The German transport minister was due to meet his French counterpart in Berlin at the end of last month with the aim of settling a dispute between DB and SNCF over access to the French network. Keith Barrow asks whether the row reflects an indifference to liberalisation in France or broader failures in European policy.

THE sluggish liberalisation of the railway market in France has been a cause of consternation to open-access operators for many years. Few operators consider the benefits of market entry to outweigh the risks, and those operators prepared to take on the incumbent French National Railways (SNCF) have complained of anti-competitive practices.

On June 24 the European Commission (EC) referred 13 European Union (EU) member states to court for failing to correctly implement the First Railway Package, the first stage in opening their railway networks to competition. France faces action over eight separate violations of this legislation, more than any other country.

Germany has also been summoned to the European Court, but here liberalisation is unquestionably more advanced. While SNCF still enjoys a monopoly of regional rail services in France, German Rail (DB) has ceded 20.3% of the market to competitors. One of the major players in the German market is Keolis, which is 56.7%-owned by SNCF. SNCF is also active in the German railfreight market through its Captrain subsidiary, which was formed in January when SNCF took over Veolia Cargo's German, Dutch, Belgian, and Italian operations.

DB has complained openly of the disparity between the German and French regional markets, and accuses SNCF of anti-competitive behaviour towards its French railfreight subsidiary, Euro Cargo Rail. The acrimony between the two has escalated into open dispute since January, when EU member states were supposed to allow open-access operation of international passenger services on their respective networks.

Both the French and German governments have amended national law to allow such operations, but while open-access operators are preparing to launch new services in Germany, DB argues new entrants are being excluded in France. In its 2010 Competition Report, DB claims: "French law prescribes an equalisation payment from railway undertakings which provide parallel transport services if this impairs the economic balance of a connection ordered as a public service. International transport is defined by the number of national passengers between the two stations which are furthest apart in France. The combination of these measures means massive competitive distortion in favour of SNCF."

DB is concerned that the more congenial regulatory environment in Germany means SNCF or Keolis could launch inter-city services relatively quickly with few restrictions. Keolis requested paths for long-distance services in Germany, but has since ruled out market entry until at least 2014 because DB Networks stipulated these paths must be used by Autumn 2011.

On August 31 German transport minister Mr Peter Ramsauer was due to meet his French counterpart Mr Dominique Bussereau in Berlin, together with DB CEO Dr Rüdiger Grube and SNCF president Mr Guillaume Pepy, with the aim of settling the dispute between the two railways. Ramsauer told the Financial Times Deutschland last month he believes France is obstructing the opening of the market for international passenger services, and that he intends to solve the problem.

"I'm very annoyed by these squabbles, and the bad relations between DB and SNCF," Bussereau told French newspaper Le Journal du Dimanche. "With the market opening on international routes, nothing prevents foreign companies operating on the French network. Competitors are welcome, whether German or Italian."

While France has been pilloried for its lacklustre record on liberalisation, it must be remembered that Germany's implementation of the FRP has been far from exemplary, and despite repeated warnings from the EC, legislators in Berlin have yet to establish a regulatory framework that fully satisfies European law. The federal government maintains that under the General Railways Act and DB's own internal regulation, infrastructure manager DB Networks is sufficiently independent and that the Federal Network Agency has adequate power to police DB Networks' activities. However, the government says it will strengthen the powers of the regulatory authority.

The meeting between Bussereau and Ramsauer reflects the extraordinary change in status of Europe's largest state-owned railways. Both DB and SNCF have fully exploited the opportunities of liberalisation to become major international operators, and in a market increasingly defined by consolidation, both companies have an extremely promising future. Yet serious questions remain over whether DB and SNCF enjoy an unfair competitive advantage at home by virtue of incomplete or poorly-implemented reforms.

If Europe's two largest countries are unable or unwilling to fully open their respective networks to competition, the EU's liberalisation project could be fatally undermined. As last month's meeting in Berlin shows, the destiny of many is still in the hands of a few.