One-way track

European rail industry calls for defense against foreign protectionism

european rail industry china threaet
Going head to head. Source: DPA

The European rail industry is finding out what it’s like when free trade only goes one way. The US, China, Japan and other Asian countries win export contracts with government subsidies and favorable loans, the EU rail industry says. Or the Asians block foreign companies with anti-competitive practices, such as high local-content requirements, safety clauses and other non-tariff barriers.

“Today the German rail industry is probably the best in the world,” the German Railway Industry Association (VDB) modestly claims in a letter to Brussels and Berlin authorities. “Increasingly, however, protectionism and massive state control are distorting competition and deforming the world market.”

The German group, which represents 180 companies such as Siemens, Alstom, General Electric and Mitsubishi Electric, coordinated its letter with industry partners across Europe. The industry is worried its 400,000 European jobs are at risk.

Perhaps not by coincidence, the letter comes as Alstom and Siemens are planning to merge their train operations and compiling thousands of documents to convince the European Commission that the Paris-Munich merger does not create a monopoly that will stifle competition.

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EU Commissioner Margrethe Vestager, the formidable antitrust guardian, has expressed her reservations about the merger, arguing that producers in Asia don’t pose a threat to the European industry. Siemens and Alstom, on the other hand, hope combining their train businesses will be a defense against the rise of CRRC Corp., a state-backed rolling stock manufacturer in China. Currently, 90 percent of CRRC’s business is domestic, but it is slowly expanding its foothold in Europe, including Germany.

The industry says authorities should wake up to this reality and take measures against anti-competitive practices. At least Europe should counter with its own local-content requirements to even the playing field, they argue, a tactic allowed under EU trade rules.

The US has a local content requirement of 60 percent, which will rise to 70 percent in 2020, and final assembly must take place on American soil. China requires 75 percent local content for rolling stock. In Japan, an “operation safety clause” excludes most foreign producers by requiring that rolling stock be earthquake-proof — a hurdle not even locomotives certified in earthquake-prone California can pass.

In Germany and all other EU countries, meanwhile, contracts are awarded strictly on the basis of price and are not allowed to reject an applicant for being foreign. Thanks to such regulations, Japan’s Hitachi and China’s CRRC have won contracts in Britain, Germany, Macedonia and the Czech Republic.

Whether Ms. Vestager will heed the industry’s call for countermeasures remains doubtful. The European Parliament urged defending Europe’s rail market in 2016, but nothing has happened since then. This route might be a dead end for Europe’s rail industry.

Dieter Fockenbrock, chief correspondent for companies and markets, covers the rail industry for Handelsblatt. Darrell Delamaide adapted this article into English for Handelsblatt Global. To contact the author: fockenbrock@handelsblatt.com.

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