VAT Modernization and Competition in the Cross-border Mail Market

order services and regulates pricing requirements. However rate systems such as terminaldues are primarily the responsibility of the postal operators, who must act in compliance withcompetition rules and other legislation, such as the Council Resolution of 1994. The 1994Resolution sets the fundamental principles on which the terminal dues system should bebased: “introducing a terminal dues system based on real costs and quality, taking intoaccount national characteristics while granting the universal service providers satisfactoryprotection against deflections of trade based on abuse of that system and making provisionfor appropriate transitional arrangements.” 11The REIMS system addressed those fundamental principles by addressing the four pillars:1. Cost-relation – Domestic tariffs as a proxy for costs2. Quality of service incentives – Ambitious targets and bonus/ malus system withpenalties3. Transitional period – Growth model for CEE postal operators (REIMSEAST)4. Protection against remailing – TDs reduce arbitrage-based ABA remail / UPU2008 ConventionBefore the end of the twentieth century, pricing loopholes and rate de-averaging provided forbypass opportunities, including hybrid drop-shipping and re-mailing. Since then, terminaldues systems (including REIMS, UPU or bilateral agreements) have moved to better costrecovery mechanisms and the introduction of quality of service features.1.3 Quality of Service in the Cross-border MarketThe EU Postal Directive (97/67/EC) set the performance objectives for all mail items at 85percent to be delivered in three days (J+3) and 97 percent within five days (J+5). The IPCUNEX system carries out quality of service tests continuously throughout the year coveringboth urban and rural areas. The measurement is end-to-end, from posting to delivery to thefinal recipient, including the time for collection, sorting, exchange and transportation.Exhibit 2 – UNEX Diagnostic Monitoring System and REIMS11 Council Resolution of 7 February 1994 on the development of Community postal services6