East Japan Railway Company (JR East) invested €1.64bn in new equipment in 2015, but EU suppliers accounted for less than 5% of this. Japan's total market for railway equipment is worth €5.8bn but only 0.03% of rolling stock is imported.


In recent years Japanese suppliers have made gains in the European market. Notably last year Hitachi opened an new plant in England to assemble regional and long-distance trains for Britain and completed its acquisition of Finmeccanica's rail business. Yet sales of Japanese railway equipment in Europe arguably do not reflect the technical standards being achieved by Japanese suppliers, or their success in other parts of the world.

However, there are signs the stalemate may be broken in 2016. In 2013 the Japanese government and the EU began discussions on a free trade agreement (FTA), and negotiations have been intensive with 13 rounds of talks between April 2013 and November 2015. Now, policymakers in Brussels and Tokyo sense that an agreement is within their grasp, and many believe the deal can be done this year.

EU Japan"This is a strategic priority for the EU and we want it happen sooner rather than later during 2016," Mr Mauro Petriccione, deputy director general for the European Commission's (EC) Directorate General for Trade told delegates at a seminar on the FTA, which was hosted by German Rail (DB) and JR East in Brussels on November 18. "It wasn't easy to turn decades of disinterest in Japan into what we have now. We don't want to lose momentum. We have identified the gaps and both sides know how we can bridge them."

According to Petriccione, many of these gaps are in agriculture, and both parties have largely found common ground on the rail element of the FTA. "Our original objective in these negotiations was to achieve a level playing field for rail, but things have moved on to a strategic vision for what the FTA can do for the sector," he says.

There are two notable non-tariff barriers that still need to be overcome - the Operational Safety Clause (OSC), which enables Japanese railways to opt out of the World Trade Organisation Government Procurement Agreement for safety-specific reasons, and the procurement policies of the seven JR Group companies, which collectively account for 60% of the market.

"The OSC ensures commonality between all operators, but we don't want to use the OSC to stop companies entering Japan," says Mr Ichiro Takahashi, executive director of JR East's Brussels branch. "The focus on the OSC makes it look like safety is the only issue - this is a misunderstanding. Safety is only part of the picture, quality is also very important. Our interest is in broadening the railway sector."

Petriccione questions the need for the OSC, and notes that Japan's Ministry of Land, Infrastructure, Transport and Tourism has put forward some "good ideas" to achieve a compromise. "Why should an instrument as blunt as the OSC apply to European suppliers when European and Japanese suppliers give the greatest attention to safety?" he says.

Unife is less satisfied with progress towards the FTA and has expressed concern that a so-called one-year package on railways agreed by the EC and the Japanese government, which came into effect in 2014, will not in itself create a level playing field. "The one year package is only a first step towards greater transparency," says Unife director general Mr Philippe Citroën. "In terms of business, concrete signs of market opening are still very limited. We want a swift agreement to provide a better business environment, but the timing of negotiations should not be at the expense of quality."

JR East says it is already actively encouraging bids from international suppliers as part of its policy of seeking "best-in-class products from all over the world." The company has held supplier tours in Europe to meet prospective suppliers and the procurement section of its website now includes upcoming tenders. "There is a need for mutual understanding and effort by both the customer and the supplier if we are going to increase European suppliers' share of the market," Takahashi says.

Feeding into the work on the FTA, the fourth EU-Japan Industrial Dialogue on Railways was held in Chiba, Japan, in November with the aim of deepening mutual understanding between the railway markets in Japan and the EU.

Last month the prime ministers of Japan and Luxembourg - which currently holds the EU presidency - reaffirmed their commitment to concluding the FTA at the earliest opportunity. This development will be broadly welcomed by the rail industry - providing the final deal comprehensively addresses the issues which have stifled mutual trade in this sector for so long.