PREFACE �F THE MINISTRY OF TRANSPORT

This booklet contains the report prepared by the team of experts of the TACIS project �Road Transport Development�. The Russian Ministry of Transport is the beneficiary of this project.

The development of state regulation in road transport under market conditions and creating the appropriate legislation is one of the main goals of the Ministry.

It is critically important to review the main provisions of the current legal base of road transport and to add new regulations meeting the requirements of the new economic system.

Several important steps have been taken already on the way to the new legal system of road transport. First, the new Civil Code of Russia was adopted. Together with the general regulation of relationships in business it gives the basic legal provisions for transportation contracting, freight forwarding, insurance, etc.

At the moment the Ministry is working on two basic road transport draft laws � The Road Transportation Law of the Russian Federation and The Statute of Road Transport.

The Road Transportation Law of the Russian Federation must identify the the general legal conditions of road transportation as well as the types and legal status of road transport operators, the principles and mechanisms of state regulation in road transport.

The Statute of Road Transport will determine the relationship between the parties of the carriage contract.

After the adoption of these legal acts it will be possible to introduce the appropriate bylaws � rules, regulations, instructions, other legal documents that will all together form the new legal base of the road transport industry.

Establishing the new system of state regulation the Ministry of Transport had appointed the new regulation agency � the Russian Transport Inspectorate. This body is in charge of licensing and inspection in the industry as well as of improvement the methods and the practical side of these activities.

Both in elaborating the new legal acts and in practical regulation activities the Ministry faces serious problems. The principal reason is the short period of experience of state regulation of road transport under market conditions.

That is why the work of the mentioned project team is so important. They analysed the current road transport legislation in Russia and elaborated the recommendations for its further development. There are several reasons why this report is of great interest for us.

First, the team members originate from several European countries and have world-wide experience; they are familiar with the legislation of most of the developed states.

Second, the team consists of research experts, road transport lawyers, officials and experts from road transport trade associations, persons with civil service experience. So the team could approach the problem from different points of view.

Third, the experts did not only work with the texts of legal documents. They also met the officials from the Ministry headquarters and from the Russian Transport Inspectorate, Road Police/ They also visited operators in different regions of Russia. It means that their conclusions are based on solid information.

From the point of view of The Ministry of Transport most of the comments and recommendations fully correspond with the general line we adopt in development of the legal base of the road transport in Russia.

Some of the recommendations will make us pay more attention to particular legal provisions or practical issues. For example, it is often mentioned in the report that the insurance system is in many aspects interrelated with the regulation of the road transport business. This interrelation is underestimated in Russia at the moment. Much attention is also paid to the importance of the co-operation between the different state agencies regulating the road transport industry.

Reading the report often reminds us to some aspects of the good practice we used to have before the 90-s which now seem to be forgotten. This regards, for instance, to the system of the centralised issuing and registration of the consignment notes recommended by the experts.

The content of different sections and paragraphs of the report is not everywhere equally deep. Some of the comments and recommendations seem to be somewhat superficial. That can be easily understood because, first, the scope of problems analysed is very wide and, second, it was very hard for the foreign experts to get the full understanding of the processes in Russian transition economy for the relatively short period of their work in Russia.

But all that does not, however, reduce the importance of the work done by the group. The Road Transport Department of the Russian Ministry of Transport is planning to use the recommendations of the team in the process of elaborating the draft legal documents as well as in practical decision-making in the sphere of road transport industry regulation.

The activities of the team will continue until the end of 1999. Considering the importance of the problem we are working at together, we shall be pleased to receive any comments, questions, ideas, etc. from the governmental agencies, operators, experts, all organisations and persons interested in further development of the legal base of the road transport industry.

A. B. PINSON
Ministry of Transport,
Russian Federation Road Transport Department
Deputy Head

RESUMEE

This booklet was prepared by the TACIS project �Road Transport Development� following a first assessment of the legal framework for the domestic transport of goods by road in Russian Federation.

Where possible, the project consultants have taken into account the fact that many areas of the Russian economy and various systems of regulation are in an early stage of development. Business practices and legislation will develop and change, often rapidly.

As it is not possible to assess the future legislative priorities of other Government Departments, the present report contains recommendations which should enable the Ministry of Transport to address various problems without the need to rely on the assistance of outside organisations other than the normal inter-ministerial/departmental co-ordination (Ministry of Justice, Ministry of Internal Affairs, etc.).

The aim has been to produce recommendations which:

1) are simple

2) are inexpensive to administer when compared with the potential benefits

3) are effective at improving the standard of legal compliance

4) will accommodate developments in technology and in legislation such as the introduction of insurance

5) may be introduced in stages, to suit the immediate needs of the Government

6) would correspond with the most general market practices and methods of state regulation in developed western countries.

The report contains both general observations concerning the regulation of road transport activities and the specific issues causing concern and recommendations for improvements.

The development of an effective system of regulation of the road transport industry is essential to ensure that:

1) Operators observe the relevant regulations and pay the correct rate of tax

2) There is fair competition in the market

3) Standards of quality and safety are maintained, which will benefit both customers and the public.

The main stumbling block for the development of the effective system of regulation in the road transport industry is the absence of a generally applied transportation policy as well as the �industrial� state policy or strategy concerning the road transport sector. Such a policy should provide a reasonable balance between the interests of customers and carriers as well as of federal and local authorities. It should be the starting point of the state regulation system in the road transport industry.

There are three main obstacles to the development of such a system:

1) The lack of a comprehensive framework of primary legislation

2) Institutional problems of the structural nature:

a) The relationships between the Ministry of Transport and other Ministries and

b) The relationship between the Ministry of Transport and the regional authorities

3) Varying standards of enforcement

The main omissions in the existing legal framework are:

1) There is no general law of the Russian Federation covering transport

2) There is no basic legislation in road transport industry because �The Road Transportation Law of the Russian Federation� and �The Statute of Road Transport in the Russian Federation� are still being developed.

The consultants consider it very important to put all the possible efforts in adoption of the basic road transport legislation, otherwise all the proposed improvements of the regulation system will fail.

The main problems in the institutional structure are:

1) lack of clear boundaries of jurisdiction between Ministries

2) poor co-operation between numerous regulating bodies

3) the boundaries of jurisdiction between the Federal Government and regional administrations are at times also unclear

It is very important to pay special attention to:

• provision of mutual access to databases of different regulating agencies (or creating the integrated databases);
• improvement of co-operation between different agencies;
• implementing the legislation clearly showing the powers of the local authorities in road transport regulation;
• providing the mechanism for the Federal Government to overrule local laws if necessary to ensure fair competition in trade and the development of the road transport industry.
• providing the mechanism for operators to challenge local laws which conflict with federal laws and which lead to unfair regulation or taxation.

The main obstacles to an effective system of enforcement appear to be:

1) the difficulty of locating small unlicensed operators. This can lead to enforcement officials concentrating their efforts on the larger licensed operators, who in general observe the law.

2) the responsibility for enforcement is allocated to a number of organisations. The natural competition between organisations can lead to a reluctance to share information.

3) if it is possible for an operator to bribe an official

4) it is essential that all operators have the opportunity to find out about new laws and decrees before they are implemented.

5) many smaller operators will claim that they cannot afford to comply with all the laws that affect them.

1. Licensing of operators (Access to the market)
2. Fair competition
3. Vehicle testing
4. Insurance
5. Statistics
6. Professional competence (Access to the profession)
7. Special transport e.g. dangerous & perishable goods, animals
8. Safety, environmental and social standards
9. Vehicle taxation and other fees
10. Transport contracts.

The observations of the project consultants are presented in the following way for each subject:-

1. Objective of the specific legislation or regulation
2. Current relevant Russian laws or regulations
3. Limitations of current legislation

4) Ongoing initiatives and Recommended improvements (if any).

Licensing of Operators (Access to the market)

The Licensing system should not be approached just as a system for registration of operators. If the operator fails to get the license it does not mean that he is only unable to fill in the forms and pay the registration fees. It means that he can not meet the important general requirements such is providing the competent manager, making his business stable, paying taxes, operating the vehicles safely.

The main limitations of the existing system are:

• Failure to identify illegal operators
• Problems of taking into account an operator�s previous conduct (when asking for the license)
• No clear differentiation in the requirements for own-account operators and for-hire operators. Other types of commercial road transport activities are not covered by the legislation;
• Freight capacity (but not the Gross Vehicle Weight) is the criterion for licensing the vehicle
• �Phoenix� companies (newly registered on the ruins of ineffective or illegal operators) can be founded and exist freely

The main recommendations are as follows:

• improvement of all kinds of inspections;
• keeping the records concerning all the operators;
• withdrawal of the vehicle registration plates (in co-operation with the Road Police) as a form of direct punishment of operators violating the regulations;
• giving the legal operator the opportunity to inform the authorities about his illegally operating competitor;
• creating the integrated database to register and keep for each operator �the history� of all cases of fining and other punishments by the Police, Transport Inspectorate, Taxation agency and other bodies;
• using the Gross Vehicle Weight (not the load capacity) as a criteria for vehicle licensing;
• further differentiation of requirements for different types of operators;
• identifying the non-industrial commercial use of vehicles as a special type of operations (for example, repair companies, painters, etc.).

Fair Competition

The law should aim to guarantee fair competition and equal competitive conditions between market participants

The main problems (together with those already mentioned) are the following:

• poor bookkeeping system in the sector;
• unclear powers of local authorities (in particular, as concerns regulation of entering the local transportation market);
• ineffective vehicle weight and driving time regulations.

The main recommendations are:

• the financial inspection should be combined with the improved licensing system;
• the temporary licensing (operation under strict supervision) can be introduced for operators who are going to get the license after a period of illegal operation or can not submit the adequate documentation immediately to get the �normal� license;
• the basic principles for regulation of entering the local transport market should be introduced by the federal law.

The Objectives are

a)To ensure traffic road safety and fair competition in the sector.

b)To enable the creation of an effective system of motor insurance which will protect and compensate motor vehicle accident victims in respect of personal injury and damage or loss of property, including goods of third parties carried.

The main problems are:

• the system of maintenance requirements is outdated and contradictory;
• the vehicle inspection is usually done without instrumental measurement of the vehicle parameters;
• the newly-introduced system of vehicle inspection (envisaging the instrumental control) gives all the powers and responsibilities to the GIBDD - Russian Road Police. The role of independent control stations is not clearly defined. The new vehicle inspection system has no links with an insurance system.

The main recommendations are:

• new legislation containing the renewed vehicle maintenance requirements is needed
• the vehicle testing must be organised on the basis of uniform criteria and testing methods;
• the vehicle inspection stations must not be owned or directly managed by any of the state agencies, e.g. Road Police. The independent stations must be selected on the basis of a tender procedure;
• the national register and national accrediting system must exist for such stations;
• the quality of testing must be inspected systematically by the officials representing different bodies;
• the license for vehicle inspection must be taken away if the testing is not done properly or bribery is proved.

Perhaps it is also recommendable to supply the Road Police with the equipment for �critical parameters� on-the-road testing.

Third party liability insurance

The main objective is to protect and compensate motor vehicle accident victims in respect of personal injury and damage to property or goods carried.

It is not compulsory at the moment to insure against third party liabilities. Also, the premiums will be too expensive for most small and medium sized operators as long as these cannot be treated as a cost before tax.

The consultants, keeping in mind the intention to adopt the appropriate law in Russia, point out at the important link between the third party liability insurance system and the vehicle inspection system.

Statistics

Providing the collection of accurate statistics is essential to ensure the effective future development of transport policy and the collection of taxes.

The main current problems are:

• the information must come from a number of sources, such as different Ministries and the Police, while their responsibilities in this respect are not very clear and thy are not eager to co-operate and exchange data;
• the absence of a universal compulsory system of vehicle insurance means that information gathered is incomplete and unreliable.
• central records are not kept of the fines and tax penalties charged to individual operators.

The recommendations are as follows:

• It must be guaranteed�through legal act�that company (or single operator) information which is supplied to the Statistical Office only, will be treated confidentially, will never be passed-on to third parties, will be published only in aggregated formats so that individual commercial/ business performance cannot be distinguished nor derived, and will be used only for official planning purposes.
• The legal obligation to co-operate in providing such statistical data should be incorporated (as a condition) in the operator�s licence.
• It is recommended that when the operator applies for the license for a new period he must submit information about his activities in the previous period of time.
• A gradual introduction�initially rather informally (on a voluntary basis with the assistance of Road Transport Associations and/or the Road Transport Inspectorate)�may be the only practical way to build up such statistical information. A �Logbook� or �Waybill� type of registration system could be encouraged, if not be made obligatory, in order to start (ton-) kilometre performance registration of road operators� vehicle fleet, in a systematic way.

Professional competence (Access to the profession)

The objective is to improve transport services for customers in objective terms by qualitative requirements, such as: good reputation, financial standing and professional competence, to be fulfilled by anyone wishing to enter the profession of road transport operator

The improvement of this system, such as the introduction of syllabuses set at a federal level and common standards for examinations, will be essential as part of the review of licensing law.

The special transportation (dangerous goods, perishables, etc.)

The consultants provide mostly general recommendations. It is important to introduce the modern regulations based on the current international regulations. At the same time, the new rules must be economically bearable for a small-to-medium sized Russian operator.

Safety, Environmental and Social Standards

Most attention here was given to the vehicle weight limitations and the driving time regulations.

The main problems in the vehicle weight regulation are:

• The jurisdictions of the Federal Highway Department, the Traffic Police and the Transport Inspectorate of the Ministry of Transport are not clearly defined. The enforcement of these laws is seen as revenue gathering through the charging of fines, not as a way of ensuring road safety and fair competition.
• Penalties for overloading are not related to the deterioration caused to the road structure (by overloaded vehicles).
• There is no enforcement mechanism for preventing the movement of a vehicle which is so badly overloaded that its brakes and steering mechanism cannot work effectively.

As regards the driving and rest time, there are no legal requirements and no inspection system at the moment (as concerns domestic transportation).

It is recommended to introduce the legislation that (together with identifying the weight limits for vehicles) will envisage:

• the recognised methods of weighing vehicles i.e. types of weighing equipment and the training of staff to use the equipment correctly.
• a system for the prohibition of movement of dangerously overloaded vehicles.
• the recording of penalties for the use of overloaded vehicles and the passing of this information to licensing authorities. Concerned records of the operator should be taken into account when the licence is renewed.

The new road transport legislation must also contain provisions regulating the driving and rest time for drivers, as well as the methods of inspection and penalties for violating these regulations.

Vehicle Taxation and Other Fees

The uniform taxation of vehicles and their operations is to ensure that transport companies compete on an equal basis and that investments in road freight related public services (e.g. infrastructure) are adequately funded from these taxes.

The consultants did not examine thoroughly the taxation system in the road sector because this is a complicated matter interrelated with other parts of tax legislation. Therefore the recommendations of the consultants are rather general:

• taxation must be a uniform system and provide the integrated �level playing field� all over the country;
• taxation rates and structure of taxes must be based on real costs and incomes of operators to provide reasonable conditions of business continuity for the legal operator;
• rates of dedicated taxes must be well calculated and related to the real cost, for instance, of the road maintenance;
• taxes must have minimal impact on primary economic conditions of customers (important to decrease the inflation);
• the taxation system must be differentiated according to the different of economic situations in main regions;
• the taxation system must not discriminate the foreign operators.

Transport Contract as Proof of carriage of goods

It is essential that there is a legally enforceable system of evidence that goods have been carried by or were stored in the custody of an identifiable individual or company.

The main problem is that at the moment, the current legislation does not directly require the written contract (consignment note) between the carrier and the customer.

The main recommendation is to introduce a system where each for-hire carriage is registered in the consignment note. The shipper should keep records of all consignment notes so the taxation agency can track the carriers as required.

The consultants also suggest the data that might be registered in the consignment note.

It is also recommended to keep records of issuing the consignment note forms (each one with individual number) for the purposes of tax control and identifying illegal operators. The forms can be issued by e.g. Regional Transport Inspectorates and/or Road Transport Associations.

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