LONDON — Railways and the firms equipping them in Europe are calling on Japan to open up its market to free competition amid claims Tokyo is creating unnecessary barriers to protect domestic manufacturers.
UNIFE, the Association of the European Rail Industry, says Japan is abusing transportation “operational safety” clauses in free-trade agreements to prevent EU firms from getting a foothold in the country.
And EU Trade Commissioner Benita Ferrero-Waldner recently wrote in a letter to a British politician that Japan is “excessively invoking the so-called ‘operational safety clause’ to exclude foreign suppliers.”
UNIFE’s call is backed by leaders in the English city of Derby, whose local firm, Bombardier, lost out to Hitachi Ltd. in February 2009, when the Japanese giant won a £7.5 billion (¥1 trillion) contract to supply Britain’s intercity rail network with new carriages. This was considered the world’s largest single rail contract.
The European Union and Japan are part of a World Trade Organization accord, called the Agreement on Government Procurement, under which signatories are committed to guarantee openness, transparency and nondiscrimination in respect of foreign bidders for public procurements.
This means EU rail-contracting bodies must put out to public tender their contracts over a certain figure and ensure that homegrown manufacturers are not given any special treatment. They have to advertise in the relevant trade journals and online.
Japanese railway firms, however, are exempted from the GPA obligations due to “operational safety” reasons. They can favor domestic suppliers without fear of breaking any rules.
As a result, the EU has retaliated by deciding not to extend the benefits of the GPA to Japanese rail manufacturers. Technically speaking, they do not enjoy any legal right to participate in EU procurement procedures in railway and urban transport.
In practice, however, EU rail organizations are perfectly free to buy from Japan and vice versa depending on demands of the specific body issuing the tenders.
And this was the situation when the British government decided to opt for Hitachi instead of Bombardier.
Michael Clausecker, UNIFE’s director general, said Japan has justified the operational safety clause on a variety of grounds, including claims EU rail equipment is not safe in earthquake zones.
But Clausecker does not think these are genuine safety concerns and are “brought forward to keep protection.”
EU rail companies are able to produce trains, signals and other equipment according to any specification laid down by the customer, he said.
Clausecker noted, “It’s a very clear statement from the Japanese government and rail entities that they are not interested in getting offers from foreign firms.”
Currently, overseas firms only supply 2 percent of Japan’s rail equipment market, according to the EU. Foreign firms, for example, make brakes for high-speed trains and track maintenance machines.
Clausecker says Japan generally opts for foreign firms when it cannot find domestic suppliers to do the job. With a large rail market of around 2 billion euro (¥246 billion) per year, he believes Japan has lots of potential.
The closed Japanese market has increasingly irked EU firms as a growing number of rail contracts in Europe have gone to Japanese manufacturers. And Japanese firms have made no secret of the fact they covet further orders as the high-speed rail network expands across the continent.
Stephen Mold, who is bidding to become a parliamentarian for Derby at the next election, recently raised the issue with Ferrero-Waldner.
She replied that Japan is using the operational safety clause in “a systematic manner and therefore has de facto blocked the access of European companies to this market.”
The commissioner said Brussels is pressing Tokyo to curb its use of the operational safety clause and officials have entered into dialogue to exchange information on rail safety and hopefully work toward harmonizing requirements.
Ferrero-Waldner said if Japan does not relent over the issue, the EU has threatened to make it harder for Japanese firms to bid for public contracts. Last year the EU stated Japanese firms could be excluded from access to public contracts partially or entirely financed by EU funds.