The current EU regulatory regime
EU Postal Services legislation stipulates that basic postal user needs are met under a Universal Service Obligation (USO) which sets minimum standards to be guaranteed by Member States and more widely across the sector. The Postal Services Act 2011 sets minimum requirements for the UK postal service, which can only be changed by Parliament. The Office of Communications (Ofcom) sets the specification of the postal service in the UK. The UK’s universal postal service goes beyond that set under EU law.
Ofcom is the regulator of the postal services sector. Ofcom’s primary duty is to maintain a financially sustainable and efficient universal postal service. Subject to this, Ofcom is also required to ensure that the postal services market is working in the interests of consumers, for example by promoting competition. Ofcom has set a price cap on Royal Mail’s 2nd class letters and parcels; regulates access to the RM delivery network to facilitate access competition; and monitors the financial sustainability and efficiency of the universal postal service. Ofcom’s duties and powers are set out in the Postal Services Act 2011, which transposes the Postal Services Directive (2008/6/EC).
UK legislation allows for the protection of the minimum requirements of the universal postal service. These can only be changed with the approval of Parliament.
EU framework for letters and parcels
EU policy aims to reconcile the interests of a number of key stakeholders, such as national postal operators (universal service providers (USP)), other postal operators(including express operators), new entrants to the postal market and users/consumers, while also striking the right balance between increasingcompetition and the sustainable maintenance of the universal service. There have been three Postal Directives, implemented to address sectoral challenges relating to underlying structural problems and wide divergences between Member States. The Directives define the minimum requirements of the universal postal service to be guaranteed by each EU country and fully open the sector to competition.
The First Postal Services Directive (PSD) 97/67 EC established a regulatory framework for European postal services. It was adopted in 1997 and aimed to improve domestic and intra-EU postal services by addressing the low quality of service and efficiency; the lack of customer focus, choice and innovation; limited cooperation between operators; and ongoing state subsidies. The Postal Services Directive requires the use of European technical standards in some cases. EU countries are required to ensure that the quality of service is measured under standardised conditions, for example standard delivery times for letters and parcelsarriving from EU countries.
Among the key elements of the First Postal Services Directive were the establishment of a universal service, with minimum scope, frequency and quality of service requirements, a number of tariff principles and the creation of independent national regulatory authorities (NRAs) for postal services. An essential element of the modernisation strategy was the ‘gradual and controlled liberalisation of the market’.
In 2002, as a further step in that direction, the Second Postal Services Directive,among other amendments, reduced the price and weight limits for the reserved area, thus reducing the scope of the monopoly of the national postal operators.
In February 2008 the Third Postal Services Directive (PSD) set the timetable for full market opening and included strengthening the tasks and competences of NRAs; changes in the manner in which the universal service could be provided and financed; requiring certain elements of the postal infrastructure (such as address databases and letter boxes) to be accessible to multiple operators; strengthening and broadening the legal requirements for information and data collection by NRAs; andextending consumer protection provisions.
The Commission noted, in its 5th Application Report, published in November 2015 that the number of Member States that exceed the minimum (five day) provision of collection and delivery days was declining. Many of the responses to its autumn 2014 consultation on this issue called for a reduction in the scope of the USO, at least at EU level, to give MSs greater flexibility, given the declining nature of domestic letter markets.
The UK was one of the first Member States to fully liberalise its postal market (January 2006), well in advance of the December 2010 deadline. The UK transposed the Directives under the Postal Services Acts 2000 and 2011. UK legislation goes beyond the EU minimum e.g. it requires Royal Mail to deliver letters 6 days per week, instead of 5, at a uniform price across the whole country. The following table highlights the minimum universal service requirements at EU and UK levels.
The UK Postal Services Act 2011 transferred the regulatory function of the postal sector to Ofcom. It set up a new regulatory framework in 2012, which gave RM greater commercial freedom to compete by removing most of its revenues under direct price regulation (from 80 per cent to less than 10 per cent). It retained a price cap on 2nd class letters and parcels under 2kg to protect vulnerable consumers and ensure a basic universal service was available to all. Under the Directives, Member States retain significant freedoms to set their national postal services requirements.
Overall, the cumulative effect of the UK legal and regulatory framework is that the universal service obligation extends beyond that set out under EU law.
Parcels
The UK parcel market is largely unregulated. The EU Postal Services Directive and the UK’s universal service obligation include single piece parcels up to 20kg in the minimum universal service requirements.
In May 2016, the Commission adopted a proposal for regulation on cross-border parcel delivery (COM(2016) 285 final) as part of its Digital Single Market (DSM) Strategy. The aim of the proposal is to address specific issues relating to crossborder parcel delivery services by: making the market work more effectively, improving regulatory oversight of the market, encouraging competition, increasing the transparency of tariffs in order to reduce price differentials and lower the prices paid by individuals and small business, especially those in remote areas. The Presidency aims to conclude the negotiations in December 2017.
Cross-sectoral rules
The VAT Directive exempts public postal services supplied by RM under a universal service obligation from VAT. It has been recognised that the VAT exemption could have a negative impact on emerging competition in this area.
The Digital Single Market Strategy also proposes the abolition of Low Value Consignment Relief (LVCR). LVCR is an operational easement that allows customs authorities not to raise fiscal charges on consignments of low value as the cost of doing so will often outweigh the revenue benefit. In the EU, Member States can set the LVCR threshold between 10 and 20 euros. In the UK it is currently set at £15 for all countries except the Channel Islands, where it is set at £0.42. As e-commerce thrives and end consumers increasingly buy goods online from around the world, the consequences of LVCR mean that domestic producers and retailers find it difficult to compete against cheap imports. This is having an effect across the EU. Abolition of LVCR is planned for 2021.
International Rules and Standards – UPU (Universal Postal Union)
The UPU has 192 member countries. It is the primary forum for cooperation between governments, designated postal operators, national regulatory authorities and many other postal-sector stakeholders. The UPU:
– Maintains a universal postal network;
– Establishes the rules for international mail exchanges among its member countries; and
– Makes recommendations to modernise products and services, stimulate mail volume growth and improve the quality of service for customers.
The UK is represented by Royal Mail at UPU fora – Government provides a formal mandate for it to coordinate UK interests in international postal affairs.
European Committee for Standardisation (CEN)
Since 1993, the European Commission has promoted and supported the process of technical standardisation in the postal sector. The Postal Directive recognises the role standardisation can play in benefitting postal customers, such as by providing a standardised measurement of quality.
The EU recognises the European Committee for Standardisation (CEN), one of three European Standardisation Organisations, as being responsible for developing and defining voluntary standards at European level, including for postal services. There isa dedicated CEN Technical Committee (TC/331) working on this. It takes into account measures adopted at international level, and in particular those decided upon within the Universal Postal Union (UPU). UPU and CEN signed a Memorandumof Understanding in 2001 to strengthen information exchange and cooperation.
Postal standardisation focuses on:
– The harmonisation of technical methods at EU level within the universal postal service (in particular for external measurement of quality of service performance);
– Enabling interoperability of postal industry stakeholders; and
– Improving the effective transit of cross border parcels between national Posts (universal service providers).
European Regulators Group for Postal Services (ERGP)
The ERGP provides a consultative and advisory service to the Commission in the postal services field. It facilitates consultation, coordination and cooperation between the independent National Regulatory Authorities (NRAs) in Member States and the Commission, to ensure the consistent application of the Postal Services Directives across the EU. The ERGP plays an important role in postal reform and oversight.CERP (Committee of European Postal Regulators)
CERP brings together representatives of ministries and regulatory authorities in postal services from 46 states. It is an important network facilitating the exchange of information and experience as the basis for the development of the regulatory role, and an essential partner for the Commission when it comes to bringing thatexperience to bear on international issues beyond the EU. The UK could continue to participate in discussions post EU exit.
Devolved Administrations/Crown Dependencies and British Overseas Territories
In respect of the Devolved Administrations, postal services is a reserved matter.
In Northern Ireland (NI), almost a quarter of businesses and one in ten consumers have taken mail across the border and posted from a post box or post office in Ireland. As cross-border e-commerce grows, consumers in NI are using a wide range of delivery solutions that are more suitable to their needs including using addresses of friends or relatives in Ireland for online deliveries.
Gibraltar is a UK Overseas Territory and also a member of the European Union. It is not a member of the EU VAT area or Common Customs Territory. EU legislation in the postal sector in general applies to Gibraltar but not the Crown Dependencies or other Overseas Territories.
The Channel Islands and the remaining British Overseas Territories are consulted on UPU international postal matters.
Existing frameworks for how trade is facilitated between countries in this sector
The arrangements described in this section are examples of existing arrangements between countries. They should not be taken to represent the options being considered by the Government for the future economic relationship between the UK and the EU. The Government has been clear that it is seeking pragmatic and innovative solutions to issues related to the future deep and special partnership that we want with the EU.
There are a number of existing arrangements which govern the way in which other countries trade with each other in this sector, particularly in terms of parcel delivery.
Postal services are included in the EU’s bilateral Free Trade Agreements with third countries, focussing on minimum regulatory provisions and commitments. The requirements do not place any additional burdens on EU governments, National Regulatory Authorities or Universal Service Providers. Rather they replicate standards and minimum requirements of the existing EU legislative framework. The EU-Canada Comprehensive Economic and Trade Agreement (CETA) includes provisions for increasing the transparency of regulation, including liberalising postal services.
The World Trade Organisation reports that a total of 54 WTO members have commitments on courier services and/or postal services (counting the European Union as one), as of 31 January 2009. The principles of trade in postal and courier services (including express delivery) are contained, as for all services, in the General Agreement on Trade in Service (GATS).
In the ongoing WTO negotiations on the Trade in Services Agreement, postal proposals have underscored the need for commitments resulting in more extensive coverage of these services in the schedules of commitments. In identifying barriers to market access and national treatment, some proposals have emphasised the existence of monopolies, while others have focused on measures discriminating against foreign suppliers. Some delegations have encouraged the undertaking of additional commitments in schedules to address certain regulatory issues. Anticompetitive practices, cross-subsidies, universal service obligations, independent regulators and licensing procedures are some of the issues mentioned in this regard.The right of members to define the kind of universal service they wish to maintain has not been questioned, as suggestions have focused on such aspects as transparent,non-discriminatory and competitively neutral implementation.
There are also wider examples provisions for the postal sector in trade discussions.For example, on discussions on the Trade in Services Agreement (TiSA) potential arrangements consistent with the EU Postal Directive were considered. The draft Free Trade Agreement on Delivery Services provides for: i) independent regulation; discretion on the form of a universal service provider; and competition across the sector. This include a prohibition on anti-competitive behaviour by monopoly postal operators.
Customs arrangements are increasingly important for postal sector due to the rising demand for cross-border online purchases. The EU has customs facilitation agreements with a number of third countries, including Canada, South Korea and Switzerland. These agreements differ in the depth and scope of facilitation offered, but in summary, include: a. Comprehensive Economic and Trade Agreement (Canada) – provides, for example, that the parties adopt or maintain simplified customs procedures in order to facilitate trade between the Parties and reduce costs for importers and exporters. The Parties agree to applying risk assessment principles to the decision to examine goods, rather than requiring each shipment offered for entry to be examined.
a.The EU and Canada also undertake to cooperate on interoperable systems and in international fora.
b. EU-South Korea Free Trade Agreement – provides, for example, the advance electronic submission and processing of information before physical arrival of goods, in addition to the parties endeavouring to apply simplified procedures for economic operators.
c. Agreement with Switzerland – provides for general cooperation and administrative assistance, mutual recognition of inspections and documents certifying compliance with the other parties’ rules, in addition to the facilitation of 24 hour crossing and express lanes. The Swiss agreement also provides for mutual recognition of Authorised Economic Operators, and facilitation in respect of security-related customs controls.