The Free Market presents a study analysing the impact that Lithuania’s integration in the EU will have on the road haulage business in Lithuania.

In Lithuania, the transport sector accounts for about eight percent of gross domestic product. Transportation companies are successfully exploiting their advantages and the country’s geographical position. In the future, as foreign economic relations develop, the importance of the transport sector and other sectors of infrastructure is likely to increase. Among the major factors that will affect the business of Lithuanian transportation companies will be Lithuania’s integration in the EU, the ensuing market liberalisation, as well as the implementation of regulatory standards and investment programmes.

Goals and objectives

Given the importance of integration processes for the Lithuanian transport sector, there is a need to evaluate the impact of EU accession on the Lithuanian economy and to ensure a smooth adjustment to EU acquis communautaire. Recognizing this need, the Lithuanian Free Market Institute has made an analysis of road haulage policy in the context of Lithuania’s integration in the EU. The project was funded by the Lithuanian National Road Carriers Association LINAVA and the Swedish Embassy.

The study “Road Haulage Policy in the Context of Lithuania’s Integration in the EU” analyses the impact that Lithuania’s integration in the EU will have on the road haulage business in Lithuania. A proper evaluation of this impact is important to carriers, consumers of transport services and the government alike. For carriers and consumers, such an assessment provides an opportunity to reduce accommodation costs, to exploit new opportunities, and by doing so to better plan their business activities and maximise profits. The government has to be aware of the implementation impact of EU transport policy in order to formulate well-considered negotiation positions, to plan budget expenditures and to redesign the infrastructure of market control.

The regulatory impact analysis applied in this research was aimed at evaluating the costs and benefits that the adoption of a specific legal document or a group of legal documents will bring for businesses and society as a whole. The essence of this analysis was to collect and systematize information about the implications of a given legal document (or documents) and its alternatives for regulated groups, as well as to model market conduct and to make forecasts. It should be noted that the study does not analyse the consequences of adopting EU regulatory standards; rather, it analyses the consequences of changes that will result from the implementation of these standards.

The impact of adopting EU regulations may be evaluated in both qualitative and quantitative terms. This study focuses on a qualitative assessment of the impact of legal documents regulating road haulage. In certain cases, when the adoption of higher standards is likely to require bigger investments, quantitative valuations are presented, although these are subject to certain limitations and stipulations.

The study analyses the implementation impact of EU regulations governing road haulage in the following main areas: market entry (quotas and licenses), technical and safety requirements, taxation, social policy, and competition. To assess changes in each area, a brief analysis is presented of the current situation in Lithuania, the provisions of relevant EU regulations, and the implementation impact on Lithuanian carriers and other segments of society. This analysis provided a basis for formulating conclusions and policy recommendations.

General conclusions

The general conclusion of the analysis is that Lithuania’s integration in the EU will have different effects on Lithuanian carriers depending on the type of their business and the vehicles they use. Carriers engaged in cross-border road haulage that are currently working in the EU have already adjusted to most EU requirements. Therefore, Lithuania’s membership in the EU and the removal of barriers to the single market will require smaller accommodation costs from them while offering greater benefits. The effects on carriers working on the national market will be more profound. The impact of integration and harmonisation will also depend on the policy of the Lithuanian government. Specifically, it will depend on the pace of harmonisation with EU laws and the measures that will be chosen to achieve the objectives set out in EU directives (in those cases when national governments are given some degree of leeway to choose such measures).

The following presents specific conclusions of the analysis by type of carriers’ business as well as policy recommendations for the Government of Lithuania and Lithuania’s negotiation delegation.

Lithuania’s Integration in the EU: The Impact on the Road Haulage Sector

Cross-border road haulage

Lithuanian carriers engaged in cross-border road haulage, and those currently operating in the EU, are required to have a license; therefore, they will not be affected by the mandatory licensing requirement. It should be noted, however, that some licensing rules are stricter in Lithuania than in the EU, while others are not as rigid as the rules newly introduced in the EU.

Lithuanian carriers will benefit most from the elimination of authorisations for work in the EU territory. This will provide more opportunities for Lithuanian carriers to operate in the EU member states (Austria, France, etc.) and in the member states to be (i.e. Poland, where Lithuanian carriers lack authorisations to provide haulage services). There is still some likelihood that the EU will seek a transition period to impose temporary limitations on Lithuanian hauliers operating in the EU market.

New opportunities will be open for Lithuanian companies to carry out cabotage jobs in the EU member states, provided the EU does not apply a transition period in this area.

Authorisations that are issued by the European Conference of Ministers of Transport and that are required in order to perform road haulage operations in the EU will be valid in third countries. However, most authorisations for road haulage in the CIS countries will still be issued based on bilateral negotiations between Lithuania and a given country.

Barriers to border crossing that currently exist between Lithuania and other future EU member states – Poland and Latvia – that impede haulage business will disappear. The adoption of the Community’s Customs Code and the joining of the Common Transit System may reduce obstacles to border crossing between the EU and the CIS countries and may increase border penetrability.

Carriers performing cross-border road haulage jobs must already use recording equipment and meet the requirements regarding working hours and rest periods. These requirements are strictly controlled in the EU area. In order to satisfy technical and safety requirements, some hauliers will have to install speed limitation devices. The price of installation will depend on the age and brand of the vehicle.

Lithuanian road haulage companies are not obliged to render mandatory public services and do not receive state aid, therefore adjustment to related EU regulations will not affect them.

The procedures for inspecting vehicle equipment in Lithuania do not accord with EU principles of market supervision. Repeated inspections of recording equipment brought into Lithuania from the EU inflict additional difficulties and expenses on carriers.

Vehicle transportation fees are much higher in Lithuania than in the EU, while their differentiation is smaller. It should be noted that, at present, differences between Lithuania and the EU in these and other tax rates (i.e., excise duties) depend largely on changes in the euro-US dollar exchange rate.

Lithuania applies lower excise duties than the EU does on all types of fuel. For example, excise duties on diesel fuel are almost twice as low. Their approximation will impose additional expenses on all carriers who purchase fuel in Lithuania.

Policy recommendations

National road haulage

At present, Lithuanian hauliers operating on the local market are not licensed. The mandatory licensing requirement set out in EU regulations will be applicable to such carriers as well. In order to obtain a licence, the good repute requirement, as well as requirements regarding financial standing and professional competence, must be fulfilled. This translates into large accommodation costs and reduced competitiveness for local carriers. The financial standing requirement will be the most difficult to meet. Mandatory licensing will also inflict additional costs on all Lithuanian taxpayers.

As Lithuania enters the EU, competition on the Lithuanian market will intensify, creating pressure for local carriers. It is also likely that lower labour costs will intensify pressure on carriers from the CIS countries.

Lithuanian carriers operating on the national market will have to meet technical and safety requirements applied in the EU. Although many of them are already valid in Lithuania, the installation of recording equipment and speed limitation devices will be the most consequential for local hauliers. It should be noted that plans to require carriers to install speed limitation devices much earlier than recording equipment is unjustified.

Lithuanian road haulage companies are not required to provide mandatory public services and do not receive state aid, therefore related EU regulations will not affect them.

Vehicle registration fees are in many cases higher in Lithuania than in the EU, although they are fewer in number.

Lithuania applies higher excise duties than the EU does on all types of fuel. Their approximation will inflict additional costs on all road carriers in Lithuania.

Policy recommendations

The adoption of most of the said transport regulations, i.e., the harmonisation of licensing rules or the mandatory use and inspection of recording equipment, may become one of the factors undermining the competitiveness of Lithuanian road haulage companies. This refers in particular to companies operating in the national market, as they will have to make the biggest investments to meet technical and safety standards as well as licensing requirements. At the same time, competition is likely to intensify as EU hauliers enter the Lithuanian market and Lithuanian hauliers lose competitive advantages in the CIS countries as compared with carriers registered there. Cross-border carriers may also suffer from reduced competitiveness because such requirements as accounting of working hours and rest periods are often disregarded while travelling in such countries as Russia, where the use of recording equipment is not strictly inspected.

Growing taxes – excise duties on fuel and road taxes – are another factor that may reduce the competitiveness of Lithuanian hauliers. However, this will also affect carriers who are operating in Lithuania but that are registered elsewhere. An increase in tax rates may diminish the volume of economic activity and certain national transport services.

Trends and forecasts

The development of road haulage in the EU shows several general trends that do not relate to concrete EU regulations but that will affect the operations of Lithuanian hauliers. It is likely that the road haulage market will rapidly expand as (1) the removal of barriers to transport operations among EU member states creates conditions for greater transport flows; (2) the integration of Middle and East European countries in the EU and the gradual elimination of barriers between them creates more business opportunities; and finally, (3) economic integration in the EU is accompanied by increased labour division and specialisation, increasing demand for transportation of raw materials, processed and end products as well as increasingly popular “delivery on time” services.

The implications of integrating transport markets

An intensified integration of transport markets in the EU has several implications. First, it will increase competition between hauliers from Middle and East European countries and those from the EU. At present, different systems of transport market regulation exist in EU member states themselves as well as between the EU member states and candidate countries (e.g., tax rates in the EU member states differ quite markedly because EU laws prescribe only minimum levels). For this reason, increased competition may, on the one hand, lead some countries to deregulate the transportation sector, while on the other hand it may create pressure to preserve tariff and non-tariff barriers to EU market entry for hauliers from the candidate countries, even after their accession. The latter would adversely affect the competitiveness of Lithuanian carriers.

Another consequence of growing road transport flows is increased concern about pollution and traffic congestion in the EU. Three types of measures are proposed to handle these problems: (1) an increase in minimum pollution standards; (2) restriction of road transport flows; and (3) a reduction of demand for transport communication.

The first solution – increasing requirements for vehicles and fuel – is used most frequently. Road transport flows are directly restricted by fixing quotas with the help of authorisations and licences and by raising taxes, first of all excise duties on fuel, road taxes, etc. The direct restrictions of transport flows through licensing and quotas perform yet another function – they restrict competition. This is why, in response to the interests of national hauliers, national governments are inclined to keep such measures. Excise duties and road taxes match the interests of national governments too by bolstering budget revenues. In addition to that, such policies usually receive public support because road transport, even if it meets high standards in terms of pollution control, is a factor reducing the quality of the environment. Therefore it is only hauliers, and economic entities that directly use their services, that are interested in unbridled conditions for the transport industry.

Lately, the trend has been towards new, more extreme ways of restricting road transport. One of these is the promotion of alternative modes of transport. Rail transport is the most important with regard to goods carriage. As carriage by rail, irrespective of its declared priority status, is steadily shrinking, railway companies have fewer and fewer investment opportunities. Some believe that state investment funds should be diverted from road transport to rail transport in order to strengthen the latter’s competitiveness. Such a turn in EU transport policy is very likely.

If transport policy continues to be used to reduce road transport flows, it would be more useful for Lithuania to be a member of the EU. In that case, carriers registered in the EU could not be subject to stricter requirements, tariffs or other discriminative measures. Such measures would be only temporary. It should be noted that many environmental requirements emanate not from the EU itself but from the obligations of individual states to international organisations. Therefore, such requirements should not be linked directly to EU membership.

Analysis of the factors directly or indirectly related to EU membership that affect Lithuania’s road haulage sector shows that, in the future, business conditions for Lithuanian hauliers will depend largely on the development of EU common transport policy. Yet, this does not mean that the government of Lithuania does not have leeway to adopt EU principles and regulations in such a way as to reduce hauliers’ accommodation costs and preserve their competitive advantages in the single market. It is instructive to note that Article 78 of the EU Treaty stipulates that “any measures taken within the framework of this Treaty in respect to transport rates and conditions shall take account of the economic circumstances of carriers.” Lithuanian negotiators should comply with this principle when negotiating over the ways and timing of implementing EU principles in Lithuania.