming subsidiaries. These subsidiaries allow seamless transport but allow national railway undertakings to have national safety authorisations, simpler accounts and simpler regulatory arrangements. Whilst it may be implicit rather than explicit, such an arrangement involves handover between two railway undertakings at or near a frontier.

1.5 Multilateral treaties

1.5.1 The Consortium looked at a range of transport treaties. Many have been overtaken by events, some indeed (such as Technical Unity) are



now so out of date as to be an embarrassment and should be abrogated. The principal multilateral treaty which the study looked at was COTIF. COTIF does not in fact say much about frontier arrangements but it did seem to the study team that the Commission would do well to exploit its coming accession to COTIF to align COTIF and Community law.

1.6 Bilateral treaties

1.6.1 There would seem to be two schools of thought, many states left the treaties dating from the construction of the respective railways in place, others, particularly in central Europe, revised treaties so that the majority date between 1950 and 1995. The earlier treaties tend to be simple and lay down few expectations of railway undertakings. More recent treaties tend to deal with interstate issues but empower and require railway undertakings to make agreements with other undertakings on railway operating questions. The study team were not persuaded that states need treaties between themselves to regulate a steady-state rail link (and some states did not have one). Treaties for construction are quite different and the report suggests some issues that might figure in a treaty for construction. Many states regard treaties as needing to be interpreted dynamically in accordance with developing circumstances rather than literally, this approach allows for liberalisation within the mode. Where treaties are interpreted in accordance with EU law, the study sees no overwhelming need for such treaties to be formally amended or abrogated but there may be circumstances in which states would do well to make a formal amendment to recognise that treaty provisions are out of line with Community requirements.

1.7 Multilateral inter-railway agreements

1.7.1 There are a number of explicit multi-lateral inter-railway agreements, such as those for the mutual use of rolling stock and other practices, principles and understandings that arise from the membership of railway trade associations.

1.7.2 The study identified some deficiencies in the agreements for the mutual use of rolling stock in that insufficient scope for competitive forces in the supply of vehicles was allowed. In addition, these agreements appeared to be the mechanism for a large number of specifications (on loading, for example) and standing industry data. It seemed to the study team that better ways to manage industry specifications and data should be found.



1.7.3 Agreements and practices that followed from membership of industry bodies were not always appropriate for new entrants. Some trade bodies are in the process of reconstituting themselves as specialist advisors to actors in the European rail market, it is appropriate that their advice does not contain implicit bias. One trade body held the rights to essential documentation for freight traffic. It is important that access to such documentation is available on non-discriminatory terms.

1.8 Bi-lateral inter-railway agreements

1.8.1 The classic inter-railway agreements which the treaties mentioned above postulate are agreements between integrated railway administrations. They all followed models proposed by the UIC which may have been appropriate at the time but which are now seriously anomalous. There was evidence that some railway undertakings were reticent to sign agreements and had thus limited competition. There was also evidence that all over Europe it had been recognised that these agreements are no longer appropriate. In some cases that was accompanied by a change in operating practices so that both the agreements and inherited handover practices were being changed.

1.8.2 Instead railway undertakings are starting to make agreements with each other on a modern basis. This process has not yet gone very far but has started almost everywhere. The agreements by their nature presume a commercial agreement to handover traffic. The agreements are concluded in a spirit of co-operation. The study team believe therefore that competition is not likely to be restricted by what is provided for in the agreement itself, but rather restricted by any refusal to handover at all. Railway undertakings were not able to point to agreements being made with other than historic partners. Competition within the mode is increasing but it is tending to become competition between international groupings each with national subsidiaries. This is a significant finding.

1.9 Projection of services

1.9.1 Whilst agreement between railway undertakings imply a preparedness to make facilities available, the study team felt that a railway undertaking that projected its service could find the provision of facilities a problem. EU law defines the facilities to be provided by infrastructure managers but where those facilities, fuelling points, shelter for waiting train-crew etc are controlled by competing railway undertakings, a problem could arise.



1.10 Compliance with other aspects of EU law

1.10.1 The study team found some examples of conflicts with EC competition and railway law, a few were related to technical specifications or safety arrangements.

1.11 Remedies

1.11.1 It has been difficult for some new entrant railway undertakings to assert rights. Many have had to go to law and some to spend not inconsiderable sums. Precedents have already been set but it seemed to the study team that national governments need to make national competition authorities more aware of the potential for abuse.



2. INTRODUCTION

2.1 Authority & brief

2.1.1 In January 2004 a consortium led by Colin Buchanan and Partners (CBP) in association with Pegasus Transconsult Ltd (PTC) was appointed by the Directorate-General for Energy and Transport of the European Commission (the Commission) to undertake a study into Compliance of rail border agreements with EU rail and competition legislation (Contract Number ETU/B27040B/E2/SO7.28268/2003 ) (the study).

2.1.2 The study’s purpose was to carry out a survey on agreements for cross-frontier rail traffic currently in force in the EU fifteen original Member States, in the eight new Member States with railway systems, and in Switzerland and Norway. The emphasis of the study is on operation of the Single Market within the rail mode, with a particular focus on compliance with EU legislation and policy objectives.

2.1.3 In essence, the main tasks identified by the Commission were to:

• document the agreements, distinguishing between inter-governmental agreements, agreements between railway undertakings implementing an inter-governmental agreement, or an agreement going beyond the latter;

• summarise the main provisions and the related services intended to be covered by the agreements briefly (such as access to service facilities, traction, etc.);

• identify provisions that appear to be at variance with EU legislation applying to the railway sector (and in particular those related to market access, safety and interoperability) or with competition and internal market rules, and the reason for this;

• evaluate the Community dimension of legal problems caused by border traffic agreements (specifically intergovernmental agreements and bilateral agreements between railway undertakings) and other relevant documents;

• make suggestions to bring non-compliant agreements and associated documents into line with EU existing legislation in a coherent and comprehensive manner.



2.2 Scope of the study

2.2.1 The Commission’s specification for the study is included as Appendix A to this report. It provides a full description of its requirements.

2.2.2 The Consortium did not examine agreements between railway undertakings that were outside the scope of handover or frontier agreements (for example, general agreements for the provision of traction such as the German - Austrian agreement of 1973) (as distinct from cross-frontier traction)). The Consortium consider that they fall outside the scope of “border traffic agreements” defined in the invitation to tender. On the other hand agreements to provide or share the provision of traction over cross border sections come within the study remit.

2.2.3 Likewise the operation of end to end services by a single carrier and therefore without handover agreements was regarded as being outside the scope of the study.

2.2.4 Agreements on marketing international passenger traffic (such as the Franco-Swiss Lyria or the Franco-Italian Alésia) were likewise regarded as being outside the scope of a study on frontier traffic agreements even though they may raise valid questions of access to the market.

2.2.5 Agreements between railway undertakings that refer to traffic links that are not continuous (such as ferry links) have not been considered.

2.3 The study team

2.3.1 The Consortium consisted of the following members:

• Colin Buchanan & Partners;

• Pegasus Transconsult Ltd;

• Logistik und Transport-Consult GmbH;

• Jeremy Scholes.



2.4 Background

Rail’s position in the market

2.4.1 In a European Single Market where traditional state boundaries have diminishing relevance to personal mobility patterns, a greater orientation towards international traffic is required. Rail has shown a disappointing performance on international journeys despite the disproportionate increase in the number of international journeys in the market as a whole. If rail is to succeed it needs to develop services that achieve a mix of commercial speed, price and service quality that responds to the market and is competitive with the offer from other modes. For international markets this implies operations which are specifically international rather than the linking of national operations. That in turn raises the issues of eliminating the effects of frontiers.

EU policy background

2.4.2 The Commission’s transport policy, defined in the White Paper European transport policy for 2010: a time to decide1, is to make the best use of the Community’s transport arteries to allow economic growth without insupportable congestion. The Gothenburg European Council placed shifting the balance between modes of transport at the heart of the sustainable development strategy. This policy requires the railway industry to make a much more substantial contribution than it has hitherto.

2.4.3 The Commission has identified commercial and operational sclerosis within the traditional national railway organisations as a significant barrier to development of traffic and one which can only be resolved by competition in the provision of transport services. Indeed the White Paper specifically comments:

“Rail transport is literally the strategic sector, on which the success of the efforts to shift the balance will depend, particularly in the case of goods. Revitalising this sector means competition between the railway companies themselves. The arrival of new railway undertakings could help to bolster competition in this sector and should be accompanied by measures to encourage company restructuring that take account of social aspects and work conditions. The priority is to open up the markets, not only for international services, as decided in December 2000, but also for cabotage on the national markets (to avoid trains running empty) and for international passenger services. This opening-up of the markets must be

1 COM(2001)370, European transport policy for 2010: time to decide.



accompanied by further harmonisation in the fields of interoperability and safety.”

2.4.4 The White Paper specifically points to the role of competition policy to achieve these objectives “taking consistent measures in the context of … competition policy to ensure that opening-up of the market, especially in the rail sector, is not held back by dominant companies already operating on the market”.

2.4.5 ERFA (the European Rail Freight Association) goes further and says “competition and the emergence of private companies are probably the last chance for the emergence of rail freight in Europe”2.

The creation of rail frontiers

2.4.6 It is normal for governments to become involved in frontier interfaces. At the beginning of the railway era these agreements were highly specific, but they soon became standardised. It was normal to lay down the responsibilities of the various parties and in doing so, state railways were nominated as beneficiaries of the rights to operate trains. These frontier agreements laid down not only details of the rights to operate trains but also such details as the immigration regime for staff, police powers on international trains and many other issues. Under modern conditions these rights to operate trains must be widened, and in particular there must be no explicit or implicit restrictions on the opening of the market to provide rail services. This therefore does not only mean that the right to operate trains may not be circumscribed but also that formal agreements must not limit access to essential facilities (see below) or limit the ability to provide ancillary services (such as customs clearance).

2.4.7 The UNECE paper (W/TRANS/285 of 14 March 1961) cited in the Tender Specifications gives details of treaties going as far back as 1846 (between Prussia and the Netherlands on the Aachen – Maastricht railway (the study identified however that it was abrogated in 1966)). Many, however, are a consequence of the peace treaties and the creation of a number of new states following the First World War. The Treaty of Versailles contains a complete section on railway and port issues (Part XII). Many treaties have lost their practical importance in so far as general agreements on policing of the frontiers, customs arrangements, railway technology and so on (in particular made under the aegis of the European Community) have overtaken them.

2.4.8 The crux of the Commission’s policy is to drive efficiencies into the railway industry. Where these efficiencies can be derived from

2 Klaus Meyer quoted in The Railway Gazette, Sept 2004.



‘through’ operation on an international scale, effectively paying no regard to frontiers, then there must be no barriers to through operation. The existence of agreements specifically governing operations at frontier points however may frustrate this objective if the agreements are not revised. It is therefore crucial that institutional restrictions linked to frontiers are minimised and comply with EU legislation.

2.4.9 Where railway undertakings wish to hand-over traffic en route (to avoid linguistic problems or fiscal issues for example) then this too must be facilitated. To encourage competition it is important that any agreements on traffic arrangements at hand-over points do not deliberately or unintentionally discriminate against new, different or new entrant undertakings. In this connection, it is notable that during the preparation of this report, Rail4Chem and Short Lines announced arrangements to hand over traffic as successive carriers.

2.4.10 Railway undertakings must have the freedom to decide how to operate their services, freed from the limitations of industry agreements and subject only to valid technical and safety limitations. In this way the disjunctions within the industry will evolve from being between at state frontiers to being interfaces between regulatory and technical environments. The continuing work being done to harmonise regulatory and technical standards should provide an ever more uniform “railway area” to allow competition on the basis of service and price.

2.4.11 There are a number of factors which impede free passage over frontiers. These factors may be considered as being of four types: technical, operations, legal and administrative and attitudinal.

2.4.12 Technical limitations are linked mainly to interoperability of vehicles. The free passage of trains across frontiers is often limited by technical limitations on locomotives. Locomotives only suitable for a single electrification system are clearly limited but even diesel locomotives (extensively used by new entrant railway undertakings) may be severely constrained by a lack of track-train signalling equipment. The reluctance of infrastructure managers and approval bodies to authorise cross frontier operation have been described in the NERA report3 on safety regulations. Some new entrant passenger operators told the Consortium that they avoid these difficulties by changing traction before the normal frontier stop and getting their partner to supply cross frontier traction. This is a neat solution but comes at the expense of a stop at a station which may not be a traffic point. It is not likely to be suitable for freight where lay-by sidings are normally only found on one side of the frontier. Whilst technical limitations fall outside the strict scope of the remit for this report, it is clear that technical issues have had 3 Safety Regulations and Standards for European Railways, a report for the European

Commission, NERA February 2000.



a profound effect on the development of international services. They are therefore considered further in section 7 below.

2.4.13 The second issue principally concerns effective deployment of staff. Train crew are normally changed at frontier stations. There are a number of reasons for the change of staff, some well founded on economic or other grounds, others less justifiable.. Amongst the reasons for changing are staff certification, linguistic issues, employment conditions, effective use of staff out and home etc. The Atkins report4 on staffing however found that the almost systematic changing of staff at the frontier was artificial and imposed limitations on the effective use of staff. Staffing constraints however come outside the scope of this report and will not be considered further.

2.4.14 The third issue is legal and administrative. In this area come (for example) problems which new entrant railway undertakings may have because of agreements made between incumbent railway undertakings which have a restrictive effect. These agreements are central to this report.

2.4.15 The last issue is attitudinal. Some new entrant railway undertakings told the Consortium that incumbent railway undertakings were reluctant to accept hand-over from new entrant undertakings, declaring they did not want to upset their relationship with their principal partner.

2.4.16 These two grounds, the reduction of restrictions specifically linked to frontiers and the elimination of restrictions linked to hand-over between railway undertakings (wherever that might be) both justify a study of agreements designed to govern frontier operations and on handing over traffic. Identifying these restrictions is the first step in removing them or verifying they are at least non-discriminatory.

2.4.17 Some restrictions follow from intergovernmental treaties, some from inter-railway agreements, others may be the consequence of conventional railway practices designed for the needs of integrated railways. These latter agreements often date from the epoch before liberalisation and are not specifically intended to restrict competition but nevertheless have that effect. An objective of this study has therefore been to identify the areas in which agreements on frontier processing do not comply with existing (and proposed) EU legislation and to propose ways in which compliance may be achieved.

4 Training and Staff requirements for railway staff in cross-border operations, a report for the

European Commission, Atkins Denmark December 2002.



2.5 Study methodology

2.5.1 The study was undertaken in nine stages as follows:

1. collection of information;

2. collation of information;

3. assessment of scope, provisions and effects of each agreement, its practices and processes;

4. summary and comparison of the information collected;

5. assessment of the extent to which the agreements comply with existing (and proposed) EU legislation, competition and internal market rules;

6. consideration of the Community dimension;

7. comparative studies;

8. development of recommendations; and

9. reporting.

2.6 Assistance provided

2.6.1 The Consortium would like to formally record their gratitude to all those who assisted them in the course of the study. A list of these parties can be found in Appendix F to this report

2.7 Structure of the report

2.7.1 This report is structured in ten sections as follows:

1. Introduction

2. Context and structure of agreements – the environment within which the agreements operate and how the agreements fit together within this.

3. Multilateral intergovernmental agreements – the agreements that currently exist, with a description of the most important.

4. Other multilateral agreements, principally those between railway undertakings, – the rights that they confer, how well they work, their openness/whether there is any apparent bias, and whether they are considered as complying with EU legislation and policy objectives.



5. Bilateral intergovernmental agreements – agreements between states, reasons for them, provisions in detail, compliance with EU law.

6. Other bilateral agreements, principally those between railway undertakings - the rights that they confer, how well they work, their openness/whether there is any apparent bias, and whether they are considered to be compliant with EU legislation and policy objectives.

7. Technical and operational problems at frontiers – other problems at frontiers.

8. Comparisons – what happens in other parts of the World and in other modes?

9 What agreements must contain – what it is considered that the agreements should include.

10. Recommendations

Colin Buchanan and Partners Context & Structure of Agreements


3. CONTEXT & STRUCTURE OF AGREEMENTS

3.1 The environment in which frontier and handover agreements operate

Frontier tasks

3.1.1 A number of frontier tasks may be identified. Some of these are sovereign tasks of the state; others have to do with hand-over processing between railway undertakings (whether or not it takes place at a frontier):

• sovereign tasks of the state:

- immigration and police control of passengers;

- control of import and export prohibitions;

- customs controls on goods and passengers;

- plant and animal health controls on goods

- health controls on passengers;

• railway tasks:

- planning the frontier operation;

- checking the acceptability of vehicles;

- checking the loading and securing of goods;

- handing over and accepting freight traffic for commercial purposes;

- handing over and accepting responsibilities for vehicles;

- providing and processing data on trains and consignments.

Sovereign tasks of the state

3.1.2 These tasks essentially consist of policing the physical and fiscal frontiers of the state. They are undertaken directly by officials of the state. The status of a number of integrated national railways’ staffs as civil servants meant that some rail staff could undertake parastatal tasks. In fact few powers were ever extended to rail staff, immigration controls, for example, have always been in specialist hands. On the other hand, freight controls were sometimes shared with rail staff, particularly where they took place away from the frontier. Rail staff sometimes had delegated powers to clear passengers’ registered luggage for custom’s purposes for example. These examples have all but disappeared as the



processes themselves have disappeared (the internal market and the disappearance of registered luggage).

Treaties to regulate these activities

3.1.3 The impetus to negotiate bilateral intergovernmental treaties concerning railways has tended to be the result of a fairly limited set of circumstances. Amongst these have been:

• the construction of a railway;

• new circumstances across a frontier, such as the conclusion of peace treaties, perhaps creating new states;

• the creation of new states as a result of the fusion or division of earlier states;

• a change of regime (most particularly as a result of the political changes that have occurred in Eastern and Central Europe since 1989);

• changes in frontier regimes, normally in empowering ‘juxtaposition’, where permission is given to carry out police or customs formalities on the territory of another state.

3.1.4 Multilateral intergovernmental treaties have sought to standardise frontier processes, to facilitate equipment and staff working across frontiers, to minimise delays to trains at frontiers, to harmonise standards for equipment and to standardise legal relationships. Treaties therefore:

• set down technical parameters for rolling stock,

• set down standards for frontier processes (for example that customs etc formalities should be co-ordinated)

• set down standard conditions of carriage for passengers and freight and set down acceptance conditions for dangerous goods.

Railway tasks

3.1.5 Frontiers are classic hand-over points and whilst the abolition of customs and similar frontier controls has reduced the logic for carrying out rail processes in parallel at frontiers, examples of hand-over at other locations still remain comparatively rare. The details are described below but it is important to remember they are normally, but not necessarily, linked to frontiers. The study identified two cases of the converse, incumbent international (integrated) railways where the frontier played no railway role whatever, GySEV between Austria and Hungary and IR/NIR in Ireland. In both cases the railway was well



established before the frontier was created and no facilities had subsequently been created to accommodate it.

3.1.6 Whilst it is the norm for frontier sections to be owned by national infrastructure managers right up to the frontier and for the railway undertakings exchanging traffic to share cross frontier working, it is interesting that this is a comparatively recent development. The earliest treaties specifically provided for single organisation operation and hand-over within a frontier station. This practice has been replaced by through working and in fact the concept of the joint station is rapidly being abandoned.

3.1.7 More recently, major international links such as the Channel Tunnel or Øresund bridge have been built as independently financed and owned structures, sometimes quite separate from the pattern of ownership and operation in the adjacent states (as in the case of Eurotunnel), sometimes just acting as an independent infrastructure manager as in the Øresund bridge.

3.1.8 Five unconventional types of frontier were distinguished.

• Incursions of a through line with a single infrastructure manager and through services into the territory of another state without intermediate stations (as between Tende and Ventimiglia).

• Incursions of a though line with a single infrastructure manager and through services into the territory of another state with intermediate stations in that state (as between Schaffhausen and Zürich).

• Incursions of a through line with a change of infrastructure manager but through services and no intermediate stations (such as between Bischofswerda and Zittau).

• “Proper” frontiers where the infrastructure owner owns the infrastructure on both sides of the frontier and railway operations ignore the frontier (such as Pamhagen).

• Lastly extra-territorial lines (of which the Vennbahn (Belgian territory in Germany) is the only example).

3.1.9 Slightly more conventional but nevertheless requiring special arrangements are the various “corridor” arrangements in which passage of passengers and freight between two stations in the same state through a second is allowed. The Schengen agreement and the Single Market have reduced the importance of these agreements within the Community but there remain some examples on the external frontier.



3.1.10 The logic of frontier handover is in part the result of inertia, in part because facilities for hand-over exist at frontiers, in part because of the inability of most traction equipment to operate in the adjacent state and in part because interpenetration can give rise to issues of staff competence. For example BLS told the Consortium that even though their locomotives could run to Mannheim, they chose to change crews in Basel.

3.1.11 The rail mode has enormous advantages in its control of frontier facilities. In no other mode is control of frontier installations, traffic control, management of the means of transport and commercial operations so concentrated. The management of a sea port, air traffic control or port customs clearance agencies all have quite tenuous relationships with carriers; the same parallels may not be valid within the rail industry. This represents a significant issue in the context of open-access.

3.2 EU Legislative background

EU transport policy & legislation

3.2.1 As explained above, the tenor of the Commission’s policies is to enforce Single Market rights and to open up the industry to competition.

3.2.2 This in turn implies the creation of wide ranging rights for new operators to operate international trains. The first steps in this process were taken in Directive 91/440/EEC (on the development of the Community’s railways) which gave very limited rights of open access. Subsequent Directives provided for fair means of allocating infrastructure and charging for its use (95/19/EC, on the allocation of railway infrastructure capacity and the charging of infrastructure fees): and a licensing system for railway undertakings taking advantage of Directive 91/440/EEC (95/18/EC, on the licensing of railway undertakings).

3.2.3 It was clear however, that the rights of access provided under 91/440/EC would not be sufficient to meet the Community’s objectives. A further set of Directives (the infrastructure package comprising Directives 2001/12/EC, 2001/13/EC and 2001/14/EC) were therefore enacted to widen rights of access and deepen the mechanisms which ensure that those rights are fairly allocated and that railway undertakings are properly qualified, as follows:

• 2001/12/EC, amending Directive 91/440/EEC on the development of the Community’s railways;



• 2001/13/EC, on the licensing of railway undertakings;

• 2001/14/EC, on the allocation of railway infrastructure capacity and the levying of charges for use and safety certification.

3.2.4 After compromises on the implementation date for open access for freight traffic, the Second Railway Package has now been enacted. This package includes the following legislation:

• Regulation 881/2004 of 29 April 2004 establishing a European Railway Agency;

• Directive 2004/49/EC of 29 April 2004 on safety on the Community's railways and amending Council Directive 95/18/EC on the licensing of railway undertakings and Directive 2001/14/EC on the allocation of railway infrastructure capacity and the levying of charges for the use of railway infrastructure and safety certification;

• Directive 2004/50/EC of 29 April 2004 amending Council Directive 96/48/EC and Directive 2001/16/EC on the interoperability of the trans-European rail system;

• Directive 2004/51/EC of 29 April 2004 amending Council directive 91/440/EEC on the development of the Community’s railways;

(The texts of these legal instruments were reissued as corrigenda on 21 June 2004 in OJ L220).

3.2.5 The Commission negotiated terms to join COTIF as part of the Second Railway Package in June 2003. The terms negotiated were set down in:

• Commission document COM(2003) 696 of 17 November 2003 on the conclusion by the European Community of the Agreement on the Accession of the European Community to the Convention concerning International Carriage by Rail (COTIF) of 9 May 1980, as amended by the Vilnius Protocol of 3 June 1999.

These terms were passed to the Council and Parliament on 17 November 2003, they were accepted by Parliament on 10 March 2004.

3.2.6 Further proposals have been made as part of the Third Railway Package (RP III), which was proposed on 3 March 2004. It contains the following legislative proposals:

• Directive on the certification of locomotive and train drivers engaged in the carriage of passengers and goods in the Community;

• Regulation on international rail passengers' rights;



• Directive on opening up the market for international rail passenger transport services by 1st January 2010;

• Regulation on the quality of rail freight services.

These proposals continue the process of encouraging the opening of the market and of railway operation on a European scale.

3.2.7 The Directives which entered into force in 2001 and 2004 (and indeed those proposed) whilst not primarily being ‘competition’ Directives, can nevertheless be considered as having the objective of widening the market by facilitating and promoting competition.

EU competition policy & legislation

3.2.8 The Commission’s general competition policy (set down in Articles 81 and 82 of the Treaty establishing the European Community) was laid down to support the industrial policy of the Community: to “harness the competitive dynamic of the Single Market to improve European Union industrial performance"5.

3.2.9 Article 81 of the Treaty establishing the European Community prohibits restrictive practices. Article 81 reads:

1. The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market, and in particular those which:

a) directly or indirectly fix purchase or selling prices or any other trading conditions;

b) limit or control production, markets, technical development, or investment;

c) share markets or sources of supply;

d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or

5 Jovanovic: European Economic Integration, 1997



according to commercial usage, have no connection with the subject of such contracts.

2. Any agreements or decisions prohibited pursuant to this article shall be automatically void.

3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of:

- any agreement or category of agreements between undertakings,

- any decision or category of decisions by associations of undertakings,

- any concerted practice or category of concerted practices,

which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not:

a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;

b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.

3.2.10 Article 82 of the Treaty establishing the European Community prohibits abuse of dominant position. Article 82 reads:

Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market in so far as it may affect trade between Member States.

Such abuse may, in particular, consist in:

a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;

b) limiting production, markets or technical development to the prejudice of consumers;

c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;



d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

3.2.11 In the context of this study, the incumbent operators are emphatically dominant, section 4 of the report therefore considers individual inter-railway undertaking agreements to see if they give rise to questions under Article 81.

3.2.12 In accordance with Article 83 (1), competition policy was extended to land transport in 1968 (by Regulation (EEC) 1017/686). This was itself significantly revised in 2002 in effect to allow the Treaty establishing the European Community to apply directly and consistently7. The current text of Regulation 1017/68 is available as a consolidated text dated 1 May 20048.

3.2.13 Regulation 1017/68 provides for exceptions to the prohibitions in the Treaty to cover technical agreements in the field of transport by rail. The Regulation allows railway undertakings to provide services in co-operation, to agree through timetables, operate through trains with staff that travel through and to fix end to end prices. Case law however indicates that the exceptions which the Regulation provides for are to be construed narrowly.

3.2.14 It is important to note that the exemptions defined in Articles 3 & 4 of Regulation 1017/68 only refer to Article 81 (1) of the Treaty (restrictive practices). The Requirements of Article 82 of the Treaty (abuse of dominant position) therefore apply in full.

3.3 Changes in the way railway undertakings interrelate

Definitions

3.3.1 There is a need to make a distinction between the status of a railway undertaking, its acquired rights, etc. and the role it exercises in the market in question. These markets might be defined in terms of the type of traffic moved or geographically. For example, Freightliner, in the 6 Regulation (EEC) 1017/68 of 19 July 1968 applying rules of competition to transport by rail,

road and inland waterway, consolidated version dated 1 May 2004. 7 Council Regulation (EC) No 1/2003 of 16 1017/68 of 19 July 1968 applying rules of

competition to transport by rail, road and inland waterway, consolidated version dated 1 May 2004.

7 Council Regulation (EC) December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty

8 http://www.europa.eu.int/eur-lex/en/consleg/pdf/1968/en_1968R1017_do_001.pdf



United Kingdom is a railway undertaking of long-standing and thus can be regarded as an incumbent. In its core market, the movement of containers, it is emphatically the dominant undertaking. However it has set up subsidiaries to address other British freight markets, heavy haul (principally of imported coal) and infrastructure service trains. In these markets it is a “new entrant” addressing a market hitherto dominated by EWS, another incumbent carrier. Similar distinctions can be seen in Continental Europe in which incumbent regional railway undertakings have expanded to bid for freight traffic over other routes using rights under Directive 2001/12/EC or similar national rights. As examples, the regional Ferrovie Nord Milano, a long established regional Italian railway grouping, has recently started to operate international freight services (through a subsidiary), and similarly in the case of the Regentalbahn in Germany in respect of national services. This gives rise to certain problems of terminology.

3.3.2 In this report, the term incumbent railway undertaking has been used to mean a railway undertaking established before the start of liberalisation and normally with a dominant position. The phrase includes railway undertakings which are privately owned (such as EWS in the UK). Railway undertakings which make use of rights under Directive 2001/12/EC (or national law) to start or extend rail operations in particular market segments are referred to as “new entrants” although they may be incumbent railway undertakings, and indeed dominant, in other markets. The Consortium have attempted to add explanations where this distinction is not entirely clear.

3.3.3 These distinctions between incumbent and new entrant are quite distinct from the concepts of successive carriage, with handover from one railway undertaking to another along the route and end to end carriage where one carrier provides all the transport. End to end, as a new concept, is associated with “new entrant”, but successive carriage may also be associated with new entrants (where new entrants only have a safety certificate for one state, or prefer to limit their operations, for example).

Classic operations

3.3.4 Europe’s railways have traditionally been organised on entirely national lines. For the half century leading up to the 1990s, integrated national railways had an effective monopoly of operation within a state with a few minor exceptions. This meant that single bodies represented the railway industry on each side of the frontier, in some cases as governmental departments and in others as state owned corporations. Relationships between the railways were therefore simple, if not always harmonious. As trains ran across frontiers, their legal, commercial and operational status changed from being a train operated by railway A to one operated by railway B. Responsibility for the train and the



generation of revenue passed from one organisation to the next, even though there was no change to the train itself.

Freight market segments

3.3.5 In the market for the movement of freight, a number of sub-markets may be identified;

• the market for the movement of block trains from origin to destination, particularly where the consignor and consignee have private sidings. This market is very competitive and the characteristics of the movements facilitate end to end operation by a single carrier.

• the market for intermodal traffic is similarly competitive. It requires access to loading and unloading terminals although UK experience demonstrates that use of a single terminal by a number of railway undertakings is feasible (Felixstowe, where three railway undertakings use a terminal). This market also facilitates end to end operation by a single carrier.

• the disaggregated wagonload market however requires a substantial investment by the railway undertaking in facilities for marshalling and a high operating cost threshold for the local distribution services. Wagonload railway undertakings are (almost by definition) always dominant in that market. The scale of the operation has so far meant that international wagonload operation has always followed the successive carriage model. The wagonload market is therefore most likely to raise competitive concerns.

Development of the market

3.3.6 The market for rail services is developing as a result of liberalisation. In some states (notably Germany, Sweden and the UK) a number of independent railway undertakings provide both passenger and freight services. For passenger services the competition is normally for the contract to provide the services although in some cases (such as the services run by the Nord Ostsee Bahn between Hamburg and Padborg) there is also competition for the passengers themselves. These undertakings often have a rail background in that they previously operated local services or have a background in wagon ownership or freight forwarding. To the extent that they are permitted, they operate services within the state and some exchange traffic with incumbent or other independent railway undertakings. Companies such as Rail4Chem have started to operate international point to point services without exchanging traffic.



3.3.7 There have been four types of response from the incumbent railway undertakings:

• The creation of an international holding company to hold interests in individual national railway undertakings. This has been particularly a feature of states in which there are a number of railway undertakings. Thus a number of state owned freight companies joined to form Railion (Denmark, Germany and the Netherlands, the companies are jointly owned by a single holding company but each retains its national legal identity (and licences, safety certificates, access rights, etc.)). These companies appear to intend to improve operational efficiency partially through organising cross frontier operations more efficiently. So far they have kept to their collective home territory (for example, Railion does not operate within Sweden (although it has a Swedish safety certificate)).

• Alliances, such as that between Railion Deutschland and BLS which have fallen short of mergers.

• Incumbent railway undertakings have created subsidiaries in adjacent states often by buying all or part of an independent railway undertaking. In this way, SBB has an interest in Germany (SBB Cargo Deutschland) and a subsidiary in Italy (SBB Cargo Italia) and Railion Deutschland has bought a 95% share of Strade Ferrate del Mediterraneo in Northern Italy. In this way SBB Cargo for example recently started moving oil from Italy to a destination near Zürich. (New entrants have created subsidiaries too as the creation of Rail4Chem BV in the Netherlands demonstrates.)

• Incumbent railway undertakings are showing signs of wanting to operate into adjacent states on their own account. SNCB and CFL have applied for French safety certificates and SNCF for a Belgian certificate. It is not yet clear if this is for limited operations (such as for SNCB serving Lille) or for longer projections such as for SNCB running throughout from Zeebrugge to Basel. Development of cross frontier operations by incumbents has not yet become widespread, and it is not clear if incumbent undertakings are deliberately withholding competition in order not to have to face it themselves.

3.3.8 Where access to the market has been ensured, as in Germany this brings market disciplines to the rail services. The effect of the formation of groupings to carry international traffic is less clear. Even when they are a response to other groupings along the same axis there is a risk of creating an oligopoly and imperfect competition (a point not lost on the



Court of First Instance in its consideration of the ENS9 case). It is possible that groupings will be able to reduce operational inefficiencies provided they are subject to sufficient competitive pressure (and certainly railway undertakings claim this will be the case10). Where incumbent rail undertakings collaborate to provide international services this leads to a risk of foreclosure of the market. Even when incumbent railway undertakings individually project services into neighbouring states, there are also risks of a similar oligopolistic situation.

3.3.9 Although incumbent railway undertakings assert that origin to destination operation by a single carrier is likely to become the dominant business model in future11, it seems more likely that the reality will not be a single carrier but rather a series of national partners within a grouping and in consequence not dissimilar to the classic successive carriage model, with everything that implies. The creation of European Bulls would tend to support that view (although the Consortium understands that the typical relationship in European Bulls will be sub-contracting rather than successive).

3.4 Implications of these changes on agreements between railway undertakings

3.4.1 Under the classic model up to the time the new 1999 COTIF comes into force, there is an obligation to accept traffic on consignment and an obligation to accept traffic on handover (although in the practical case the price at which such traffics are accepted can be prohibitively high) (see COTIF 1980 CIV Article 4 and CIM Article 3).

3.4.2 Under this classic successive carrier handover situation, a train “belongs” to the receiving railway undertaking directly it crosses the frontier. The logic of the classic situation is that the receiving railway undertaking holds all the permissions to operate and access rights and ensures safety standards by means of agreements with its upstream partner. The view of the Consortium is that this approach has lost much of its logic on separation of infrastructure and train operation: there is little logic in a train belonging to the receiving railway undertaking when

9 Judgment of the Court of First Instance (Second Chamber) of 15 September 1998. The Court held (inter alia) “The examination of conditions of competition is based not only on existing competition between undertakings already present on the relevant market but also on potential competition, in order to ascertain whether, in the light of the structure of the market and the economic and legal context within which it functions, there are real concrete possibilities for the undertakings concerned to compete among themselves or for a new competitor to penetrate the relevant market and compete with the undertakings already established”. 10 Speech by Klaus Kremper of Railion to the UIP Annual Meeting September 2004 claiming significant reductions in costs and increased efficiency over the Brenner. 11 Comment made by Klaus Kremper, chairman of the board of Railion Deutschland at the UIP

meeting in September 2004



it is not responsible for forming it, may not be responsible for hauling it and the receiving railway undertaking does not own the infrastructure. Nevertheless incumbent railway undertakings to which the Consortium spoke were insistent that the relationship continued to be appropriate. It is shown in the table below as partially liberalised.

3.4.3 In this classic successive situation, responsibility for the train and the benefit of the revenue both transfer at the frontier. This presupposes a “contract of co-operation” (express or implicit) between the two railway undertakings to co-operate in offering through international transport. All the incumbent railway undertakings’ basic arrangements follow this model even though in practice physical handover may be distant from the frontier. These co-operative arrangements imply a certain willingness to make appropriate facilities available.

3.4.4 The classic model therefore circumscribes the nature of the agreement, it is necessarily about a handover at or near a frontier with significant mutuality. Classic relationships might be summarised as an obligation to make an agreement but containing a restriction on the scope of that agreement (see CIM Article 35).

3.4.5 There have always been local cross frontier operations in which one railway undertaking performed services on the “other” side of the frontier. (Near Simbach, for example, where Railion Deutschland serves Austrian sidings). These were done however on behalf of and for the account of the national railway of the state on which the traffic was situated.

3.4.6 Under the new liberalised model in which there is no longer an obligation to accept traffic, there is no longer an obligation to sign agreements with neighbouring railway undertakings, instead voluntary agreements may be made on a commercial basis. Liberalisation thus allows the additional option of projection of a service beyond the frontier for the account of the operating railway undertaking and handover internally. In this case the operating undertaking needs its own safety certificates and access rights in the state in question. Handover may take place anywhere where there are appropriate facilities. Handover still implies a co-operative relationship.

3.4.7 Handover agreements are therefore no longer circumscribed, they may provide for arrangements which are quite different to the classic frontier handover and make use of quite different resources. The question now becomes what legal obligation does competition law place on a railway undertaking to sign such a co-operation contract.

3.4.8 Traffic may also be carried to destination by a single carrier without handover. The Consortium learned during the course of the



study, for example, that SNCB is serving customers in the Netherlands (in Limburg) on its own account, having previously done so on the Railion Nederland account. To do so, SNCB has had to get a full set of permits and authorisations for its Dutch operation. No handover takes place and there is therefore no co-operative relationship or handover agreement. Competition law may nevertheless still have a role in defining the facilities to be provided to end to end carriers. These relationships are shown in table 1, following.



Table 1: Table of classic and new relationships within the rail industry Type of operation

Point of change of operating responsibility

Point of change of revenue allocation

Change of traction

Change of train staff

Infrastructure agreements

Structure of agreements between railway undertakings

Potential problem issues

Classic European handover relationship

At state frontier, safety certificates held by national railway undertakings

At state frontier

As agreed, normally at handover station


Each railway undertaking with its own national infrastructure manager only

Agreement likely to resemble UIC leaflet 471-1

No competition within the industry

North American handover arrangement

At agreed point

As agreed, likely to be the same point as the change of operating responsibility



Integrated. Where trackage rights apply, operating railroad with track owner

Agreement to handover implicit, many conditions dictated by AAR. Commercial details agreed between railroads

Competition for the market but not within the mode



Type of operation



Change of traction





Partially liberalised European handover relationship

At state frontier, safety certificates held by local railway undertakings

At state frontier



Each railway undertaking with its own national infrastructure manager only

Agreement to exchange traffic in principle required. Details of exchange need defining

May be unwillingness in principle to handover, if there is an agreement to exchange traffic in principle, the most likely difference of view is over the division of the throughout revenue



Type of operation



Change of traction





Handover under liberalised circumstances between independent railway undertakings

As agreed As agreed, likely to be the same point as the change of operating responsibility

As agreed As agreed Each railway undertaking with the infrastructure managers whose track he runs over

Agreement to exchange traffic in principle required. Details of exchange need defining. Relationship may be successive or sub-contract.

May be unwillingness in principle to handover, if there is an agreement to exchange traffic in principle, the most likely difference of view is over the division of the throughout revenue



Type of operation



Change of traction





Handover under liberalised circumstances between associated railway undertakings

As agreed As agreed, but not material

As agreed As agreed Each railway undertaking with the infrastructure managers whose track he runs over

Agreement to exchange traffic implicit, details of the exchange irrelevant except insofar as required by national law or insurance etc. Relationship may be successive or sub-contract.

Risk of creation of oligarchies

Limited projection under liberalised circumstances

No handover No handover Traction may change as a function of technical conditions

As decided by the railway undertaking (note BLS example)

Operating railway undertaking with the infrastructure managers whose track he runs over

No agreements Operating railway undertaking may require to use facilities in the “other” state controlled by a potential competitor



Type of operation



Change of traction





End to end operation by a single carrier

No handover No handover Traction may change as a function of technical conditions

As decided by the railway undertaking (note BLS example)

Operating railway undertaking with the infrastructure managers whose track he runs over

No agreements Operating railway undertaking may require to use facilities controlled by a potential competitor



3.5 Legal issues

Acceptance of traffic on handover

3.5.1 Up to the time the new 1999 COTIF comes into force, railway undertakings have an obligation to accept traffic on consignment and an obligation to accept traffic on handover. This applies to both passenger and freight traffic. The 1999 COTIF sweeps away that limitation and there will be no obligation under the international law of carriage by rail to accept traffic either on consignment or handover.

3.5.2 However under European law there may be limitations on the room for manoeuvre of incumbent railway undertakings. Many of these hold a dominant position in the market for railway services although their market share in the overall transport market is often small.

3.5.3 The test of dominance, that given in the United Brands12 case, “a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by giving it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers” is a test that most incumbent railway undertakings would satisfy in all the market segments both for freight and passengers moved by rail. The section on definitions, above, discusses the issue of the various markets further.

3.5.4 It is clear that co-operation between dominant railway undertakings operating under the successive carriage model has the potential to foreclose the market whatever the nature of their handover agreements. The mere fact that they are dominant and co-operate is enough. It may be possible for a new entrant to offer successive carriage by co-operating with another new entrant, (and German – Dutch and German – Polish examples have been identified elsewhere in this report) but it is highly likely that the successive model will require the co-operation of one of the dominant railway undertakings and will therefore require that railway undertaking to co-operate with a new partner. There is ample evidence that dominant railway undertakings are reluctant to co-operate with new partners as a question of principle. In addition there may well be a question of the equivalence of conditions.

3.5.5 If railway undertakings are in a dominant position, then Article 82 of the Treaty requires them not to abuse that position. In particular they are prohibited from imposing unfair conditions or applying dissimilar conditions to trading partners. For example, for such an undertaking to

12 United Brands Continental BV v Commission 27/76, [1978] ECR 207, [1978] 1 CMLR 429



refuse to accept traffic from one other undertaking when it does accept it from others might leave it open to claims of abuse. This might be of particular application in the wagonload market where a refusal without objective reasons would amount to depriving the new entrant of the possibility of competing in the market. To the extent that such dominant undertakings already have trading relationships with other railway undertakings these requirements could constrain their actions within the successive carriage model.

3.5.6 The same principle applies to international groupings where there is already case law. In the GVG-FS case13, it was only possible to operate the intended service through the creation of an international grouping since that was the only way to get passenger access rights in Italy. FS was the only undertaking with which GVG could form such a grouping and therefore its refusal would have prevented the offer of the new service.

3.5.7 There remain therefore constraints on dominant railway undertakings which may require them not to refuse a relationship with a new entrant without an objective reason where their refusal would limit competition in the market in question. In a like manner, the terms of the relationship may be required to be fair in the circumstances of the case.

Facilities where there is no handover

3.5.8 End to end operation by railway undertakings without handover and therefore without handover agreements comes outside the scope of a study on rail border agreements. This brief summary of the issues is included for completeness.

3.5.9 Where new entrants seek to operate origin to destination services without handover, the doctrine of essential facilities may apply. In addition to the services laid down in Annex II to Directive 2001/14/EC which new entrants obtain from the infrastructure manager, new entrants may require access to fuelling and servicing points for locomotives, shelter for train crew waiting to take over trains, maintenance services and supplies of all types from wagon maintenance to spare tail lamps, etc. from other sources. In practice these may be controlled by the dominant railway undertaking. In some cases it may be possible, if not always economic, for a new entrant to duplicate the supply, in other cases (shelter for train crew and fuelling perhaps) it may be impossible to provide realistic alternative arrangements.

3.5.10 Case law (Sealink 1992) makes it clear that essential facilities of this type “a facility or infrastructure without access to which

13 XXXIIIrd Report on Competition Policy – 2003, SEC(2004)658 final Brussels, 04.06.2004.



competitors cannot provide services to their customers” are to be provided by a dominant undertakings to its competitors.

3.5.11 The criterion of “essential” is a practical test, it is unlikely for example that particular freight rolling stock will come into that category, many different types of freight rolling stock are freely available and can be substituted for each other. The Bronner case14 however made it clear that facilities which can be replicated but only at an uneconomic cost are not “essential facilities”. The criterion for access to a facility is therefore whether in practical terms it can be replicated (whether there is a viable alternative in the words of the ENS case), access to a facility or resources cannot be demanded simply because the alternative is uneconomic. The criterion of no practical alternative must be satisfied.

3.5.12 These resources need not be physical (although traction, exchange sidings, railway telephones, etc. are the most likely), they may also be systems or intellectual property and the example of the consignment note is used later in the report.. Within the context of the study, the provision of these resources or facilities for cross frontier traffics is considered below.

3.5.13 It must be recognised that there are limits to the essential facilities doctrine since there is an element of expropriation and requiring access to assets created by an undertaking may discourage future investment. There is a much stronger case where an undertaking has benefited by an accident of history for example inheriting assets from the state or a state owned enterprise. Equally there can be much more compelling reasons where physical replication of an asset is impossible due, for example, to physical constraints.

3.5.14 Traction is the prime example of a necessary element to operate a rail service. New entrant railway undertakings have not always enjoyed the financial resources to invest in new equipment and so frequently have to look to existing equipment owners for resources. This has not been easy, incumbents have typically said that traction provision for third parties does not form part of their business model and that there is no traction spare.

3.5.15 In the present state of the European railway industry, there is no market for spot hire of traction. There is a market for long-term lease of locomotives, but only basic locomotives approved for use in a limited number of states. It is likely that the market for the supply of traction will become more fluid, in Great Britain for example there is a market for short term hire of traction between railway undertakings and one railway

14 Oscar Bronner v Mediaprint Zeitung- und Zeitschriftenverlag GmbH and others Case C-7-97,

[1998] ECR I-7817, [1999] 4 CMLR 112 [Oscar Bronner]



undertaking15 for which it is the core of the business. In the meantime, where there is no realistic alternative supply of traction, a dominant undertaking may be required to make it available.

3.5.16 Each case must be taken on its merits and it may be, by analogy with the British Midland case16, that the obligation for a dominant undertaking to supply a competitor with the input to offer a competitive service may only be enforced for a limited period.

3.5.17 The Consortium recommends that the Commission clarify that the obligation contained in Article 5 of Directive 2001/14/EC to make facilities available is clarified as applying to railway undertakings when railway undertakings control the facilities in question. It should also be noted that the requirements of Article 82 of the Treaty go beyond the specifics of Annex II of Directive 2001/14/EC.

Classic inter-railway agreements

3.5.18 A number of issues are governed by inter-railway agreements. Amongst these are:

3.5.19 Infrastructure issues. In the past integrated railways made agreements with their neighbours which typically included agreements on maintenance responsibility, signalling and electrification systems etc.

3.5.20 Operations planning. The planning of hand-over operations takes place within the context of the RailNetEurope, the infrastructure managers’ capacity sale and timetable body.

3.5.21 Current operations. Current operations are normally the subject of agreements made within the format of UIC leaflets 470 and 471. These leaflets provide general principles. They are intended to act as an aide-mémoire and to provide some model clauses designed to be fair and balanced. The relevance of leaflets to non-members is treated in the section on UIC leaflets below.

3.5.22 Traffic hand-over. Practical implementation instructions for handover of traffic and for a wide range of railway administration procedures both freight and passengers are defined by the CIT, considered below.

3.5.23 Use of traction over the cross-frontier section. The right to approve the use of traction over cross frontier sections is rapidly moving out of the hands of railway undertakings and infrastructure managers. 15 Fragonset Group www.fragonset.co.uk. 16 Official Journal L96 of 10 April 1992



3.5.24 Certification of staff competence over the cross-frontier section. Likewise the right to certify staff competence is being reviewed within context of ensuring a level playing field for new entrants.

3.5.25 In addition, inter-railway agreements such as the RIC and RIV lay down principles for the hand-over of vehicles. Significant changes to the RIV and RIC have been proposed to address concerns over their compliance with EU Competition law, these are dealt with in section 4 below.

3.5.26 Problems may arise at frontiers and hand-over points which are quite outside the scope of agreements and treaties.



4. MULTILATERAL INTERGOVERNMENTAL AGREEMENTS

4.1 An overview

Report structure

4.1.1 This section of the report deals with multilateral intergovernmental treaties and conventions. For each group of agreements it examines the content and considers the implications in terms of EU law, noting particularly provisions in the areas of market access, safety and interoperability which appear to be at variance with community law.

4.1.2 Treaties which are open to all states have been treated as “multilateral”, those individually negotiated have been treated as "bilateral" even when there are more than two signatories.

4.1.3 The table in Appendix C shows the major multilateral treaties and which states covered in the study are members.

Relationship between EU and international law

4.1.4 Before considering the individual agreements, the European context in which they have effect needs to be evaluated. The major issue in this area is the interface between EU law and other international (and national) law.

4.1.5 An important issue, which applies to all the legislation and treaties examined in this report (but particularly in the case of COTIF and the OSZhD treaties), is the issue of legislative competence. The external competence of the Community is its capacity to act separately from its Member States internationally: in particular, to negotiate and conclude binding international agreements and to belong to, and participate in, international organisations. (Whilst the powers exist today, the concept is most clearly set down in Article III 225 of the recently signed Treaty establishing a Constitution for Europe17.) The Community's external competence may be either exclusive to the Community or non-exclusive and thus shared with the Member States. There may also be areas where the Community is not competent, and which therefore remain matters for the Member States alone.

17 Official Journal C310 of 16 December 2004



4.1.6 If therefore, any part of a treaty comes within the scope of exclusive external community competence, then the Commission will take over responsibility for all policy and act to ensure community law is not affected. Member States are required to disregard any obligations which are contrary to community law18, they are not however required to renegotiate such treaties. In the case of shared external competence the position is more complex. Member States try to reach a common position by consensus, but if that is impossible then the Member States will be free in the last resort to express national views on matters within national competence and to exercise their national powers.

4.1.7 External competence exists when an international agreement could affect Community internal measures (i.e. Directives and Regulations). Shared competence exists where the Community has the power to adopt internal rules but has not yet done so; or where the Community has legislated but has set minimum rules only, allowing the Member States to adopt additional rules. Given that “in the Common Transport Policy any appropriate provision may be enacted (Article 75 (1) EC)”19, it is clear that even where the Community does not have exclusive competence, it has shared competence on all aspects of international transport treaties.

4.2 Agreements managed by the UNECE

Overview

4.2.1 In line with its role to promote trade in Europe, the United Nations Economic Commission for Europe (UNECE) and the League of Nations before it has facilitated the development of a number of inter-governmental treaties and agreements to promote trade. For transport, the process is managed by the UNECE Transport Division. The signatories are not limited to European states and in many areas (for example, the movement of containers) it is important that there is wider agreement. These treaties include :

Three conventions on rail frontier processes:

• Convention on the International Régime of Railways (1923)

• International Convention to Facilitate the Crossing of Frontiers for Passengers and Baggage Carried by Rail (1952)

• International Convention to Facilitate the Crossing of Frontiers for Goods Carried by Rail (1952)

18 Judgment of the Court of Justice of 27 February 1962 in Case 10/61 Commission v Italy [1962] ECR 1 19 The ABC of Community Law, European Commission 1999



Five conventions on customs and related issues:

• Customs Convention concerning Spare Parts used for repairing Europ Wagons (1958)

• European Convention on Customs Treatment of Pallets used in International Transport (1960)

• Customs Convention on Containers (1972)

• International Convention on the Harmonization of Frontier controls of Goods (1982)

• Convention on Customs Treatment of Pool Containers used in International Transport (1994)

Two intergovernmental agreements on infrastructure issues:

• European Agreement on Main International Railway Lines (AGC) (1985)

• The European Agreement on Important International Combined Transport Lines (AGTC) (1991)

Each of these conventions is discussed below.

4.2.2 The text of all of these conventions and agreements (except that for the “international regime”) is available on the UNECE website in English and French at www.unece.org/trans/conventn/legalinst.html. The website also includes a full list of the signatories of the various treaties.

Convention on the International Régime of Railways.

4.2.3 This agreement was signed on 9 December 1923 and came into force on 23 March 1926. The English and French texts are authentic. A list of EU Member States that have ratified the convention may be found in Appendix C. All the European ratifications were before 1940 and some states have profoundly changed since then so there must be some doubt about the nature of the commitment of some states. (Ratifications outside Europe continue however, e.g. Zimbabwe in 1998.)

4.2.4 The convention lays down general duties on states to facilitate international traffic. These include the need to provide reasonable facilities for passengers and freight, to limit the effect of controls, to ensure that state railways use compatible equipment and co-operate, (co-operation in the design of equipment is specifically mentioned). The framework for a standard contract for passengers and for freight is laid down. Conditions for the application of tariffs are laid down. A framework is also laid down for financial relations between railway

http://www.unece.org/trans/conventn/legalinst.html



administrations and between them and their states, particular in the case of currency controls. The text of this convention is not on the UNECE website but may be found in French, German and Italian on the Swiss Government website under the reference 0.742.101.1. It is available in English under League of Nations reference 1129.

International Convention to Facilitate the Crossing of Frontiers for Passengers and Baggage Carried by Rail.

4.2.5 This convention was signed on 10 January 1952 and came into force on 1 April 1953. The English and French texts are authentic. A list of EU Member States that have ratified the convention may be found in Appendix C. The convention sets out general principles for customs and immigration formalities at rail frontiers, examination on a moving train is presumed, where that is not possible, a single station should be designated and extra-territorial examinations arranged (still on train). Stops must not exceed forty minutes. Arrangements for examination of hand luggage and registered luggage are laid down.

4.2.6 Within the Single Market only prohibited imports (such as drugs) have any customs significance and to that extent the convention has little importance. The majority of members of the convention are Schengen states or have immigration agreements with adjoining states.

International Convention to Facilitate the Crossing of Frontiers for Goods Carried by Rail.

4.2.7 This Agreement was signed on 10 January 1952 and came into force on 1 April 1953. The English and French texts are authentic. A list of EU Member States that have ratified the convention may be found in Appendix C. The convention sets out general principles for customs formalities at rail frontiers and is largely parallel to the passenger convention above. It recommends a single frontier station, single facilities, it recommends special arrangements for transit traffic.

4.2.8 Within the Single Market in principle customs controls at frontiers have been all but abolished; to that extent the convention has lost its importance.

Customs Convention concerning Spare Parts used for repairing Europ Wagons.

4.2.9 This convention was signed in Geneva on 15 January 1958 and came into effect 1 January 1961. The disappearance of the Europ wagon pool makes it strictly irrelevant although its principles have been adopted for other pool agreements. These principles provided for free import of



parts for the repair of wagons on the basis that the wagons themselves had been temporarily imported.

4.2.10 Given that the treaty no longer has an object, it would be appropriate for the Contracting States to abrogate it.

European Convention on Customs Treatment of Pallets used in International Transport.

4.2.11 This Agreement was signed in Geneva on 9 December 1960 and came into force on 12 June 1962. A list of EU Member States that have ratified the convention may be found in Appendix C. The convention provides for pallets to be imported without paying import duties provided they, or the same number of other pallets is exported. In principle this greatly simplifies the use of pallets. It has to be recognised however that the europallet is only used extensively in Europe and that in much of Europe, within the Single Market, there is free movement of all goods. This convention has therefore lost much of its former importance.

Customs Convention on Containers.

4.2.12 This convention was signed in Geneva on 2 December 1972 and came into force 6 December 1975. Essentially it provides for containers being used to carry goods to be imported freely provided they are not used for cabotage and are exported promptly. A list of EU Member States that have ratified the convention may be found in Appendix C. The United States, Japan and Australia are also members. For containers based inside the Single Market even more liberal conditions apply and to a some extent the Convention on Pool Containers (see below) has overtaken this convention for third country containers..

International Convention on the Harmonization of Frontier controls of Goods

4.2.13 This agreement was signed on 21 October 1982 and came into force on 15 October 1985. The English, French, Russian and Spanish texts are authentic. The convention permits regional economic organisations to join and the European Community is a member. Norway and Switzerland have also acceded to/ratified it. The convention sets out general principles for frontier formalities. It defines the processes, customs, plant health, animal health etc. It encourages states to share facilities, encourages them to co-ordinate opening times, etc. and encourages standardised documentation. There is a general duty to adopt reasonable measures. The convention recommends rather than mandates and there are no sanctions for non compliance



4.2.14 Within the Single Market in principle customs measures are very limited and to that extent the convention has lost its importance.

Convention on Customs Treatment of Pool Containers used in International Transport.

4.2.15 This convention was signed in Geneva on 21 January 1994 and came into force on 17 January 1998. Texts in Arabic, Chinese, English, French, Russian and Spanish are authentic. The convention permits regional economic organisations to join and the European Community is a member. Norway is not a member and Switzerland has signed but not ratified the convention. It aims to facilitate the common use of containers within a pool, essentially by waiving customs controls provided that the number of containers in use in each state roughly matches the number supplied from that state. No attempt is thus made to follow individual containers. This greatly facilitates container use without distorting the duties paid on the containers when new. The convention also has application outside Europe but in fact few states outside Europe are members.

European Agreement on Main International Railway Lines (AGC).

4.2.16 This Agreement was signed in Geneva on 31 May 1985 and came into force on 27 April 1989. Signatories are wider than just the EU and include an number of 1520mm states. A list of EU Member States that have ratified the agreement may be found in Appendix C. The agreement is intended to make systematic plans for the creation of infrastructure “the international E-network of main lines” for the movement of international traffic by rail. It therefore defines lines which are considered “of major international importance”. Annex II defines expectations of the standards which it is expected lines will be brought up to. These “will be brought into conformity … in future improvement work to be carried out in conformity with national programmes”, a slightly less than binding requirement. Authentic texts are English, French and Russian. The agreement pre-dates the work done on TEN-T routes by the Community20.

The European Agreement on Important International Combined Transport Lines (AGTC).

4.2.17 This agreement was signed in Geneva on 1 February 1991and came into force 20 October 1993. Signatories are wider than just the EU and include an number of 1520mm states. A list of EU Member States that have ratified the agreement may be found in Appendix C. The agreement is intended to make systematic plans for the creation of 20 See Decision No 1692/96/EC of the European Parliament and of the Council of 23 July 1996

on Community guidelines for the development of the trans-European transport network



infrastructure for the movement of intermodal traffic by rail. It therefore defines lines and terminals which are considered “important”. Annex III defines expectations of the standards which it is expected lines will be brought up to, and annex IV the performance standards, these “will be brought into conformity … in future improvement work to be carried out in conformity with national programmes”, a slightly less than binding requirement. Authentic texts are English, French and Russian.

4.2.18 A number of bilateral treaties have been concluded specifically to put the multilateral AGC and AGTC treaties into effect. Typical of these is the German Polish treaty of 30 April 2003 on the Berlin - Warsaw and Dresden - Wroclaw axis. Other treaties in the late 1990’s have followed the same approach to aspire to improve trunk lines without specifically citing AGC or AGTC, sometimes involving an aspiration to build a new high-speed international line. These treaties include North South routes though Switzerland, the Berlin - Vienna axis and Paris to South West Germany.

The nature of the conventions

4.2.19 These UNECE conventions fall into three groups, frontier facilitation, customs conventions and infrastructure agreements. Of these the customs conventions are essentially technical and the infrastructure conventions are essentially about aspirations for investment in infrastructure, they will not be considered further. The conventions on frontier facilitation however are of some interest.

Frontier facilitation conventions

4.2.20 All of these frontier facilitation conventions are more than fifty years old and they all have a background in a Europe of rigid frontiers with strict immigration and customs controls, a world which has long passed. They presume a railway with an effective monopoly of international traffic and a full service railway offering registered baggage and the movement of livestock. The character of the conventions is strong on exhortation, weak on prescription. Many of the recommendations have been made part of international law by other conventions (COTIF for the content of consignment notes, for example) other parts (such as the obligation to co-operate) will be part of the third railway package. Other aspirations, such as co-operating in the preparation of standard technical standards have been addressed in other ways. The conventions do not conflict with Community law on market access, safety or interoperability. They would not seem to constrain competition.

4.2.21 Whilst these conventions remain part of international law, the Consortium consider they no longer perform any real function within



Europe, they no longer provide any effective stimulus to frontier facilitation. It is possible they have a continuing role outside Europe and accordingly the Consortium recommends no action should be taken. (It should be noted that they are not incompatible with subsequent legislation).

4.3 Technical Unity

4.3.1 In the late Nineteenth Century, it became evident that railway technical standards needed to be standardised for the benefit of international operations. Railways even in the nineteenth century were subject to governmental safety regulation and so it was natural that governments took the initiative to negotiate the first agreement on standards. Thus on 15 May 1886 the International Convention on the Technical Unity of Railways (normally referred to as TU) was signed. It came into force 1 April 1887. This regulated basic criteria such as the distance between buffers, height of buffers, etc. It gave rise to concepts still referred to by rail staff as ‘Berne’, the Berne gauge (for the basic international loading gauge); the Berne key (the standard carriage key); the Berne rectangle (the space within the buffers where staff can stand during coupling movements).

4.3.2 The agreement has been updated three times, the most recent updates were in 1914 and in 1938. Belgium, Bulgaria. Czechoslovakia, Denmark, France, Germany, Greece, Hungary, Italy, Luxembourg, Netherlands, Norway, Poland, Romania, Sweden, Switzerland, Turkey, Yugoslavia were signatories to the 1938 edition and the agreement came into force on 1 January 1939. Austria joined in 1950. The annexes to the 1938 agreement, which contain the technical specifications themselves include stipulations for track gauge, conditions under which vehicles must be accepted for exchange, vehicle construction standards, maintenance standards, loading standards and customs requirements. In an interesting parallel to present circumstances, the TU was a governmental agreement which governments undertook to enforce, it was not a ‘gentlemen’s agreement’ between railways although the technical requirements for the current (1938) edition were in fact drawn up by the UIC.

4.3.3 TU stipulations have been incorporated into appropriate UIC leaflets and (in the case of loading and loading gauge issues) into the RIV. They form the basis of appropriate leaflets and in many cases UIC leaflets go further (for example in requiring vehicles to be designed to incorporate a centre-coupler as well as a draw-hook). UIC leaflets and RIV appendices do not distinguish between TU stipulations (which have the force of law in Member States) and UIC/RIV recommendations which do not.



4.3.4 When the 1999 revision to COTIF comes into force, the TU will be abrogated (APTU Article 10). If the APTU is not adopted in EU States because of the issue of Community competence (see below), then the TU will continue. The principles of Community competence would however require EU Members States to ignore any TU obligations which are incompatible with those of the Interoperability Directives (there are a very limited number of minor points (e.g. on the marking of vehicles) which conflict).

4.3.5 The text of the latest Technical Unity is available in French, German and Italian on the Swiss Government website at the internet address http://www.admin.ch/ch/f/gg/cr/1938/19380076.html.

4.3.6 Despite being nominally part of international law, the Treaty on Technical Unity has not been relevant in any real sense for half a century. The Consortium recommends that for the sake of clarity it is abrogated once the provisions for technical interoperability have been introduced. This report will not consider TU further.

4.4 Convention concerning International Carriage by Rail (COTIF)

Overview & Development

4.4.1 COTIF had its origins in the nineteenth century in Central Europe; it was created essentially to address problems which were starting to arise in international freight traffic. Although international freight traffic was operating, the contractual structures had not kept pace with the development of traffic. Where a through movement was the subject of a number of national contracts, freight customers found it impossible to prove where loss or damage had occurred and hence could take no legal action. Even where there was proof, customers found it impractical to sue in foreign courts. Likewise individual railways had limited ability to claim against customers for the consequences of, for example, poor loading.

4.4.2 A number of states therefore agreed a convention, Das internationale Übereinkommen über den Eisenbahnfrachtverkehr [International Convention concerning Freight Traffic by Rail] signed on 14 October 1890 to cover these problems. This in due course became COTIF. To begin with, the convention only included freight traffic and only legislated for freight contractual terms. International passenger traffic by contrast could and did continue for many years as the subject of a succession of national contracts; it was normally clear where death or injury occurred and the legal problems were therefore less acute. This deficiency was made good in the twentieth century; passenger contractual terms were added to COTIF in 1924 (these are still absent from the



SMPS q.v.). The most contentious issue, that of minimum liability limits for death and injury to passengers, was only incorporated into the convention in 1956.

4.4.3 A new COTIF is in the process of ratification, and the new version is expected to come into force in 2005. For this reason the remarks below all apply to the new, 1999, version of the convention. The new COTIF includes a base convention with appendices covering individual areas. The base convention lays down rules for the management of the convention itself, rules for amending it and the obligations and powers of Member States. The appendices are: the contractual terms for international passenger and freight traffics (CIV and CIM); a freestanding appendix on the movement of dangerous goods (RID); rules for the use of rolling stock (CUV); rules for drawing up contracts for the use of infrastructure (CUI) and rules for the adoption and enforcement of international standards for railway equipment (APTU and ATMF).

4.4.4 As outlined in section 2, the Commission will exercise its option to join COTIF as a regional economic integration organisation under Article 38 of the revised COTIF. After it has joined (probably in 2005) it will hold 23 of the 43 votes and thus a simple majority. It will be close to having the two thirds majority required to transfer attributions to other intergovernmental organisations (such as, for example, the European Rail Agency {Article 14 (2h)}).

Scope of agreement

4.4.5 COTIF applies in all the signatory states, currently all the contiguous standard gauge states in Western Europe and the Middle East, the Maghreb states of North Africa and Western European broad gauge railways. There are forty-two Member States in all. All EU Member States with railways are members of COTIF currently with the exception of Estonia. Estonia applied for accession on 19 January 2005. Switzerland and Norway are also members.

4.4.6 This new 1999 COTIF was drawn up to reflect the liberalisation of the railway industry, in particular the initiatives of the European Commission. It therefore (by contrast with the preceding 1980 version) gives railway undertakings freedom to refuse traffic and much more flexibility in the contractual arrangements they can make to carry it. It should be noted that a railway and its customer only have freedom to modify these contractual terms to the extent that COTIF itself allows. There are therefore constraints on the contractual freedom of railway undertakings.

4.4.7 The 1999 COTIF follows the practice of its predecessor in allowing states and carriers to agree supplementary provisions. The



supplementary provisions may not derogate from the CIV or CIM. This provision was not much used in the 1980 COTIF, the only notable example is the Agreement of 22 – 26 November 1993 to take account of the separation of infrastructure management and railway operation in the CIM and CIV. Despite the provision in the new COTIF, the CIT (the association which draws up standard terms on behalf of the carriers (see below)) are on record as saying they believe that standard terms and conditions are a much more satisfactory way to set down legal relationships than supplementary provisions.

4.4.8 It should also be noted that Article 5 of COTIF 1999 requires Member States “to adopt measures in order to facilitate and accelerate international rail traffic”. The Convention sets up the Rail Facilitation Committee to help achieve this task. The duties of the Committee (set down in Article 19) to “give its opinion” and to “recommend” do not however suggest a particularly active or strong leadership. All Member States (and in due course the Commission) will be able to take part. The quorum will be a third of the Member States.

4.4.9 A number of railway organisations, the CIT in particular, draw up implementation provisions for COTIF and propose standard forms of contract. See section 4 for details.

4.4.10 The text of COTIF, the overarching convention and the appendices may be found in English, French and German on the OTIF website, www.otif.org.

The COTIF appendices

Rules for carriage of passengers and freight (CIV and CIM)

4.4.11 The CIM and CIV define the relationship between railway undertakings and their customer. The CIM and CIV are mandatory for any international rail transport (with a few trivial exceptions). They go further (in Title V) in defining the relationship between railway undertakings in executing the contract of carriage. Unlike the 1980 CIM and CIV however, the new COTIF does not define relations on handover between railway undertakings. Railway undertakings may exchange traffic freely or elect not to do so. For this reason the CIM and CIV (in themselves) are not explored further in this report.

Rules for the adoption and enforcement of international standards for railway equipment (APTU and ATMF)

4.4.12 The APTU and ATMF have major areas of conflict with the Interoperability Directives since they set down ways to set up and enforce international standards for the rail industry which conflict with



those of the Interoperability Directives. The APTU and ATMF are therefore unlikely to be applied within the EU. However, it is unclear to what extent they will be applied in the COTIF states that remain outside the EU. Further examination of this area lies outside the scope of this report.

Rules for drawing up contracts for the use of infrastructure (CUI)

4.4.13 There are common areas between the CUI (on the use of infrastructure) and Directive 2001/14/EC, but at the same time the broad thrust of the two items of legislation is different. The Directive deals with fair allocation of capacity and charging for it21, the CUI deals with liability22. The broader issue of access to infrastructure however lies outside the scope of this study.

Rules for the use of rolling stock (CUV)

4.4.14 The CUV which essentially sets down contractual terms which apply to the use of vehicles should nothing else be agreed, is not matched by any community legislation. It replaces prescriptive legislation (the RIP23) for the use of wagons. Its structure has been deliberately designed to allow free negotiation of terms and conditions but to provide a backstop to prevent the stronger party (normally the railway undertaking) imposing unreasonable terms. It has been accepted by wagon owners24.

4.4.15 Implementation problems have arisen within the industry, the logic of the liberalisation is to allow contracts to be freely negotiated, but yet a multitude of differing contracts between owners and railway undertakings would be difficult to manage. (It could leave owners with different contracts for each undertaking and undertakings with different contracts for each owner, which would be impractical to execute at ground level (conditions for operation might all be different)). Attempts are being made to create a standardised contractual structure to regulate the contractual framework between owner and railway undertaking. Further exploration of this issue lies outside the scope of this study.

Community competence

4.4.16 This issue is examined in outline above, it is of some importance for COTIF. Although (like other treaty obligations of EU Member

21 Items 5 – 8 in the preamble to the Directive 22 Item 2 in the section of the Rapport de l’office central relative à la revision de la Convention

relative aux transports internationaux ferroviarires (COTIF) du 9 mai 1980 dealing with the CUV

23 Regulations concerning the International Haulage of Private Owners’ Wagons by Rail Annex II to the CIM COTIF 1980.

24 Speeches to German Wagon Owners’ Association 4 June 2004



States), EU Member States are required to give EU legislation and policy precedence over their COTIF obligations (see the text on Community competence above in this section), Article 3 § 2 specifically lays down that “the obligations … for the Member States, which are at the same time Members of the European Communities or States parties to the European Economic Area Agreement, shall not prevail over their obligations as Members of the European Communities or States parties to the European Economic Area Agreement”

4.4.17 Member States are therefore required to follow Community policies at the expense of COTIF commitments. States outside the EU, and in particular applicant states, are left in an uncertain position, committed to a convention which they expect will be overtaken. Given the Community’s intention to accede to the new COTIF and its immediate effective majority, there will be an opportunity to consider how the legal position can be resolved to the benefit of the mode and the states which are not members of the EU.

4.4.18 COTIF was specifically drafted to accommodate the process of liberalisation and OCTI’s25 report on the drafting notes “competition aspects must be dealt with and governed at state level in an impartial and non-discriminatory manner”26. This is a strong statement in favour of a liberalised market although it is surprising that given the international focus of COTIF and the fact that its architects were aware that competition policy had a Community dimension, no role appears to have been identified for international organisations or international law.

4.4.19 Despite attempts being made by OTIF to align COTIF with its perception of Commission aspirations, this was conspicuously not achieved (the 1999 convention includes the APTU and ATMF which conflict fundamentally with EU policy). The decision that the Community will accede to the Convention will create the opportunity for more effective alignment in the future.

4.4.20 The areas of overlap in which COTIF appendices do not align with EU law have been identified above. It is likely that elements of COTIF will also not be aligned with the Third Railway Package. At the time the package is debated however, it is likely that the Community will be a Member of COTIF and that it will be possible to reconcile differences.

4.4.21 The Consortium therefore recommend that the Commission make use of their membership of COTIF to resolve the question of the future of the ATMF and APTU, to reconcile the CUI and infrastructure packages 25 OCTI Office central des transports ferroviaires, the COTIF secretariat 26 Rapport de l’office central relative à la revision de la Convention relative aux transports

internationaux ferroviarires (COTIF) du 9 mai 1980.



and to consider what Community law might be desirable in the area of vehicle operation. It is assumed that the process of considering COTIF law in the context of the third railway package will continue.

4.5 Organisation for the Co-operation of Railways and the agreements it manages

The organisation

4.5.1 The Organisation for the Cooperation of Railways, (Организация Сотрудничества Железных Дорог) was the Soviet bloc’s response to OTIF and the UIC; it is referred to in this report as the OSZhD27.

Intergovernmental nature of the agreement

4.5.2 This sub-section, which considers the OSZhD, is within the intergovernmental treaty section because that is the formal nature of the agreement. However, its content parallels many inter-railway agreements in Western Europe, this should be borne in mind in making comparisons.

4.5.3 The OSZhD, the Organisation for the Co-operation of Railways headquartered in Warsaw manages the former Soviet block equivalent to COTIF. After the partition of Europe in the late 1940’s, rather than to adhere to COTIF, Soviet block states set up their own convention. Because these national railways were departments of state, they represent their states within the OSZhD. As a result the OSZhD has a mixture of tasks which in the West would be undertaken by separate bodies. Thus it takes the role of OTIF, in that it decides transport conventions, something of the role of the UIC, because it considers technical issues, something of the RIV because it sets down loading standards and loading gauges, etc, etc. It is therefore much more of a one-stop-shop than its Western counterparts. It should be noted that membership is not clear cut, a number of EU states are members of both COTIF and the OSZhD, a number of railway undertakings are represented at the OSZhD and at the UIC (see below).

27 Note that varying transliteration conventions for the Cyrillic characters make the organisation

OSShD, OSJD and OSZhD, in its own published material it makes use of more than one abbreviation, (sometimes in the same document). OSShD is the most common, but English language transliteration rules would prefer OSZhD, this aligns with the accepted abbreviation for its largest member RZD, the Russian Railway.



Origins of the OSZhD

4.5.4 Russia had been a member of COTIF before the First World War but after the 1917 October Revolution it did not rejoin OTIF (or subsequently the UIC). The reasons for this were partly political. Almost certainly practical issues also played a part, since subscriptions to these bodies were heavily dependent on length of line and with an enormous network, little exchange traffic and little interest in common standards, the decision seems logical. After 1945, whilst the Soviet satellite states with standard gauge railways were members of COTIF, the UIC and all the other railway associations, the Soviet Union itself remained separate.

4.5.5 There was a need at least, for conventions for through consignment of freight and for passenger traffic between the Comecon states. The first step was the negotiation and signature of conventions for the international carriage of passengers and freight, the SMGS and SMPS. The SMGS came into effect between the Soviet Union and its European and Asian satellites on 1 November 1951, the SMPS came into effect on 1 January 1951. The SMGS and SMPS were inspired by the CIM and CIV and demonstrate significant similarities. The texts have been revised several times since and the most recent edition of the SMGS is 1 Jan 2004. The most recent published edition of the SMPS is 30 May 1999. See below for further details of these conventions.

4.5.6 The SMGS and SMPS Member States decided that something more than the simple transport conventions was required and decided to set up a co-operative organisation. Accordingly on 28 June 1956 the Soviet Union, China, Albania, Bulgaria, Czechoslovakia, German Democratic Republic, Hungary, Mongolia, North Korea, Poland, Romania, and Vietnam agreed in Sofia to set up the OSZhD. The organisation started work on 1 September 1957. Unlike COTIF, the OSZhD, SMGS and SMPS are each free-standing so that membership of the OSZhD does not imply application of the SMGS and SMPS (and the Czech Republic, for example, does not).

4.5.7 The SMPS and SMGS represent the totality of the multilateral agreements (there is no equivalent to the CIT for example) and therefore provide for (but do not publish) instructions to staff on the handling of traffic including at hand-over between railway undertakings. The more detailed issue of whether the OSZhD regime represents an infringement of EU law is considered below.

4.5.8 The official languages of the OSZhD are Russian and Chinese.



Membership of the OSZhD

4.5.9 All the states of the Soviet bloc joined the OSZhD and it therefore represented a diverse selection of railways: standard gauge Central and Eastern European railways using UIC technical standards and operating practices; the railways of the former Soviet Union with their own practices; the standard gauge railways of China and Korea; and the former colonial metre gauge railways in Indo-China. Cuba was also a member at one time. Questions of technical and operating harmonisation will have presented particular challenges.

4.5.10 When the former Soviet Union broke up, all the successor states took up membership of the OSZhD and of the former satellite states only Germany (Democratic Republic) resigned its membership. Iran also became a member in 1997 and the Consortium understands that Turkey has also considered membership. Finland, which shares the 1520mm gauge is not and never has been a member of OSZhD, although it has observer status. The Czech Republic, Hungary, Latvia, Lithuania, Poland, Slovakia (and Iran) have membership of both COTIF and OSZhD.

4.5.11 In recent years OSZhD has introduced an associate class of membership to which approximately twenty companies, mainly in the railway equipment supply industry belong.

4.5.12 Within its own terms, the OSZhD was in many ways a more logical organisation than the variety of organisations set up in Western Europe. Since railways were arms of the state, no differentiation was made between railways themselves and their states, so there was no need for separate governmental and railway organisations. Likewise as there was only one railway body, it produced and published all railway documentation, there was therefore no need for the UIC, CIT, RIV, RIC, etc. The organisation does now differentiate between railways and their states, but only to a limited extent, as the organisational diagram below makes clear:



4.5.13 The OSZhD manages and publishes the SMGS and SMPS (Соглашение о международном железнодорожном грузовом сообщении and Соглашение о международном пассажирском сообщении) roughly equivalent to the CIM and CIV, although as explained above more comprehensive in that they include such issues as completion of the consignment note (which would be a CIT issue in the West), loading gauges (which would be an RIV issue in the West) and seat reservations (which would be a UIC issue in the West). The OSZhD also acts as a standards organisation for its members, standards are published in the form of leaflets similar to those of the UIC. The UIC and OSZhD have a formal programme for joint liaison and some standards (particularly those for coding and numbering) are joint.

4.5.14 The OSZhD also manages internal agreements, the principal one from the viewpoint of this study is the Regulations for the Use of Vehicles (in International Traffic) (PPW), because of its similarity to the RIV it is treated with the RIV below.

4.5.15 The OSZhD also “co-ordinates tariffs between members”. This might take a number of forms, from standardisation of layouts, through



standardising categorisation of categories, to agreements on prices. In this context it is understood that the 1993 tariff agreement between the CIS and the Baltic states was deliberately designed to provide for low price tariffs. It is clear that some of these activities raise issues in competition law and are discussed further in Section 4.

Current objectives of the OSZhD

4.5.16 The principal tasks that the OSZhD has currently set itself have been to try to:

• co-operate with member government aspirations to provide transport links for strategic territorial development (major new international lines are being built in Central Asia, the OSZhD is the intergovernmental vehicle in which to negotiate them);

• to help members adopt modern technology to face the competition they are all starting to experience (the Trans-Siberia railway now has an all-weather road paralleling it for example);

• to develop solutions to change of gauge problems, progress has been made: for example through trains operate between Poland and Lithuania with gauge change equipment, similar initiatives are being mounted in Central Asia, but these are outside the scope of this study.

4.5.17 Railway liberalisation is now firmly on the OSZhD agenda. Seven Member States are part of the EU and in its (overwhelmingly) biggest Member State, Russia, liberalisation is being pushed forward “The Government of the Russian Federation has embarked on a determined programme of regulatory reform and restructuring of its railways”28.

The “traffic” conventions, SMPS and SMGS

Current use of the conventions

4.5.18 In their commercial relationships, the standard gauge railway undertakings of Central and Eastern Europe that are members of OSZhD use the CIM and CIV for traffics between themselves and to the West. OSZhD protocols are only used for traffics to the former Soviet bloc, convention dictates that the SMGS and SMPS are used only for journeys involving the broad gauge railways. Likewise the RIV/RIC and UIC practices follow the use of the CIM/CIV. (Note that the membership of the OSZhD and the SMGS/SMPS is not identical, the Czech Republic, Hungary and Slovakia are not a members of the SMGS/SMPS.)

28 ECMT Regulatory Reform of Railways in Russia OECD 2004



The SMPS

4.5.19 Copies of the SMPS may be downloaded in their Russian versions from the internet address http://www.gibdd.ru/id38/id46/994.gpml. When the DDR was a member of the OSZhD, German was an official language and a translation of the SMPS clearly existed, but this would not appear to have been maintained. No translation into English is known to exist.

4.5.20 The SMPS has all the imperfections of the 1980 CIV, in that it makes no provision for market forces or any freedom of contract. It lays down an obligation to carry, (Article 3 (1)) and therefore an obligation to accept on handover. It presumes railways to be integrated and makes no distinction between the traffic movement and infrastructure function. It prescribes procedures (for example for seat reservation (Article 6), or what constitutes a domestic animal(Article 12)) in great detail in a way that is not consistent with alternative providers offering distinctive services. This detail does not accommodate alternative providers (for example Article 4, tickets, makes no provision for the name of the carriers). It provides no redress for death or injury.

4.5.21 The degree of prescription and the failure to accommodate alternative carriers formally, makes the SMPS incompatible with the principles of liberalisation enshrined in European railway law. For movements wholly within the European Union COTIF 1999 will be available (once that version comes into force and Estonia accedes). For movements between the new Member States and the CIS however only the SMPS will be available, this will limit the ability of liberalised railway undertakings in the new Member States offering differentiated through services via the external frontiers even once enforceable rights exist. No short term solution to this issue can be envisaged without action at an inter-governmental level.

The SMGS

4.5.22 Copies of the SMGS may be downloaded in their Russian versions from the internet address http://www.1520mm.com/r/o/osjd/smgs/ (not the latest version). An official translation of the SMGS into French was made by OCTI in 1960 (Bulletin Transactions Chemin de fer 7/8). Logotrans, a member of the Consortium produces an unofficial translation of the SMGS in German (the latest version is that of 1 January 2004). Other than a limited translation of the most crucial sections by Europe Rail Consultancy no translation into English is known to exist.

4.5.23 The SMGS has all the imperfections of the 1980 CIM, in that it makes no provision for market forces or any freedom of contract. It lays



down an obligation to carry, (Article 3 (1)) and therefore an obligation to accept on handover. It presumes railways to be integrated and makes no distinction between the traffic movement and infrastructure function (and, for example, specifies the axle-load limits in Bulgaria in the middle of what is intended to be contract of carriage (Article 8)). It is unduly prescriptive, (defining for example the acceptable wastage in transit differentially for a wide variety of fruit and vegetables (in Article 24)).

4.5.24 The degree of prescription and the failure to accommodate alternative carriers formally, makes the SMGS incompatible with the principles of liberalisation enshrined in European railway law. For movements wholly within the European Union COTIF 1999 will be available (once that version comes into force and Estonia accedes). For movements between the new Member States and the CIS however it seems likely that only the SMGS will be available, this will limit the ability of liberalised railway undertakings in the new Member States offering differentiated through services via the external frontiers. This issue is explored further below.

Conflicts between the conventions

4.5.25 It is important to consider the EU dimension. After Estonia has acceded to the convention, both COTIF and the SMGS/SMPS conventions will lay claim to traffic between their Member States (Article 1 of the CIM and CIV and Article 2 of the SMGS and SMPS require the agreement to apply to all traffics). Baltic States’ Governments contacted by the Consortium supposed that given the two conventions, customers of international traffics entirely within the Baltic states would have a choice of convention. With that exception, COTIF will apply to all traffic entirely within the EU. It is therefore possible that in practice within the EU, the SMGS and SMPS will atrophy, or at least not be used. Traffic moving to and from states outside the EU is quite different however. SMGS and SMPS conditions will continue to apply to traffics to and from the CIS. The vast majority of the traffic of the Baltic states’ traffic is transit traffic from Russia.

4.5.26 Given that the COTIF convention is otherwise standard within the EU and that it provides better protection for consumers (for example for injury to passengers); the Consortium recommends that after the EU accession to COTIF, after the new COTIF comes into force, COTIF becomes the presumption for all international traffic entirely within the EU. This will require EU Member States that are also Member States of the OSZhD to make directives under the terms of Articles 3.3 of the SMGS and SMPS.



Through traffic and the alignment of the conventions

4.5.27 The collapse of the Soviet Union and the increased interest in trade with the former Soviet bloc has spawned a number of new initiatives. Some of these have been ad-hoc initiatives, for example agreements to run direct intermodal trains from Germany to Moscow; others have been systematic attempts to reduce interface issues between the two systems. In the latter category are the current initiatives to create a common CIM/SMGS consignment note and consignment conditions, and initiatives to create common customs transit documentation.

4.5.28 Attempts have been made to align the SMGS and CIM. In the mid 1980’s a number of provisions in the two conventions were aligned. More recently, in 2001 (UNECE Working Party on Rail Transport) it was decided that the two conventions could not be entirely aligned because of “the disparate interests of the individual States involved”29.

4.5.29 Instead, initiatives led by OCTI and OSZhD with the help of the UIC and CIT and active support of the European Commission and the Russian Government, are currently underway to introduce through documentation and reduce customs issues at the CIM/SMGS interface. Other initiatives such as alignment of the dangerous goods regulations (RID and Annex 1 to SMGS) (on the basis of UN rules) have already taken place.

4.5.30 When revising COTIF in the 1999 revision, the COTIF states provided for the CIM and CIV to be applicable to journeys into and from OSZhD states, provided the parties to the contract agreed. This will require the full co-operation of all the contracting parties but it is not clear that the CIS’s state railways would accept the burden of managing a second convention with the implications of training staff and translating documentation. It would seem that further alignment of the two systems (as described above) is a more likely outcome.

4.5.31 To the extent that these initiatives are successful it might be asked whether the Baltic States should retain membership of OSZhD. Membership of OSZhD however provides more than conventions for carriage (SMGS and SMPS), it provides the technical specifications for equipment, it provides a basic wagon use convention and numerous basic agreements for the prime traffic axes of the Baltic railways. (It should be noted that by comparison with the CIS railways, the Baltic states railways are very small).

29 UNECE TRANS/SC.2/2001/1/Add.1 of 1 February 2001



Compliance of OSZhD regulations with EU law

Interoperability

4.5.32 Not only are the track gauge and loading gauge significantly different on 1520mm railways, but a number of other technical aspects fundamentally differ from those on Europe’s standard gauge network (centre couplers rather than side buffers for example).

4.5.33 OSZhD manages technical standards for the 1520mm gauge railways, however interoperability standards are mandated in the Interoperability Directives. For example, high speed lines are required to be standard gauge30.

4.5.34 In this role there is an overlap with the work of EU standards bodies (the European Rail Agency in particular) over standards to be adopted on 1520mm railways. It might be thought desirable for standards for 1520mm railways to be unified (as they were in the Soviet era). However whilst three states with 1520mm railways will be subject to EU law, the vast majority of the 1520mm network will be outside the EU for the foreseeable future.

Access to the market

4.5.35 The issues raised by the SMGS and SMPS have been treated above and those raised by the PPW are discussed below. In addition the OSZhD currently preside over a system typified by rigid price structures and a lack of competition. This is about to change rapidly, at least in Russia, the largest state. OSZhD procedures must change with it (and indeed the continuing role of the OSZhD itself is not clear).

4.5.36 It is noted that there are new entrant railway undertakings and a process of liberalisation in Russia, indeed the ECMT report on Regulatory Reform of Railways in Russia31 reports that nine carriers had obtained licences by November 2003.

4.5.37 This raises the problem of the consistency of OSZhD practices and agreements with EU law. The Commission is understood to want to encourage East West traffic and it may be that many of these potential problems can be avoided. Particularly interesting in this regard will be the regulations proposed under the Third Railway Package which, in part, have been modelled on COTIF but in the Baltic States may be superimposed on SMGS and SMPS contracts.

30 Point 4.1.3 of Decision 2002/732/EC. 31 Regulatory Reform of Railways in Russia ECMT 2004 ISBN 92 821 2309 X.



Community competence

4.5.38 The issue of Community competence is of crucial importance for the conventions managed by the OSZhD. Unlike the COTIF convention, there is no provision in OSZhD agreements for the participation of Regional Economic Integration Organisations. EU States do not have a majority in the OSZhD (EU States have 7 of 25 votes within the OSZhD). Should there be a conflict between OSZhD provisions and EU law, there may therefore something of a problem, incumbent and new entrant railway undertakings may be faced with two sets of incompatible law, mandatory EU law and OSZhD transport law. This is a problem for the railway undertakings of the Baltic States whose traffic is predominantly transit freight from the CIS. The reality of their situation is therefore that all the OSZhD agreements, standards and practices have a business and operational logic. In following EU law as those states and carriers are obliged to do, they may complicate or jeopardise the relationships with their customer base and their operational and commercial partners in the provision of the transport.

4.5.39 The Consortium therefore recommend that the Commission open discussions with the OSZhD to attempt to resolve the issues that this report identifies as problematic.

4.6 The Simplified Procedure for Transit by Rail (Customs)

4.6.1 This sub-section represents an exception to the general exclusion of agreements on customs issues from this report. The Simplified Procedure for Transit by Rail (RSP) has been set up under powers contained in Article 97 of Council Regulation (EEC) No 2913/92 of 12 October 1992 establishing the Community Customs Code. The implementing regulations are contained in Commission Regulation (EEC) No 2454/93 of 2 July 1993, the consolidated version of which is available at the internet address http://www.europa.eu.int/eur-lex/en/consleg/main/1993/en_1993R2454_index.html). Whilst the procedure itself is simple, the background and reasons for its significance are complex. This report therefore oversimplifies some of the issues in order to bring out those which are important for EU rail liberalisation. It should also be noted that the Customs Code is itself in the middle of a revision process, although no changes to the arrangements outlined below are proposed.

4.6.2 The Simplified Procedure applies not only within the EU but also to signatories of the EC/EFTA Convention on a Common Transit Procedure (for the purposes of this report, just Norway and Switzerland).



4.6.3 Customs authorities worldwide generally insist that goods moving with customs duty suspended do so in such a way that duty may be recovered if the goods ‘escape’ into consumption without being properly accounted for. Within the EU, the control process is normally within the New Computerised Transit System (NCTS) in which a computer record is made of the despatch of the goods and another of their arrival. These records are reconciled in the computerised system to ‘write off’ the goods. During the journey, customs authorities have access to details of the goods and can supervise the movement. A paper accompanying document contains the movement reference number (MRN) which relates to individual consignments and facilitates reconciliation. Whilst the core NCTS system is continuously available, technical and procedural issues in Member States mean that access to the system is not available 24/7 in all Member States, this imposes practical limitations on the ability of railway undertakings to accept traffic, one new entrant railway undertaking instanced it specifically as a limitation.

4.6.4 Under the NCTS procedure, the principal, the person accepting final responsibility for the integrity of the procedure and the duties, is required to provide some sort of guarantee to customs. For high value goods, such as cigarettes, this guarantee must be for 100% of the duty; for other goods, Member States may waive the guarantee amounts down to zero. It will be seen that the process involves a certain amount of administration and may involve buying a bank guarantee (charges vary, but 0.5% of the value of the goods is typical). The costs of a bank guarantee can therefore be a significant burden on carriers. Member States practices on waiving guarantees vary, but long-standing railway undertakings are more likely to be seen as creditworthy. Whilst the reasons for this policy are evident, it will be apparent that it disadvantages new entrants.

4.6.5 The Simplified Procedure for Transit by Rail allows railway undertakings to use a CIM consignment note or an equivalent intermodal document as the travelling documentation. (The SMGS consignment note is not recognised under the simplified procedure). No guarantee is required. Railway audit procedures are used to check that goods have arrived and the railway consignment note (or equivalent document) is specially stamped to show its dual role. Railway undertakings are required to accept joint and several liability for the duty and to provide an audit trail for the goods. Subject to these factors, railway undertakings act as if the external frontiers to the EU did not exist. The procedure also allows de-staffing of frontiers by customs staff.

4.6.6 The use of the CIM consignment note (or equivalent note intermodal documentation) presupposes approval of the documentation by the Commission and customs authorities outside the EU which are party to the convention on simplified transit (also see para. 5.10.18).



4.6.7 The primary advantage of the simplified procedure is thus avoiding having to provide a guarantee, in addition the process is administratively simpler in the field and there is no dependence on NCTS (which may not be constantly available).

4.6.8 Rail, air and sea carriers and pipelines all currently enjoy simplified procedures because they are able to demonstrate audit systems to satisfy customs authorities that goods cannot go missing without trace and that they have adequate financial resources. Carriers by road have not been able to demonstrate either of these qualities and no international simplifications are available to road carriers although national customs administrations may however allow carriers by road some domestic simplifications.

4.6.9 The significance of the Simplified Procedure for Transit by Rail has greatly reduced since the enlargement of the EU, but it is still important in three cases

• for moving goods in transit across Switzerland,

• moving non-Community goods (e.g. deep sea containers, etc.) from North Sea and Channel ports inland before customs clearance,

• and the import or export of excise goods to and from the EU without reconsignment (movement entirely within the EU is covered by another procedure (see 4.6.18 below)).

In each of these cases the movement takes place with duty suspended. (These cases are not exhaustive, they are merely the most significant examples of traffics which benefit from the procedure).

4.6.10 Incumbent national railway undertakings have established rights to the procedure. Other railway undertakings including new entrants may have rights to it if they accept the joint and several obligation (which is quite onerous) and provide an audit system. BLS, SBB Cargo Deutschland, Strade Ferrate del Mediterraneo, SBB Cargo Italia and FNME have in this way become authorised to use the procedure.

4.6.11 It should be noted that customs authorities insist on handover of traffic en-route as being a necessary part of the audit process. By the nature of the movement the Simplified Procedure for Transit by Rail may not therefore be used for end-to-end operations by a single carrier even if he is authorised to use the procedure for successive carriage. The Commission and national customs authorities have insisted on that limitation.



4.6.12 Even where a new entrant railway undertaking does hand over traffic, there may be implicit constraints on its becoming authorised. A condition is the use of an audit system for consignment notes. UIC railways use a system defined in UIC leaflet 304 (Accountancy regulations applicable to international freight and express parcels traffic). Non-UIC railways may use this system or another (DG TAXUD has said categorically that another system with the same functionality would be acceptable). There is no requirement for settlement in any particular way. Customs authorities have been very firm on requiring a rigorous audit as a condition of access to RSP.

4.6.13 Nevertheless, although not formally stated as a condition of use of the procedure, it is apparent to the Consortium that there is a reluctance on the part of some customs authorities to allow small railway undertakings access to a procedure which removes the need for financial guarantees. This frustrates competition.

4.6.14 The principal use of the procedure is for transit across Switzerland. As part of an initiative under the programme to encourage rail traffics, the governments of the Netherlands, Germany, Switzerland and Italy have agreed to recognise railway consignment notes from approved carriers from those states as customs documents under the Swiss Corridor initiative. The procedure has the status of a Swiss national transit procedure. It is only available for “community goods” moving between the contracting states, it requires the carrier to be authorised by his local customs authority and not to be vetoed by any other. Consignment notes must be marked with the authorisation number and copies of consignment notes must be faxed to Swiss Customs in advance. The contracting carrier acts as principal to the movement and is responsible for the duty on the goods. Details of the procedure are available at the internet address http://www.zoll.de/b0_zoll_und_ steuern/a0_zoelle/i1_versandverfahren/b0_gemeins_gemeinsch_versand/ c0_transportwege/c0_schienenverkehr/korridorverfahren/index.html. The requirements are therefore less onerous than those of the RSP, the procedures are slightly heavier but it does represent a step forward to facilitating movements by new entrant railway undertakings. This simplification came into effect on 1 September 2004. It is important to note that this procedure is also available to end-to-end carriers in the way that the RSP is not.

4.6.15 Given that this facility helps to open up the market, the Consortium recommends that further states sign up to it. Austria and France as frontier states as a first step and then further states.

4.6.16 The remaining traffics using the RSP are not significant in volume although the movement of deep sea containers represents a niche market. Nevertheless it is clear that in authorising carriers to use the procedure Members State's customs authorities must be even handed.

http://www.zoll.de/b0_zoll_und_ steuern/a0

http://www.zoll.de/b0_zoll_und_ steuern/a0



The Consortium therefore recommends that access to the procedure should be given to all rail carriers that satisfy an objective set of criteria. Given that Article 7 of Directive 95/18/EC has a requirement for adequate financial resources, the Consortium recommends that the implementing provisions for the new Customs Code contain a presumption that railway undertakings will be authorised to use the procedure unless there is good reason to refuse. This change presumes the agreement of the Commission (DG TAXUD) and the Member States’ customs authorities. It will go a long way to resolve the question of opening the market in respect of successive carriage.

4.6.17 There remains the issue of a simplified procedure for use by railway undertakings providing through origin to destination services. The NCTS (outlined above) is not an attractive option and the Consortium therefore recommend that DG TAXUD be invited to consider alternative means of auditing the movement of traffic moving from origin to destination with a single carrier, perhaps by using the infrastructure managers’ traffic records.

4.6.18 There is a procedure similar to the transit procedure for the movement of excise goods within the EU (except that it is not yet computerised). Railway undertakings do not enjoy any simplifications and so this system will not be considered within the study.

4.7 Recommendations

4.7.1 ECE agreements on frontier facilitation have no continuing role within the Single Market, states outside the European Union are members in some cases and it is possible they have a continuing role outside Europe. Accordingly the Consortium recommends no action should be taken (from 4.2.21).

4.7.2 There are significant incompatibilities between the 1999 COTIF and existing EU law, particularly in the area of standards and approval systems for equipment. The Consortium therefore recommend that the Commission make use of their membership of COTIF to resolve the question of the future of the ATMF and APTU, to reconcile the CUI and infrastructure packages and to consider what Community law might be desirable in the area of vehicle operation (from 4.4.21).

4.7.3 In a number of areas, OSZhD agreements fail to comply with EU competition law, rather they are similar to the classic model of exclusive agreements between integrated national railways. Resolving these differences will take time. The Consortium therefore recommend that the Commission open discussions with the OSZhD to attempt to resolve the issues that this report identifies as problematic (from 4.5.39).



4.7.4 Entitlement to use the Simplified Procedure for Transit by Rail for successive carriage is still subject to national criteria and smaller undertakings find it more difficult to become authorised. The Consortium therefore recommends that access to the procedure should be given to all rail carriers that satisfy an objective set of criteria. Given that Article 7 of Directive 95/18/EC has a requirement for adequate financial resources, the Consortium recommends that the implementing provisions for the new Customs Code contain a presumption that railway undertakings will be authorised to use the procedure unless there is good reason to refuse (from 4.6.16).

4.7.5 The Simplified Procedure for Transit by Rail is not by its nature available for movements from origin to destination using a single carrier, the Consortium therefore recommend that DG TAXUD consider alternative simplified procedures, perhaps by using the infrastructure managers’ traffic records for audit purposes (from 4.6.17).

4.7.6 The Technical Unity agreement will be overtaken once the provisions for technical interoperability have been introduced. The Consortium recommends that for the sake of clarity it is then abrogated (from 4.3.6).

4.7.7 Both COTIF and the SMGS and SMPS have the potential to apply in EU Member States which are members of both conventions. The Consortium recommends that after the EU accession to COTIF, after the new COTIF comes into force, COTIF becomes the presumption for all international traffic entirely within the EU and that the Member States of the SMGS and SMPS make specific reservations against those conventions (from 4.5.26).

4.7.8 Given that the Swiss corridor facility helps to open up the market, particularly by allowing end to end carriers access to simplified customs arrangements, the Consortium recommends that further states sign up to it. Austria and France as frontier states as a first step and then further states (from 4.6.15).



5. OTHER MULTILATERAL AGREEMENTS

5.1 Introduction

5.1.1 Agreements between railway undertakings have been taken as those that follow from membership of a trade association, those that follow from joining a particular convention and those that are specifically agreed between individual undertakings. Agreements between railway undertakings which follow from membership of a trade association or a standing agreement have been taken as being “multilateral” and this section, covering “other multilateral agreements”, therefore treats those agreements which follow from the membership of trade bodies or the adherence to specific standing agreements.

5.1.2 Other multilateral inter-railway agreements can be disaggregated into two types; albeit slightly arbitrarily. The first section covers railway associations whose membership conditions require the adoption of particular agreements. In this group come the UIC and a number of bodies which might be considered as subsidiary to it, and the CIT, RNE, FTE etc. In the second section come specific agreements which are free-standing such as the RIV and RIC. It should be remembered that in many respects the OSZhD acts as if it were an inter-railway group.

5.1.3 Those agreements that have been made on an ad hoc basis have been treated as ”bilateral” no matter how many parties are signatories.

Railway documents on the internet

5.1.4 Agreements and documents concluded by railway organisations are often on the internet and made available to members by a password system. This is the case for the UIC (but only partially) and the CIT. The only documents in the public areas of these sites are those intended for rail customer use (such as various “customer charters”).

5.2 Other multilateral – railway trade associations

Overview

5.2.1 To a great extent, multilateral agreements follow from membership of trade associations. In some cases the rights and obligations follow from membership (such as the UIC); in other cases, access to the rights and obligations is the sole reason for joining the association (this would be the case for the RIV and RIC). In both cases the rights devolve from



membership. It is appropriate therefore to look at the common features before examining individual associations in turn.

5.2.2 There is some evidence to suggest that there is a relationship between the size and complexity of a passenger or freight business and membership of trade bodies / adoption of their procedures. ERFA stated that most of its members, new entrant railway undertakings, regarded the UIC as an association for large undertakings and not therefore relevant to their needs. On the other hand one significant operator of open access passenger services said he regarded UIC and CIT membership as offering value for money by providing a lot of practical assistance, assistance that would be disproportionally expensive for a small railway undertaking to get another way.

5.2.3 As businesses continue to evolve it is likely that railway undertakings that see their activities as being niche operations will question membership of comprehensive bodies whilst those that see their businesses as becoming more complex will want to join bodies which reflect their activities. Connex' joining the UIC and the CER and CargoNet Norway's withdrawal from them may be seen in that context.

5.2.4 The railway trade associations have formal statutes, defined areas of activity and agree formally to work together although there are clear areas of overlap, for example in the representation of infrastructure managers where the EIM, RNE and CER all claim a role (see below).

5.3 Other multilateral – The International Union of Railways (UIC)

Origins of the UIC

5.3.1 The UIC can be considered to be the senior of the European railway trade-associations. It was set up in 1922 as a result of governmental initiatives following the international conferences of Genoa and Portoroz in 1921. Effectively all European standard gauge incumbent railway undertakings and infrastructure managers are members, although with differing degrees of participation. The standard gauge incumbent railways of the Middle East and North Africa are also members as are the broad gauge railways of Western Europe.

5.3.2 The International Union of Railways is an association under the French law of 1 July 1901 (as subsequently amended).



Scope & objectives of the UIC

5.3.3 Essentially the purpose of the UIC is to “enable members to improve their business”. Amongst the items within the formal purpose is the phrase “develop regulations and guidelines” (Article 2 of the Statutes). The UIC publishes numerous leaflets setting down specifications and recommendations for all aspects of railways. These leaflets may be mandatory or recommended (see below).

5.3.4 An organisation diagram for the UIC is shown below (but note the comments below about reorganisation at the end of 2004):

Membership & membership criteria

5.3.5 Membership of the UIC is open to railway undertakings and infrastructure managers. A minimum size bar is applied below which active membership is only available if it is “of particular benefit for the UIC”. This bar is set at 1 000 units where units are made up of km of track, millions of passenger km and millions of freight tonne km. Associate membership is available when active membership is not available. Associate membership does not offer voting rights, in practice however, the UIC is an organisation that values consensus, voting is rare (and decision making is not always transparent).

5.3.6 Few newly established new entrant railway undertakings have become members of the UIC, although Connex joined in November 2003 as an active member and the Georg Verkehrsorganisation is an associate



member. However the categories “old railway” and “new railway” are becoming less distinct, a number of smaller longstanding members of the UIC (such as Ferrovie Nord-Milano Esercizio S.p.A) have transformed themselves from regional railways into active “new entrant” railway undertakings in new markets to handle international business. CargoNet Norway, the state-owned freight railway undertaking in Norway, and inheritor of the NSB freight operation withdrew from the UIC (and most other international organisations) at the beginning of 2004 following its withdrawal from wagonload freight operations. CargoNet said that it felt that continued membership was not relevant to its business model (operating shuttle container trains).

5.3.7 Membership fees are typically 100 000 euro even for a modest sized railway, this has been regarded by many railways as being high and there has been considerable pressure for a reduction in fees (indeed one respondent said he would be happier to pay a large once-off fee to close the UIC than to pay the annual fee!) Linked inevitably to the pressure for a reduction in fees has been pressure to review and prioritise the scope of the UIC’s activities, particularly given the loss of some of its historic roles to other organisations. (This issue is considered below).

UIC leaflets

5.3.8 This section of the report discusses UIC leaflets in general. Leaflets which have acted as templates for frontier agreements are dealt with in detail below in the section on other bilateral agreements.

5.3.9 The UIC, throughout most of its life, has been concerned to develop specifications to standardise railway practices across Europe. These specifications have concerned technical issues (over a wide range from ticket layout to axle-box construction), operating practices and commercial practices (mainly concerning the structure of pricing rather than the prices themselves).

5.3.10 UIC specifications may be mandatory or recommended. (There is a further category, rarely used, for information.) Mandatory specifications are intended to create a certainty of certain basic standards for the benefit of all railway undertakings.

5.3.11 In so far as traffic is handed over on an international journey (although it seems likely that this will be less common in future), railway organisations are forced to adopt practices which their partners will accept. Accordingly, the nature of UIC leaflets is to set down general principles but enable railway undertakings to agree alternatives where there is good reason. Leaflets dealing with technical specifications are by their nature more specific and prescriptive than those dealing with process; they are more likely to be mandatory. Because of the ethos of



the organisation, to seek consensus, the specifications in leaflets are lowest common denominators or statements of principle with a large number of "get out" clauses. Even the mandatory leaflets which deal with process allow considerable flexibility (leaflet 471-1, below, provides a number of examples of this). A comparison between the UIC and the quite different arrangements in North America is to be found in Section 5.

5.3.12 UIC leaflets are drawn up by committees of member railways. These tend to be the larger and central railways although Committee Chairmen try to ensure that groups drawing up leaflets are representative of the membership. Non-members do not participate in the drafting process.

5.3.13 Leaflets are sponsored by subject committees and are approved by functional Commissions (see organisation chart). Since the leaflets are prepared through consensus, objections are rare. (The decision processes of the UIC fall outside the remit of this study, however.)

5.3.14 UIC specifications are in practice enforced by peer pressure. The obligation to comply with UIC provisions is not particularly clearly expressed, and perhaps that in itself is revealing. Article 3 states “the UIC shall cover matters of common interest, referred to as being of “general application” i.e. those concerning all members except those which for technical reasons or owing to special circumstances are unconcerned by them.” Article 70 cross refers to this: “Provisions laid down regarding matters of common interest which are of general application may be mandatory or recommendatory”. Article 71 takes this further: “members must be advised at the highest level (…) that it is planned to give the particular provision mandatory status. The person thus informed shall advise the UIC Chief Executive and the Chairman of the body concerned of his/her comments, both on the fundamental issue itself and on the mandatory status envisaged. He/she shall also indicate if the member does not have sole authority to apply the provision proposed because, in its country the matter falls in the legislative sphere or is the prerogative of its supervising authority.” Subsequent articles set down limitations on the power to make provisions mandatory and provide for exemptions for railways whose circumstances make it impossible for them to apply the mandatory rules. There is no categoric requirement to comply. The closest the UIC statutes come to a mandatory requirement to comply is in Article 12 “Members shall be bound to … comply with provisions of the Statutes and implement provisions made in accordance with the Statutes.”

5.3.15 Every member in fact fails to respect at least some mandatory specifications. In practice, in a world still largely composed of national railways within their own frontiers and owned by states, no mechanism for enforcement exists. The UIC is essentially a weak organisation.



5.3.16 Members receive one copy of each leaflet free of charge. It is not normal for copies of leaflets to be distributed beyond the headquarters departments of members.

5.3.17 Leaflets are available to non-members without restriction (although they cannot be described as cheap (e.g. leaflet 471-1 (see below) which has 41 pages costs € 183.00 plus postage). Non-members are free to adopt them in their operations. Many safety authorities (such as the EBA in their Verwaltungsvorschriften) prescribe UIC technical standards as national standards for the activity in question. It is to be expected however that in so far as standards impinge on safety issues, the role of working parties drawn up under the terms of Article 3 of Regulation 881/200432 will take on an increasing role in establishing principles for safety.

5.3.18 It is likewise possible that more standards will fall to be drawn up within a CEN, CENELEC or ETSI framework33.

5.3.19 Whilst UIC members are constrained to some extent by mandatory leaflets, it is clearly possible for new entrant railway undertakings to agree ways to arrange relationships between themselves which are different to the UIC model. They may wish to do that because the UIC model is inappropriate for their equipment or staffing or reflects a different business model (new entrant railway undertakings for example are often managed by mobile telephone contact between drivers and a control centre, drivers are also encouraged to speak directly to customers, conventional railway undertakings have a hierarchical structure). This may be more difficult to achieve where a new entrant wants to exchange traffic with an incumbent, the incumbent may be less ready to move away from a formula with which it feels comfortable.

The Changing Role of the UIC

5.3.20 In recent years, a number of changes have taken place, many but by no means all, linked to the process of liberalisation. The role of having railway specifications for everything (even a UIC franc as a currency) was abandoned as European standards started to be developed. No less than 53 leaflets were discontinued in 2004 (continuing a process that has continued over some years). The UIC’s continuing role is still anything but clear, however. It remains the only European body with membership from all parties in the railway industry and so provides a forum for “whole-industry” debate, on such issues as the rail-wheel interface for example and it also claims a worldwide industry 32 Regulation 881/2004 establishing the European Railway Agency. 33 European standards organisations, CEN, European Committee for Standardization

CENELEC, European Committee for Electrotechnical Standardization ETSI, European Telecommunications Standards Institute.



competence. Nevertheless, recent years have seen the establishment and growth of more focused organisations, such as the ERFA, for freight carriers, and RNE and EIM for infrastructure managers.

5.3.21 The UIC has made a number of attempts to define a clear and logical role in the climate of demands for reduced membership fees. In June 2004 a further review was announced “the Executive Committee is currently giving thought to the role and organisation of UIC. The central idea is to refocus the Association around its technical work. Four key fields of competence have been defined: interoperability, infrastructure, standardisation and major technical questions. Discussions are also focusing on how to position the UIC in relation to other international railway bodies both external (ERA) and internal (EIM, CER, ERFA, etc.)34”. A plan to achieve this refocusing by reorganisation and cost reduction was put to members in December 2004. It would appear that UIC sees its future as supporting the European Railway Agency and similar bodies in providing specialist technical services “how the UIC can most effectively meet the Agency’s expectations”35. The UIC also points out the interoperability is not simply a technical issue. “In November it highlighted the need to accelerate “technical, operational, regulatory and commercial interoperability”. Here it is referring to “soft” items such as information and reservation systems, where rail operators often lag behind their airline competitors”36.

5.3.22 It is clear that membership of the UIC is not a necessary condition for operating international rail services as is shown by the numerous successful railway undertakings which are not members (Rail4Chem, for example). Nevertheless the role played by the organisation can lead to some competition concerns. To the extent that the UIC creates rules or recommendations which if implemented may impact adversely on the ability of (non UIC) new entrants to operate on substantially the same terms as the traditional railway, then these rules and recommendations may raise questions under Article 81 EC. The decision making arrangements within the UIC are not particularly transparent and some influence derives from the ability to nominate chairmen of working groups and to a lesser extent to second staff to its headquarters.

5.3.23 The question also arises of whether some of the subjects which the UIC still deals with should be specified by active participants within the industry rather than by national governments or at European level. Questioning the attribution of competence has already led, for example, to the establishment of TSIs and the European Rail Agency. It is not

34Briefing to members, June 2004. 35 Reported in the Railway Gazette January 2005 36 Quote from the Railway Gazette January 2005



clear that all the tasks still undertaken by the UIC are appropriate to its status.

5.3.24 Given the UIC’s apparent adoption of a role as a specialist advisor on industry questions, it would be appropriate for the European Railway Agency or the Commission to assure itself of the independence of the advice it receives. Investigation of membership criteria and the rules and practices for the conduct of the business of the association to assess their effect on competition within the industry might therefore be appropriate.

UIC leaflets

5.3.25 In the context of this study the UIC publishes four leaflets setting out the process for running frontier operations. These leaflets were prepared at the time that international traffic was necessarily handed over en route and there was an obligation to carry. Those assumptions are implicit in the drawing up of the leaflets.

• leaflet 470 General arrangements concerning the financing and operating of frontier stations;

• leaflet 471-1 Regulations covering the operating of lines crossing frontiers and the use of locomotives and multiple-unit trains in international traffic;

• leaflet 471-2 Technical inspections at and inland from frontiers for the exchange of wagons in international traffic;

• leaflet 471-3 Inspections of dangerous goods consignments in international traffic.

Leaflets in the 404 series determine some of the activities on handover.

• leaflet 404-2 Compendium of wagonload consignment data exchanged between railways in international traffic;

• leaflet 404-4 Regulations governing inter-railway exchanges of data on the conveyance of goods in trainloads/through trains in international traffic.

Leaflet 502 has a slight influence over the handover operation.

• leaflet 502 Special consignments - Provisions concerning the preparation and conveyance of special consignments

These leaflets are dealt with in more detail in Section 6.3 below.



Use of UIC procedures – general issues

5.3.26 UIC procedures have been designed by large national railways for use by large national railways. Full membership of the UIC is only open to larger railway undertakings (and infrastructure managers). The procedures thus standardised may not be the most appropriate for smaller railway undertakings and for new entrant railway undertakings. Although there may be no anti-competitive intent in this, it may in fact hamper new entrants and thus impede competition.

5.3.27 New entrant railway undertakings contacted for this study varied in their views. All thought the technical specifications were relevant but of the “process” leaflets, one prominent new entrant railway undertaking saw them as industry standards to be followed by all railway undertakings, another prominent railway undertaking thought that many were implicit and did not need to be stated but the view of ERFA that most of its members saw them as not relevant to their operations was more common.

5.3.28 In theory UIC leaflets might favour large railway ways of doing things. On the other hand, the disparate interests involved normally mean that provisions are at the lowest common denominator level. The Consortium found that new entrant railway undertakings ignored UIC leaflets and provisions which were not appropriate to their activities. The Consortium noted with interest that one new entrant railway undertaking had no handover agreement at all with an incumbent to which it handed over traffic.

5.3.29 In some areas UIC leaflets indisputably represent accepted practice, UIC standards for example for rail sections are accepted as industry standard without reserve (and the UIC specifications are included as Annex L of the infrastructure TSI). In the specific area of the frontier leaflets the Consortium are not persuaded that the leaflets in their entirety remain good practice.

5.3.30 The second question, are UIC railways imposing these conditions on actual or potential competitors. There is also evidence that even recently, incumbent railway undertakings have attempted to impose the classic form of the agreements on new entrant railway undertakings.

5.3.31 A “liberated incumbent railway undertaking” said it found great difficulties in negotiating individual contracts outside the framework of standard UIC arrangements and suspected anti-competitive intent as well as commercial conservatism. It is clear that the UIC members do represent dominant railway undertakings in most markets. It is also clear that there has been some misuse of the agreements, further details are given below in the section on other multilateral agreements.



5.3.32 It is the view of the Consortium that some parts of the leaflets no longer represent good practice and there have been attempts by some dominant railway undertakings to impose them.

5.4 Other multilateral – Brussels Clearing Centre

Overview

5.4.1 Before dealing with the BCC it would be sensible to describe how railway accounting works.

5.4.2 Conventional practice in railway accounts is for the allocation of receipts to the railway undertakings which should receive them to be made by the railway undertaking that sells the ticket in passenger traffic, whereas freight receipts are allocated by the destination railway undertaking (charges may not be known until delivery). For freight consignments, the railway undertaking making the allocation may thus not be the one billing the customer (and in due course receiving the receipts). The freight allocation process involves an analysis of the charges on the consignment note, in most cases centralised charging makes these allocations automatically on the basis of splits agreed when the rates were negotiated between the railway undertakings concerned.

5.4.3 Both freight and passenger accounting provide for an audit function so that every railway undertaking can be satisfied that the processes guarantee their shares will be paid. These audit processes are defined in UIC leaflets 301 and 304 and are undertaken by the railway undertakings themselves. Audit is an essential part of financial management. These multilateral audits are really only required for railway undertakings having diverse traffics. New entrant railway undertakings may well manage with much simpler systems. These audit processes are entirely separate from the process of settlement. Non-members of the UIC are specifically permitted to use the inter-railway audit procedure and a specimen contract is laid down in the leaflets. Use of the UIC audit procedure does not commit users to settle through the BCC although it is “recommended”.

Scope & objectives of the BCC

5.4.4 The BCC is essentially a clearing house for settling debts between national railways in an efficient way. In this way its role is not dissimilar to the IATA clearing house (International Air Transport Association, an association of carriers), and like it, had some of its origins in helping railway undertakings in states with weak or controlled currencies settle



their debts. It is constituted as a co-operative company with limited liability under Belgian law.

Membership of the BCC

5.4.5 Membership is restricted to members of the UIC except that non-members may join if the General Assembly agrees to it by an eighty percent majority. Members contribute to the capital of the company. Other railway undertakings or infrastructure managers may join as associates if the Annual General Meeting agree by a majority of two-thirds. In fact there have never been associates and no fee structure has been worked out for them. In both cases there is a probationary period.

5.4.6 Following the process of calculating the balances between the railways undertakings, the larger undertakings settle through the BCC. It should be emphasised that the BCC is just a clearing house, it performs no transport related activities. Membership is justified (or not) solely on the basis of the efficiency of the financial transactions.

5.4.7 The clearing process makes a monthly settlement, it operates by members paying in the total amounts they owe other members and laying claim to amounts they are owed. In-payments in theory are in a variety of currencies. The clearing process then attempts to pay each railway undertaking what it is owed in its own currency. The arrival of the euro has simplified the process of settlement considerably, but the common currency has not changed the initial process, that of reconciling the claims to funds. A process for resolving differences is provided.

5.4.8 Charges are made for the process. The BCC stated that charges are related to the number of transactions but that it is difficult to make a comparison with those of the banking system (the reconciliation process is not one that a bank would provide).

5.4.9 It is perhaps significant that the IATA clearing house is made available to members of the association without charge, a modest charge is made to non-members. The operations of the clearing house itself are self-financing.

5.4.10 The advantage of the BCC is that it settles over a large number of undertakings. For a large undertaking with many relationships this outsourcing represents a significant benefit. The same may not be true of a new entrant railway undertaking with a limited number of relationships and it is not clear that there is a great clamour to join the organisation.

5.4.11 Membership of the BCC is not a necessary part of any transport or accountancy process, alternatives such as joint current accounts are specifically provided for in railway protocols. It therefore cannot be



considered an essential facility. Only economic reasons justify the use of the BCC. Membership would seem to be open, although UIC members have a right of membership. It is clear that the BCC is run by railway undertakings with a dominant position, it requires therefore to satisfy the criteria of access to trade associations. The terms offered for membership therefore need to be applied consistently, but the Consortium is satisfied that the terms offered for the settlement process itself do not amount to any type of discrimination.

5.4.12 The choice of whether membership of the BCC is worthwhile seems very much a function of the complexity of traffic patterns. There must be some doubt about its attractiveness to new entrant railway undertakings with few trading partners. Membership (or not) of the BCC is not a crucial factor in access to the market, for most open access operation it is irrelevant. The Consortium recommends no action is taken.

5.5 The Community of European railways and Infrastructure Companies

5.5.1 The Community of European railways (CER) is an association of railways under Belgian law. Membership is restricted to active members of the UIC and in practice, despite the name change agreed in May 2004, it is composed of railway undertakings, (infrastructure managers have their own associations, see below). The association is essentially a lobbying and representational group for the larger EU railway undertakings. The overwhelming majority of members are state owned. Its “principle objective is to contribute to the improvement and development of the world of rail transport in general". This will be done by “participating in all the issues relating to written documents and initiatives from the European Union which concern transport on behalf of the railway industry and secondly to analyse the problems linked to these questions and as far as possible investigate solutions and follow up their implementation.”37. Accordingly, membership does not imply any commitment to any particular frontier processing and the CER will not be considered further.

5.6 The European Association of Infrastructure Managers (EIM)

5.6.1 The European Association of Infrastructure Managers is an association of infrastructure managers under Belgian law. Its role is essentially as a lobbying group. The association has as its objectives “to

37 Article 3 of the Statutes of the CER



ensure that their views on how present and future developments will impact on their activities are promoted/communicated effectively to the European/national authorities”38. Accordingly, membership does not imply any commitment to any particular frontier processing and the EIM will not be considered further.

5.7 RailNetEurope (RNE)

5.7.1 RailNetEurope is an association of infrastructure managers under Austrian law. Members of RNE include the infrastructure managers from Denmark, Finland, France, Germany, Great Britain, the Netherlands, Portugal, Sweden and Norway; integrated railways from Austria, Belgium, Eurotunnel, Greece, Luxembourg, Poland, Slovakia, Spain and Switzerland, and railway undertakings from the Czech Republic and France. It is understood that the Hungarian infrastructure manager is about to join. It is to be noted that there is significant railway undertaking representation within the RNE.

5.7.2 RNE was set up to market infrastructure capacity for international services. The association has the common sale of infrastructure capacity as its objective. In selling infrastructure capacity, RNE is developing common procedures, common standards and common contracts. Work on developing a standard infrastructure contract was originally undertaken by the CIT and UIC who attempted to produce a contract which balanced the interests of all the parties in a way which appeared fair to them. On its creation however RNE decided to develop its own template contract and together with the remodelling of the CIT this is leading to a contract being jointly negotiated between the RNE representing the interests of its members and the CIT those of the carriers. The contracts are being designed to comply with COTIF and with EU law.

5.7.3 With effect from 2005, RNE will inherit the work of allocating paths for all international train services from Forum Train Europe (see below). Part of the process involves reserving through international freight paths by the RNE group to provide for late or mid-timetable “one-stop-shop” applications. These arrangements are intended to be neutral as between incumbent and open-access railway undertakings (to accord with Article 14 of Directive 2001/14/EC).

5.7.4 Whilst a detailed study of relationships within the RNE falls outside the scope of the study, it is clear that there could be a conflict of interest in that some members of RNE are railway undertakings with potentially divided loyalties. This situation will not be resolved unless 38 EIM Memorandum of Understanding.



and until there is full separation of railway operation from infrastructure management.

5.7.5 It is also apparent that in packaging and selling the infrastructure capacity of its members, the RNE is offering alternative and potentially competitive products (for example French and German infrastructure managers both offer capacity for traffic between the North Sea ports and Italy). Whilst as yet there may be no competition on the basis of price for these traffics it is apparent that the relationship between the infrastructure managers is a competitive one. The Consortium understand from one railway undertaking along this axis that infrastructure managers are well aware of the competitive effects of access charges. The Consortium therefore recommend that further study is made of the competitive relationships implicit within RNE.

5.8 Forum Train Europe (FTE)

5.8.1 Forum Train Europe is the successor of the former timetable conferences. The process is currently in two parts: firstly, to allow railway undertakings operating in the classic successive relationship to coordinate their requirements for capacity at an international level (defining the characteristics of the trains they want to run). At this first stage new entrant railway undertakings may also make their bids. In the second stage, currently within the FTE, infrastructure managers coordinate train paths to satisfy the totality of the requests they receive or to make a rational selection from amongst competing claims on infrastructure. Currently both these parts are handled by different arms of the FTE in separate meetings.

5.8.2 In so far as EU states are concerned this process is heavily regulated by the requirements of Directive 2001/14/EC on the allocation of railway infrastructure capacity and the levying of charges for the use of railway infrastructure. Following concern from the Commission, the two parts of the process are to be undertaken by different bodies with effect from 2005. The FTE will continue to co-ordinate requirements for capacity and become a organisation solely for railway undertakings. The work of allocating paths will fall to the RNE (q.v.).

5.8.3 Without a more profound study of the mechanisms of the FTE (which was outside the study), it is impossible to say if the relationships and processes which arise from railway undertakings preparing competing bids to run competing services under the umbrella of a single organisation raise issues in competition law. The Consortium therefore recommend that further study is made of the competitive relationships implicit within the FTE.



5.9 International Passenger Routing Agreement (ВМПС)

5.9.1 Within the former Soviet block and still relevant to the Baltic States is the very similar process adopted under the OSZhD, where the «Своде маршрутов вагонов прямого международного пассажирского сообщения (ВМПС)» [International Passenger Routing Agreement] agree the (passenger) train services to be run in a similar way to the FTE. There is no equivalent to the RNE to allocate paths. The comments on potential competitive complications outlined above, apply to the ВМПС.

5.10 International Rail Transport Committee (CIT)

Scope & objectives of the CIT

5.10.1 The CIT is a railway trade-association with the formal objective of “the transposition of the law of international carriage by rail and in particular the Convention concerning International Carriage by Rail (COTIF) and its consistent application”39. In practice this means that the CIT draws up standard practical instructions for the railway industry to comply with COTIF law. Proposals to take the implications of EU law into account have been accepted, this should mean that all the work will build on parameters set by Community law. It was similarly decided also to consider the implications of OSZhD law on COTIF law. The CIT is formally constituted as a non-profit making organisation under Swiss law.

5.10.2 Membership of the CIT is quite widely dispersed, a membership of about a hundred carriers is claimed and the organisation has a policy of encouraging membership of small and new entrant undertakings (such as members of ERFA). This marks a contrast with the UIC which has only been joined by a few. The CIT says that the costs of membership are affordable to the smallest organisations and quotes membership fees being in a range between 15 000 and 1 300 euro. The voting structure gives each member equal weight. Infrastructure managers are entitled to be Associate Members of the CIT but with limited voting rights. The Consortium understand, however, that following the CIT refocus on representing the interests of railway undertakings, many infrastructure managers will resign existing memberships.

5.10.3 The CIT has a more focussed role than the UIC and there tends to be a greater congruity of view, decision making processes are therefore simpler. Ad hoc committees are set up to consider issues and decisions then made by means of postal votes. This may allow smaller members to 39 Statutes of the CIT



have more say in decisions. Since all members have equal voting powers, the incumbent railways can in practice be outvoted, an unthinkable outcome at the UIC.

5.10.4 The roles of the CIT are thus to draw up standard instructions, to prepare template agreements, to produce standard documentation, to manage agreements on the allocation of compensation and to publish a number of standard guides (listed below). In addition they provide training and legal advice to members.

5.10.5 The CIT prepare template terms and conditions for the relationships both between the railway industry and its customers and within the railway industry. The objective of this work is to provide a well understood and certain legal foundation to standard relationships, such as that between for example between customer and carrier.

Relationships between the railway industry & its customers

5.10.6 The CIT prepare General Terms and Conditions to act as the carrier’s conditions in accordance with Article 3 c of the CIM and CIV. These enhance the basis terms of the CIM and CIV. Both national and European consumers’ associations and competition authorities have been concerned to prevent railway undertakings abusing their contractual strength by acting unreasonably, since constraints previously placed on railway undertakings by COTIF (for example to offer child fares) are now open to commercial choice. In preparing template terms and conditions, the issue of equity is crucial. The Commission has been involved in this work, however the relationship between railway undertakings and their customers lies outside the scope of this study.

Relationships within the railway industry

5.10.7 These relationships form the core of this study. The CIT have drawn up a series of standard agreements (“co-operation contracts”) intended to be the default terms of agreements. Template agreements have been drawn up for both passenger and freight operations (they are almost identical) for:

• the relationship between carriers40 in the classic successive carrier relationship (joint contracting);

• the relationship between a contractual carrier and a railway undertaking accepting the legal responsibilities of a carrier (sub-contracting carrier);

40 In this context the word carrier has the meaning defined in COTIF, (the contractual carrier

who concluded the contract, or a successive carrier liable on the basis of the contract).



• the relationship between a contractual carrier and a railway undertaking not accepting the legal responsibilities of a carrier (traction provider);

• the relationship between a contractual carrier and a provider of a locomotive (hire of a locomotive);

• the relationship between a contractual carrier and a provider of miscellaneous services (provision of services) (freight only).

5.10.8 The template agreements have been drawn up to allow the parties to have a standard legal basis of common terms and conditions from which they can start their commercial negotiations. The objective is firstly to cover “non-contentious” issues, (such as duration of the contract, jurisdiction which applies, language, etc.) and secondly to lay down some basic principles for issues that might otherwise be overlooked (such as basic liability provisions) so the parties can know that these aspects are on a firm footing before they negotiate the substance of the contract, such as price and service. The standard terms are intended to be clear but to be sufficiently general to command wide acceptance. In that way the CIT hope that they will become the industry standard on merit.

5.10.9 The standard templates presume that signatories will be bound by "the regulations published by the international organisations competent for railway issues". This is qualified by “unless the application of such a usage would be unreasonable”.

5.10.10 Where new entrants work with established railway undertakings (rather than in parallel) they may well, at least at first, take on subservient roles. They should not be disadvantaged by doing so. The contracts which they are most likely to encounter, those for sub-contracting, traction provision and miscellaneous services should therefore not be unfavourable to their interests. Representatives of ERFA, representing smaller railway undertakings and new entrants did not consider the template agreements objectionable.

5.10.11 The Statutes of the CIT provide that “Members shall undertake to respect the decisions of the Association” but the CIT are on record as saying that standards must be “generally accepted not simply because they are a condition of membership but on their merits"41. The association thus sees its role as being to propose rather than mandate..

5.10.12 The CIT specifically recommends adoption of its standard contractual structure (for example for sub-contracting) throughout the

41 CIT Info June 2002



industry. Their recommendation is therefore also addressed to non-members.

5.10.13 General terms and conditions which contribute to efficiency in contractual relationships are not in principle anti-competitive, however each such agreement must be examined on its merits to see if it has anti-competitive effects. The Consortium do not consider that the general terms and conditions published by the CIT are themselves anti-competitive, the Consortium therefore believe that the use of such agreements as industry standards would not distort the market. This also appears to be the view of trade associations representing customers and new entrant railway undertakings42.

Standard documentation and procedures

5.10.14 In its work of standardising relationships, the CIT also produces the industry standard stationery and sets out industry standard procedures. It is thus responsible in particular for producing the standard consignment note and the standard ticket formats. Other stationery is also designed, but the two contractual documents are much the most important. These designs are copyrighted. Electronic consignment note and ticket protocols are not copyrighted but any printouts from them might be. The right to make use of the copyrighted documents is given freely to members and the CIT propose to make the rights to use them available to non-members for a fee. The Consortium understand that so far there have been no such agreements.

Consignment notes and tickets

5.10.15 There is no legal requirement to use any particular stationery for international passenger traffic. At the most basic level, a passenger operation can be run without industry stationery, indeed one new entrant passenger international grouping runs its service as a ticketless operation. Railway undertakings may choose to use their own formats for tickets (or use airline formats for example). Nevertheless passenger railway undertakings are likely to want to issue tickets to cover connecting services as well as their own service. New entrants will need to issue change of carrier tickets as appropriate, for more sophisticated operations a whole range of reservation, change of class and group tickets are needed. These need to be recognisable. Such railway undertakings will need to be able to use industry documentation and the instruction manuals and training.

5.10.16 For freight the issue is more acute, CIM requires the contract of carriage to “be confirmed by a consignment note which accords with a

42 Discussions with ERFA 2004



uniform model”43. A number of ancillary processes, for example the use of the consignment note as a status and transit document under the customs transit procedures, or the use of the consignment note for documentary credits, require a consignment note in a recognisable form. COTIF recognises the role of “associations of carriers” to “establish uniform model consignment notes”44 but is silent on the rights of any carrier to make use of them.

5.10.17 The CIT point out that the right given to international associations of carriers to design the consignment note in Article 6 of the CIM is not exclusive to the CIT and (for example) ERFA could also produce a consignment note. In any event the requirement laid down in CIM Article 6 for consultation and for customs authorities to have a veto over the design of the document (because of its use in the Rail Simplified Transit Procedure) would need to be respected. It is also true that in successive carriage supply of consignment documentation could be centralised on a single CIT member.

5.10.18 The requirement for a “uniform model” was specifically inserted in the CIM to take account of the requirements of customs authorities. During the negotiations for COTIF 1999, at one time it was proposed that OTIF designed the consignment note and that it would have been annexed to the CIM. This solution was supported by the Commission and interestingly is the solution adopted by the OSZhD. The solution was rejected because of the difficulty of making changes to the documents.

5.10.19 A comparison with other modes might be instructive. A document of carriage or an air waybill are necessary for air traffic45. Other means may be substituted for tickets, but where physical tickets are not used, the carrier is required to offer passengers a written statement of the information they would contain. ICAO, the International Civil Aviation Organization (a UN body), takes no part in the design of these documents. Design is by IATA (the International Air Transport Association, a body of carriers) but the IATA design is not mandatory on carriers, they may choose their own. IATA, although reserving its rights, encourages use of its documentation in the overall interests of the industry, requiring neither membership nor fees from users.

5.10.20 A document is necessary for international movements by road, but no requirements for its design are laid down. For sea movements, there are a number of different conventions under which traffic may be consigned and carriers tend to have their own bills of lading.

43 CIM Article 6 (8) 44 CIM Article 6 (8) 45 Articles 3 & 7 Montreal Convention 1999



5.10.21 In all modes it would seem reasonable for carriers to take the lead in designing contractual stationery and in writing the instructions for its use. This allows changes to respond to events to be made quickly (during the life of the 1980 COTIF, the consignment note was redesigned twice) and for the stationery to be designed to be handled efficiently.

5.10.22 Nevertheless in practical terms use of a privately copyrighted document is a necessary condition of access to the market. Intellectual property law is clear on this issue, entry to the market being dependent on the intellectual property of a single private organisation is not in itself an infringement of competition law. Abuse of this position, however, would be. The requirements are clear. The intellectual property must be made available to all the players in the market on equal and not unreasonable terms.

5.10.23 In this case the Consortium is satisfied that the CIT does make its documentation available to all carriers. The statutes of the organisation however give the Executive Committee power to fix the fees for licensing the documentation. The Executive Committee, composed of carrier’s representatives, must ensure that the fees they fix are reasonable and consistent given the circumstances of the case. It would be desirable that these fees were fixed and published in advance so that there could be transparency and openness and the assurance of fairness.

5.10.24 The Consortium considers that since the passenger ticket is not an mandatory document, there can be no presumption that it must be made freely available, it would be desirable if it were, however. The comments made above on the freight documentation apply. (The SMPS prescribes the design of the ticket and it is therefore available to all carriers).

Standard instructions

5.10.25 The standard instructions themselves are concerned with the minutiae of administrative procedure, precision in the use of particular boxes on forms and date stamps. The process of drawing-up standard instructions is undertaken by volunteer members and inevitably this tends to be larger members (but see above for comments on the decision making process).

5.10.26 These standard instructions are being revised for the 1999 COTIF and will include for passenger traffic:

• International Passenger Manual (instructions to railway undertakings for the issue of all types of tickets, inspection and cancellation of tickets, refunds, processing of claims, etc.);



• International Rail Ticket Design Manual (instructions to railway undertakings on the format of tickets, printing specifications, security techniques, etc.);

and for freight:

• CIM Consignment Note Manual (information for customers on how to fill out consignment notes, procedures for electronic exchange of information between customer and railway, procedures for disruption during transit, etc.);

• CIM Consignment Note Manual for Combined Transport (information for customers on how to fill out intermodal consignment notes, etc.);

• CIM Freight Traffic Manual (information for railway undertakings on the procedures on consignment, handover of traffic and delivery, including procedures to apply when carriage is disrupted;)

• CIM/SMGS Traffic Manual (instructions for through CIM-SMGS traffics).

5.10.27 The consignment note manuals are intended as public documents for customers, the other publications are intended for railway undertaking use. Some of these procedural documents are for use in the field, others intended for use by headquarters departments. The texts are made available electronically without charge for members to print.

5.10.28 The Consortium regards the manuals produced by the CIT as being an entirely appropriate activity for an association of carriers and sees no conflict between those documents being copyright and competition law. It is to be noted that IATA charges for training and for instruction manuals, the instruction manual for ticketing for example is USD 70.

5.10.29 The CIT also manage a number of agreements and documents in the legal and administrative area. Two, the AIM and AIV, are of particular interest to the study.

Sharing of the costs of claims

5.10.30 The AIM46 is an agreement managed by the CIT to which its members are expected by default to agree. It is also open to other carriers. In effect it institutionalises CIM Article 50 (although relying on the powers given by Article 52). It sets up a fall-back regime of ‘no-blame, knock for knock’ sharing of the costs of loss and damage of

46 Agreement on the Relationships between Carriers in respect of International Freight Traffic

by Rail



freight consignments. Whilst the CIT manages the agreement, it takes no part in settlement. (Settlement is via the BCC q.v. or for non-BCC members in some other way.). As in all of these procedures however, the CIT does provide expert advice about transport law and a mediation service.

5.10.31 Under the AIM which will be introduced with the new COTIF, where a carrier is responsible for an incident, it pays its costs. This corresponds to the normal presumption that carriers are responsible for managing their own risks and should accept liability when they are at fault. In this way costs fall to the careless and negligent, and those with proper systems benefit.

5.10.32 The AIM goes beyond that however, in providing for those cases where responsibility is not clear. It provides for an allocation of the compensation between all the carriers who might have been implicated. The basis of the allocation is by default, kilometric, but could be pro rata to income or some other basis. This solution is largely that mandated by COTIF, but the CIT asserts that the costs of setting up systems implied by the last part of Article 50 (c) to identify the origin of loss and damage would be significant, without any certainty that the claims record would improve. New entrants are free to join this system without fee, or to stay with the basic COTIF system under which they have a right to prove they were not responsible.

5.10.33 The passenger counterpart to the AIM, the AIV47 is much simpler because liability for most passenger claims is clear. Claims for death and personal injury are not shared, (CIV Article 26 (5)). However, the AIV has also become the vehicle for sharing the costs of compensation for passenger delays under COTIF and under the UIC/CER/CIT Passenger Charter in a simple way. The procedures are appropriate and proportional. There is a presumption that CIT members will be bound by the AIV.

5.10.34 This option to join the AIM without charge or stay out of it suggests there are no issues of access to the market involved. The presumption that CIT members will be bound by the AIV does not seem to the Consortium to be a material element in access to the market..

CIT database (BD-CIT)

5.10.35 The CIT is currently engaged in the design of a database to replace the remaining publications which it manages. This database will replace the LIF, the Liste générale des points frontières et les restrictions

47 Agreement on the Relationships between Carriers in respect of International Passenger Traffic

by Rail.



en vigeur en trafic international ferroviaire des marchandises48 (currently only published only in French and German) and the ARV and ARM, the Accord concernant la notification des restrictions de trafic en service international ferroviaire des marchandises/voyageurs49 (currently only published only in French and German).

5.10.36 The current LIF is designed for integrated railways, it defines frontier points open for traffic and the restrictions which apply to them. It is compiled from information supplied by railway undertakings and includes:

• the name of the frontier;

• the states it connects;

• codified information about the restrictions applicable.

5.10.37 These restrictions may take a number of forms, either permanent or semi-permanent (such as the frontier is closed to all (freight) traffic), and restrictions on the type of traffic which may be handed over. These restrictions may be a function of a number of factors: closure by the infrastructure manager (e.g. because of the condition of the track), restrictions imposed by national governments on the movement of traffic (e.g. nuclear materials in Belgium), restrictions imposed by national or international authorities for modal reasons (e.g. restrictions on movement by sea in the Baltic), or limitations imposed by a lack of facilities (customs, veterinary, etc.). Railway undertakings themselves may also impose limitations on what they are prepared to accept on exchange at particular frontiers. These railway undertaking limitations are a function of the acceptance arrangements of individual undertakings, they may include, for example, an absolute refusal of livestock. Railway undertakings may also only accept traffic via a particular frontier point for stations in its immediate hinterland for operating reasons, this limit is based on Article 3 § 5 of the 1980 CIM (seventeen frontiers have this latter limit currently). Likewise (using the same provision) railway undertakings may currently declare in the LIF that traffic is moved flexibly between two states and not necessarily via the frontier that the customer specifies. No attempt is made to include restrictions imposed on both freight and passenger traffic flows for temporary problems such as strikes and natural phenomena.

5.10.38 The information does not duplicate the information in infrastructure managers' network statements; it is traffic based rather than

48 General List of Frontier Points and the restrictions in force for international freight traffic by

rail. 49 Agreement concerning the Notification of Traffic Restrictions for International

Freight/Passenger Traffic by Rail.



based on network parameters (such as signalling systems and axle-loads) and more specific (essentially referring to individual frontiers).

5.10.39 The current LIF is intended for the practical use of railway undertakings, principally in the wagonload freight business, in helping station staff to liaise with customers over the choice of routes. In passing, there must be some doubt about the relevance of a printed document updated annually for such a purpose; many railway undertakings keep such data in standing data files and use them to validate requests for freight rates and set up consignment options.

5.10.40 Likewise the current ARV and ARM lay down a procedure for integrated railways to advise each other of inability to accept traffic for example because of strike or weather conditions (by particular routes, to particular stations, or overall). The system is formalised, to avoid language difficulties, and a standard list of railways to contact is laid down. The list of railways only includes CIT members.

5.10.41 A number of problems arise in modifying these three publications for liberalised circumstances and indeed rationalising the whole concept. The CIT concept is that of a distributed database centred on their own website the BD-CIT50. The CIT would provide facilities for members to input and update railway undertaking information (such issues as permanent limitation on the traffic they were prepared to accept together with temporary limitations due to congestion, strikes etc). This information would then be available to other members of the association. Details of restrictions imposed by carriers would continue to be supplied by those carriers but be specifically identified as applying only to their services. Links would also be provided to infrastructure managers’ websites (initially probably only to the network statement) but in due course to whatever data the infrastructure member put on its website on permanent and temporary access to its network.

5.10.42 Whilst the concept is still in its early stages of development, it is likely that the data on railway undertaking imposed limitations provided by CIT members on the CIT website would only be available to CIT members whereas the links would merely facilitate access to public data supplied by infrastructure managers (in the spirit of Directive 2001/14/EC)

5.10.43 It has to be recognised however that the network statements are not designed for giving details of limitations at frontiers. They are general, not dynamic and often only available in national languages (for example, only those for Austria, France, Germany, Great Britain, the

50 Base de données CIT [CIT data base].



Netherlands, Norway, Poland, Portugal, Slovenia and Sweden are available in English on the internet).

5.10.44 The Consortium understand that the RNE’s “Business Process Re-engineering Group” is considering ways in which to facilitate their customers’ access to standing information about networks and how transient information can be distributed.

5.10.45 The collation of data for members is a quite proper service for a trade association and it is not unreasonable to restrict access. In the view of the Consortium, access to such data is not a necessary component of running international services, indeed a number of open-access carriers manage without it. It is clear however that as a service provided to members, the conditions for membership or paid access to the site must be transparent and non-discriminatory. The means of achieving this have been described above.

5.10.46 An alternative solution might be postulated, that of an infrastructure access database which would define permanent infrastructure parameters such as axle loads and loading gauges (taking these over from the RIV), permanent restrictions on traffic, facilities at border points (taking these from the CIT), semi-permanent issues such as frontier opening times and allow for ephemeral restrictions (due for example to weather strikes or congestion). The only body which could conceivably manage this type of database would be an association of infrastructure managers with a mandate for an active role, such as RNE. It would be for consideration whether such a database should also have a master list of stations (lists of stations also involve a commercial aspect, a station building cannot imply that a service must be provided). The RNE Business Process Re-engineering Group is understood to be considering the issue.

5.10.47 The Consortium recommends that the stakeholders (to include at least the EIM, ERFA, CER, CIT, RNE and UIC) be invited to propose agreed solutions for the ownership, supply and updating of industry data which are suitable for liberalised circumstances. If appropriate such debate could be conducted under independent chairmanship.

Summary

5.10.48 The work of the CIT does not concern the areas of safety or technical interoperability. In the area of market access the Consortium finds that CIT activities could frustrate the ambitions of potential new entrants and accordingly recommends further investigation by the Commission.



5.11 Other multilateral – RIC and RIV

Common features

5.11.1 These two agreements are agreements between railway undertakings governing the use of hauled rolling stock. They are treated together because they have a number of similarities. The OSZhD equivalent of these agreements, the PPW is treated below. This area is changing rapidly, it is important to recognise therefore that the information given here represents something of a snapshot.

5.11.2 Railway undertakings join the RIC and RIV because they provide legal certainty. The relationships are explicit, certain and tested. A railway undertaking can be certain how its vehicle will be treated and how it should treat another undertaking’s vehicle. Membership of both organisations is open to any railway undertaking with rolling stock, a carrier without rolling stock cannot join, (this therefore would exclude some new entrant railway undertakings). Membership by new entrant railway undertakings is considered below.

5.11.3 RIC and RIV practices are industry-standard practices. Derogations are specifically permitted provided they do not infringe the rights of third parties. Membership is not a necessary condition of observing the provisions of the agreements but it is an efficient way of making them a mutual commitment between railway undertakings.

RIV Agreement governing the exchange and use of wagons between railway undertakings

5.11.4 The RIV51 is an agreement on the use of wagons with wide ramifications. Forty-one railway undertakings are members, but membership is open only to railway undertakings and is strictly separate from the UIC (although in fact almost all RIV members are UIC members). Three new entrant railway undertakings are members (Del Fungo Giera Servizi Ferroviari from Italy and two from Romania). The RIV secretariat stated that there had been no other applications, but there was the presumption of acceptance if any had applied. Membership of the UIC is not a pre-condition of membership of the RIV. In theory the management of the agreement is also separate from the UIC, but in practice is subsumed within the UIC structure and the more important decisions are taken by the UIC Freight Commission. New entrant freight railway undertakings can operate and do exchange traffic without being members of the RIV. In doing so however, they normally have to reach agreements with their partners on handover arrangements; discussions

51 Regolamento Internazionale Veicoli, but always known as RIV, even by Italian rail staff.



with new entrant railway undertakings suggest that they tend to adopt the provisions of the RIV on handover without joining the agreement.

5.11.5 Membership fees for the RIV itself are modest, typically of the order of 10 000 euro for a medium sized freight railway. The costs of RIV documentation and of RIV processes however fall entirely to the members (unlike the UIC and CIT where document supply is a bundled service). RIV documentation is supplied and updated as hard copy and by its nature much of the documentation must be supplied to staff on the ground. A not insubstantial charge is made for documentation.

5.11.6 The RIV is essentially an agreement on the mutual exchange and use of wagons. Originally it referred only to railway owned wagons and was limited in effect to setting down the rules for the use of and payment for other member railways’ wagons. However the scope of the agreement was extended over the years, since it formed a suitable vehicle for a number of inter-railway issues. It now includes:

• criteria for acceptability of wagons at handover points (RIV Appendix III). This extends to the technical criteria for all freight vehicles to be accepted on handover (RIV Appendix XII) (but see below) and criteria loads have to meet on handover to be considered safe (RIV Appendix II). The fact that these criteria are defined for handover points led to them becoming general criteria for all purposes, (including domestic operation) for most railway systems. The RIV technical criteria therefore have been de facto wagon maintenance standards;

• arrangements for maintenance and repair of wagons;

• the criteria for loads, including questions of securing of loads, axle-loads and loading gauge; (Appendix II)

• rules for the markings and symbols on wagons;

• rules for re-use of other railways’ wagons, arrangements for reloading and return in the context of the hire and use arrangements;

• arrangements for wagons with exchangeable axles (RIV Appendices V and VI)

• a ‘rag-bag’ of other operating standards such as criteria for using train ferries (RIV Appendix IV) and for sealing wagons.

The RIV is therefore a comprehensive agreement and almost every facet of wagon use is determined by it.

5.11.7 The whole of the current RIV applies to railway owned wagons, but only the technical parts apply to privately owned wagons. A clear distinction is made between them.



5.11.8 EU legislation has replaced parts of the RIV within the territory of the Community (for example vehicle acceptance conditions and other technical design provisions replaced by provisions in TSI wagons); it is clear that this process will continue.

5.11.9 Under the “classic” pre-2000 RIV, all railway owned wagons were treated as being equivalent, hire charges were standardised by groups of wagons. The railway undertaking holding a (railway owned) wagon decided what to do with it. That railway undertaking could send it straight back or send it to another station for reloading subject to constraints on where it could be loaded to. That standard system made no attempt to account internally for the costs of redeploying railway owned wagons, instead railway owned wagons moving empty were treated as a charge to be borne by the business. Railway owned wagons were neither consigned nor labelled on return, rather they flowed back to their owning railway, available for loading en route.

5.11.10 The logic of the system was that common use of a common resource allowed wagons that would otherwise have returned empty to be returned loaded. The whole industry would thus benefit from the more efficient use of resources. The members of the RIV were therefore keen to defend the system. Deeper examination of the issues showed that this logic could be faulty because more journeys a year were often possible by immediate return for reloading, rather than staging to find a return load. The RIV concentration on improving the ratio of loaded to empty journeys paradoxically could have the effect of reducing vehicle productivity.

5.11.11 A second point was that in practice the agreement simply did not work in this ideal manner, railway undertakings often returned empty wagons directly rather than look for loads, the logic of the agreement was thus not underpinned by reality.

5.11.12 At the same time, many railways which had invested heavily in wagons to support domestic customers believed their wagons were making diverse international journeys around Europe rather than being intensively used to support their customer base. This was an exaggerated viewpoint, but the perception fed the decision.

5.11.13 Thus the classic pre-2000 RIV was a clear case of a restriction of competition under Article 81 (1) of the Treaty in the sense that it gave railway undertakings no scope to compete for the right to supply wagons on the basis of either price or quality, hire charges were fixed. The factors outlined above on its failing in practice to create the economies which were once believed it held, meant it was ineligible for an exemption under Article 81 (3) and none was sought.



5.11.14 Accordingly two steps were taken in 2000 and 2003. As a first stage, the rules were amended to allow an owning railway undertaking to control its wagons when away from the owning undertaking. In this way, high value assets could be kept under control (although comparatively little use was made of this provision). In 2003, the hire charges, previously cost based and standard between railway undertakings, became market based and in principle differed between railway undertakings.

5.11.15 However the difference between railway owned and privately owned wagons remained. Privately owned wagons remained under the control of their owners. Owners paid for all movements both loaded and empty, although the charge for empty movement was typically only 40% of that for the loaded movement. A standard reduction of 9% on loaded tariffs was allowed when private wagons were used to take account of the costs of wagon provision.

5.11.16 Although this conscious attempt was made to provide balanced treatment to avoid the criticism that the RIV as a whole discriminated against private wagons and therefore fundamentally infringed Article 81 (1); it was clear that there was a difference in the conditions of use between railway owned and privately owned wagons which the members of the RIV found increasingly difficult to justify, particularly in the context of railway owned wagons being returned direct just as privately owned ones were.

5.11.17 Pressure from the Commission was decisive in forcing a further review of the system (although it was apparent to many railway undertakings that the status quo was not in their own interests).

5.11.18 Accordingly decisions were taken in June 2004 (by the UIC Freight Commission) to follow the clear logic of a single wagon status, with exactly the same conditions for railway owned and privately owned wagons.

5.11.19 Thus all wagons will be controlled by their owners wherever they are, all wagons will be consigned when empty and will pay for empty journeys. Hire charges will be set by owners for the use of wagons of every type. Railway undertakings will have to set up systems for tracing and redeploying their wagons when away from their home state just as private owners have done for years. Most owners have their own IT systems fed with a greater or lesser efficiency from railway data.

5.11.20 These changes will take time to implement, considerable changes in particular to information technology systems to allow for consignment of empty wagons will be needed. No date has yet been set for the change to be complete. To the extent that a single common status



with privately owned wagons will be created, an agreement with the owners of privately owned wagons will be will have to be found. At the time of writing discussions with owners are in hand.

5.11.21 Creation of a single status for wagons will remove one of the most egregious examples of discrimination in the railway industry. The rules at present forming part of the RIV agreement will have to be rewritten to provide for these changes. This will call many aspects of the nature of the RIV into question. Since the parts that will remain will be those concerning standards for accepting rolling stock on handover, axle-load and loading gauge information and loading recommendations, the question of whether they should be left in an agreement between railway undertakings will arise. No alternative proposals have yet been made.

5.11.22 Whilst there are quite evident advantages in having all the material dealing with use of wagons and the use of coaches in one place there are also quite serious problems of responsibility and accountability. Both the RIC and RIV are organisations of carriers yet much of both agreements overlaps the interface between carriers and infrastructure managers.

5.11.23 The RIV axle-load and loading gauge information is a good example of this, the management of the RIC and RIV has taken steps to ensure that the information is properly supplied, collated and updated but yet it is fundamentally unsound for an organisation of carriers to publish infrastructure managers’ information in this way. It would be logical for the supply of axle load and loading gauge information (which is clear cut) to be taken on by an infrastructure body perhaps using a database run by the RNE. The RNE stated that their Business Re-engineering Process Group was examining that question.

5.11.24 Specific appendices to the RIV lay down the arrangements for loading wagons on the basis that this is a condition of exchange. RIV loading regulations are phrased as general recommendations. Whilst there are general standards of accepted good loading, different operating practices in differing states, however, mean that universal stipulations are inappropriate. For example some railway organisations do not allow loose shunting of motor vehicles so that their practices for securing motor vehicles are undemanding; conversely where loose shunting of long lengths of steel is permitted, much more effective securing is required. The RIV reflects this by setting down general principles and supplying examples of good practice. These differences do however give rise to problems at frontiers and load adjustment is necessary, resolution has been through bilateral liaison and agreement. The loading principles apply to all and there should be no question of differential treatment.



5.11.25 The loading recommendations in the RIV bridge the areas of competence and expertise of railway undertakings and infrastructure managers. It is a railway undertaking's responsibility to ensure loads are safe, yet any specific rules are imposed by the infrastructure manager or safety authority The approach adopted in Great Britain might be appropriate. In Great Britain railway undertakings set their own loading standards but within the framework of a Group Standard. The Group Standard is an industry standard produced by representatives from all parts of the industry and approved by them all. It has no statutory authority as such but in practice is approved by safety authorities as meeting their requirements. Extrapolated to an international dimension, this might mean that infrastructure managers and representatives of railway undertakings set down principles, it would be for individual railway undertakings to adopt stricter standards and ensure their trading partners knew they had done so.

5.11.26 Currently technical issues (such as technical conditions for vehicles to satisfy on exchange) form part of the RIV. A second appendix sets down the technical conditions for acceptance of wagons, on the basis that this is a condition of exchange. Again this document tends to be something of a compromise since track standards (and therefore optimum vehicle standards) differ across the EU. It is inappropriate for an agreement between railway undertakings to set down technical criteria of this of this type, it would more appropriate to consider them as being part of access or approval conditions. The view of the architects of COTIF who considered this issue, was that “operating rules” (on the acceptance of vehicles) were not part of the approval system, although closely linked52. It is clear however that the condition of vehicles is one of the conditions for access to the network; infrastructure managers network statements make specific reference to it. It would be desirable for standard parameters for acceptance to be laid down as part of the interoperability standards.

5.11.27 It is likewise evident that the process of marking vehicles with operational and other attributes will have to be reviewed. Some attributes are associated with safety (such as tare weight) others are wholly commercial (such as the class of a coach). Whilst reflecting the fact that the regulatory markings need dealing with appropriately, it would be desirable to keep some coherent process to coordinate other markings. Whilst the CUV lays down a process (the contract of use53) to place an obligation on the owners of vehicles to mark them, no process is laid down in the CUV to standardise the markings themselves.

5.11.28 Whilst a policy and course of action which would remove discrimination between railway owned and privately owned vehicles has 52 Report of the Central Office, note on Article 9 of the ATMF 53 CUV Article 3



been identified, it would be appropriate for the Commission to remind railway undertakings of their obligations to achieve the single status for freight vehicles as soon as possible. Even after a single status has been achieved, it would be appropriate for the Commission to keep a watching brief on the use of vehicles, since even with a single status, there can be distortions in the supply of vehicles arising from the fact that some are owned by railway undertakings.

5.11.29 There is merit in having infrastructure information collated and although supply of infrastructure information to their customers via a trade association does not appear to raise serious competitive issues, it does seem anomalous. No proposals for change have been made but the Commission should support initiatives to create a logical coordinated supply of infrastructure information to railway undertakings.

5.11.30 There is a need for an agreement between railway undertakings on the hand over of freight vehicles, such an agreement may include common standards and practices.

5.11.31 The RIV and arrangements for privately owned wagons (in UIC leaflet 433 Standard general conditions for the introduction into service and operation of privately owned wagons) have for some time been under review by the signatories, a number of whom have themselves expressed doubts about the compatibility of current arrangements with competition law. The proposals which have been put forward in the RIV and UIC (with the support of private wagon owners) would appear to move towards making them compliant.

5.11.32 The Consortium recommends the Commission invite the UIC to review the ownership of freight standards (standards which wagons must meet on handover, loading standards, axle-loads, loading gauge, etc.) in conjunction with other stakeholders and produce agreed proposals to allocate responsibilities to prepare, update and publish the standards in a way which best meets the needs of the liberalised industry. If appropriate the Commission might suggest a working group with neutral chairmanship.

RIC54 - Agreement governing the exchange and use of coaches in international traffic

5.11.33 The RIC is an agreement between railway undertakings, it provides for privately owned vehicles, but they are in effect subsumed into being railway controlled vehicles. Twenty-eight railway undertakings are members, no new entrant carriers have applied for

54 Regolamento Internazionale Carozze



membership. The only new entrant railway undertaking to have expressed interest decided it was not appropriate to its operation.

5.11.34 The RIC only covers hauled vehicles, it specifically suggests analogous agreements for multiple units but in practice they tend to be treated as traction units with specific agreements for specific routes (to cover issues such as compatibility).

5.11.35 Unlike wagons, coaches move in controlled circuits and are normally individually controlled (a coach may represent an investment of a million euro). Much of the complexity of the RIV on return and charging arrangements is therefore unnecessary. The RIC provides instead for preplanning of coach use diagrams and a balancing of coach use on the basis of equalising axle-km. Specific provisions apply to provision and exchange of vehicles, positioning of trains, treatment of irregularities, compensation and accounting arrangements for services provided and settlement (settlement in kind is preferred), technical arrangements, markings on vehicles, notices, marking of reserved seats, destination boards and number plates.

5.11.36 Unlike the current RIV, the RIC sets down standard charges for the use of vehicles, these charges vary by type of vehicle but not between providers.

5.11.37 Medium distance point to point international trains are frequently supplied as complete trains, one by each party (for example between Tallinn and Moscow). Long distance international trains with many sections may have vehicles from a number of different railway undertakings. It is desirable that the vehicles return to their owning railway undertakings frequently for maintenance (servicing is undertaken by a number of undertakings along the route). In both cases the logic of the supply of vehicles by a number of organisations in controlled circuits would therefore seem to be specifically provided for under Article 3 (1) b of Regulation 1017/68 and therefore not prohibited.

5.11.38 The generality of the RIC, setting down common arrangements for the cleaning of vehicles, the return of defective vehicles and common seat reservation and coach labelling conventions etc. would seem to come within the permitted scope of Article 3 of Regulation 1017/68 in its application of technical co-operation to a successive transport operation. The operation of the agreement provides benefits to passengers.

5.11.39 The issue of payment for the use of vehicles may however not be quite so clear. In presuming a mutual solution or payment at standard rates per axle km, the RIC excludes the possibility of low cost railway undertakings being able to make use of their competitive advantage by supplying rolling stock beyond their quota and being paid for it.



Likewise it excludes the possibility that particularly well equipped vehicles can be supplied for premium payments. This seems a very clear infringement of Article 81 (1)a of the treaty, fixing of the price of inputs. The Consortium therefore recommend that the RIC be modified to move to a system of generalising payment for the use of vehicles and in requiring owners to set their own schedules for hire charges. Sections 14 and 15 would need amending to reverse the presumption and set up the mechanics of charging.

5.11.40 There is also a question of a wider market for the provision of vehicles; in short, does the RIC frustrate the development of a leasing market for passenger vehicles (in the way that there is for freight stock). Under current circumstances, the customers of such a leasing market would be railway undertakings themselves; the RIC does not put any barriers in front of the railway undertakings sourcing vehicles in this way. Under current circumstances, therefore the RIC does not frustrate a leasing market; it is conceivable however that other means of sourcing vehicles may arise and so the Consortium recommends this question be kept under review.

5.11.41 In other respects, the issues of interface with infrastructure managers are much less acute than those raised by the RIV, issues of loading standards do not arise and those of loading gauge hardly arise. Instead the issues that arise are those of compatibility with other rolling stock in trains, heating and ventilation systems, databuses etc. These issues come within the ambit of railway undertakings. Nevertheless in undertaking a review of the ownership of freight standards, opportunity should be taken to review those for passenger traffic.

5.11.42 There is a need for some agreement between railway undertakings on the operation of passenger vehicles and that such an agreement may include common standards and practices. Nevertheless the common charging arrangements are clearly in need of reform. It is the view of the Consortium that this reform cannot be accommodated by agreements to derogate, wholesale reform is required. It will also be necessary to review those parts of the RIC which deal with technical standards (section VI) when the conventional interoperability standards are published. The RIC does not raise any issues of safety.

5.11.43 The Consortium recommends the Commission investigate the RIC to check its compliance with competition law and as appropriate require the UIC to restructure the it in such a way as to make it compliant so as to bring competitive forces into the supply of vehicles. The Consortium recommends that the study of freight standards, outlined about, be paralleled by a similar one for passenger standards.



5.12 PPW

5.12.1 The PPW (Правила полъзование вагонами)55 is the OSZhD equivalent to the Western European RIV and RIC. It is very similar to the RIV and RIC in their unreconstructed forms. The most recent edition dates from 1 June 2004.

5.12.2 It applies to all wagons, coaches, containers and pallets, whether privately or railway owned (Section 1).

5.12.3 Passenger vehicle allocation follows the same principle as that in the RIC, carrier conferences which decide vehicle circuits. The agreement lays down the technical conditions which coaches must meet to be accepted on exchange (Section 2), procedures for the allocation of coaches to duties (Section 3), handover of coaches (Section 4), conditions for the use of coaches (Section 5), detachment of coaches from trains (Section 6), payment for the use of coaches (by axle kilometre) (Section 7), movement of empty coaches (Section 8), operation of coaches (Section 9), internal equipment in coaches (Section 10), cleaning of coaches (Section 11), servicing and repair of coaches (Section 12) and compensation for lost coaches (Section 13).

5.12.4 For wagons the PPW lays down the technical conditions which wagons must meet to be accepted on exchange (Section 14), procedures for the handover of wagons (Section 15), conditions for the use of wagons (Section 16), conditions for the return of wagons (Section 17), serving and repair of wagons and supply and payment for spare parts (Section 18), compensation for lost wagons (Section 19) and payment for the use of wagons (on a standardised basis) (Section 20). The agreement provides for privately owned wagons, this part of the agreement covers the status of privately owned wagons (Section 21), conditions for exchange (Section 22) and repair of privately owned wagons (Section 23). The agreement defines how the standard per diem charges for groups of vehicle are calculated (on the basis of an averaged cost over all the member railways).

5.12.5 Other parts of the agreement which cover containers and loading tackle are of less interest.

5.12.6 There are quite serious competition issues which are the same as in the classic RIV and RIC. The fixing of standard hire charges for freight wagons prevents railway undertakings operating on the 1520 mm network from competing for the supply of vehicles on the basis of either price or quality and prevents users of vehicles from obtaining the benefits of competition in that supply.

55 Regulations for the use of vehicles (in international traffic)



5.12.7 Likewise the differential arrangements between railway owned and privately owned vehicles represent a playing field which is not level. In many of the specialised markets in which private wagon owners operate, the wagon owners are the prime suppliers of vehicles (tank wagons, for example); nevertheless the fact that the railway undertakings are the prime suppliers of transport makes them the more powerful party.

5.12.8 The Consortium therefore recommend that the Commission investigate the PPW to check its compliance with competition law following which EU Member States that are also members of the PPW should be encouraged to reform the agreement from within, possibly encouraging a change process such as that adopted for the RIV. There is no doubt that this will be a long process. The Latvia railways point out for example that they account for less than 1% of the 1520 mm wagon fleet. In the meantime the Baltic railway undertakings have the problem of being involved in a regime deeply embedded in their business relationships but which raises competitive concerns.

5.12.9 The Consortium recommends that in their discussions with the OSZhD, the Commission press for a liberalisation of the PPW to bring competitive forces into play. The Commission should also offer to provide logistic support. In addition and in parallel the Commission should invite the EU states which apply the PPW to develop arrangements between themselves which derogate from the PPW (under the terms of clause 1.6.4 ) to set up competitive arrangements between themselves. This might in time provide a model for wider implementation.

5.13 Recommendations

5.13.1 Membership (or not) of the Brussels Clearing Centre is not a crucial factor in access to the market, for most open access operation it is irrelevant. The Consortium recommends no action is taken (from 5.4.12).

5.13.2 The PPW, the OSZhD vehicle use agreement, does not appear to be compliant with competition law. The Consortium therefore recommend that the Commission investigate the PPW to check its compliance with competition law (from 5.12.8).

5.13.3 The Consortium recommends that in their discussions with the OSZhD, the Commission press for a liberalisation of the PPW to bring competitive forces into play (from 5.12.9).



5.13.4 RailNetEurope packages and markets a variety of competing products, the Consortium therefore recommend that the Commission make further study of the competitive relationships implicit within RNE (from 5.7.5).

5.13.5 Common rail industry data (such as permitted axle loads) is held in a variety of differing databases without logical ownership and updating responsibilities. The Consortium recommends that the Commission invite the stakeholders (to include at least the EIM, ERFA, CER, CIT, RNE and UIC) to propose agreed solutions for the ownership, supply and updating of industry data which are suitable for liberalised circumstances (from 5.10.47).

5.13.6 The Consortium recommends the Commission invite the UIC to review the ownership of freight standards (standards which wagons must meet on handover, loading standards, axle-loads, loading gauge, etc.) in conjunction with other stakeholders and produce agreed proposals to allocate responsibilities to prepare, update and publish the standards in a way which best meets the needs of the liberalised industry (from 5.11.32).

5.13.7 The International Rail Transport Committee (CIT) hold the copyright to essential documentation for the movement of freight. The Consortium therefore finds that that CIT activities could frustrate the ambitions of potential new entrants and accordingly recommends further investigation by the Commission (from 5.10.48).

5.13.8 The RIC does not allow competitive forces to operate in the market for the provision of passenger vehicles. The Consortium recommends the Commission investigate the RIC to check its compliance with competition law and as appropriate require the UIC to restructure the it in such a way as to make it compliant so as to bring competitive forces into the supply of vehicles. The Consortium recommends that the study of freight standards, outlined about, be paralleled by a similar one for passenger standards (from 5.11.43).

5.13.9 Under current circumstances, the RIC does not frustrate railway undertakings seeking competitive long-term leases for passenger vehicles and the development of a leasing market; it is conceivable however that other means of sourcing vehicles may arise and so the Consortium recommends this question be kept under review by the Commission (from 5.11.40).



6. BILATERAL INTERGOVERNMENTAL AGREEMENTS

6.1 Overview

Competence and successor states

6.1.1 It should be noted that whilst treaties are normally made by states, this is not always the case. The German Grundgesetz (Constitution) for example allows the federal Länder to conclude treaties (Article 30). The Länder have in fact concluded some eighty treaties with neighbouring states since 1949 mostly about frontier issues. Likewise latitude (but a little less) is allowed to cantons in Switzerland. The study identified a convention between Basel Stadt and the Grand Duchy of Baden, still in force, various recent agreements between Lorraine and Luxembourg were also identified.

6.1.2 The concept of succession complicated the study. Where, for example, Austria had a frontier treaty with the Czechoslovak Socialist Republic, does that treaty still bind the new state of Slovakia? There were in fact treaties, which were seemingly still valid, but in which both parties had been replaced by successor states; treaties between the Austro-Hungarian Empire and Prussia concerning frontiers on what is now the Czech–Polish border, for example. One source pointed out that at the Kirbatai – Nesterov frontier, Russian territory formerly to the West of the frontier point, was now to the East of the same frontier point. There are general principles for these questions, notably the Vienna Convention of the Succession of States in respect of Treaties, 1978. Certainty is only achieved however by confirming relationships, in 1996 for example, both the Czech Republic and Slovakia re-registered their reservations to the COTIF passenger liability limits as successor states to Czechoslovakia.

6.1.3 A common-sense view was taken of treaties signed by Austria-Hungary, when the issue concerned Austria they were recorded as Austrian and v.v. A few treaties clearly concerned both halves of the empire.

6.1.4 The position is slightly more complex where a state is absorbed and (for example) the Federal Republic of Germany re-negotiated the former GDR frontier treaties with Poland and the Czech Republic.



Treaties considered

6.1.5 In this study, the word “treaty” has been treated as including all agreements from formal treaties through to exchanges of letters. This is consistent with Article 2 1 (a) of the Vienna Convention56 ““treaty” means an international agreement concluded between States in written form and governed by international law, whether embodied in a single instrument or in two or more related instruments and whatever its particular designation”. The scope of the study has necessarily been limited to what is recorded in public documents or reported by respondents, but the approach taken by the consortium has been to report all agreements regardless of form.

6.1.6 Only one case was found of a frontier which had no treaty concerning railway activities; on the land frontier between the UK and Ireland.

6.1.7 Only treaties between adjacent states or groups of states have been considered as coming within the remit of the study. Thus an agreement between Austria and Poland to promote freight traffic (of 19 August 1993) has not been considered, whereas an essentially similar one between Austria and Hungary (17 August 1993) has.

6.1.8 Agreements to finance lines have in general not been recorded or analysed.

6.1.9 Treaties which referred to lines which have since closed have not been recorded or analysed; these treaties were quite numerous. Treaties which referred to lines which have not been built were also not normally recorded.

6.1.10 Treaties that referred to rail links that are not continuous (such as ferry links) were also regarded as being outside the scope of the study.

6.1.11 Treaties which merely fixed or confirmed frontiers have not been recorded.

6.1.12 Many treaties are simply enabling treaties, in which the two (or more) states authorise their plenipotentiaries to agree (for example) the route of a new railway (as an example, the treaty of 1 July 1863 between France and Belgium on a railway between Lille and Tournay). The treaty itself does not set down any detail, that is elsewhere and in many cases not in an accessible form.

56 Vienna Convention on the Law of Treaties 1980.



6.1.13 There were only two examples of a state specifically making an agreement between railways into an agreement between states. In one case , the treaty legitimised what the railway had already done (close a Franco-Belgian line whose local transport function had been destroyed by post war movement restrictions); in the other, the (Austro-Czech) treaty was all about inter-railway frontier arrangements.

6.1.14 A number of international treaties concerning railways are relics of Empire, particularly in the case of the former Austro-Hungarian Empire, the Austrian Government made a number of treaties on the issue of staff pensions for the former Austrian State Railway staff in former parts of its Empire. Likewise there were issues of the guarantees provided to bondholders who had helped to finance the extension of railways inherited by those states. (These treaties continued to be signed right up to 1962.) Similar treaties were made by the French Government but normally with states outside Europe. These treaties have nothing to do with the handover of traffic and have been ignored in this study.

6.1.15 Likewise treaties on customs, immigration police, plant and animal health issues have generally been ignored, except insofar as it appears that there is potential issue in competition law, or on the traffic or operations of particular railway undertakings.

6.1.16 Treaties on customs, etc. issues do not normally refer to the formalities themselves. This is because customs formalities are not normally negotiable but are rather statements of where and how they are to be carried out. These treaties therefore refer to states giving powers to other states (normally on a mutual basis) to exercise sovereign powers extra-territorially. In this way Basel Badischer Bahnhof, is regarded as being in Germany although in fact it is in Switzerland. There is no German station in the area which can realistically undertake these tasks. The agreements do not therefore normally impinge on individual railways directly, nor on their traffics, but are agreements between states to ease and facilitate sovereign processes. In point of fact, particularly within the European Community, customs agreements have all but ceased to have a practical effect since the creation of the internal market. Likewise through much of the “old Community”, the Schengen Agreement has reduced the effect of police and immigration agreements.

6.1.17 This policy of ignoring customs treaties has been continually reviewed by the study team, those treaties which might in fact have a bearing on traffic or the operations of particular railway undertakings have been retained. In general, conventions on on-train customs procedures have been retained. In addition, a sub-section has been included above on the operation of the Simplified Procedure for transit by Rail.



6.1.18 The construction of high-speed lines has provided reasons to negotiate further treaties concerning the construction of international railways and as this report was being written, negotiations on a Franco-Italian agreement were in progress.

6.1.19 Community initiatives have overtaken the provisions of large numbers of existing agreements. These include:

• rights of employment for the citizens of the states involved (which has become a fundamental freedom);

• offering the same tariffs and service quality to citizens of the states involved (overtaken by Competition Law);

• provisions on standardisation of equipment (overtaken by interoperability);

• agreements on fiscal arrangements (overtaken by more comprehensive arrangements for international businesses);

• cooperation between law and order agencies (overtaken by the co-operative arrangements laid down in the Treaty establishing the Community).

6.1.20 Given the large numbers of these agreements, it has not been possible to provide detailed comments on them all, instead they have been tabulated in Appendix E; general themes are drawn out below; within each theme examples are dealt with in detail to expose current problems. The general themes include, authorising the construction of a railway, setting out terms for the operation of a railway, setting down arrangements for frontier controls (only considered exceptionally). Particular issues are considered in sections after the treatment of general issues.

6.1.21 231 bilateral intergovernment treaties have been identified (this figure must be treated with some care, some treaties in the Baltic states were more akin to inter-railway agreements). Of those, 174 were treaties concerning internal frontiers and 57 external frontiers of the European Union (again these figures are indicative, a few tri-partite and multi-partite treaties covered both). The Consortium estimates that a further thirty treaties may exist without a public record.

Competence

6.1.22 The concept of competence is once again important. Community competence applies to treaties made between states. Put simply, Community law takes precedence over treaty law and agreements that conflict with Community law are void “in matters governed by the EEC Treaty, that Treaty takes precedence over agreements concluded between



Member States before its entry into force"57. Community law does not however require states to abrogate treaties or parts of treaties which conflict with Community law, it only requires those treaty obligations to be disregarded. The general rules on amendment of treaties contained in the Vienna Convention58, however require that states notify each other before disregarding treaty obligations.

6.1.23 This may perhaps be illustrated by an example. The treaty between France and Italy concerning the line from Nice to Cuneo signed 24 June 1970 gives specific rights to SNCF and the Italian State Railway. If a new entrant railway undertaking were to want to make use of powers granted under Community law (for example under Directive 2001/14/EC) then the rights under Community law will take precedence over those granted to the national railways by the treaty.

Pertinence

6.1.24 The other issue that requires consideration is that of pertinence, many treaties studied are in theory still valid but in practice have been overtaken by events and are in practice ignored. It must be remembered that many of the “current” treaties are in fact old, the average date for the 17 Swiss frontier treaties for example was 1872 and none was later than 1909. Even where the treaties conflict with subsequent law (and insofar as customs, immigration and the award of concessions is concerned, that is quite frequent), the treaties have not (in the main) been abrogated but are left to wither. The Netherlands Ministry of Transport, Public Works and Water Management indeed said that “Our main conclusion is that some provisions appear not to be conform to EU policies but the concerned articles or treaties are no longer applied in practice, as far as we can judge”. Comparing the replies of the various states to the Consortium’s questionnaire suggests that the states themselves are unaware of many of their commitments. In one case one state identified thirteen treaties still valid along a common frontier, the other only six. It would not be surprising if railway undertakings whether incumbent or new entrant are even less aware of treaty commitments and cannot and do not arrange their operations to take them into account.

Dynamic treatment of treaties

6.1.25 Linked to the issue of pertinence, whether the treaty is applicable at all, is the issue of dynamic interpretation. Deutsche Bahn stated that the German Government insisted on treaties being interpreted in accordance with current circumstances, so that for example where a treaty gave rights and obligations to the “German Railway 57 Judgment of the Court of Justice of 27 February 1962 in Case 10/61 Commission v Italy [1962] ECR 1 58 Vienna Convention on the Law of Treaties 1980



Administration” that was to be interpreted as giving rights and obligations to both Deutsche Bahn and its competitors where competitors made use of German open access law. Deutsche Bahn could not therefore claim that treaty rights were exclusive.

Requirement to renegotiate treaties to correspond to EU law

6.1.26 Where treaties or parts of them are not compatible with EU law, there is no requirement to abrogate them, merely to disregard the obligations which conflict with Community law. Treaty law requires Contracting States to agree this with their partners (Articles 57 and 59 of the Vienna Convention59 )

6.1.27 The Consortium recommends that Member States review the treaties and agreements they have with neighbours to consider whether they still reflect their current obligations. Where they do not, the Consortium recommends that the contracting parties abrogate or revise their treaties appropriately.

6.2 Clauses in bilateral treaties

Overview

6.2.1 Given that the issues to be resolved were standard, agreements between states became highly standardised, not just within one state nor even between pairs of countries but across Europe. They are standardised not only at the conceptual level but in their very phraseology. One example will make this clear, a comparison of article 4 of the treaty of 14 June 1881 between France and Switzerland compared with article 4 of the treaty of 9 November 1867 between Belgium and the Netherlands, both taken verbatim from the official texts:

Art. 4 Les deux gouvernements rechercheront les moyens d’obtenir que la section comprise entre les stations frontières des deux chemins de fer français et suisse, et située partie sur le territoire français et partie sur le territoire suisse, soit exploitée par une seule compagnie ou administration. Ils permettront que les compagnies ou administrations chargées de l’exploitation des lignes sur les deux territoires s’entendent à ce sujet. En cas d’accord à cet égard, accord qui sera soumis à l’approbation des hautes parties contractantes, les deux gouvernements se réservent de s’entendre, en ce qui concerne cette exploitation, par voie de correspondance

59 Vienna Convention on the Law of Treaties 1980.



Art. 4 Les deux gouvernements rechercheront les moyens d’obtenir que la section, comprise entre les stations frontières des ces chemins de fer et située partie sur le territoire Néerlandais et partie sur le territoire Belge, soit exploitée par une seule compagnie. Ils permettront que les compagnies ou administrations chargées de l’exploitation des lignes sur les deux territoires s’entendent à ce sujet. En cas d’accord à cet égard, accord qui reste soumis à l’approbation des Hautes Parties contractantes, les deux Gouvernements se réservent de s’entendre, ultérieurement en ce qui concerne cette exploitation, par voie de correspondance

The texts are all but identical.

6.2.2 Accordingly rather than look at a large number of essentially repetitive treaties individually, this section looks at the clauses typically found in bilateral treaties. The clauses are considered type by type, clauses that do not follow the standard pattern are also considered. In every case the clauses are analysed, commented on and areas in which they do not comply with Community law, particularly in the fields of safety, interoperability and market access are identified.

Commitment to co-operate

6.2.3 Many treaties start with an assertion of friendliness, sometimes in the preamble rather than in the treaty itself. This takes the form of an assertion of wanting to increase the co-operation between the countries in question. Trade and the free movement of citizens are normally mentioned in conjunction with this. Sometimes the rail treaty refers back to a more general treaty between the states. This type of clause is not in conflict with Community law.

Treaties authorising the construction of a railway

Definition of trace

6.2.4 Treaties for the construction of railways always mention the route, either by saying it is defined in an annex to the treaty or follows the route defined by a body of experts (which had already reported). The point at which the route crossed the frontier however is almost always in the main treaty, defined to the centimetre and sometimes to the millimetre. There are no issues of Community law.



Responsibility for works

6.2.5 The responsibility for which state or company was responsible for the work is a key part of every treaty dealing with construction, particularly where a structure (a bridge or tunnel) marked the frontier.

Definition of construction standards

6.2.6 It is rare to find construction standards defined in a treaty, many of the earliest treaties make no mention of them, if there is mention, it is often limited to the maximum gradients and maximum curves and the distance between track centres. Issues such as axle-load and loading gauge are not mentioned. Only in the late 1800's did any mention start to be made of other standards and a few treaties started specifically to mention the TU. It would be appropriate for modern treaties to specifically mention that work is to be in accordance with the standards prepared in accordance with the Interoperability Directives.

Supervision of construction

6.2.7 It is also rare to find any mention of supervision of construction, either by the constructing state or by “other” state. Even when the structures were such that approval of the structure would be required (for major bridges and tunnels etc) this does not get mentioned. Mention of approval processes is slightly more common when the railway was to be let on concession. It would clearly be appropriate for a modern treaty to deal with the issue of how the standards of construction are to be ensured, probably jointly.

Timescales for construction

6.2.8 Treaties involving the awarding of concessions often include a timescale for construction with provisions for non-compliance, otherwise it is rare. There are no issues of Community law.

Allocation of costs

6.2.9 Treaties typically specify how the costs of joint works, such as frontier bridges and joint stations are to be allocated. There are no issues of Community law.



Aspects of treaties dealing with sovereign powers

Assertion of sovereignty

6.2.10 An assertion of national sovereignty can be found in most treaties dealing with the operation of the railway, rather more rarely in the case of construction. The assertion of sovereignty takes the form of clarifying (typically) that operation of a joint station did not imply that the state in question ceded any of its sovereign rights. In particular it was normal to state that the employees of the railway working in the “foreign” state were subject to its laws. Special arrangements were made for railways (typically running along frontier rivers) which crossed for a short section into the “other” state. Likewise temporary arrangements were sometimes made for duration of the construction of a tunnel where the works were in the territory of a state but in fact inaccessible from that state.

6.2.11 The assertion of sovereignty is often accompanied by the assertion of specific rights to defend or police the national territory which might compromise the operation of the railway. This included closure of the railway.

National defence

6.2.12 Where the frontier is also a defensive feature, (such as rivers and mountain ranges) rights to defensive works are often included in the construction arrangements. This was usually a sensitive issue given the implication that it was the signatories who would be the belligerents. Where there is a commitment to a regular or continuous service, this is often coupled with a right to suspend it in case of national need.

Police powers

6.2.13 The way states dealt with police powers varied. An undertaking to co-operate was universal. Most treaties set down the principle that national police powers apply in the national territory. A limited number allowed foreign police appropriate powers (for example for immigration or hot pursuit). Some treaties (but again not many) provide for a state to be able to require foreign police to withdraw from its territory. The issue of general co-operative arrangements has been taken over by title VI of the Treaty establishing the Community. Other arrangements are not in conflict with Community law.

Provision of accommodation

6.2.14 Treaties involving joint stations normally provide for accommodation to be provided for police and for the basis for charging



for the accommodation itself and for heating, lighting and cleaning it. No conflict with Community law.

Aspects of treaties dealing with customs and immigration

Co-operation between agencies

The general duty of co-operation which most treaties laid down has been overtaken by Titles X and VI of the Treaty establishing the Community.

Powers

6.2.15 Powers are normally defined as being slightly more restricted than those that officials had in their home states. Officials are normally required to be readily identifiable, wearing a uniform or a badge (sometimes staff sent to supervise or audit the normal staff are absolved from being readily identifiable).

Location of controls

6.2.16 Location of controls is dealt with in some detail in all the treaties which mentioned customs and immigration. Most treaties (with the singular exception of Eastern Europe) specify frontier controls should take place on just one side of the frontier. In the twentieth century passenger controls were increasingly specified as being on train and specific powers given to immigration and customs staff to allow for this. Offences were defined as having been committed at the frontier station. The four freedoms of the Single Market and the Schengen Agreement have largely overtaken customs and immigration processes but the terms of the treaties are not in fact out of line with Community law. A right of free transport across the frontier is normally allowed to state officials and a specific right for customs officials to accompany sealed consignments. Officials in uniform or carrying identity documents do not require passports (although normally they do require identity documents).

Operation of the controls

6.2.17 Through the years the emphasis changes, the first treaties involved states agreeing on the effectiveness of the controls, modern treaties emphasise by contrast the fluidity of traffic. Community law requires no impediment be placed on the movement of goods between states.



Provision of facilities

6.2.18 The carriers were always required to construct and provide free accommodation for customs and immigration officials, a practice that continues to this day. It does not conflict with Community law.

Arrangements for transit traffic

6.2.19 Some treaties specified arrangements for sealing transit traffic or other means of simplifying procedures. These typically provided for goods and luggage to be cleared inland provided that there was an inland customs office. The Single Market has overtaken these provisions (but see the section on the Simplified Transit Procedure by Rail where the question of movement under customs control is considered).

Favourable treatment

6.2.20 Treaties typically require customs and immigration authorities to treat the routes in question no less favourably than any other.

Aspects of treaties dealing with security

Liaison

6.2.21 Modern treaties provide for security issues. The treaty normally facilitates the arrangements, allocating powers and responsibilities to the states in the event of an incident, setting up joint committees and giving them powers to advise and direct. Day to day liaison arrangements are also formalised. Other than that, the committees were left with a free hand. No conflict with Community law is involved. Carriers are sometimes required to produce safety and security plans for the approval of the authorities, this is consistent with Article 9 of the Railway Safety Directive.

Aspects of treaties dealing with taxation

Local taxation and taxes on consumption

6.2.22 Treaties normally provided for the taxation regime of the frontier section and frontier stations. Differences in treatment were interesting, some states provided for their being taxed, others exempted them.



Aspects of treaties dealing with award of concessions

Award of concessions

6.2.23 Private construction of railways was the exception rather than the rule in Europe, nevertheless in France, Belgium, the Netherlands and Switzerland for example there were privately owned international railways (at least initially). The award of a concession to build and operate an international railway was normally dealt with in an agreement separate from the treaty itself but was nevertheless implicit in the treaty. To the extent that the concession is interpreted as attaching to infrastructure rather than operation problems do not arise.

Length of concessions

6.2.24 Where the details of the concession were given then so too was its duration.

Arbitration

6.2.25 A few treaties defined an arbitration process, this was however not common in the treaty proper (as distinct to the concession agreement).

Nationalisation

6.2.26 The right to take back a concession and the compensation was included in treaties when the arrangements for the concession itself were given.

Separation of infrastructure and operation

6.2.27 Concessions were of course awarded to integrated railways. In today’s circumstances, it would be sensible to see the concession as attaching to the right to manage the infrastructure rather than the right to operate trains. Whilst no Community law requires integrated railways to be split up, Community law does require independence (e.g. Directive 2001/14/EC Article 14 (2)) given that the infrastructure manager has an effective monopoly. This is less of a theoretical point than might be apparent, for example both the Simplon and Channel Tunnel are concessions awarded to integrated railways.



Clauses setting out conditions for the operation of a railway

Declaration of status

6.2.28 Some treaties defined frontier routes as principle international routes (although the choice did seem slightly arbitrary). This seemed not in fact to have any practical implications.

Nomination of the operator

6.2.29 Treaties normally named the operator by implication if not by name, e.g. the “German Railway Administration”, there were no examples of a formula which would readily permit the interpretation of open access operation. This issue has been addressed in some states, but it is not clear that there is general acceptance of the principle of dynamic interpretation. Proposals are given below.

Supervision of operation

6.2.30 It was in fact rare to find any definition of the way the operation of a railway was to be supervised. Where there was a provision in effect it defined the sphere of influence of each state. Definition of the national safety rules and the lines to which they apply is implicit (but not explicit) in Article 4 (3) of the Safety Directive. Again very rare was a specific right for the management of a railway undertaking to cross the frontier to supervise its operating staff in the “other” state, Within the EU, this right is implicit in the four freedoms.

Joint operation

6.2.31 The break point between the two railways was defined insofar as it was a joint station (such as Venlo) or the section of line operated jointly (such as Antwerp to Roosendaal).

Responsibility for operation

6.2.32 (See below for rights and obligations under treaties). It was normal for states to specify a single railway undertaking for the cross frontier section but often the railway companies were given powers to reach working agreements. In the case of the Franco Spanish frontier, where lines of two gauges run parallel across the frontier special arrangements were defined (changes have since been made, for example, French trains no longer run to Puigcerdá). Likewise special arrangements were made where railways crossed into and out of countries (such as in the Roya valley) In most cases railways were required to nominate an “extraterritorial” manager to whom all issues could be directed. Rail staff in uniform or carrying a commission were



exempted from the need for passports. Safe-conducts for rail staff were offered in the event of the closure of the frontier.

Free services

6.2.33 A common requirement was to provide free transport for the postal authorities over the frontier section. It is highly likely that these clauses have been overtaken in practice, but the requirement to provide free transport would of course be inconsistent with Article 5 of Directive 91/440/EEC.

Clauses setting out railway technical issues

Technical standards

6.2.34 It was in fact quite rare to have the technical standards defined in treaties. Where concessions were being awarded it was more common, but for state railways almost unknown. In fact to the extent the TU applied, it may have been thought to have been unnecessary to restate an existing obligation.

Infrastructure standards

6.2.35 It was normal for the infrastructure to be required to conform to standards, these were rarely specified in any detail, often a simple reference to “the normal standard” sufficed. Sometimes the requirement was reversed with criterion being that the locomotive and rolling stock were suitable to cross the frontier. For example the Dutch Belgian treaty of 9 November 1867 lays down “Ils auront soin néanmoins que cette construction ait lieu de manière que à ce que les locomotives, les voitures et les wagons des deux pays puissant circuler sans aucune difficulté sur tout le parcours de ces chemins de fer:” whereas the Swiss Italian treaty of 23 December 1873 lays down “Le matériel de transport destiné au transit doit être construit de manière à pouvoir, sans difficulté, passer d’un réseau sur l’autre”.

Acceptance of rolling stock

6.2.36 Most treaties provided specifically that rolling stock that was approved in the one state was thereby to be accepted in the other without further formality. The development of standards, initially through Technical Unity and the UIC and latterly through TSIs meant that this rather demanding requirement was in fact achieved more simply that might have been imagined, at least for hauled rolling stock.

6.2.37 Traction remains an exception and certainly in recent years firstly national railways (when they did their own approvals) and latterly



independent approval bodies have emphasized that they have exclusive authority for approving the use of traction on the national infrastructure. The NERA report, cited above, points out that there is a certain reluctance by approval bodies to approve foreign traction and even in some cases (as pointed out in section 7.3 below), an attempt to limit approvals already given to existing users. Whilst the practices of approval organisations fall outside the scope of this study, it is clear that there is a need to ensure that approval work is not only non-discriminatory but considers risk in context.

Aspects of treaties dealing with traffic issues

Continuity of operation

6.2.38 An obligation for a minimum service was a normal part of a treaty. This minimum service was expressed both as a requirement for being open every day and also to provide a minimum number of trains, including where appropriate freight and parcels services. State definition of a minimum service of course conflicts with the market freedom required by Article 5 of Directive 91/440/EEC (except to the extent that there is a public service obligation)

Connections

6.2.39 Consistent with the commitments for basic services were obligations to ensure connections into and out of domestic trains. In theory the imposition of traffic commitments is also in conflict with Directive EEC/91/440, although there can hardly be an objection to improvement of services.

Aspects of treaties dealing with subsidy

Conditions for the award and removal of subsidy

6.2.40 Provision of a subsidy was only an issue when the railway was to be operated under a concession, it was in fact very rare, but a statement of the level of the subsidy and the time it was to be paid is given in the Simplon treaty.

Aspects of treaties dealing with tariff setting

“Most favoured” conditions

6.2.41 A common clause in a treaty was to commit the states to guaranteeing that the tariff and other conditions via the frontier point in question would be no less advantageous than any other. Treaties for



frontier points on transit routes in particular used this formulation to ensure that the route in question could get its fair share of the business. To the extent that the clause implies state intervention in the pricing policy of the railway undertaking, this type of clause is a clear contravention of Article 5 of Directive EEC/91/440 which lays down “railway undertakings shall, in particular, be free to control the supply and marketing of services and fix the pricing thereof”. The clause could of course be read as requiring the state not to interfere in pricing. The latter interpretation would be fully in accord with Community law. Some treaties went further than simply making a comparison between frontiers by defining the tariffs as to be the domestic ones. (In today’s circumstances, CIV fares are normally considerably higher than domestic fares, since various “national” offers are inapplicable, freight tariffs are subject to the same phenomenon, although less so).

Competitive conditions

6.2.42 The clause guaranteeing equal treatment was sometimes coupled with one authorising reductions in competitive situations. This is fully in accordance with the market approach of Community law.

Equality of treatment

6.2.43 Many treaties set down a formal requirement for equality of treatment between citizens of the two countries, both in terms of the prices charged and the quality of services delivered.

Setting of tariffs

6.2.44 If not actually laid down in the treaty itself, there was normally a requirement for tariffs (both passenger and freight) to be approved by government agencies. It is not clear if the requirement for approval of tariffs has generally fallen into desuetude. A requirement for approval is acceptable in the case of services provided under public service obligations. Most international services are not however subject to public service obligations so any continuing obligation to have tariffs approved may raise questions of the management independence of the railway undertaking under Article 5 of Directive EEC/91/440.

Aspects of treaties dealing with employment rights

Rights of engagement

6.2.45 It was normal for a railway when operating across the territory of another state to be required to show no preference between the citizens of the two states when engaging staff. This would currently come within



the scope of the EU fundamental freedoms (Article 39 (2) of the Treaty establishing the Community).

Deployment of staff

6.2.46 A clause banning the employment of staff with criminal records from employment in the “other” state was quite often found (and presumably mirrored a clause in national legislation banning the employment of staff with criminal records inland). A ban on staff with criminal records is not inconsistent with Community law (only discrimination based on nationality is against community law (Article 39 of the Treaty establishing the Community)).

6.3 Rights and obligations placed on railway organisations

6.3.1 Treaties between states signed in the nineteenth century largely left the question of the rights and obligations of railway organisations open. In a few cases (such as the treaty of 19 February 1906) between Italy and Switzerland the arrangements for operating the railway were specified in a treaty between the states but with those exceptions the Consortium found no early treaties which either empowered or placed obligations on the railway organisation to set up a relationship with its partner.

6.3.2 In the frontier management treaties signed post 1950 however a standard set of treaty terms were applied to railway organisations. Typical of these treaties is the Franco German treaty of 18 April 1958. Given its importance, the text of that part of this treaty is reproduced below. (The texts of the Belgian German treaty of 15 May 1956, the German Luxembourg Treaty of 16 February 1962, the Franco Belgian treaty of 30 March 1962 and the German Danish treaty of 24 April 1967 are effectively identical).

“Special Provisions applying to Railway Administrations Article 28

Each contracting party shall authorise those staff of the railway administration of the adjacent state responsible for operations within the framework of this convention to carry out their tasks on its territory.

Article 29 Joint stations shall remain the property of the administration of the

railway of the state of location and shall be constructed, maintained and managed by that administration.

Article 30 1. The competent authorities of the state of location and in particular

the railway administration, shall take all the measures which are necessary to allow the services of the adjacent state, the railways of that



state within joint stations and as appropriate within exchange stations to function normally.

2. The railway administrations shall conclude agreements in which the details of the equipment and operation of joint and exchange stations and for the payment for services provided by one administration to the other are set down.

3. The railway administrations shall designate exchange stations jointly.

4. The railway administrations may conclude agreements on the operation of cross-frontier sections.

Article 31 The railway administration of the adjacent state shall be authorised to

take the supervisory and monitoring measures necessary to ensure its staff apply its own rules in joint and exchange stations.

Article 32 The provisions of articles 18, 23 and 25 shall be applicable mutatis

mutandis to the railway administration of the adjacent state. The provisions of articles 21 and 22 shall apply likewise in so far as their application conforms with the domestic law of the adjacent state.

Article 33 The railway administrations of the two countries may agree that the

staff of the railway administration of the adjacent state shall provide the service in trains crossing the frontier beyond a joint or exchange station on the territory of the state of location. The provisions of articles 11 to 16 and 19 are applicable mutatis mutandis to these staff.”

6.3.3 These treaties provided the framework for the formal agreements between the integrated railways (such as those following UIC leaflet 470 or 471-1). Agreements between railways and their implications for railway undertakings are considered below but it would be appropriate at this juncture to consider the nature of the framework of these treaties.

6.3.4 In today’s terms Articles 28 and 30 -33 apply to the activities of railway undertakings, only Article 29 could have any application to infrastructure activity.

6.3.5 The essential question is whether treaties to provide for a relationship either between infrastructure managers or between railway undertakings are necessary or desirable. (The relationship between railway undertakings and infrastructure managers is already provided for in Community law). That no treaty commitment is absolutely essential is demonstrated by the complete absence of any treaty between Ireland and the United Kingdom and the substantial absence between Norway and Sweden.

6.3.6 In a liberalised environment, the need for treaties to set a framework for commercial undertakings within a single railway market seems anomalous given overriding Community law. The single clause in



the treaties above that could have an application to infrastructure management, to determine the working of joint stations, has been made obsolete by the effective disappearance of joint stations.

6.3.7 The Consortium consider therefore that within the European Union, for established frontiers, there is no requirement for treaties to cover the operation of cross-frontier railways.

Note

6.3.8 As a matter of record, the earliest agreement identified by the study was in 1846 and the latest 2004.

6.4 Recommendations

6.4.1 Although believing that treaties and agreements between Member States to govern the operation of an established rail frontier within the European Community are not necessary (since existing Community and other international law provides sufficient framework); the Consortium would not go as far as to say that that meant all existing agreements should be abrogated. Rather existing agreements need to be clarified and updated as necessary. In many cases that will lead to the recognition that they perform no useful service.

6.4.2 The Consortium recommends that Member States review the treaties and agreements they have with neighbours to consider whether they still reflect their current obligations. Where they do not, the Consortium recommends that the contracting parties abrogate or revise their treaties appropriately (from 6.1.27).



7. OTHER BILATERAL AGREEMENTS

7.1 Overview

7.1.1 Inter-railway agreements may follow directly from powers granted explicitly or implicitly to them by inter-state agreements (and this is the approach followed by Haustein60 quoted in the Tender Specifications) or those they choose to make for commercial, operational or technical reasons. Haustein’s presumption is that railway organisations had powers delegated to them by treaty and the railway undertakings then made agreements within the terms of the treaty. The Consortium found that the earliest treaties only rarely specifically empowered or required railway organisations to make agreements between themselves and in no case actually required them to do so. By contrast (and as explained in the preceding section) treaties made in the twentieth century both empowered and required railway organisations to make frontier agreements. These treaties were in fact highly standardised. Partly in consequence and partly because of the corporatism of the time the agreements that railway organisations made between themselves were standard agreements based on models recommended by the UIC. For the purpose of this study that is a great advantage because the agreements between integrated railways were all very similar (the norm is a straight quotation of the relevant parts of the UIC formula.)

7.1.2 Agreements between railway undertakings have been taken as those that follow as a consequence of membership of a trade association, those that follow as the consequence of joining a particular convention and those which are specifically agreed between individual undertakings.

7.1.3 The first two of those, essentially agreements that by their nature are general, have been treated above under “Other multilateral agreements”. This section, other bilateral agreements, treats those agreements that have been made on an ad hoc basis no matter how many parties are signatories.

7.1.4 Currently most incumbent railways have bilateral agreements with their counterparts in adjacent states. These agreements date from the days of integrated railways and cover all aspects of the interface. They thus cover maintenance of track and signalling, appropriate safety rules, use of staff and issues of traffic handover. This situation is however changing rapidly.

60 Internationales Eisenbahnrecht, Quellensammlung, Frankfurt 1956



7.1.5 These agreements normally formally adopt UIC procedures and specify any unique arrangements (for example if a train-ferry route represents the frontier). As explained above, many inter-railway processes have been designed within the UIC by its members. The existence of a formal framework makes negotiation of the frontier agreement simpler, particularly where railway undertakings on each side of a hand-over point have a strained relationship (this is no longer the problem it was, but in the period of the cold war, relations between Eastern and Western railways could be frosty). The existence of a formal agreement makes it possible to resolve issues directly rather than going through a UIC arbitration procedure (or via diplomatic channels).

7.1.6 A distinction should be made between the classic successive carrier handover situation in which a train “belongs” to the receiving railway undertaking directly it crosses the frontier and the much more flexible arrangements which liberalisation allows. The logic of the classic situation is that the receiving railway undertaking holds all the permissions to operate and access rights and ensures safety standards by means of agreements with its upstream partner. The view of the Consortium is that this approach lost much of its logic on separation of infrastructure and train operation: there is little logic in a train belonging to the receiving railway when it is not responsible for forming it, may not be responsible for hauling it and the receiving railway does not own the infrastructure. Nevertheless incumbent railways were insistent that the relationship remained.

7.1.7 In this classic successive situation responsibility for the train and the benefit of the revenue both transfer at the frontier. This presupposes a “contract of co-operation” (express or implied) between the two railway undertakings to co-operate in offering through international services. All the incumbent railways’ basic arrangements follow this model even though in practice physical handover made be distant from the frontier. These co-operative arrangements imply a certain willingness to make appropriate facilities available.

7.1.8 Liberalisation however allows a number of different options and several railway undertakings told the Consortium that these all-purpose agreements are being rewritten to reflect liberalisation. From the one comprehensive agreement, a number of free-standing successor-agreements will be created. In this way agreements between infrastructure managers will be created to regulate such issues as track maintenance, signalling and communications links. Hand-over agreements between the (incumbent) passenger and freight railway undertakings will be drawn up separately with their counterparts. These agreements between railway undertakings will address issues such as hand over of traffic and will only commit their signatories. Conformity with Community law will be an important criterion in drawing them up. This issue is explored below.



7.1.9 In the same way as for the inter-governmental agreements outlined above, the agreements between railway undertakings have been tabulated (in Appendix E). General themes will be explored and particular iconic agreements will be examined in detail. Fifty seven such agreements have been identified. The Consortium estimates that there may be a further forty agreements which the railway undertakings questioned did not mention.

7.2 Hierarchy of law

Legal issues

7.2.1 The concept of competence is once again important. Community competence applies to international agreements made between individuals and organisations. Put simply, Community law takes precedence over national law and contracts and agreements that conflict with Community law are void61. Accordingly agreements made under the aegis of trade associations or in a similar way are overruled by Community law where there is a conflict.

7.2.2 Thus if an agreement, perhaps made in good faith many years ago conflicts with Community law, it cannot no longer have effect. Many agreements made between incumbent railways which (for example) purport to give them exclusive use of facilities are void to the extent that they conflict with Community law. In this way many impediments to open access operation may be successfully challenged in law.

7.2.3 The rights of access to infrastructure and ancillary services are clearly laid down in Community law and accordingly rights for new entrants to operate end to end services should not be difficult to assert.

7.2.4 In the case of potential successive operations and joint ventures involving new entrants, the precedent of the Georg – FS case62 provides a guide for national competition authorities. New entrant railway undertakings should not therefore have to take legal action to get rights enshrined in statute. In some EU Member States the “rail regulator” (required by Article 30 of Directive 2001/14/EC) also exercises a role in competition law (rather than competition authorities proper). It is also clear that the Commission will be able to play a role in reminding Member States of their duty to ensure the application of Community law. The remark of Herr Georg, that success in his complaint against FS had an effect on other railway undertakings, must also be borne in mind.

61 Costa – ENEL European Court of Justice 1962

62 XXXIIIrd Report on Competition Policy – 2003, SEC(2004)658 final Brussels, 04.06.2004



7.3 Classic agreements between railways

Overview

7.3.1 As explained above, the classic agreements between Western European railways presume the classic successive carrier relationship. These agreements are modelled on UIC leaflets. They therefore tend to follow the same pattern, normally indeed taking the text of the UIC leaflet verbatim.

The UIC leaflets in detail - 470 General arrangements concerning the financing and operating of frontier stations

7.3.2 This leaflet is in part for information and in part recommendatory. It was clearly written with passenger stations in mind but is not in fact restricted to passenger facilities. The leaflet distinguishes between international stations (stations on each side of a frontier but which are separately operated and each party absorbs the cost of its own activities) and joint stations which are shared by two (or more) railway undertakings. It recommends that railway undertakings sharing a joint station (which it specifically clarifies need not be a frontier station but may be an internal handover point) should draw up an agreement to share costs. This agreement should include:

• definition of facilities which are shared and those which are not

• services to be provided jointly

• costs of joint services and allocation key

• methods of allocating receipts

• liability for accidents, sharing of their costs

• operating arrangements.

7.3.3 A number of cost allocation keys (fixed, traffic based etc) are suggested in the annex. The leaflet prefers that each of the parties contributes in kind but recognises that might be difficult. It emphasises that all the costs of the joint operation should come into the equation and that joint stations should not be regarded as a profit centre. The costs of traction (for shunting etc) may include amortisation. Traction current is to be included but the leaflet is silent on the costs of overhead traction equipment. Whilst this leaflet does not exclude new entrant railway undertakings, and there are in fact a number which are the only operators over frontier sections (Viamont and NVAG for example), this leaflet is mainly addressed to incumbent railway undertakings.



7.3.4 Railway undertakings told the Consortium that there are now very few joint stations, ÖBB for example said that it now had only two (Salzburg and Passau). This is the result of a number of factors, amongst them being changes in operating patterns and commercial circumstances which have down-graded the roles of frontier stations (for example the GONG freight trains (Güterzug ohne nennenswerter Grenzaufenthalt) [freight train without significant stop at the frontier]). SNCF told the Consortium that it now had no joint stations (from some 20) and the previous arrangement in which SNCF effectively colonised foreign infrastructure and operations up to a major station (such as Geneva or Bâle) had now been replaced by more conventional arrangements. In addition the institutional role of the station itself has changed in many countries. Stations are often owned by the infrastructure manager and the incumbent railway undertaking is (in theory) as much a tenant as a new entrant railway undertaking.

7.3.5 The Consortium’s judgement however is that far from being an essential facility, having facilities within a joint station is rather a impediment to creating efficient operating arrangements, they institutionalise sedentary rather than movement activities and emphasise process rather than outcome. Nevertheless it is clear that infrastructure managers (or railway undertakings themselves where they control the station) must be required to make facilities available in any station which railway undertakings choose to make joint on a non-discriminatory basis.

The UIC leaflets in detail - 471-1 Regulations covering the operating of lines crossing frontiers and the use of locomotives and multiple-unit trains in international traffic

7.3.6 The leaflet represents a response by the railways of the day to the requirement laid down in frontier treaties (and the perception of a requirement where no legal obligation was laid down.)

7.3.7 The current edition is the 5th edition which although dated February 2001 was in fact last modified in October 1983 (and references to steam locomotives suggest rather earlier origins). It is a part mandatory, part recommended, leaflet although the force of that is significantly blunted by its application being to lines "which are not covered by special agreements”. It sets out principles for drawing up a specific frontier agreement between one or more national railways to manage their frontier operations. In practice, frontier agreements between national railways all reflect its structure, except that high speed lines in general have their own specific agreements. For that reason it is one of the more important agreements treated in this report. Its nature is rather more a set of instructions (“the railways will …”) than a framework contract. In a number of areas it exposes an issue which needs to be resolved, but leaves resolution to be by agreement.



7.3.8 It dates from the days of national railways and includes obligations which would today devolve to both railway undertakings and infrastructure managers. Slightly more subtly, it makes the classic presumption that a train changes status as it crosses the frontier. Responsibility for the train passes from one railway to the other (even when traction and staffing may be projected well into the state in question). Revenue and costs therefore are recalculated from frontiers. It does not allow for alternative models, such as responsibility for revenue and costs starting at an internal point. Likewise it deals with relationships between railways without defining their status, integrated or functionally separate, incumbent or new entrant. It could therefore apply to both open-access and incumbent railway undertakings. Access to facilities is specifically provided for.

7.3.9 In detail, the provisions are divided into the following headings: General; Compensation for services performed; Operating; Rolling stock - fixed installations; Accidents and operating incidents; Staff matters; Accountancy regulations; Miscellaneous regulations.

7.3.10 The first section (0) defines the scope and terminology. The scope covers the frontier sections between the last station and the physical frontier, provision is also made however for interpenetration to cover the section from the frontier to the furthest interior station. This extends the scope (for example in the case of the SNCF agreement from Saarbrücken to Metz, some 75 km). (Before the start of Thalys services, indeed Paris to Brussels was operated non-stop by SNCF and SNCB jointly). The first section sets down the requirement to have a formal agreement. Local agreements are to be produced to define local circumstances, local infrastructure and to define processes in detail. Leaflet 471-1 also requires an agreement on the timetable (this obligation should now pass to the infrastructure manager). It also requires each railway to advise the other(s) of the characteristics of the infrastructure on the “frontier section”, this too is an obligation which should pass to the infrastructure manager.

7.3.11 Section 1 on Compensation for services performed is only recommended. This section is crucial, it covers the provision of traction and the operation of trains over the frontier section and as appropriate on into the national territory. It presumes of course that there is an agreement in principle to move the train. This agreement in principle is implicit in the case of traffic moved “in co-operation” but cannot be presumed otherwise. The German – Austrian agreement on the use of each other’s traction is a variant on the UIC model and is briefly treated below.

7.3.12 Section 1 lays down firstly, the definition of distances between the various stations, hand-over points and the frontier point. Secondly, it states that the traction, train staff and accompanying staff provided by



each railway undertaking are to be tabulated and as far as possible balanced on the basis of kilometres travelled over accounting periods. Settlement in cash is firmly avoided, only if settlement in kind cannot be achieved over two years can a cash settlement be considered. The logic of this approach is to avoid administrative expense (and perhaps unsaid to avoid any risk of being overcharged). A more specific contract charging specific prices for specific services is of course an alternative.

7.3.13 Most of section 2 on operating is mandatory. It lays down an obligation to communicate and update the operating rules for the frontier section. (This role has now moved to the infrastructure manager). The requirement is much more detailed than a network statement would provide, typically the definition would include line and signal diagrams. The leaflet defines the obligation of staff to respect them. Timetables are to respected, mechanisms for running special trains are to be agreed. It is recommended that ancillary services which are implicit, such as attaching a locomotive and testing brakes, are nevertheless defined. Where they take less than fifteen minutes, it is recommended that no charge is made. Obligations to move traffic in the case of a train failure are laid down.

7.3.14 Section 3 on Rolling stock and fixed installations is part recommended and part mandatory. Traction must be properly approved and maintained, the standards for other vehicles are recommended to be those of the RIV and RIC (etc). A framework agreeing technical inspection arrangements is recommended and it is to be noted that this presumes examination at frontier hand-over points, a practice which has substantially disappeared. It is recommended that each railway undertaking has the use of the facilities of the other “Each Railway shall allow the other Railway to use any of its installations as required for operating the service in accordance with the prescribed conditions”. This is a wide permission. The generality, however, is slightly weakened in subsequent paragraphs when issues such as the right to use telephones or send telegrams is defined. The approval process is not defined, nor is the process of acceptance by the “other” state.

7.3.15 In section 4, the leaflet essentially lays down a requirement to co-operate in the case of accidents and operating incidents. The co-operation is limited to the question of providing resources and clearing the line, although there is provision for legal support for staff involved in an incident in the “other” state. They do not conflict with those of Chapter V of Directive 2004/49/EC dealing with the investigation of accidents.



7.3.16 The section on staff (5) is largely mandatory. It states that an operating language must be chosen63. Staff are required to know the regulations and their employer is responsible for the examination procedure (this is not dissimilar to the processes defined in COM(2004) 142 final64). A clause limits the number of staff working in the “other” state to those strictly necessary (this is clearly contrary to the principles of the four freedoms). Staff must obey local laws. Pilot drivers are required for interpenetration, except where staff have been able to demonstrate adequate knowledge. It is recommended that train crew may only drive traction of the ‘other’ railway if their own railway warrants their competence. Arrangements for disciplinary measures are recommended.

7.3.17 The section on Accountancy regulations (section 6) is merely recommendatory and sets out the framework for calculating the costs when cash is used to settle operating balances. The details of the calculation method are left to an annex. Whilst railways are encouraged to agree common costs, in theory higher costs could be used by one railway than another. Traction current and amortisation of overhead line equipment are not to be taken into account.

7.3.18 The annex defines costing methods. For locomotives, energy, servicing, maintenance, amortisation and interest on capital is to be taken into account. These are to be an average for the train type for the railway undertaking. Staff costs are likewise to be averaged but take into account additional payments for working outside the home state. Provision is made for a managing railway in the case of multilateral agreements. Provision is made for cost indexation.

7.3.19 The leaflet represents a model for railway organisation to use to construct bilateral agreements. A diagram of the relationships has been kindly provided by Deutsche Bahn:

63 Practical experience suggests that this can be a problem where is no tradition of speaking the

‘other’ language. Either train staff or station staff must be taught another language, the numbers to be taught and the ownership of costs may become crucial issues.

64 Proposal for a Directive of the European Parliament and of the Council on the certification of train crews operating locomotives and trains on the Community’s rail network



11Deutsche Bahn AG • G.GRP • Oliver Hirschfeld Grenzüberschreitender Verkehr • Besprechung mit Herrn Dugdale • Berlin, 20.10.2004

In many respects UIC leaflet 471-1 acts as the “basic law” for agreements between railways

UIC leaflet 471-1(applies to all UIC railways)

Local instructions(for individual frontiers)

Agreements apply to the totality of cross

frontier traffic

The leaflet is complemented by bilateral agreements between the railways FBA (operating agreement) with West European railways, GBV (frontier operating agreement) with the East.

Based on the individual

Articles of leaflet 471 - 1

FBA DB - SNCFvon 1984

Contents of the leaflet:

• 3 Operating

• 1 General

• 4 Rolling stock – fixed installations

• 5 Accidents and operating incidents

• 2 Compensation for services performed

• 6 Staff matters

• 7 Accountancy regulations

• 8 Miscellaneous regulations

FBA, GBV → GÜV(apply between two railways)

FBA between

DB – DSB dated 1991

Frontier A(Flensburg - Padborg)

14.10.1975

Frontier B(Niebüll - Tønder)

28.05.1972

7.3.20 A number of legal issues arise from agreements drawn up in accordance with this leaflet. The agreements set up rights to operate and implicit recognition of the standards of each incumbent railway undertaking in the other state. This might have been appropriate at a time when railways were their own approval bodies but now raises questions about equality of treatment. For example, the presumption is that staff are trained and examined by the employing undertaking, the “other” state and its supervisory authority are not involved. Traction is similar, the fundamental characteristics of the traction are not contested, only differences (in train-track signalling for example) are scrutinised. Incumbent railway undertakings continue to have the benefit of these agreements but new railway undertakings normally have to satisfy approval authorities in the “other” state with no presumption of basic competence.

7.3.21 Railway undertakings contacted by the Consortium were reluctant to provide copies of their agreements. The Consortium however were able to assemble a set comprising agreements from CFL, DB, DSB, NS, ÖBB, PKP, SNCB and SNCF. The Consortium believe this to be a representative sample. These agreements are treated below (but it is important to note that most are in the process of being renegotiated).



Agreement of 1st January 1984 between CFL, DB, NS, SNCB and SNCF on multilateral calculation and settlement of cross frontier services performed reciprocally

7.3.22 This is very much the archetypical agreement. It involves the largest railway undertakings of Western Europe and accounts for a large proportion of cross frontier movements. The agreement is modelled on UIC leaflet 471-1 and lays down common costs to be used to settle traction imbalances. (471-1 prefers settlement in kind). The costs are averages of the costs of individual railway undertakings weighted by the kilometrage on other railway undertakings’ home networks. A standard train crew is laid down. Costs are recalculated every two years and indexed in the other year. An audit arrangement is provided for. The Luxembourg Railway (CFL) is given the job of managing the agreement. Settlement is annual. The result is thus simple rather than sophisticated and gives each railway undertaking some incentive to keep its actual costs below the average declared by other undertakings.

Agreement of 26th June 1993 between DR and PKP on the operation of cross frontier services

7.3.23 This agreement was signed in the name of the Reichsbahn after the fusion of the two German states but remains in force. It acts as framework agreement, specific agreements for each frontier supplement it to define local process in detail. Once again the agreement is modelled on UIC 471-1 (indeed quoting references to the leaflet). It appears that an absence of a similar agreement between PKP and a German new entrant was used as a reason to refuse exchange.

Agreement of 8th March 1999 between ÖBB and CD on the operation of cross frontier services

7.3.24 This agreement replaces that signed between the Austrian and Czechoslovak railways. It acts as framework agreement, specific agreements for each frontier supplement it to define local process in detail. Once again the agreement is modelled on UIC 471-1 (indeed quoting references to the leaflet).

Agreement of 8th August 1999 between ÖBB and ŽSR on the operation of cross frontier services

7.3.25 This agreement replaces that signed between the Austrian and Czechoslovak railways. It acts as framework agreement, specific agreements for each frontier supplement it to define local process in detail. Once again the agreement is modelled on UIC 471-1 (indeed quoting references to the leaflet).



Local agreement between DB and DSB for railway operations between Flensburg and Padborg dated 10 December 1996

7.3.26 This agreement is a local agreement within the meaning of paragraph 0.4 of UIC 471-1. It defines operational procedures (principally signalling) in some detail and includes details of the track layouts etc. The agreements describes operating procedures, it does not establish rights to operate. It is clear that local agreements of this type form the basis for the agreements between infrastructure managers which are being signed.

Local agreement between ÖBB and CD for railway operations between Hohenau and Breclav dated 26 March 1997

7.3.27 This agreement is a local agreement within the meaning of paragraph 0.4 of UIC 471-1. It defines operational procedures (principally for handing over traffic) in some detail. The agreement describes operating procedures, it does not establish rights to operate.

7.3.28 Although not able to obtain copies of the remaining agreements, the Consortium understands that all other classic frontier agreements follow the same format. The agreements are between nominated parties and presume successive carriage. A precondition for a third party would therefore be an agreement to exchange traffic with the railway undertaking in question. As explained above, even if the agreement in itself is not anti-competitive, insistence on having such an agreement might be.

Agreement between DB and ÖBB for traction services using the traction of one administration over the lines of the other of 10 April/15 May 1973

7.3.29 This agreement comes outside the scope of the study, but a short review is included for the sake of completeness. In many respects it might be regarded as a variant of the UIC frontier model. It provides for the mutual and reciprocal use of the traction of one party by the other. Unlike the UIC model, the agreement refers to traction without train crew and unlike the UIC model the agreement provides for generalised use of the other railway’s traction (subject to its being approved). The agreement requires the use of the other railway’s traction to be by agreement and pre-planned in the timetable, it does not provide for ad-hoc use. It is a facilitating agreement rather than a commitment. The agreement is clearly predicated on the classic model of successive carriage but that is not laid down as a condition of the reciprocal use. The principle of the agreement is reciprocity in the provision of traction, in extremis, payment is provided for.



7.3.30 Accordingly in practice the agreement covers long distance projection of traction on international trains (Austrian locomotives to Frankfurt and German locomotives to Vienna for example) rather than generalised use of traction. The advantage for the parties to the agreement is a reduction in the assets required (and therefore lower costs), there is a marginal customer benefit in that journeys are accelerated by not having to change locomotives.

7.3.31 In the opinion of the Consortium, the existence of the agreement does not imply that either railway undertaking has spare resources available for hire. Whilst an incumbent operator with substantial traction resources would find an agreement of this type easier to implement, it is not difficult to see it might have a value to a new entrant operating under the successive carriage model. The Consortium therefore recommends that a study be made of the terms under which such an agreement could be made generally available.

Agreements “in confidence”

7.3.32 A feature of recent years has been the instigation of ‘agreements in confidence’ (an inadequate but official translation). These agreements between railway undertakings are designed to reduce the number of checks made on traffic on handover by relying on the checks already made by the upstream railway undertaking. There are two such agreements, on wagon technical examination (UIC leaflet 471-2) and on dangerous goods (UIC leaflet 471-3). In each case the framework for these agreements has been designed by UIC railways and the texts are issued as UIC leaflets. Essentially however railway undertakings agree on a bi- or multilateral basis to ensure that traffic arriving at the hand-over point is fit to go on without inspection. The ‘confidence’ agreements are individually negotiated and given that the issues are potentially safety critical, partner railway undertakings insist on a significant evaluation of applicants’ controls before dismantling their own. However the advantage in the process is enjoyed by the railway undertaking that does the trusting, it can then save staff time and perhaps avoid stopping at a frontier, so there is every incentive to trust the upstream railway. Follow-up and audit systems protect the integrity of these arrangements. These issues are explored in the next four paragraphs.

7.3.33 Both leaflets give rise to the same issues in competition law. The issues are examined below.

The UIC leaflets in detail: 471-2 Technical inspections at and inland from frontiers for the exchange of wagons in international traffic



7.3.34 This leaflet is mandatory for those railways that subscribe to “Agreements on the transfer of goods". Essentially the purpose is to avoid protracted stops at hand-over points to check the technical condition of wagons (that the brake blocks are thick enough to run from the North Sea over the Alps to Italy for example). The origin railway undertaking is required to check a defined set of points on behalf of all the undertakings. The requirements defined are industry standard and proportionate. Railway undertakings must agree bi- and multi-lateral agreements with their neighbours before being bound by the terms of the leaflet. There is no evidence to suggest that a new entrant railway undertaking operating under the successive carriage model would be discriminated against, indeed it is very much in the interests of the accepting carrier to make this type of agreement and provide support (if any were needed). There is no requirement to be a member of the UIC before adhering to the agreement. The principal agreement has been signed by CargoNet, CFL, DB, DSB, EWS, FS, GC (SJ), ÖBB, NS, RENFE, SBB/CFF, SNCB, and SNCF but there are other bi-lateral agreements (such as those between ÖBB and MÁV, ÖBB and SZ, and ÖBB and ZSSK).

7.3.35 An audit system is defined to monitor the effectiveness of the process.

The UIC leaflets in detail: 471-3 Inspections of dangerous goods consignments in international traffic

7.3.36 Leaflet 471-3 on inspection of dangerous goods consignments merely sets down two processes; firstly a process for examining dangerous goods consignments (to check that labelling has been correctly done and that tank valves are closed and sealed for example); and secondly a process for making agreements to trust other railway undertakings’ checks and not make further checks when taking over traffic. The requirements defined are industry standard and proportionate. Each agreement is individually negotiated and given the process is safety critical, agreements are not lightly concluded. A large incumbent railway was surprised to find agreements were not a formality. There is no evidence to suggest that a new entrant railway undertaking operating under the successive carriage model would be discriminated against, indeed it is very much in the interests of the accepting carrier to make this type of agreement and provide support (if any were needed). There is no requirement to be a member of the UIC before adhering to the agreement.

7.3.37 An audit system is defined to monitor the effectiveness of the process.



7.3.38 Both leaflets raise the same issues in competition law. As has been explained above, it would not seem that agreements made under the terms of these two leaflets can be used to frustrate competition and that there is an incentive to sign them whenever possible. Nevertheless as agreements with a safety focus, the Consortium recommends that a study be made under the aegis of the Railway Safety Agency on whether it is appropriate that the practices laid down in the leaflet be made a mandatory condition of successive carriage.

The UIC leaflets in detail: 404-2 Compendium of wagonload consignment data exchanged between railways in international traffic and: 404-4 Regulations governing inter-railway exchanges of data on the conveyance of goods in trainloads/through trains in international traffic

7.3.39 These two leaflets may be treated together. They refer to the supply of “consist” information on the handover of freight trains. The theory of the process is that before handover of a train, technical information on all its vehicles and for all its traffic is passed forward to the next railway undertaking. This increases safety and operational efficiency (since the information comes from source) and saves staff time for the accepting railway. The process is sometimes less efficient than the railway undertakings would like to believe (see the Strateco Study65).

7.3.40 The leaflets are technical leaflets that define data formats, they do not set down the rights to send and receive messages. Rights to send and receive messages are not in fact defined at all but given the benefits that arise where railway undertakings exchange traffic then there must be an implication that they are prepared to exchange information. New entrant railway undertakings operating under the successive carriage model may nevertheless face technical problems even where there is goodwill.

7.3.41 This issue is not directly related to the existence of frontier agreements but rather to the fact that data formats designed some years ago on data exchange failed to allow for open access. This omission was not remarkable, whilst there was international operation by minor railways, widespread international open access had not been discussed at the time the first standards were written (in about 1980).

7.3.42 Whilst there is no formal exclusion of new entrant railway undertakings operating under the successive carriage model from this process, commercial, operational and technical difficulties militate against their inclusion. The current formats of the messages giving details of traffic being handed over at frontiers currently use code structures which only permit incumbent railway undertakings to be recognised and there is no mechanism to solve the problem of sorting 65 Report of the 'Strateco' study on the exchange of operational data of border-crossing freight trains for the European Commission February 2001



messages between the various potential downstream railway undertakings on hand-over.

The UIC leaflets in detail: 502 Special consignments - Provisions concerning the preparation and conveyance of special consignments

7.3.43 Similar multilateral agreements set down in UIC leaflet 502 define the procedures for the exchange of exceptional loads. The leaflet defines the process in which the railway undertakings propose the consignment, liaise with their infrastructure manager and feed back acceptance conditions. Specific processes take place on handover between railway undertakings to verify that the consignment is safe to continue under the operating conditions set by the infrastructure manager. As part of the process, but outside the scope of the leaflet, the railways assess the charges to be made for the movement. The leaflet defines a technical process, it neither confers nor denies rights. New entrant railway undertakings would have to go through the same process to get conditions of passage from infrastructure managers and share them with the lead carrier putting the package together for the customer (or go to the customer themselves). There are no competitive issues arising from this procedure, nor is it incompatible with safety or interoperability provisions.

Use of UIC leaflets – the “frontier” leaflets

7.3.44 It was very clear to the Consortium that UIC leaflets 470 and 471-1 have outlived their usefulness. None of the respondents contacted by the Consortium believed them to have any continuing relevance, none of the respondents saw any role for the UIC in drawing up standard frontier agreements for contemporary relationships.

7.3.45 By contrast, the leaflets dealing with handover “in confidence” were strongly supported by railway undertakings. They allow long distance projection of trains across frontiers and increase safety levels. There is every logical reason to make such agreements and the Consortium understand that they form part of the “new style” agreements being negotiated between railway undertakings (see below).

7.3.46 Likewise the process of dealing with exceptional consignments has a continuing role.



7.4 Classic agreements between railways – problem areas

Czech Republic – German and Slovak frontier

7.4.1 A short summary of the earlier problems in the Czech Republic would be useful although the Consortium understands from the new entrant railway undertaking, Viamont, that the issues have all now been resolved. These problems certainly occurred between the Czech Republic and Germany and Slovakia, it would be logical to suppose they also occurred between the Czech Republic and Austria and Poland but no record has been made. Whilst the Czech Republic had liberalised the provision of rail services, Czech licences were not valid for the section from the last Czech station to the actual frontier and accordingly new entrant railway undertakings could not cross the border (Viamont was in fact an exception since it controlled cross frontier infrastructure). Cesky Drahy (CD) the state railway undertaking insisted on its exclusive right to cross the frontier based on its UIC 471-1 agreement with DB.

7.4.2 In contrast to the Polish case (below) there was an inter-state agreement on the rights and obligations of railways, but it spoke simply of “the railway” and did not adequately accommodate liberalisation.. The state government took no action to enforce practical liberalisation. Immediately after accession however, new entrant carriers started operating cross frontier services and this de facto liberalisation was recognised by a government decision in June 2004.

7.4.3 This was therefore rather a case of national legislation failing to go far enough in defining the rights of liberalised railways (although the Consortium understand that the incumbent railway was quite happy with the status quo ante.)

German – Polish frontier

7.4.4 Appendix E shows the agreements in place between the German and Polish authorities. It will be noted that agreement of 25 November 1971 on co-operation in the exchange of rail traffic has been abrogated but continues to apply on a custom and practice basis. New general frontier treaties were signed in 1992 but did not apply specifically to rail traffics (an intergovernmental treaty to cover rail traffics is in course of preparation). Accordingly there is no inter-state treaty that sets down the rights and obligations of railways. The two state railways signed an agreement on the operation of all their common frontier lines, the Grenzbetriebsvereinbarung (GBV) in June 1993. This agreement closely follows UIC leaflet 471-1. These 471-1 agreements as noted above set down rights and obligations between the signatories, they do not confer rights on third parties nor exclude them.



7.4.5 Both countries have opened their domestic markets to new entrant railway undertakings. Following Poland’s accession to the EU, the TERFN has been systematically opened to open access operation in accordance with Directive 2001/12/EC and cross frontier trains operated by new entrant railway undertakings have run. It is understood from press reports for example, that Rail4Chem from Germany has exchanged traffic with ChemTrans Logistik in Poland.

7.4.6 In these cases PKP has refused to hand over traffic other than to DB (DR’s successor to the 1993 agreement). (Presumably the same objections would apply to handover, for example to a Czech new entrant railway undertaking.) Particularly effected by this have been EKO Transport, (a wholly owned subsidiary of EKO Stahl) and Petro Carbo Chem. Both these railway undertakings depended on the efficiencies of direct handover (rather than via DB) to make the economics of their activities work. Both railway undertakings had to engage lawyers to assert their rights. It quickly became clear that the DB had no objection (at least in principle) to direct handover from PKP. No progress has yet been made with PKP. PKP have not been able to tell us the grounds for their objections.

7.4.7 There are problems in asserting rights under the circumstances of cross frontier operation. Involvement of the national competition authority of the neighbouring state is the appropriate avenue but involves linguistic issues (and perhaps organisational and legal difficulties and expense). Given that new entrants are likely to be small, they are more likely to look for other transport opportunities rather than persevere. In this way the market may not be opened with the vigour required, despite the precedents.

7.4.8 New frontier agreements to replace those modelled on UIC 471-1 will help clarify responsibilities and act as a stimulant to review the relations with all railway undertakings.. In the meantime the German trade association VDV66 is engaged in preparing a guide for the benefit of German railway undertakings (although the Consortium understands its production has been delayed).

7.4.9 It is clear that the agreements based on UIC leaflet 471-1 although not anywhere committing their signatories to an exclusive relationship have in fact been used by incumbent railway undertakings (on the German - Polish and German - Czech frontiers for example) to claim that a condition for handing over traffic is such an agreement and then failed to negotiate an agreement in good faith. Behaviour in this way raises some concerns. It might be that it would be contrary to Article 81. In any case each individual case would merit further investigation by the Commission and appropriate remedial action. 66 Verband Deutsche Verkehrsunternehmen [Association of German Carriers].



7.4.10 Both infrastructure managers and incumbent railway undertakings are signing new agreements and reviewing their historic agreements with their international partners. None of the respondents contacted by the Consortium saw any role for the UIC in this process. This issue is treated in more detail below.

Summary

7.4.11 The Consortium concludes that the leaflets do not suit every circumstance of handover and certainly do not provide adequately for open access. The Consortium finds attempts to impose the agreements unreasonably by one (at least) carrier.

7.4.12 The Consortium therefore believes that given the fact that new entrant railway undertakings sometimes find UIC practices inappropriate that there should be no presumption of their adoption in relationships with non-members. Where safety is concerned, national law and standards prepared within the framework of the Safety Directive will apply, where equipment standards are involved, then the standards in line with the Interoperability Directives will increasingly apply. However for handover practices outside the area of safety, non-member undertakings must be free to negotiate an agreement which suits their circumstances.

7.4.13 The Consortium finds that agreements are beginning to be renegotiated by railway undertakings on their own initiative. Nevertheless the classic agreements based on UIC leaflet 471-1 are wholly unsatisfactory and the Consortium recommends that the Commission investigate further.

7.5 Rewriting of the agreements between railway undertakings

Overview

7.5.1 None of the railway undertakings contacted by the Consortium considered that agreements based on UIC 471-1 leaflet were still appropriate and the Consortium understand that that view is as much held by railways in Central and Eastern Europe as in Western Europe. All were therefore considering how to take the agreements forward although in fact few had made much actual progress. This lack of progress represents an opportunity to provide guidance and one railway undertaking said it would be helpful if there were “guidance from Brussels”. Interestingly and significantly none of the railway undertakings considered that the UIC had a role in developing a new standard agreement.



7.5.2 The new agreements are separate in the sense that each railway undertaking will have handover agreements with the partners to which and from which it hands over traffic. The infrastructure managers have agreements with each other to regulate such questions as coordination of maintenance and the exchange of train running information. Each railway undertaking has an agreement with the infrastructure manager(s) over whose tracks it runs. A diagram of the relationships has been kindly provided by SBB.

It should be noted that the diagram refers to the fully liberated model (see table 1 in section 2) in the sense that the railway undertakings have agreements with out-of-state infrastructure managers. This allows operating and commercial responsibility to continue to an agreed handover point.

7.5.3 It would be instructive to look at the approach of two railway undertakings, Deutsche Bahn and the SNCF, representing the two largest incumbent railway undertakings and representing 16 national land frontiers.

7.5.4 Austrian, Italian, Slovene and Swiss incumbent railway undertakings have also or are also drawing up agreements with the objective of creating transparent non-discriminatory relationships. Copies of these have not been made available.

New contracts between FS and SBB

FS Infra SBB Infra

SBB Pass’r

Trenitalia Cargo

SBB Cargo

IM/IM Contract

Cooperation FS/SBB

Framework contract RFI/SBB Pass./Cargo

Contract SBB Infra/ Trenitalia Regionale

Trenitalia Passenger

Trenitalia Regionale



SNCF agreements

7.5.5 For SNCF the initiative to review frontier agreements came from the sleeping car fire in Nancy on 6 November 2002. In this incident a German vehicle operated by an Austrian service company caught fire whilst on a French train. The enquiries made under the French legal system caused SNCF to believe firstly that existing handover agreements were not sufficiently rigorous and secondly that specific thought should be given to exchanging traffic with new entrant railway undertakings. The impetus was not therefore driven by competition law but rather by safety considerations. In this respect the SNCF reaction was very much that of an integrated railway.

7.5.6 SNCF explained that the agreements were linked to the exchange of traffic, only if there was an agreement to exchange traffic would there a handover agreement, but if there was an agreement to exchange traffic then a handover agreement would be essential. There was therefore no presumption that SNCF would sign an agreement with any given railway undertaking but that SNCF had noted the Commission’s comments in the two Georg cases.

7.5.7 Any new entrant railway undertakings in France which might in the future operate independently of SNCF will not therefore have any agreement with SNCF, the agreements are only relevant to handover.

7.5.8 The framework is set by the freight and passenger activities and (given SNCF’s organisation) further agreements are being made by the traction and the rolling stock functions to cover their activities. Separate documents are produced by the freight and passenger businesses (FR-0322 & VO-0441 respectively) but they are similar.

7.5.9 SNCF were not prepared to pass the Consortium copies of the agreements but did provide copies of the freight framework directive defining how they were to be set up. The new framework directive “Prise en charge de la sécurité de la production assurée en coopération avec d’autres Entreprises Ferroviaires” is being drawn up to replace an earlier directive (“Prise en charge de la sécurité de la production assurée en partenariat”). It specifically sets out (in bold) that it is a handover agreement to cover handover in the context of a joint operation wherever that handover might take place. It declares its rationale as being to create a safety regime, particularly in the case where mutual arrangements have eliminated or reduced stops at frontiers or handover points. Sub-contracting the operation of services is provided for in separate agreements.

7.5.10 The agreement clarifies that handover occurs at the point that the access rights of one railway undertaking finish and those of the next start



(and in doing so removes a significant anomaly in classic agreements). It requires a detailed agreement to be made between local SNCF operating, traction, rolling stock and infrastructure(!) organisations and the other railway undertaking for each handover point. This agreement, entitled “Accord sur la sécurité de la production assurée en coopération entre la SNCF et …” provides detailed rules for the safety aspects of the handover operation.

7.5.11 The directive specifically mentions that an agreement to co-operate also implies an agreement to allow a partner to provide traction for a train run on SNCF’s account using SNCF’s access rights.

7.5.12 The directive defines the elements that agreements must include, these include: a list of train paths, the class and characteristics of the trains to be run, acceptable rolling stock (RIV), acceptable traction (approved in both countries). The safety rules are defined, where a derogation is required the directive provides for it to be passed forward for agreement by the infrastructure manager(s) in question. A safety management system is required, traffic must conform to acceptance and loading standards (RID, UIC leaflet 502, RIV Appendix II). Wagon examination is required where agreements in line with UIC leaflet 471-2 on wagon examination have not been signed. Systems are to be set up for the exchange of consist information and documentation. Audit systems are required to expose and remedy deficiencies. Liability is defined as following existing international law. A system is defined to address disputes.

7.5.13 A second directive produced by SNCF’s traction department sets down the conditions for agreements with other railway undertakings to provide for their drivers to drive trains under SNCF auspices in France. These trains will have been or will be about to be handed over to or from SNCF proper, and the directive applies to both freight and passenger services. The directive is entitled “Conditions d’acceptation des conducteurs des entreprises partenaires sur les lignes du réseau ferré national TT-0518”. The directive sets down the terms for a one-way agreement, SNCF conditions for drivers from elsewhere, the agreement is between the undertakings and the expectation is that the other undertaking will have the direct relationship with the drivers. It sets down the criteria for the selection and training of drivers, and provides for SNCF to train the training staff of the “other” railway undertaking. Refresher training is to be provided. The directive requires an audit and a feed-back system to identify problems and resolve them. Formal review meetings are to be held annually. SNCF said that amongst other agreements, agreements had been signed with BASF and various German railway undertakings operating local passenger services over the Franco-German frontier. Agreements have also been signed with private railway undertakings in France (CFTA, a subsidiary of Connex, amongst others).



7.5.14 The SNCF directives are narrowly drawn, they do not address the question of the technical approval of vehicles or access to infrastructure.

7.5.15 Although the Consortium were not given copies of the actual agreements, the tenor of the directives defining what they must contain suggests that there are no material differences in the agreements offered to individual railway undertakings and that the arrangements are proportionate to their purpose. The Consortium finds that agreements are limited to safety issues but believes that a refusal on non objective grounds to sign one or setting different terms might be anti-competitive. SNCF said they had not refused on principle to sign any agreements. The SNCF directives do not conflict with the requirements of the railway safety directive.

7.5.16 SNCF said that the issue of the hire of traction to operate open-access cross border trains had not arisen and so no policy or agreements had been prepared. The absence of a policy does rather stretch credulity but in the absence of a declared or implicit policy it is impossible to evaluate it.

Deutsche Bahn agreements

7.5.17 DB said that Directive 91/440/EEC provided the opportunity to revise their frontier agreements; the need to revise had become clear at a corporate level following a number of legal challenges (in which they were sometimes defendants, sometimes bystanders). DB therefore decided at a corporate level to set up a project team led by a Beauftragter der Kozernleitung [Headquarters project officer]. The European affairs department was put in charge of the project and started work in September 2004.

7.5.18 Their study of the status quo revealed that the various DB activities (infrastructure, freight, passenger) had already started to develop new contracts with their neighbours, particularly for freight (DB provided a list which they asked to be kept confidential). DB’s team intend to create template contracts for each of their activities and as a first step were reviewing the existing agreements.

7.5.19 DB said that in reviewing the earlier UIC 471-1 agreements, they had identified three important issues: the relationship between the railway undertaking and the infrastructure manager (defined in European law) was clear and required no interpretation; there was a requirement clarify the acceptance rules for traction but that the existing principles for “co-operation” (the provision of successive carriage) were sound and required merely to be updated. Nevertheless some of the detail of the earlier UIC 471-1 agreements (they instanced railway phones as a particular problem) were difficult to map to new frontier agreements.



7.5.20 DB were unwilling to provide copies of any of the agreements which had been signed but were able to provide a checklist for drawing up frontier agreements. This provided for

• Each DB business signing its own agreement independently of other businesses,

• Frontier agreements being signed within the framework set by state treaties and agreements between administrations,

• Within each agreement:

- Definition of the scope of the agreement, geographical and subject,

- Personnel issues, language, use of staff, liability for fault,

- Assurance that only approved vehicles approved for the infrastructure in question would be used,

- Responsibility for resolution of disruption and for paying for it,

- Liability for incidents, means of dealing with third party liability,

- Accountancy, basis to be mutual exchange of services, rules for cases where this is not possible,

- Duration of the agreement,

- Applicable law (to cover for example Regulation (EC) 44/200167),

- Disputes, the UIC dispute procedure is proposed,

- Special cases, particularly to cover operating issues.

7.5.21 The DB checklist covered agreements made by all the businesses, and in consequence and without copies of the actual agreements it is difficult to evaluate whether they are proportionate to the purpose to be achieved. DB pointed out however that they had a Wettbewerbsauftragter, a compliance manager specifically employed to check compliance with competition law.

67 Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the

recognition and enforcement of judgments in civil and commercial matters



Lessons from these new agreements

7.5.22 There is a difference in emphasis between the SNCF and DB approach, SNCF is essentially concerned about safety but DB looks for a wider relationship. Some of differences (such as the responsibility for resolving disruption) are likely to attach to the agreement between infrastructure managers; other issues (such as the specification of operating languages and detailed procedures) will be resolved under the SNCF approach in local agreements.

7.5.23 On the basis of the principles set down by the two organisations and in the absence of actual agreements, it would not seem that the agreements in themselves are contrary to EU law. They are appropriate to the purpose of setting up technical arrangements in the context of successive carriage.

7.5.24 Whether or not agreements are objectionable in themselves, the decision on whether to accept traffic from a potential partner (and then to go on to sign an agreement) might raise issues in competition law. This issue is dealt with in section 2.5.

7.5.25 The Consortium has not however recorded any case of an incumbent agreeing to a new-style hand-over agreement with a new entrant where the new entrant was not organisationally linked to the incumbent and competed with the incumbent’s normal partner. Rather the pattern seems to be that incumbents continue with their classic relationships and form groupings and alliances whilst new entrants parallel these relationships by setting up their own alliances and subsidiaries.

7.6 Rewriting of agreements between infrastructure managers

Overview

7.6.1 Although strictly outside the remit of examining agreements between railway undertakings, agreements between infrastructure managers help to complete the picture. As was outlined above, infrastructure managers in many countries are starting to take over agreements not only for the maintenance of infrastructure but also for the conduct of operations over the frontier sections. These agreements are the successors to the local agreements defined in section 0.3 of UIC 471-1 (and show clear parentage). A substantive agreement between SNCB and ProRail and a draft one between ProRail and Deutsche Bahn were examined. A similar agreement is that signed between the Danish infrastructure manager Banestyrelsen (now Banedanmark) and the



integrated Nordfriesische Verkehrsbtriebe (NVAG)68 for the (Niebüll) Süderlügum Tønder frontier. They are sufficiently similar to be treated together.

7.6.2 The Belgo-Dutch agreement is a free-standing agreement for the frontier in question but the draft Germano-Dutch one is a supplementary agreement to the basic Fahrbetriebsabkommen (FBA) [operating agreement] to detail the local operating peculiarities and local instructions. The operating agreement as it name suggests concentrates on how the infrastructure will be used rather than questions of responsibility for the infrastructure itself.

7.6.3 The agreements set down clear rules for the applicability of the agreement, arrangements for update, responsibility for distribution, validity of the language versions. Basic principles are set down for the languages to be used for operations and acceptability of traction (each of the national approval bodies is responsible for his section (which implies a full double approval)). Of particular interest in the NVAG (Tonder Süderlügum) agreement is the specification of the operating language (German) and the definition of German signal meanings in Danish. The Dutch-German and Dutch-Belgian agreements have no provisions for hauled rolling stock and no cross references to network statements. The NVAG agreement has no stipulations on the approval of equipment (rolling stock must however “be approved”).

7.6.4 The nature of the frontier section is described in outline, direction of running, signalling principles, electrification system, axle-load, operating handover points are defined (although it is by no means clear what that means), change of electrification point is defined, frontier (= administrative ) stations are defined. Timetabling responsibility is defined. Level crossings are listed, telephones are listed.

7.6.5 The basic train despatch system is outlined. Means of informing railway undertakings of speed restrictions are defined, Systems to advise the other railway undertaking of work on the track are defined together with the systems to ensure safety. Procedures for exceptional consignments and for operations in “degraded” conditions are defined in detail. The NVAG agreement also deals with dangerous goods.

7.6.6 Conditions for train formations are defined (length, brake effort etc.)

7.6.7 Two paragraphs define maintenance responsibilities (but without defining the standards (the speed for which the line is to be maintained, for example). 68 The Nordfriesische Verkehrsbetriebe has since gone out of business, its assets have been

acquired by the Nord-Ostsee Bahn



7.6.8 Appendices show track layouts, provide examples of the stationery to be used and the formal phrases to be used for signalling purposes.

7.6.9 In the NVAG agreement, staff qualifications are not set down as such but route knowledge is specified as a requirement. Of particular interest is a requirement for continuous updating, the agreement becomes invalid if not updated at least every five years.

7.6.10 None of these agreements make any mention of the identity of railway undertakings nor of rights to operate (even in the case of the integrated NVAG). The terms of the agreements are appropriate to purpose, even handed as between railway undertakings and therefore the agreements would appear to raise no competitive issues. (Access to the various routes would come under the provisions of Article 4 (2) of Directive 2001/14/EC).

7.6.11 The Consortium also examined the new agreements between SBB Netz and its infrastructure partners in Austria, France, Germany and Italy. These agreements had a slightly different perspective being at a much higher level and dealing with question of responsibility for various infrastructure issues (it should be borne in mind that these agreements covered the transfer of infrastructure responsibility from France to Switzerland outlined above in para 6.3.4, the unique circumstances of the Basel Verbindungsbahn and the extraterritorial operation of the line into Buchs by ÖBB).

7.7 Recommendations

7.7.1 The (then) Austrian Federal Railway and German Federal Railway have a wide ranging agreement for the mutual use of traction. The benefits it brings should also be available to new entrant undertakings also able to offer traction for mutual use. The Consortium therefore recommends that a study be made by the Commission of the terms under which such an agreement could be made generally available (from 7.3.31).

7.7.2 UIC leaflets 471-2 & 3 on handover arrangements have a bearing on safety along a chain of successive carriers. The Consortium recommends that a study be made under the aegis of the Railway Safety Agency on whether it is appropriate that the practices laid down in the leaflet be made a mandatory condition of successive carriage (from 7.3.38).

7.7.3 The Consortium finds that frontier agreements are beginning to be renegotiated by railway undertakings on their own initiative.



Nevertheless the classic agreements based on UIC leaflet 471-1 are wholly unsatisfactory and the Consortium recommends that the Commission investigate further (from 7.4.13).

Colin Buchanan and Partners Analysis of Current Agreements


8. TECHNICAL AND OPERATIONAL PROBLEMS AT FRONTIERS

8.1 Overview

8.1.1 A number of respondents described practical problems at frontiers which impeded crossing the frontier (sometimes to the detriment of incumbent railway undertakings) or impeded the process of opening the market.

A short résumé of frontier infrastructure practices might be appropriate. It is normal for signalling practices (fixed signals and track to train equipment) to change at or very close to the frontier. By contrast past practice and still the preponderant model has been for electrification systems to go onto the nearest principal station where the station is either double wired or specific tracks are wired with specific systems. This is to avoid the expense of multi-system electric traction. In this way, in Venlo (for example) specific tracks are wired with specific systems and German locomotives are changed for Dutch locomotives within the station. Following the decline in the comparative cost of multi-system traction, changes of system other than in stations has become the norm for new installations (as for example between Lille and Tournai). A diagram of a typical frontier (at Bâle St Jean) kindly provided by SBB is shown below to show how the physical frontier, the signalling frontier and the electrification frontier can be arranged.



Layout

Saint-Louis Saint-Jean Voyageurs

MarchandisesTriage

135,200 142,000 137,800 142,500

143,000

A B Poste OBZ

136,100 136,700

Signaux A12 A13

140,800

Signaux C452 C454

Signaux A27 A28

Frontière France/Suisse136,923

Voie 1

Voie 2

136,752

France Suisse

SNCF CFF

Secteurs

Bâle

State frontier

Saint-Louis Bâle-Saint-Jean Bâle-Voyageurs

135,200 137,800 136,923

Frontière France/Suisse

Voie 1

Voie 2

France Suisse

SNCF CFF

Maintenance responsibility


135,200 137,800

136,740S

ignaux A27 A

28

136.923Frontière

Voie 1

Voie 2

136.752France Suisse

SNCF CFF

Limite de la maintenance des installations

Joints isolants

136,737

Change in signalling rules


135,200 137,800 143,000

Poste OBZ

136,148 136,740

Signaux A12 A13

140,800

Signaux C452 C454

Signaux A27 A28

136.923

Frontière France/Suisse

Voie 1

Voie 2

France Suisse

SNCF CFFSNCF+CFF

136,737136,150



Electrification frontier

142,000 142,500

143,000

A B Poste OBZ

Secteurs

Saint-Louis Saint-Jean Voyageurs

MarchandisesTriage

135,200 137,800

Frontière France/Suisse136,923

Voie 1

Voie 2

136,752

France Suisse

SNCF CFFBâle

Point de raccordement

v1 : 137,428 v2 : 137,053

8.2 Practical issues for new entrants

8.2.1 A number of new entrant railway undertakings described the problems linked to frontiers which they faced. The most significant problems appeared to be technical. Frequently new entrant railway undertakings only operate within a single state. Their locomotives are sometimes old and not equipped to cross frontiers. For passenger railway undertakings the solution is to hand over trains at the last station within their own state, even if it is not a normal hand -over point. Freight railway undertakings however have more difficulty, freight facilities are normally found only on one side or the other and this option may not be available (it is not usual to change locomotives and hand-over freight trains on running lines, recovery time is normally built in at frontiers and the hand-over process may be more complex). Railistics, a Germany consultancy heavily involved in solving frontier problems said that the situation was very different at each of the frontiers but a common feature was a reluctance to approve locomotives and staff for cross border operation (let alone a penetrating operation). Technical conservatism and a reluctance to accept personal responsibility were the reasons cited in the NERA report (q.v.).

8.2.2 One new entrant freight railway undertaking told the Consortium that when operating off the TERFN, handover before the frontier or even in a frontier yard was interpreted as making his operation national and thus not yet available to new entrant railway undertakings. This can influence choice of handover points (a French railway undertaking for example may wish to operate just into Germany so that he gets a benefit of international operation and his German partner the benefit of liberalised domestic rules). This anomaly will be partly resolved by Article 1 of Directive 2004/51/EC in 2006 and finally 2007.

8.3 Technical issues

8.3.1 New entrant railway undertakings expressed concern that many equipment decisions were taken without due consideration for their



effects on open access. There was a continual pressure for more sophisticated systems and equipment which new entrant railway undertakings could not realistically finance (either because the traffic receipts did not allow it at all or because they were unable to provide collateral for bank finance). New entrant railway undertakings pointed out that those constraints did not necessarily apply to incumbent railway undertakings. ERFA for example complained that the Betuwe line had been built with three different electrification systems, whereas new entrant railway undertakings in practice often used second-hand less sophisticated locomotives.

8.3.2 Respondents reported significant problems in the approval and use of traction across cross frontier sections and believed that approval processes were frequently illogical. The existence of “grandfather rights” for existing traction tended to favour incumbent railway undertakings, in some cases the traction used had not been formally evaluated and approved but merely accepted. This uncontested acceptance gave existing equipment and railway undertakings rights that were not enjoyed by others. All railway undertakings found the processes of introducing new equipment onerous. Respondents did not accuse approval authorities of partiality but rather of slowness to authorise equipment, a lack of logic and some timidity.

8.3.3 The Verband Deutsche Verkehrsunternehmen (VDV) for example reported that all locomotives operated by DB and nominated on DB – PKP agreements are permitted, using the grandfather rights of the DB, to operate to Polish frontier stations without limit but the same types of locomotives when operated by other parties are not. In this way the Polish approval body Urząd Transportu Kolejowego (UTK) insisted on class 228 locomotives, sold to a DB subsidiary, having full approval for the whole Polish network. The Consortium is aware of similar problems in the approval of Polish locomotives to run to German frontier stations in which initially, the EBA insisted on full national approval.

8.3.4 VDV in conjunction with its Polish counterpart believed that all locomotives authorised in one state should, ipso facto, be authorised to run to the frontier stations of neighbouring countries limited only by basic checks on issues such as axle-load and loading gauge. Any further technical requirements should apply equally to all traction and every railway undertaking; problem free acceptance of any type of traction should be institutionalised and all locomotives of the type permitted for limited cross frontier use.



8.4 Safety issues

8.4.1 On the frontier with France, cross frontier operations by the Saarbahn (which operates a light rail commuter service) were made more difficult by the safety requirements of the SNCF at Saarguemines. These requirements were regarded by the German railway undertakings as unreasonable given the nature of traffic.

8.4.2 The VDV pointed out that cross frontier local passenger operations were difficult to create for a variety of organisational and technical reasons, and said they needed to be given every encouragement rather than have to surmount a high technical barrier. It has to be said that the safety requirements at the interface between light rail and heavy rail are a source of controversy all over Europe. Light rail is justified by its lightness and freedom from heavy rail standards. Similar comments were made about the safety requirements of the British authorities where the Tyne and Wear (Newcastle) Metro runs over conventional infrastructure.

8.4.3 The “grandfather rights” to using accepted traction and the benefit of the presumption of competent staff which these agreements provide represents an advantage denied to other railway undertakings. This may give rise to discriminatory or exclusionary effects and therefore raises questions under Article 81 EC.

8.4.4 All railway undertakings should be handled equally, this should mean that all railway undertakings with a national safety certificate and nationally approved traction receive the benefit of the presumption that their staff and equipment is fit for purpose and that only supplementary checks are necessary. Current practice is rather different, incumbent railway undertakings have “grandfather approval” over frontier sections, new railway undertakings must demonstrate they are fully competent to run to all points without any presumption of basic skills or approved equipment. The Consortium therefore recommends that the Commission looks further into this issue.

8.5 Operational issues

8.5.1 VDV reported similar problems in staff deployment. DB trains are allowed to run to Szczecin using DB crews, HGK trains however are required by UTK to have Polish conductors from Pasewalk on the frontier. Similar problems were identified on the frontier with Denmark at Padborg. These problems derive from the existence of inter-railway agreements following UIC leaflet 471-1 which implicitly recognise incumbent railways’ staff skills. New railway undertakings do not benefit from this presumption and need to prove their abilities, an onerous requirement.



8.5.2 VDV suggested a solution to the problem of driver certification was the systematic extension of validity on national driver certification to the first exchange point on every frontier.

8.5.3 The Consortium recommends that the systematic extension of drivers’ national certification to the first exchange point at every frontier be considered in the context of the proposal for the certification of train crews69.

8.6 Taxation issues

8.6.1 Taxation issues do not strictly form part of a study on agreements between states and between railways but it is very clear that taxation issues can have competitive aspects and a number of respondents specifically mentioned them.

Fuel

8.6.2 Traction diesel fuel is not taxed or only taxed at low rates in some countries. Railway undertakings operating cross border services therefore may have the option to fuel their locomotives at low rates. If those locomotives are then used cyclically then some benefit from the low tax purchase of diesel fuel might be had in using the locomotive in a higher tax state. The benefit from this can be exaggerated, a typical loco will need fuelling every second day and so not much benefit can be derived. It is also true that this benefit is available to any railway undertaking operating internationally and so in a market situation will be factored into prices. This issue is of more significance in road haulage.

8.7 Recommendations

8.7.1 All railway undertakings with a national safety certificate and nationally approved traction should receive the benefit of the presumption that their staff and equipment is fit for purpose and that only supplementary checks are necessary. Current practice is rather different, incumbent railway undertakings have “grandfather approval” over frontier sections, new railway undertakings must demonstrate they are fully competent to run to all points without any presumption of basic skills or approved equipment. The Consortium therefore recommends that the Commission looks further into this issue. (from 8.4.4)

69 COM (2004) 142 final of 3 March 2004.



8.7.2 Driver’s certification is proposed to have a national component. Simplifying the certification for cross frontier operations would do much to facilitate cross frontier operations. The Consortium recommends that the systematic extension of drivers’ national certification to the first exchange point at every frontier be considered in the context of the proposal for the certification of train crews (from 8.5.3).

Colin Buchanan and Partners Comparisons


9. COMPARISONS

9.1 Overview

9.1.1 Of the seven “network industries” (broadcasting, telecoms, post, electricity, gas, airlines and rail) the Consortium considered that the appropriate areas for comparison were other industries with international operation and physical handover. These industries also have to address questions of fair terms of physical handover between players in the market and questions of the role of trade associations and the services they provide. Accordingly the Consortium looked at the air transport and postal market.

9.1.2 The Consortium did not however consider other network industries, such as electricity or telecoms. They considered that whilst the issue of access to the rail network had similarities with access to electricity or telecoms, the issues of handover are quite different and physical handover poses problems of quite a different order to those of electricity or telecoms70.

9.1.3 The Consortium also considered rail operations in North America in which competition law is well developed and in which handover of traffic is a very normal part of rail transport (35% of traffic is interlined between Class 1 railroads in the US, but handover to and from minor lines can apply to all traffic).

Rail operations in North America

9.1.4 Railroads in North America are integrated, the same organisation owns the infrastructure and runs trains. There are however significant “trackage rights” in which nominated other railroads have rights to run trains, normally in order to preserve competition following mergers. These rights are therefore enshrined in a governmental framework rather than merely contractual. Likewise Amtrak in the USA and Via Rail in Canada have statutory rights to run passenger trains over privately owned infrastructure (although Amtrak also has some of its own).

9.1.5 The industry trade association, the Association of American Railroads, sets industry standards although the Federal Railroad Administration (in the USA) and its Canadian and Mexican counterparts have a regulatory role. The AAR in North America has a very much stronger role than the UIC in Europe, to some extent this is because

70 This point is strongly underscored by Russell Pittman of the US Department of Justice,

Antitrust Division in his paper Railway Competition: Options for the Russian Federation



conditions in North America are more uniform, common economic environment and objectives, similar legal systems and effectively a single language make the “North American Railway Area” more uniform than its European equivalent. Coupled with that is a much fiercer standardisation of equipment, rolling stock, signalling systems, operating practices, etc than in Europe (North American rolling stock from locomotives through to freight cars is standard, there are no national differences). The AAR is therefore a much more focussed, transparent and active organisation than the UIC. It combines the functions of the UIC, CER, CIT and EIM within North America. The FTE and RNE have no equivalents.

9.1.6 The Staggers Rail Act of 1980 (US) liberalised freight rates and some markets are now wholly free. In both the US and Canada rates and services for agricultural products are still subject to control (the FRA publishes an estimate of 16% of (US) rates being controlled in the mid 1990s).

9.1.7 The pattern of change of infrastructure ownership at state frontiers has never been as marked in North America as in Europe and more recently railway mergers (and particularly takeover of US railroads by Canadian railroads) has produced common ownership across many frontier sections.

9.1.8 Even where there is a change of infrastructure ownership, the maintenance of the link implies a willingness to exchange traffic (North American carriers in general have freedom of contract and may refuse traffic). General principles are laid down in AAR manuals. Two manuals are relevant to this study, the Office Manual of the AAR Interchange Rules and the Field Manual of the AAR Interchange Rules. These two manuals define the acceptance criteria for freight vehicles (the field manual) and the standard cost allowances for remedial work (the office manual). The field manual has much of the same role as the (now withdrawn) UIC leaflet 579-2 Conditions for the technical transfer inspection of wagons and relates only to technical issues not to the principle or commercial arrangements for handover. No principles for exchange itself or the operation of trains to and from exchange points (as such) are laid down.

9.1.9 The Consortium were unable to identify any international treaty relating to railway construction and operation. Instead the North American pattern (even for quite substantial works such as the St Clair frontier tunnel under the St Clair river) seems to be for separate but linked national companies to get national permission for the works.

9.1.10 Where the frontier and handover are co-terminus, the standard practice is for a handover point to be defined on one side of the frontier.



That point serves as handover for both operational and commercial purposes, up to that point, trains run under the authority and for the account of their operator using trackage rights in so far as the infrastructure belongs to another railway. This differs from the classic European model (but is more logical than the European model). Charges are raised in one currency even for the cross frontier section. In effect, the state frontier has no railway role (except for infrastructure ownership).

9.1.11 North American practice shows that a competitive market is wholly consistent with an absence of treaty measures. Railway undertakings may be left to find their own solutions subject to a strong legal regime enforcing competition.

9.2 Other industries

Airlines

9.2.1 Air transport within Europe is highly liberalised. Carriers neither in law nor in practice have territorial monopolies, in every EU state “open access” air carriers operate services. The relationships between carriers follow the model agreements set down in the “Multilateral Interline Traffic Agreements Manual” published by IATA. This manual “contains the passenger and cargo Interline Agreements which spell out the basic rules airlines follow when collecting money and issuing documents for carriage on each others services. It also gives complete information on which carrier interlines with another carrier on the basis of Multilateral Agreements. This manual also includes all relevant information concerning the Cargo Claims Procedures Agreement and the Multilateral Interline Service Charge Agreements - Passenger and Cargo.”

9.2.2 Interline agreements concentrate on sales and revenue allocation issues and in particular set down the framework for representation as “General Sales Agents” for freight and passenger traffic. These relationships are normally reciprocal, each airline sells and issues tickets on the behalf of the other. To an extent therefore they are exclusive, airlines build up preferred relationships.

9.2.3 The agreements are commercial and there is no presumption of being able to negotiate one with a particular carrier, he may have other partners. Nevertheless traffic may be interlined without such an agreement being signed and even interlined through non IATA airlines. The agreements also define settlement arrangements (through the IATA clearing house).



9.2.4 Handover of passengers and cargo is implicit but the manual is silent on the procedures which are to be adopted. Instead agreements are made in each airport which define procedures for that airport. Typically cargo is handover with a handover manifest and the set of air waybills. The manifests is signed by both parties and then forms the basis for accountancy. Local arrangements were changed to reflect competitive concerns (about standard prices being charged for airport handling).

9.2.5 The framework of the arrangement neither sets down rights to exchange traffic nor provides rights to participate. In every case the parties much reach a commercial decision. Within the airline market however to a large extent there are no dominant undertakings. (There may be dominant undertakings on some axes, note the Austrian Airlines Lufthansa case.) Increasingly low cost and budget airlines are creating a fluid and competitive market with an absence of dominant players. Likewise in freight markets, there is a wide choice of competing carriers and little opportunity to dominate a market.

Post

9.2.6 Exchange of post items between the incumbent postal administrations is regulated by the Universal Postal Union (UPU)71. Article 1 of the UPU Constitution provides that

“The countries adopting this Constitution shall comprise, under the title of the Universal Postal Union, a single postal territory for the reciprocal exchange of letter-post items. Freedom of transit shall be guaranteed throughout the entire territory of the Union.”

It will be noted that this is an agreement between states speaking on behalf of (state controlled) postal administrations with the implication of postal monopolies and the obligation of a universal service. There is nevertheless an obligation of free exchange and a right of transit.

9.2.7 The UPU provides for the origin state keeping all the postage revenue from the its originating mail. Nevertheless “terminal dues” are to be paid to the receiving administration. These terminal dues, historically paid in the case of an imbalance in the volume of mail and being progressively adjusted to reflect economic factors, firstly to reflect “industrialisation” and then to be based on cost and market factors. Quality of service will be a factor in the level of terminal dues.

9.2.8 The mechanics of handover between postal administrations are defined in the UPU Letter Post Manual and Parcel Post Manual. Chapter G of the Letter and Parcel Post Manuals, Procedures

71 Universal Postal Union, Weltpoststrasse, 3000 BERN.



concerning the transmission, routeing and receipt of items/parcels deals with the mechanics of handover without going further into the rights to participate in the process.

9.2.9 It will be noted that the assumptions behind this whole process are very similar to those behind the 1980 COTIF, transport organisations operating within national territories and with defined rights and obligations to exchange traffic. Liberalisation however is becoming a fact of life, not least because of Directive 97/67/EC72

9.2.10 The Directive sets down measures to liberalise the postal services, in Article 7 it lays down

“To the extent necessary to ensure the maintenance of universal service, Member States may continue to reserve services to universal service provider(s). Those services shall be limited to the clearance, sorting, transport and delivery of items of domestic correspondence and incoming cross-border correspondence”.

It will be noted that this provides for outgoing international mail to be liberalised, only incoming mail may be reserved to incumbent providers.

9.2.11 To ensure that a free market operates in this area, Article 13 lays down

“In order to ensure the cross-border provision of the universal service, Member States shall encourage their universal service providers to arrange that in their agreements on terminal dues for intra-Community cross-border mail, the following principles are respected:

- terminal dues shall be fixed in relation to the costs of processing and delivering incoming cross-border mail,

- levels of remuneration shall be related to the quality of service achieved,

- terminal dues shall be transparent and non-discriminatory”.

Whilst this “encouragement” falls short of a firm requirement it will be apparent that the Directive seeks to provide a level playing field for open competition for the collection and trunk movement stages, only the delivery element may be reserved to incumbent providers.

72 Directive 97/67/EC of the European Parliament and of the Council of 15 December 1997 on

common rules for the development of the internal market of Community postal services and the improvement of quality of service (OJ L 15, 21.1.1998, p. 14) as amended by Directive 2002/39/EC of the European Parliament and of the Council of 10 June 2002 and by Regulation (EC) No 1882/2003 of the European Parliament and of the Council of 29 September 2003.



9.2.12 Significantly, within the postal business, the essential facilities are not frontier and hand-over installations but rather the collection and delivery networks. In the rail mode, local distribution services for wagonload traffics might be analogous.

9.2.13 Outside the reserved market, the free market is characterised by global carriers such as DHL, Fedex, TNT etc. (having developed from incumbent postal operators in some cases) each with its own distinct international network and with limited exchange with other networks. None of the operators has a dominant position, certainly at international level and probably even in individual countries. There is therefore no question of any abuse of position.

9.2.14 Within the free market, relationships tend to be systems of subcontracting or franchising to provide a local service in areas where the global operator cannot himself provide cover. The relationship is normally exclusive (because the subcontractor will be expected to feed traffic to the principal as well as deliver), although non-exclusive relationships or even the use of a rival to make local deliveries is not unknown. The selling propositions of the free market are heavily oriented towards quality and much of the traffic is subject to controls, particularly for security reasons and so for any one operator supplier contracts tend to be standardised with significant specification of process and quality standards. By contrast the payment structures are market based and may have a number of different bases.

9.2.15 In summary, the postal industry has a great deal of similarity with the rail industry, in that competition within the industry is starting to become effective (with different levels of effectiveness in the various states). The formal machinery remains that of the incumbent operators and many of the regulatory principles are still based on standards set by the incumbent operators (the UPU concept of terminal dues is retained in Directive 1997/67 for example).

9.2.16 By contrast the free market sector adopts freely negotiated agreements outside the structure of the established conventions. In the interface between “old operator” and “new” the conventions owe something to both traditions but are to be based on transparency, non-discrimination and based on costs. Rail liberalisation has gone further in the sense that international traffic may be handled from end to end by one carrier.

9.3 Lessons to be drawn

9.3.1 There appear to be few lessons from other network industries but a number of lessons from North America. The North American model



firstly suggests that treaties between states are not necessary for the continuing operation of a railway (and even that a cross frontier railway may be built with private capital without an agreement between the states concerned). Secondly it suggests that railway undertakings may be left to find their own solutions subject to a strong legal regime enforcing competition.

9.4 Recommendations

9.4.1 No recommendations arise from this chapter.

Colin Buchanan and Partners Required Content of Agreements


10. WHAT AGREEMENTS MUST CONTAIN

10.1 Overview

10.1.1 Even before the creation of the Single Market, two pairs of states in the study (Norway and Sweden and the Irish Republic and the United Kingdom) had either no treaty at all or a treaty with very limited provisions. There would not appear to be treaties between the United States and Canada for regulation of international rail operations. It is therefore apparent that there is no absolute requirement for a treaty between states to regulate the operation of a railway. Existing provisions within the Community provide entirely adequately for such issues as the right to deploy staff, the regulatory regime and commercial relationships between railway undertakings, etc. Community law likewise provides adequately for infrastructure management. The Consortium does not believe therefore that agreements between states are necessary to regulate the continuing operation of a railway within the Single Market. Nevertheless states may decide to have treaties (or other agreements) to regulate sovereign issues arising from the operation of a railway (such as provision for frontier policing).

10.1.2 Construction of a railway is a different issue. Where private infrastructure is concerned (for example the extension of an industrial railway), there would appear to be no reason for states to become involved in cross frontier extensions. (Nevertheless it seems they normally are (see for example the agreement on the Szentgottard industrial estate)). Where new railways are to be constructed to carry public traffic, states are habitually involved as a function of the need for rights to acquire land, arrangements for public financing, sovereignty issues linked to operation, etc.

10.1.3 Likewise over the external frontiers of the EU where the presumptions of free access for operating staff, recognition of competence, security and safety regime to apply, etc. may not be established, there is likely to be a need for a formal agreement between the states to facilitate the operation of the railway.

10.1.4 The Consortium’s conclusion that treaties just to cover the operation of existing cross frontier railways are not necessary, needs to be borne in mind.



10.2 General elements in treaties

Layout of the section

10.2.1 This section makes outline suggestions for elements that treaties and agreements should contain and is intended as a basis for discussion. The elements are divided into two sections, the first setting down a list of points that may need to be covered for treaties between states which are members of the EU in so far as they are not laid down in any other treaty, the second to cover treaties over the external frontier. The second section therefore specifically includes rights which are guaranteed by basic community law. The lists are intended to act as checklists of the elements which need to be considered. Not all will be relevant, states with land frontiers may already have agreements about cross border policing for example, in other cases the sections on major works such as international tunnels and bridges will only apply when they are to be constructed.

Sovereignty issues

• Rights of national public authorities, extra territorial powers of criminal police, immigration police, customs, public health and similar officers. Definition of spaces in which powers apply. Liaison arrangements must be defined. In particular the treaty should define rights and obligations where the rights and obligations enjoyed by each force are different (rights of arrest, right to bear arms, rights of entry and search, etc),

• In this area may be security issues, particularly agreement of a framework to discuss and agree a framework for appropriate contact cooperation and appropriate measures,

• Provision of accommodation for public officials, including parking for official vehicles,

• Principles for the use of national emergency forces, fire, ambulance and as appropriate coastal protection and military resources,

• Payment of the costs of these frontier services,

For agreements over the external frontier there may be a need to add:

• National defence issues,

• Obligation to facilitate movement of persons and free trade. Specification of the rights of officials cross the frontier including access routes and their powers when outside their own state. System to allow individual state employees to be declared persona non grata.



Arbitration

• Procedure for arbitration.

10.3 Treaties for the construction of a railway

• Objective of the treaty,

• Line of the railway and in particular where it will cross the frontier,

• Constructional standards, reference to standards to be adopted at least for the cross frontier section if not for the wider networks it connects. For new lines the constructional standards will be the TSI. Where interoperability standards allow latitude or a full specification is required then it should include: maximum gradient, minimum curve radius, axle load, design speed, electrification system, overhead line geometry, signalling system, train and track based equipment specification. Arrangements for joint international specification and or approval of installations and equipment. (All this may of course be in a technical annex.),

• Acknowledgement that the treaty authorises construction or specification of any further formalities which are necessary,

• Responsibility for construction, responsibility for approving and letting tenders,

• Details and role of national approval authorities, scope of their authority,

• Specification of cross frontier structures particularly when they can only sensibly built by one contractor (bridges and tunnels etc.),

• Public and international consultation procedures,

• Timescales for construction,

• Supervision of construction,

• Allocation of costs of construction in general and of cross frontier structures in particular,

• Financing mechanisms for the line,

• Ownership of the line together with any provisions for public-private-partnerships, concessions, leasing arrangements, nationalisation,



• Definition of infrastructure manager(s), definition of breakpoint between infrastructure managers for ownership, maintenance, legal responsibility, signalling and safety, operating rules etc.,

• Authorities given to named individuals/office holders to alter provisions with or without mutual agreement within defined parameters,

• Provision for formal amendment of any of the foregoing using a simplified procedure,

• Procedure for rescission.

10.4 Treaties for the award of a concession

• Definition of the concession, duration, financial terms, arbitration, fall back, nationalisation, termination arrangements, obligations to make good.

10.5 Treaties for the operation of a railway

Overarching issues

• Given the Consortium’s belief that established cross frontier routes within the EU require not treaty to regulate their operation, this applies to the regime for new lines or for lines across external frontiers,

• Statement of the status of the railway (and any caveats about the application of COTIF), nature of the services to be provided, rights of access to the line, obligation for railway undertakings to exchange traffic freely,

• Authorities given to named individuals/office holders to alter provisions with or without mutual agreement within defined parameters,

• Provision for formal amendment of aspects of the treaty using a simplified procedure,

• Procedure for the closure of the railway.



Competent authorities

• Details and role of national approval authorities, scope of their authority,

• Definition of the safety regime to apply. "Ownership" of the rules and how they are to be decided and amended,

• Recognition of the qualifications of staff when operating between the two frontier stations,

• Definition of any security regime to apply. Responsibility for the regime and how it is to be decided and amended,

• Statement of means of delivering formal notices to railway undertakings, particular those based in other states.

Fiscal issues

• Financial questions, taxation regime of the section of railway, taxation of its customers, taxation of fuel to be used for international trains,

Infrastructure issues

• Definition of who is to manage and maintain what sections of the infrastructure,

• Mechanism for deciding maintenance standards (applicable speeds and axle-loads etc.),

• Obligation for infrastructure managers to keep the infrastructure open at particular times.


• Rights to cross the frontier to manage or maintain infrastructure and in particular to help to clear blockages (these should avoid the need to supply names of staff in advance in triplicate noted in one current agreement),

• Definition of (or reference to) the relationship of the infrastructure manager with users of the railway.

Railway undertaking issues

• Rights and obligations of staff employed by railway undertakings in respect of activities subject to regulation, for example train crew,



• Structure for public service obligations,


• Rights and obligations of staff employed by railway undertakings to cross the frontier to exercise their duties. Obligations under national law in general.

Ancillary services


10.5.1 Rights and obligations of staff employed by railway service providers to cross the frontier to exercise their functions (vehicle maintenance etc), rights to import and export plant and equipment, tools and vehicles etc.

10.5.2 Given that some of these issues may be fluid they may need to be put in annex with a defined right and obligation to keep them up to date.

Existing treaties within the Single Market

10.5.3 As discussed in 5.1.20 above, agreements between Member States which duplicate or even run contrary to community law need not be abrogated. In the latter case however notification of an intention to disregard the obligation is required. Member States and their treaty partners may consider that abrogation or the conclusion of a new treaty is a clearer and neater approach.

10.6 Agreements between railway undertakings

10.6.1 Railway undertakings throughout Europe are engaged in negotiating new agreements. They have consciously avoided adopting a standard model (for example one drawn up by a trade association). Nevertheless a number of railway undertakings told the Consortium that they would appreciate a clear indication of what was considered acceptable and what unacceptable on legal grounds. The Consortium recommends the Commission to investigate further.

10.6.2 It is not so much what agreements between railway undertakings must contain as what they must not contain. Agreements must respect EU law and national law on issues of safety; they must respect mandatory standards and in particular the TSIs and mandatory European standards. Agreements between railway undertakings may agree price and service structures in the context of throughout transport concatenated by several railway undertakings but must not in this or any other context



make agreements that would distort competition or impose unreasonable conditions on other players.

10.6.3 Railway undertakings owning or operating essential frontier facilities must likewise make the facilities they control available to all railway undertakings on an equal basis consistent with the principles of essential facilities. They must not be permitted to arrange their operations artificially to frustrate other railway undertakings (for example by arranging to have exchange sidings full at the time a second railway undertaking needs to use them). In this context the list of services facilities included as section 2 of Annex II to Directive 2001/14/EC provides an initial specification of facilities. The scope of Article 82 of the Treaty is much more comprehensive however.

10.6.4 The Consortium recommends that the Commission clarify that the obligation contained in Article 5 of Directive 2001/14 to make facilities available is clarified as applying to railway undertakings when railway undertakings control the facilities in question.

10.7 Agreements between infrastructure managers

10.7.1 Insofar as the treaty does not specify it or it is not determined by the competent authority, infrastructure managers will agree with neighbouring infrastructure managers:

• Point of change of ownership (which may not be at a state frontier),

• Nature of the infrastructure and standard to which it is to be maintained (axle-load, ruling speed, electrification and signalling system,

• Power supply and responsibility to pay for power,

• Change point between signalling systems,

• Change point between operating rules and any special operating rules applying to the frontier section,

• Control systems and traffic movement liaison,

• Procedure for maintenance, advice of works,

• Procedure for advising of changes to the infrastructure, signalling systems etc.,



• Change point between traction systems and any special rules which apply,

10.7.2 Section 6.6 describes sample agreements being developed by infrastructure managers.

10.8 Role of safety authorities for international sections of line

10.8.1 Between the stations used for frontier purposes on each cross frontier section the railway operating rules, signalling systems (and even the direction of running) can change. The stations used for frontier purposes may not be the last stations in the state in question (Nickelsdorf, for example, a minor station too small to be used for frontier purposes but nevertheless the last station in Austria before the Hungarian frontier). It may thus be that this cross frontier section is comparatively long, perhaps 30km. The safety authorities in both countries have a interest in equipment being suitable and staff being properly qualified. Neither has an exclusive interest, their interests are joint.

10.8.2 It is desirable the safety authorities co-operate jointly in applying EU rail safety rules to ensure safe operation of the cross frontier section within the framework of the Railway Safety Directive and with the co-operation of the infrastructure managers. In so far as the definition of the characteristics of the line and the signalling system are concerned, this is already done by the local statements prepared by infrastructure managers. This infrastructure managers’ document may then serve as a basis for staff training and evaluation in the context of the harmonised complementary certificate defined in the train crew proposals. In respect of equipment and particularly traction, a similar basic document defining joint requirements would seem desirable. This would avoid double approval and allow the additional requirements of the second state (and any derogations) to be treated as marginal additions. This approach would also be fair between railway undertakings, incumbent and new.

10.8.3 It may be that safety authorities and infrastructure managers are able to agree simple procedures and significant derogations for short cross frontier journeys which are not possible for longer penetrative movements. Where traction and staff are projected much longer distances in the interests of great efficiency, from Woippy and Basel to Mannheim for example it may be that no change to the process of full approval of equipment and certification of staff can be made.



10.9 Relationships between infrastructure managers and international users of the infrastructure

10.9.1 There is a specific issue of ensuring that railway undertakings have means of ensuring safe operation outside their home state and that infrastructure managers have appropriate mechanisms to support them. The safety certificate(s) required by EU law should be sufficient for documenting the undertaking’s ability to operate rail services safely.

10.9.2 Each infrastructure manager must separately agree with those railway undertakings holding rights to paths across the international frontier how railway undertakings will be informed of the nature of the infrastructure and how they will be kept up to date. In particular there must be an agreed system for communicating details of work being done (signals and points disconnected, maintenance staff working on the line, etc.) on a short term basis.

10.9.3 Likewise each infrastructure manager must separately agree with those railway undertakings holding rights to paths across the international frontier how railway undertakings will be informed of the operating rules which are applicable and how they will be kept up to date.

10.9.4 Railway undertakings must be able to demonstrate to safety authorities how they keep their staff informed of the nature of the infrastructure and the rules applicable and will agree appropriate means of testing staff with safety critical roles.

10.10 Action to be taken by states

10.10.1 Only the most recent inter-state treaties provide for open access operation and then only implicitly rather than explicitly. The question then arises whether treaties need to be amended or new ones signed to ensure new entrant railway undertakings are given specific rights.

10.10.2 Whilst EU law is clear, it is apparent that a number of railway undertakings have not been able to assert their legitimate rights. This situation is unsatisfactory. It is recommended therefore that states clarify the rights of new entrant railway undertakings under competition law (perhaps in the context of the Rail Transport Competition Network set up by DG COMP) with neighbouring states to establish

• That railway undertakings with rights to run over infrastructure under Article 1 of Directive 2004/51/EC and with approved rolling stock (including traction in particular) shall not be discriminated against,



• Where states regulatory bodies’ powers allow, that the regulatory bodies ensure that new entrant railway undertakings from other states have access to essential facilities on an equitable basis,

10.10.3 Access to service facilities (such as fuelling points) might also be a subject for discussion for the rail legislator (the Commission or DERC etc.).

10.10.4 An appropriate forum within Member States might also clarify the employment law to apply to staff employed on international trains.

10.10.5 Rail regulators have no powers to enforce market access under European law although they do possess powers in some European states (as in the United Kingdom). It is not yet possible therefore to postulate that they be used to enforce market access although this would seem a sensible extension of their powers.

10.11 Recommendations

10.11.1 A number of railway undertakings told the Consortium that they would appreciate a clear indication of what was considered acceptable in handover agreements and what unacceptable on legal grounds. The Consortium recommends the Commission to investigate further (from 10.6.1).

10.11.2 Railway undertakings may control the facilities defined in Annex II of Directive 2001/14/EC (such as fuelling points) The Consortium recommends that the Commission clarify that the obligation contained in Article 5 of Directive 2001/14 to make facilities available is clarified as applying to railway undertakings when railway undertakings control the facilities in question (from 10.6.4).

10.11.3 It is recommended therefore that states clarify the rights of new entrant railway undertakings under competition law (perhaps in the context of the Rail Transport Competition Network set up by DG COMP) (from 10.10.2).


Study on Compliance of Rail Border Agreements with EU Rail & Competition Legislation 11

11. RECOMMENDATIONS

11.1 Preliminary observation

11.1.1 As a preliminary observation, it was clear to the Consortium that the liberalisation of access has not yet led to incumbents and new entrants operating as partners in a market. Incumbents continue to have agreements with other incumbents but not with new entrants, new entrants hand over and receive traffic from other new entrants, but not incumbents (with one exception). As long as this continues, the full benefits of open access will not be realised.

11.2 Recommendations for no action

11.2.1 ECE agreements on frontier facilitation have no continuing role within the Single Market, states outside the European Union are members in some cases and it is possible they have a continuing role outside Europe. Accordingly the Consortium recommends no action should be taken (from 4.2.21).

11.2.2 Membership (or not) of the Brussels Clearing Centre is not a crucial factor in access to the market, for most open access operation it is irrelevant. The Consortium recommends no action is taken (from 5.4.12).

11.3 Recommendations for the Commission

11.3.1 There are significant incompatibilities between the 1999 COTIF and existing EU law, particularly in the area of standards and approval systems for equipment. The Consortium therefore recommend that the Commission make use of their membership of COTIF to resolve the question of the future of the ATMF and APTU, to reconcile the CUI and infrastructure packages and to consider what Community law might be desirable in the area of vehicle operation (from 4.4.21).

11.3.2 In a number of areas, OSZhD agreements fail to comply with EU competition law, rather they are similar to the classic model of exclusive agreements between integrated national railways. Resolving these differences will take time. The Consortium therefore recommend that the Commission open discussions with the OSZhD to attempt to resolve the issues that this report identifies as problematic (from 4.5.39).

11.3.3 The PPW, the OSZhD vehicle use agreement, does not appear to be compliant with competition law. The Consortium therefore recommend that the Commission investigate the PPW to check its compliance with competition law (from 5.12.8).

11.3.4 The Consortium recommends that in their discussions with the OSZhD, the Commission press for a liberalisation of the PPW to bring competitive forces into play (from 5.12.9).



11.3.5 Entitlement to use the Simplified Procedure for Transit by Rail for successive carriage is still subject to national criteria and smaller undertakings find it more difficult to become authorised. The Consortium therefore recommends that access to the procedure should be given to all rail carriers that satisfy an objective set of criteria. Given that Article 7 of Directive 95/18/EC has a requirement for adequate financial resources, the Consortium recommends that the implementing provisions for the new Customs Code contain a presumption that railway undertakings will be authorised to use the procedure unless there is good reason to refuse (from 4.6.16).

11.3.6 The Simplified Procedure for Transit by Rail is not by its nature available for movements from origin to destination using a single carrier, the Consortium therefore recommend that DG TAXUD consider alternative simplified procedures, perhaps by using the infrastructure managers’ traffic records for audit purposes (from 4.6.17).

11.3.7 RailNetEurope packages and markets a variety of competing products, the Consortium therefore recommend that the Commission make further study of the competitive relationships implicit within RNE (from 5.7.5).

11.3.8 Common rail industry data (such as permitted axle loads) is held in a variety of differing databases without logical ownership and updating responsibilities. The Consortium recommends that the Commission invite the stakeholders (to include at least the EIM, ERFA, CER, CIT, RNE and UIC) to propose agreed solutions for the ownership, supply and updating of industry data which are suitable for liberalised circumstances (from 5.10.47).

11.3.9 The Consortium recommends the Commission invite the UIC to review the ownership of freight standards (standards which wagons must meet on handover, loading standards, axle-loads, loading gauge, etc.) in conjunction with other stakeholders and produce agreed proposals to allocate responsibilities to prepare, update and publish the standards in a way which best meets the needs of the liberalised industry (from 5.11.32).

11.3.10 The International Rail Transport Committee (CIT) hold the copyright to essential documentation for the movement of freight. The Consortium therefore finds that that CIT activities could frustrate the ambitions of potential new entrants and accordingly recommends further investigation by the Commission (from 5.10.48).

11.3.11 The RIC does not allow competitive forces to operate in the market for the provision of passenger vehicles. The Consortium recommends the Commission investigate the RIC to check its compliance with competition law and as appropriate require the UIC to restructure the it in such a way as to make it compliant so as to bring competitive forces into the supply of vehicles. The Consortium recommends that the study of freight standards, outlined about, be paralleled by a similar one for passenger standards (from 5.11.43).

11.3.12 Under current circumstances, the RIC does not frustrate railway undertakings seeking competitive long-term leases for passenger vehicles and the development of a leasing market; it is conceivable however that other means of sourcing vehicles may arise and so the Consortium recommends this question be kept under review by the Commission (from 5.11.40).



11.3.13 The (then) Austrian Federal Railway and German Federal Railway have a wide ranging agreement for the mutual use of traction. The benefits it brings should also be available to new entrant undertakings also able to offer traction for mutual use. The Consortium therefore recommends that a study be made by the Commission of the terms under which such an agreement could be made generally available (from 7.3.31).

11.3.14 UIC leaflets 471-2 & 3 on handover arrangements have a bearing on safety along a chain of successive carriers. The Consortium recommends that a study be made under the aegis of the Railway Safety Agency on whether it is appropriate that the practices laid down in the leaflet be made a mandatory condition of successive carriage (from 7.3.38).

11.3.15 The Consortium finds that frontier agreements are beginning to be renegotiated by railway undertakings on their own initiative. Nevertheless the classic agreements based on UIC leaflet 471-1 are wholly unsatisfactory and the Consortium recommends that the Commission investigate further (from 7.4.13).

11.3.16 All railway undertakings with a national safety certificate and nationally approved traction should receive the benefit of the presumption that their staff and equipment is fit for purpose and that only supplementary checks are necessary. Current practice is rather different, incumbent railway undertakings have “grandfather approval” over frontier sections, new railway undertakings must demonstrate they are fully competent to run to all points without any presumption of basic skills or approved equipment. The Consortium therefore recommends that the Commission looks further into this issue. (from 8.4.4)

11.3.17 Driver’s certification is proposed to have a national component. Simplifying the certification for cross frontier operations would do much to facilitate cross frontier operations. The Consortium recommends that the systematic extension of drivers’ national certification to the first exchange point at every frontier be considered in the context of the proposal for the certification of train crews (from 8.5.3).

11.3.18 A number of railway undertakings told the Consortium that they would appreciate a clear indication of what was considered acceptable in handover agreements and what unacceptable on legal grounds. The Consortium recommends the Commission to investigate further (from 10.6.1).

11.3.19 Railway undertakings may control the facilities defined in Annex II of Directive 2001/14/EC (such as fuelling points) The Consortium recommends that the Commission clarify that the obligation contained in Article 5 of Directive 2001/14 to make facilities available is clarified as applying to railway undertakings when railway undertakings control the facilities in question (from 10.6.4).

11.4 Recommendations for Member States

11.4.1 The Technical Unity agreement will be overtaken once the provisions for technical interoperability have been introduced. The Consortium recommends that for the sake of clarity it is then abrogated (from 4.3.6).



11.4.2 Both COTIF and the SMGS and SMPS have the potential to apply in EU Member States which are members of both conventions. The Consortium recommends that after the EU accession to COTIF, after the new COTIF comes into force, COTIF becomes the presumption for all international traffic entirely within the EU and that the Member States of the SMGS and SMPS make specific reservations against those conventions (from 4.5.26).

11.4.3 Given that the Swiss corridor facility helps to open up the market, particularly by allowing end to end carriers access to simplified customs arrangements, the Consortium recommends that further states sign up to it. Austria and France as frontier states as a first step and then further states (from 4.6.15).

11.4.4 The Consortium recommends that Member States review the treaties and agreements they have with neighbours to consider whether they still reflect their current obligations. Where they do not, the Consortium recommends that the contracting parties abrogate or revise their treaties appropriately (from 6.1.27).

11.4.5 It is recommended therefore that states clarify the rights of new entrant railway undertakings under competition law (perhaps in the context of the Rail Transport Competition Network set up by DG COMP) (from 10.10.2).

compliance of rail border agreements

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