Committee on Transport and Tourism

Public Hearing
“Economic losses of transport companies because of strengthened border checks”

[Brussels, 28 February 2017; 15h00-17h00; Room A1-G3]

15h05Setting the scene by Commission Representatives:

Rolf DIEMER - Head of Unit - Economic Analysis and Better Regulation, DG MOVE

______

Speaking points

DG MOVE welcomes the TRAN Committee's initiative in organisingthis hearing on the "Economic losses of transport companies because of strengthened border checks".
A borderless Schengen area is essential: for the mobility of more than 417 million citizens in Schengen countries, for the timeliness and seamlessness of the free exchange of goods within the EU. This currently accounts for almost 3 000 billion € in value and 1 700 million tonnes in volume.
The colleague from DG HOME has already presented the reasons which led to the partial reintroduction of border checks, the Commission response to the situation and where we stand now.
As it was said, we have now a coordinated EU approach to border checks. Controls are currently in place at border sections of 5 Member States; they are proportionate, limited in scope, location and time. The Commission services in general,DG MOVE in particular, are monitoring the situation carefully in relation to the transport flows.
We have only received a small number of complaints about the negative effects of the existing border controls: these effects are localised and time-dependent (especially during holidays) etc.
So in this context we can hardly talk about major impacts.
But the exceptional circumstances in 2015 and early 2016, which led to the reintroduction of temporary internal border controls in several MS, gave rise to many concerns. In particular in the transport Community –fearing the generalised re-introduction of such controls in the Schengen area.
Against this background the Commission tried to quantify the potential economic consequences in this respect and this is what I am taking you through now.This was integrated in our Back to Schengen roadmap as well as in the 2016 Economic Semester.
These figures do not reflect the current context but they do clearly indicate how important Schengen is for transport, as intra-EU trade and the demand for mobility by European citizens have grown significantly over the last years.

Quantification of impacts from March 2016

Our approach in essence was totry to quantify the 'direct' costs of non-Schengen and is largely based on 'value of time' calculations where a standardized cost coefficient is applied to the potential delays caused by border controls.
For instance, for road transport, we assume a delay between 30 minutes and 2 hours for the border controls and consider a cost per hour of 55 €. This amount is based on recent industry estimates. This is then multiplied bythe number of international road transport operations performed in the EU. For passengers, we assumed awaiting time between 7.5 and 30 minutes at the border in our calculations as the actual delay is unknown. Then we have applied a perceived cost coefficient calculated in previous studies to express the result in monetary terms. Reintroducing border controls would also entail additional administrative and fiscal costs. Here we have used both the so-called Standard Cost model and an update of the estimates of custom administration costs existing before the entry into force of the Single European Act (1 January 1993).
So, the analysis comes with a few caveats but still it shows that:
In the short run, increased waiting times at borders and terminals would affect passengers and trade. In the long-run, reduced traffic and trade volumes would severely affect the economy.
Document control procedures would imply additional expenses from Member States' budgets for equipment, personnel and new facilities.
The road freight sector would be particularly exposed, as competitiveness depends on timeliness. Small and medium sized enterprises – the backbone of the road transport industry – would be the most affected. With many operating on very small profit margins, any increased costs would be passed on to end consumers or even challenge the very existence of many transport companies.
Expressed in numbers, based on our estimates and calculations, the resulting comprehensive direct costs alone might amount to more than €18 billion per year in the worst case.
Breaking the overall figure down we estimate that direct costs for cross-border workers, tourists, road freight transporters and public administrations might be as high as: (i) up to 7.5 billion € for the road freight sector; (ii) up to 5.2 billion € for passengers; (iii) up to 5.8 billion € as administrative costs for the reintroduction of border controls.
It should be noted that our estimates on direct costs are largely in line with those of other research institutes, including the ones participating in this hearing. They usually applied different approaches, based on econometric analyses or more complex modelling, usingother cost coefficients or quantifying other sources of costs. Given the comparable overall results we are tempted to believe that the ranges calculated bear some credibility, despite all disclaimers and caveats that we have to make.
As indicated, some of the studies available have also attempted to quantify indirect costs. Indirect costs refer to additional costs for citizens, businesses and public administrations and are a result of the application of the direct costs on the transport sector, such as effects on GDP, on intra-EU trade, changes in mobility behaviour and additional costs for businesses relying on transportation, as well as other potential consequences (i.e. "domino effect").
Although significant, indirect costs are harder to quantify without relying on too many assumptions. A basic approach used is to consider the trade and growth gains due to the abolition of border controls via the Schengen agreement and try to assess the border controls as new cost factor.
Still, the available evidence on long-term and indirect effects suggests that re-establishing border controls would have substantial negative effects on the whole EU economy:
The volume of intra-EU trade would go down while related costs would go up, affecting mostly Member States highly dependent on intra-EU trade. [For purely illustrative purposes, simulations using the Commission’s QUEST model indicate that an import price increase of 1% to 3% would generate a fall in intra-community trade leading to a negative impact on cumulative GDP of around 0.2%-0.5% for the euro area by 2025 (EUR 20-55 billion), compared to a baseline scenario.]

1.7 million citizens working across the border would be affected, in particular in those Member States[1] where cross-border commuting is very important. Labour shortage and increased unemployment could be potential effects.

Conclusion

To conclude, I want to reiterate again that there is no reason to believe that the current border controls at specific sections of 5 Schengen States give rise to significant problems going beyond temporary local issues.
Our calculations and those of other research institutes should be used more as a strong indicator of how important a functioning Schengen area is for transport and the EU economy. Without it we would be faced with important direct and indirect economic costs.
Against this background, I look forward to the outcome of this hearing and continuing the discussion with both external experts and distinguished MEPs on the expected impacts and on how we can best work together to safeguard the Single Market for transport.

[1]Slovakia, Estonia, Hungary and Belgium