RESTRICTEDWORLD TRADE
ORGANIZATIONS/C/W/61
28 October 1998
(98-4222)
Council for Trade in Services
LAND TRANSPORT SERVICES
PART II - RAIL TRANSPORT SERVICES
Background Note by the Secretariat
I. INTRODUCTION
1. This note has been prepared at the request of the Council for Trade in Services.  It provides
background information on rail transport services for discussion in the information exchangeprogramme of the Council.  It contains basic and general information on trade in these services and
should not be considered exhaustive.
2. For details about intermodal competition and previous work during the Uruguay Round on
land transport in general and on GATT jurisprudence potentially applicable to railways, refer to
document S/C/W/60.
3. Rail transport is described in document MTN.GNS/W/120 as containing five sub-categories:
passenger transportation, freight transportation, pushing and towing services, maintenance and repair
of rail transport equipment, and supporting services for rail transport services.  In order to study these
subsectors, the present note is organized as follows:  Part II gives an overview of the characteristics of
the sector in terms of economics, trade and regulation;  Part III analyses the relevance of the current
classification;  Part IV analyses the commitments;  and Part V indicates additional sources of
information.
II. OVERVIEW OF THE ECONOMIC, TRADE AND REGULATORY
CHARACTERISTICS OF RAIL TRANSPORT
4. Railway companies were set up and operated in the 19th century as competing private
enterprises, even though at that time they already received practical government support (allocation of
land alongside the railway lines being built in the Unit ed States, financing of infrastructure).  In the
early 20th century they gradually formed themselves into groups.  In many cases, they were
nationalized, partly because the arrival of road transport for freight and individual motor transport for
passengers meant that railway networks showed a massive structural deficit.  In colonial territories,
the government authorities usually established and administered the railway company directly.  In the
area of urban rail transport systems, the majority of subway systems (which are included within thedefinition of rail transport in the Provisional Central Product Classification (CPC-W/120)) were also
set up, financed and managed from the start by government authorities, particularly the local
authorities, in view of the large investment requ ired and the fact that such networks are rarely
profitable.S/C/W/61
Page 2
5. A "classic" public monopoly therefore emerged (but this was not universal because in the
United States, for example, freight transport companies were never nationalized), and this form of
organization is still the most widespread.  This model only started to evolve in the 1980s as a result of
the pressure for deregulation, privatization and the granting of concessions, encouraged by the
authorities in some developed countries on the one hand and on the other by the World Bank in
developing countries and countries with economies in transition.  The very low level of commitmentson rail transport (see paragraphs 42 to 49 below) is undoubtedly due to a large extent to the difficulty
of integrating the GATS concepts of multilateral liberalization into this traditional framework.
6. Within such a framework, rail transport is a natural monopoly with high infrastructure costs,
indivisibility and substantial externalities. Because of these features, government authorities have
imposed controls over entry, withdrawal, techno logy, operating practices, capital formation, pricing,
frequency, the financial structure and accounting practices.
1 Such companies are therefore vertically
integrated;  one single entity is responsible for the infrastructure, operation and marketing. The focusis on production and the company is centralized and tightly organized into a hierarchy, which has its
counterpart in the high rate of trade union member ship.  A company may be State-owned (this was the
case in Europe, Latin America, Africa and nearly always in Asia), or private (New Zealand, United
States, Japan for certain companies).  It may have national or regional geographical coverage (Japan,
United States) with possible variations on sectorial monopolies (passengers in the United States,freight in Japan) or regional monopolies (passengers in Japan) that may sometimes compete (freight
in the United States where several companies on ly involved in freight may compete on the same
routes).  It has traditionally been recognized that the advantage of this model of vertical integration is
its capacity for planning, but practice has shown that its disadvantages are failure to respond to the
market, sometimes questionable investment decisions, absence of any incentive to control costs andpoor financial performance.
7. Since at least the 1970s, the growth in road carr iage of goods and passengers and, to a lesser
extent, air transport of passengers has significantly eroded the market share of the railways.  To take
an example, in the European Union the railway's share in terms of passenger/kilometres fell from
10.3 per cent in 1970 to 8.5 per cent in 1980 and 6.2 per cent in 1994, whereas the figure forautomobile traffic rose over the same period from 75.1 per cent to 79.7 per cent and for air transport
from 2.1 per cent to 5.8 per cent.  The renaissance of passenger traffic due to high-speed trains has
merely halted the trend without being able to reverse it.  Future development of these high-speed
trains remains dependent on finding the financing needed to build new track, and this is highly
problematic, even when the private sector is brought in (cf. the financing problems of the Folkestone-London stretch of the Eurostar or the difficulty of finding enough private financing for the TGV
projects in Texas, Florida and Australia).
8. This downward trend is even more noticeable in the freight sector, where the modal split
share of railways in tonne/kilometres in the Eu ropean Community fell from 31.7 per cent in 1970 to
24.9 per cent in 1980, 18.9 per cent in 1990 and 14.9 per cent in 1994, whereas the share of road
transport rose from 48.9 per cent to 71.9 per cent.  This trend is omnipresent, but the degree varies
according to the country, the initial modal split rati o and the structure of the networks.  In the United
States, for example, rail transport is still well ahead in terms of volume (40.9 per cent in 1995)
compared with road transport (28.9 per cent), but th e growth trend is much lower than that for road
transport (1970-1995:  rail = +70.6 per cent, road = +123.4 per cent).
                                                     
1For further details regarding the development of the legal and economic structure of rail companies,
see:  "Railways:  Structure, Regulation and Competition Policy", DAFFE/CLP(98)1, 10 February 1998,submitted to the Round Table held at the OECD on this issue and "Restructuring Regulation of the Rail Industryfor the Public Interest" by Ioannis N. Kessides and Robert D. Willig, 28 August 1995, working documents of the
World Bank, Private Sector Development Department.S/C/W/61
Page 3
9. The trend is even more noticeable in terms of value because the nature of the goods
transported has changed and there is a much larger proportion of light goods with a high unit value
that have to be delivered rapidly.  The railways' share has therefore gradually been confined to bulk
and heavy traffic, although since the early days of containerization in the United States and later in
Europe, they have tried to win back the high value-added traffic by establishing transnational freight
corridors for container-only trains (for example, Gioia Tauro-Antwerp) with a guaranteed date ofarrival and computerized tracking of the goods.
10. The development of combined transport remains extremely marginal, particularly piggy-back
transport, and is highly dependent on subsidies or sometimes restrictive transit measures by
government authorities, which utilize railways as an ecological and energy-saving alternative to the
growing congestion on major highways.
11. In developing countries, railways are particularly important because they constitute the main
form of mass passenger transport at a price accessible to the majority of the population.  This explainswhy in 1995 China alone accounted for 18 per cent of passenger/kilometres carried in the world and
India 18 per cent (for purposes of comparison, the figure for the 15-member European Community
was 14 per cent, for Russia 9 per cent, and for the United States 1 per cent).  Railway companies in
these countries also face competition from road transport and problems in financing the maintenance
and renewal of the infrastructure and rolling-stock.
2
12. A study by the United Nations Economic Commission for Europe in 1990 on "Europe's
Railway of the 90s" (Trans/SC.2/172) gives a fairly good idea of the sector's economic balance at the
beginning of the decade.  On average, 50 per cent of the network and 50 per cent of stations deal with
90 per cent of the traffic, while the following passenger sectors show a negative performance:
suburban services and slow trains (local or regional trains);  for goods, the negative sectors areparcels, single wagons and piggy-back transport ("railroad highways"). In passenger transport, the
sectors that make a positive contribution are high-speed trains and daily Intercity expresses, for goods,
they are complete train loads with long-term contracts and complete trains of trailers and containers.
13. Many analytical accounting calculations have even shown that passenger traffic at best only
exceeds marginal costs whereas freight traffic is capable of yielding net profits.  This is confirmed inthe United States where freight companies are private and usually profitable, whereas passenger
traffic is the responsibility of one large State company, Amtrak, which receives a subsidy of
21 per cent (1991) and 12 private companies with concessions and State finance for up to 40-60 per
cent.
3  These figures also show that activities viewed as essential by the authorities and which have
economic externalities such as suburban transport show a structural deficit (Japan does not fit thispicture due to the density of its urban population and the property activities of railway companies).  It
can also be seen that half the network and stations only deal with 10 per cent of the traffic and their
continued existence has more to do with regional administration and universal service considerations
than economic ones.  It is telling to note that projects carried out with World Bank support almost
systematically include a component on closing lines that are particularly unprofitable.
14. All these characteristics can be clearly seen in the accounts of railway companies:  for
members of the United Nations Economic Commission for Europe, earnings from transport
                                                     
2For an overview of the problems faced by railway companies in developing countries see in particular
"Railways Project, Lessons and Practices", September 1993, World Bank, Operations Evaluation Department."Designing Major Policy Reform, Lessons from the Transport Sector", by Ian G. Heggie, April 1991,World Bank discussion paper No. 115 and "Main Issues in Transport for Developing Countries during the ThirdUnited Nations Development Decade 1981-1990", ST/ESA/117, April 1982, United Nations Department ofInternational Economic and Social Affairs.
3Cf. the background note for the OECD DAFFE CLP (98)1 Round Table op. cit.S/C/W/61
Page 4
(passengers and goods) only represented between 20 to 70 per cent of the railway companies' income,
with an average of 50 per cent.  The rest was covered by compensation for the performance of a
public service and for retirement indemnities, subsidies, and the State's coverage of the residual
deficit.  With regard to costs, personnel costs, including social security contributions, accounted for
between 48 to 77 per cent, with a median value of 55 per cent.  This ratio is declining with the gradual
reduction in the number of employees.  Lastly, the accumulated debt to finance investment led tofinancial costs of around 5 per cent of operating costs and this figure has since increased.
15. This unbalanced economic structure is even more marked in the case of urban rail transport,
due inter alia  to the high cost of the infrastructure and amortization.  In 1989, for example, the
average cost of building 1 km. of railway track on the surface was US$20-25 million while in tunnels
a kilometre of track cost US$85-105 million.
4  This explains why to date only 93 cities in the world
have such a transport system (29 in the European Community, 14 in the United States, 9 in Japan, 4 in
Central and Eastern European countries and 4 in China).5  The following table, taken from a
World Bank study6 gives an idea of the structure of the accounts of urban rail transport companies in a
representative sample of cities in developing and developed countries.  It shows in particular (cf.
penultimate column) that none of these companies cover their total costs by their operating revenue
and, in general, the ratio is rather 20 to 40 per cent, irrespective of the size of the subway system or
the technical choices involved.  It should also be noted that old subway systems, where theoreticallythe cost of the building the lines has already been amortized, are not profitable either.
                                                     
4Source:  "Urban Transport Development with Particular Reference to Developing Countries", United
Nations, ST/ESA/210, 1989.
5Source:  "World Passenger Transport", March – April 1998, European Communities, DGVIIE-1 (RD).
6"Urban Transit System:  Guidelines for Examining Options" by Alan Armstrong Wright, World Bank
technical paper No. 52, May 1986, cited in "Urban Transport Development with Particular Reference to
Developing Countries", United Nations, ST/ESA/210, 1989.S/C/W/61
Page 5Table 1:  Urban Rail Services:  City Comparisons, 1983a
City Type of
systemLength of
line (km.)Percentage
below groundTotal number
of stationsPassengers/
year
(million)Annual
operating
costs
(US$ million,
1983)bTotal annual
costs
(including
cap. costs)
(US$ million,
1983)cAnnual
operating
revenue
(US$ million,
1983)dFare
(5 km.)
(US$)Operating
revenue/total costs
(including annual
cap. costs)cTotal costs per
passenger/km.
(US$, 1983)c,e
Caracas Subway 12.3 90 14 80.6 33.34 120.28 42.16 0.47 0.35 0.332
Santiago Subway 25.6 81 35 109.0 15.32 76.89 20.31 0.18 0.26 0.136
Sao Paulo Subway 25.0 70 26 347.0 67.15 210.54 40.68 0.07 0.19 0.081
Tunis Suburban
rail26.0 0 20 24.0 7.55 11.41 4.05 0.20 0.36 0.044
Adelaide Suburban
rail152.1 0 93 12.9 31.70 51.88 4.29 0.54 0.08 0.538
Baltimore Subway 12.8 56 9 7.8 99.20 147.33 48.10 0.75 0.33 2.518
Berlin
(west)Subway 100.8 100 114 346.2 126.44 498.15 104.05 0.78 0.21 0.228
Calgary LRV* 12.5 10 8 11.9 5.44 15.43 .. 0.81 .. 0.146
Chicago Subway 395.8 9 143 149.7 101.50 388.79 61.30 0.90 0.16 0.221
Hong Kong Subway 26.1 77 25 412.0 60.96 152.06 132.27 0.06 0.87 0.049
London Subway 388.0 42 247 563.0 440.08 1,094.58 440.99 0.51 0.40 0.259
Montreal Subway 50.3 100 57 199.9 92.53 180.38 31.68 0.69 0.18 0.141
Nagoya Suburban
rail544.5 0 369 379.8 189.34 224.78 261.43 .. 1.16 0.032
Nagoya
citySubway 57.5 96 59 330.0 127.09 326.43 158.73 0.72 0.49 0.432
New York Subway 370.0 60 465 992.6 1,100.00 4,750.99 955.34 0.90 0.20 0.480
Osaka Subway 90.9 89 74 856.6 414.37 780.32 416.49 0.72 0.53 0.182
San Diego LRV* 25.6 0 18 4.7 5.30 14.86 4.34 0.50 0.29 0.524
San
FranciscoSubway 113.6 28 34 55.5 128.20 401.66 69.80 0.60 0.17 0.341
Source:  Alan Armstrong Wright, "Urban Transit System:  Guidelines for Examining Options", World Bank technical paper No. 52, M ay 1986.
aTwo dots(..)indicate that data are not available or are not separately reported.
bExcluding depreciation and interest charges.
cIncluding operating costs, depreciation and interest charges.  For comparative purposes, a uniform method of calculating deprec iation and interest charges has been used to obtain total costs.
dPassenger-less including fare box and advertising revenue, but excluding subsidies.
eWhere not specified in the survey response is imputed using an average trip length of 7.5 km.
*Light rail vehicle.S/C/W/61
Page 6
16. Faced with a growing deficit, at the end of th e 1970s, government authorities tried to improve
the traditional rail model.  This led in the first inst ance to free fixing of prices (for example, in the
United States, railways were authorized to conclude confidential contracts with shippers;
1976 Railroad Revitalization and Regulatory Reform Act and 1980 Staggers Act), often followed by
the creation of specialized departments (freight, passengers, long distance, regional passengers,maintenance) as profit-making centres each responsible for its commercial policy but sharing
common costs with the other departments on the basis of analytical accounting (a typical example is
the organization of British Railways from 1980 to 1994).  In parallel with this development, there was
growing concern to identify more clearly the public service constraints and a consensus emerged7 that
government authorities, particularly local or region al authorities, should be called on to finance the
obligation to provide regular train services in a clearly-defined way adapted to each situation:
depending on the country, the financing could be in the form of concessions or contract-plans with asingle operator.
17. In the course of a third phase, a new model separating operating activities from management
and maintenance of the infrastructure gradually started to be imposed.  The theoretical inspiration for
this model is similar to that for the telecommunications, electricity and gas sectors.  In the case of
railways, the idea was that, even if the costs of the infrastructure could not be recovered, the gains inefficiency obtained by separating operating/traction activities, no longer hampered by the financial
burden of the infrastructure, would alone justify the State writing off the debt incurred by investment
in infrastructure in its profit and loss account.  This model was imposed in the European Union by
Directive 91/440/EEC8 and in this particular case was coupled with the intra-Community
liberalization of traffic.  This step towards the international liberalization of rail traffic was the first inthe world and warrants a relatively detailed description.
18. Directive 91/440/EEC gives "international gr oupings" (of one or more railway undertakings
in member States) access and transit rights in the member States of establishment of their constituent
railway undertakings, as well as transit rights in other member States for the supply of international
transport services among member States where the undertakings constituting the said groupings areestablished.  Furthermore, individual railway unde rtakings, (excluding urban, suburban and regional
transport) are given the right of access, on equitable terms, to the infrastructure in the other member
States for the purpose of operating international combined transport goods services.  Subsequent
Directives defined the regime for the licences that ne ed to be obtained in order to be considered a
railway undertaking within the meaning of Directive 91/440 (Directive 95/18 of 19 June 19959) and
the criteria for the non-discriminatory allocation of infrastructure capacity and the charging of fees
(Directive 95/19 of 19 June 199510).
19. These regulations are too recent for it to be possible to assess their impact fully.
Nevertheless, in the light of the trade initiatives that immediately followed, the impact appears to be
significant.  Some member States interpreted the Directive strictly and established paths restricted
solely to groups of national companies baptised "freightways".  These include the 17 Antwerp-Lyons
paths, with extensions to Marseilles and Barcelona, on the one hand, and to Turin-Genoa-Milan-La Spezia-Giaoia Tauro, on the other, set up in 1997-1998 by Interdelta/Belitalia, a grouping of
Belgian, French, Italian, Spanish and Luxembourg railway companies.
                                                     
7See, for example, Regulation EEC No. 1192/69 of 26 June 1969 and the subsequent legislation and
Ioannis N. Kessides and Robert D. Willig "Restructuring Regulation of the Rail Industry for the Public Interest",World Bank, WPS 1506, 1997.
8Official Journal of the European Communities (OJEC) No. L 237, 24 August 1991.
9OJEC No. L 143, 27 June 1995.
10OJEC No. L 143, 27 June 1995, it should be noted that this Directive, as is the case for the licensing
Directive, also excludes from its scope the cross-channel shuttle services.S/C/W/61
Page 7
20. Other member States (Germany, Netherlands, Austria and Italy, together with Switzerland in
this instance) have gone beyond the Directive and have put in place three freight corridors between
Germany, the Netherlands and eventually Scandinavia, on the one hand, and Austria, on the other, this
time called "freeways" because they are not only open to national operators but also to any recognized
rail operators within the meaning of Directive 95/18.  The two cross-channel paths set up by theSNCF, the French rail company, in collaboration with the private British operator, EWS, subsidiary of
the American company, Wisconsin, can also be considered "freeways", but in part at least these paths
are not covered by the scope of the Directives.  Shipowners such as the American company Sealand,
the British company P&O and the Netherlands compan y Nedlloyd have already joined with the Dutch
railways, NS, to set up a company, ERS (European Rail Services), to operate trains on these freeways.
NDX, which is comprised of the Deutsche Bahn, the NS and the mother company Sealand, as well as
the American company CSX, is another example of these international groupings.  Lastly, inspring 1998, Deutsche Bahn and NS cargo merged their freight activities in a transnational company
called "Rail Cargo Europe".
21. In two successive White Papers on 30 July 1996
11 and 29 May 199712, the Commission of the
European Communities proposed to extend access rights to all freight and international passenger
services.  It also proposed that "freeways", which would remain based on voluntary arrangements
among infrastructural networks, be open to all licensed operators and be able to undertake cabotage
traffic (which would be partially opened up in accordance with a staggered timetable).  It also
proposed that rail, road and river transport operators be given fair, equal and non-discriminatory
access to freight terminals.  These proposals have encountered strong opposition from certain member
States and trade unions.
22. In several member States, access has been much more open than that envisaged in
Directive 91/440 and foreshadows the Commission's proposals by including national services.  This is
the case in Germany, where free access for freight has been established (but on a reciprocal basis in
the case of foreign operators), the United Kingdom, where there is also free access for freight, and the
Netherlands where free access also covers passenger services.  Despite these provisions, newcompetition is emerging only with difficulty.  The level of charges and the way in which they are
calculated have no doubt discouraged newcomers in Germany, who remain confined to a few freight
operators.
13  Although for the time being access is free in the Netherlands, only a few freight operators
have arrived on the scene together with one passenger operator ("Lovers Rail") controlled by French
interests;  in the United Kingdom, only two freight operators have emerged, one of which was
subsequently taken over by the main operator.  Attempts can be made to explain this situation without
referring to the reticence or even obstruction of infrastructure managers vis-à-vis  newcomers in
respect of paths and pricing offers:  it has to be admitted that such negotiations and the technical
identification of paths available are extremely complex.
23. This type of access right also exists, and has existed for some time, at the national level in the
United States where Amtrak only owns 450 miles of track itself but has access to a further
24,000 miles of the American network owned by pr ivate freight companies on payment of a fee.
Access rights also exist in the case of private freight companies and the Surface Transportation Board,
which is the successor to the Interstate Commerce Commission, in accordance with competition
policy, requires companies owning track to allow access by other companies. This is also true in
Japan, where the only freight company has access to the whole regional company network subject to
                                                     
11 COM(96)421 final.
12 COM(97) 242 final.
13 See OECD document DAFFE/CLP(98)1 and H. Link "Access Pricing in the German Railways
System", presented at the Fifth International Conference on Competition and Ownership in Land Passenger
Transport (Leeds, 27-30 May 1997).S/C/W/61
Page 8
payment of a fee following privatization of Japan National Railways.  In New Zealand, there are
access rights for sections that carry less than a certain tonnage or specified number of passengers, but
in this instance the railway company remains vertically integrated (infrastructure plus operation).
24. It is significant to note that this concept of access rights does not appear at all in the schedules
of commitments even though it could be the technical vehicle for multilateral liberalization.  If thisshould be the case in the future, non-discriminatory allocation of rights would raise problems similar
to those for allocating air transport slots (whether  or not this is the government's responsibility,
allocation principles, etc.) and to a lesser extent interconnection and the allocation of frequencies in
telecommunications.  The question of non-violation (access denied because no path is available)
would be a particular problem.
25. In parallel with this movement to separate the infrastructure from operations and to allow
marginal opening up of access rights, more radical privatization initiatives have been tried out indeveloped countries, as well as in countries with economies in transition and developing countries
under the auspices of the World Bank.
26. Up until now, the United Kingdom has gone the furthest along this road.  As this experience
in some respects constitutes a form of international liberalization of rail transport, it needs to be
described in some detail.
14  In the United Kingdom, the principle of separating the two activities has
been taken to extremes:  the infrastructure has been given to a company, Railtrack, which was
privatized in May 1996; passenger rolling stock was divided up among three companies subsequently
sold to the private sector which lease it to the operators.  The system was intended to reduce the entry
costs for concession-holders.  Passenger services were handed over to 25 companies, some of them
controlled by foreign interests, in the form of concessions for periods of seven to 15 years. Trackrenewal and maintenance was also given to companies sold to the private sector, which compete in
order to win contracts.
27. Two government bodies, the Office of Passenger Rail Franchising (OPRAF) and the Office of
the Rail Regulator (ORR) grant the concessions, regulate prices and the terms of access to the tracks,
specify minimum service levels and, for certain categories of fare, maximum fares.  In order to protectthe concession holder, open access to passenger services is limited to routes where there is no service
or which account for a very small part of the concession holder's income. There is open access for
freight, as mentioned above, but with even more limited results.
28. The immediate effect of privatization was a sharp rise in subsidies given to operators because
they had to meet costs not faced by integrated operators:  the charges for using the infrastructure and
rolling stock (grants to the British Railways Board:  1993/4:  £1,121 million;  1994/1995:
£1,984 million.  Subsidies to concession holders, 1996/1997:  £2,090 million;  estimated subsidy for2003:  £1,169 million.)  Operators have nevertheless undertaken to reduce the subsidies by half within
seven years and some routes could even become profitable.  It is as yet too early to draw any lessons
from this experience. Some competition can be seen on certain routes, the level of services has
improved and operators have started to renew the stock, but the OPRAF is still critical of the level of
services provided by certain concession holders and Railtrack has not reached the investmentobjectives fixed.
29. As part of its loan activities for restructuring railways, the World Bank, after having for a
long time promoted autonomous operators rather th an the government (in Pakistan, Colombia, Korea,
                                                     
14For further details, see DAFFE/CL(98)1, OECD round table, op.cit, and C. A. Nash "Privatization
and Deregulation in Railways:  an Assessment of the British Approach" 1997, study presented at the Seminar on
the Privatization and Deregulation of Transport, Oxford, 2-4 July 1997.S/C/W/61
Page 9
Senegal, Mali, Yugoslavia) now encourages the granting of concessions.  This was the case in
Argentina, Côte d'Ivoire and Burkina Faso.15
30. Concessions obey the logic of government procurement rather than that of market access
within the framework of the GATS.  It should nevertheless be noted that no member of the Plurilateral
Agreement on Government Procurement has made any commitment on rail transport services.
31. The relative importance of different modes of supply and obstacles to trade are fairly closely
linked to the structure of railway companies and their evolution as described above.  In the case of
mode 1, for a long time international transport of passengers and freight only consisted of joining
successive national segments from the point of view of both fares and the technical and legal
responsibility for transport.  No single entity was responsible for an international journey, the freight
or the passenger being passed on from one monopolistic network to another.  In mode 1, therefore,
there was no competition, except in the case of tran sit between the same two points using different
routes (Rotterdam-Genoa through Germany and Switz erland or through Belgium and France).  It was
only following the arrival of high-speed trains, on the one hand, and freight corridors, either
freightways or freeways, on the other, that basic commercial concepts emerged;  for instance:  the
one-stop shop, harmonized commercial policy, the pooling of revenue or even more simply common
accounting methods to allow the profitability of an international transport operation to be assessed.  In
spite of the noteworthy efforts made over the past 40 years, national operators still face many
technical obstacles when operating beyond their own borders, even when such operations are allowed
and they have an ad hoc path:  the type of electric power, different gauges, signalling systems, braking
systems, commercial speed limits, height of railway wagons, axle load and technical standards for
wagons.
32. With regard to mode 2, there does not appear to be any restrictive legislation anywhere. On
the contrary, there is cross-border cooperation among railway companies to attract certain customers
and incite them to use rail transport services in mode 2 (young peoples' rail passes, Eurorail cards, for
example).
33. There was no trade under mode 3 as long as rail transport remained a government monopoly.
The establishment and development of private companies (provided that a majority shareholding by a
foreign company is allowed), together with the gradual introduction of access rights, or even
eventually cabotage rights, subject to establishment in the country concerned, now make rail transport
under mode 3 increasingly possible.  One example of this type of trade is the recent purchase of
minority shares in the largest Mexican railway by several American railway companies and the
planned purchase of minority shares in anothe r Mexican network by another American railway
company.  In both cases, however, these are minority shareholdings.  The increase in concessions,which are often given to foreign groups that then have to become established in the country
concerned, also allows the development of trade under mode 3, but in this particular case the
concession holder is given a monopoly, at least a regional monopoly, which restricts access by third
parties and the issue concerns government procurement rather than market access.
34. As far as mode 4 is concerned, there is always a marginal flow of technicians and engineers,
particularly to developing countries.  The increased number of concessions has seen this flow
broadened to include managers.
35. Following this brief description of the economic aspects and before analysing in detail the
commitments undertaken, some comments on the MTN.GNS/W/120-CPC classification (see
Annex 1) for this sector are called for.  A study of this sector highlights what appear to be a certain
                                                     
15For further details on this aspect, see the op.cit in footnote 2 on page 3.S/C/W/61
Page 10
number of instances in which the classification is not adapted to the true situation.  Moreover, the
classification itself seems to be ambiguous in some cases.
III. PRELIMINARY REMARKS ON THE RELEVANCE OF THE CLASSIFICATION
TO COMMITMENTS
36. Rail transport services have been divided into five subcategories, namely, passenger
transportation, freight transportation, pushing and towing services, maintenance and repair of rail
transport equipment and supporting services (terminal services, cargo handling services, other support
services).
37. In this structure, passenger transportation by railway (11.E.a) includes both interurban
transportation and urban and suburban transportation, that is to say underground or elevated railways,
whereas in economic and regulatory terms it can be argued that urban transportation by railway has
characteristics that are closer to those of competing means of transport such as motor buses, tramwaysand trolley-buses
16: A concession regime with public service obligations regarding networks and
schedules compensated by operating subsidies and public financing of investment, often State-owned,
managed by a common transit authority.  Additionally, as mentioned in detail in paragraph 24 of
document S/C/W/60 , it appears that for light rail ve hicle (LRV) networks the distinction between rail
transport and urban road transport is blurred and even disputable.  In practice, of the ten Members thathave made commitments on rail transport services, only one has distinguished underground from
other passenger transport and introduced similar qualifications to those of the other urban transport
systems.
38. The classification singles out an activity, "pushing and towing services", which is generally
not performed by an entity separate from the one operating the transport (except sometimes in the
case of the private connections where these services are generally supplied on their own account and
therefore escape the discipline in the Agreement). Five Members have, however, offered these
services, three of them without limitations and two of them with limitations (joint venture in one case,
attribution of a concession in the other case).  Technically speaking, the exercise of this activity by a
separate entity from the one(s) operating the transport and the network implies access to the networkand some kind of coordination with the operator(s) of the rail transport.  If access to the network was
to be denied or made subject to the payment of a large fee or coordination with the operator was
refused, there might be a case for an action for non-violation and for invoking Article VIII.  The
question therefore arises whether or not it is necessary to establish more precise rules to guarantee
access to the network and safeguard competition.
39. It should be noted that that maintenance and repair activities are limited to the transport
equipment and not the maintenance and repair of the railway infrastructure, which is covered by theconstruction items of the CPC (CPC 51310 "construction work of highways, streets, roads, …
railways and airfield runways", CPC 51320 "construc tion work of bridges, … elevated highways, …
tunnels, and subways").
40. "Supporting services" are not described in great detail:  "terminal services, except cargo
handling, and other supporting services for railway transport" whereas similar headings for othermodes of transport are much more detailed in the classification.  This imprecision may be one of the
explanations for the very low level of commitment in  this subsector (four countries) and for the need
felt by one country to have recourse to sui generis  concepts.  It might be worthwhile envisaging the
development of a more detailed list based on the concepts of the industry.
                                                     
16 Classified under CPC 71211 "urban and suburban regular transportation" and under CPC 71214
"interurban special transportation" for school buses, all part of 11.F.a "passenger road transportation".S/C/W/61
Page 11
41. Finally, Members will find a detailed assessment of the changes suggested for railway
transport in the CPC/Rev.1 classification in document S/CSC/W/6/Add.5, dated 4 June 1997,
paragraph 5, and a summary of those changes and of their potential impact on existing commitments
in document S/CSC/W/9, dated 9 October 1997, paragraphs 31 and 32.
III. ANALYSIS OF COMMITMENTS
42. As shown in Tables 1 and 2 in Annex 2, nearly one half of the commitments at subsectoral
levels (18 out of 47) concern repair and maintenance, a subsector which has been offered by
18 countries out of 21 having made commitments in the sector.  For repair and maintenance, the
regime offered appears extremely liberal as full market access in consumption abroad has been
granted in 16 cases out of 18 and in commercial presence in 12 cases, while partial restrictions were
scheduled in two cases (joint venture, space and capacity constraints).  It is worth noting that
12 countries have considered the supply of these services in cross-border mode as not technicallyfeasible, while five others deemed it feasible.  It may be worth considering a harmonized and refined
solution to this question of technical feasibility, taking into account the progress in electronic tele-
maintenance, which now makes certain operations technically possible.
43. Passenger transportation and freight transportation have each been offered by ten countries,
eight of which have offered both subsectors.
17 In two instances, the scope of the sector offered has
been limited:  exclusion of high-speed trains in one  case (United States) and of bulk liquids, gases and
mail in another (Brazil). Market access has been opened up in four cases out of ten in model 1, while
this mode was considered technically infeasible fo r passengers by two countries and for freight by one
country.  This divergence is related to the legal qualification of international trains.  A harmonized
solution to this question may be worth studying.  Such a solution could take into account the generalcommercial evolution in both high-speed passenger and freight trains, moving from a regime where a
journey meant joining together national segments in terms of pricing, management, and revenue-
sharing towards a more cooperative and integrated regime among railway companies (one-stop shop,
common exploitation, transnational freight allian ces, etc.).  Here again, the consumption abroad
regime is extremely liberal  (ten out of ten cases and nine out of ten cases respectively).  Marketaccess to the key commercial segment, commercial presence, has been fully offered by two Members,
one of them having however kept an unbound entry for national treatment restrictions.  For passengers
and freight, the other seven and six countries respectively made partial commitments on commercial
presence, but then introduced requirements on concessions authorizations, incorporation, joint
ventures and investment limitations, and, with regard to national treatment, conditions relating to the
nationality of executives, together with additional concession requirements.
44. Pushing and towing services have been offered in total by five Members with no limitations
whatsoever in mode 2.  Three countries also have a fully liberal regime for modes 1 and 3, while two
countries imposed restrictions under mode 3 (joint ventures and concessions).  No specific national
treatment limitations were entered.
45. Supporting services for rail transport have been offered by four countries (one of them
limiting the scope to security and cleaning), with a full liberal regime on consumption abroad.  Two ofthese countries introduced limitations on commercial presence (joint ventures and horizontal
limitations).
46. Finally, regarding mode 4, all the subsectors of rail transport seem to adhere to the classic
norm of "unbound except as indicated in horizontal commitments".
                                                     
17Brazil only offered freight and Mexico part of passenger transport.S/C/W/61
Page 12
47. In total, it appears that the level of co mmitments in rail transport is extremely low
(13 per cent of the Members for maintenance, 7 per cent for passenger and freight transportation, with
many limitations).  This can certainly be explained by the existence of national monopolies.
However, three of the activities (maintenance, support services, and pushing and towing) can
technically and economically operate outside or inside the classic monopoly scope.  There is certainlyroom for commitments under modes 1, 2 and 4, whose de facto  regime seems in general relatively
liberal.  It is also noteworthy that the various regulatory reforms separating infrastructure and
transport, privatizing, granting concessions and establishing competition did not translate at all into
commitments undertaken.  Their binding in WTO schedules may require additional work in the future
on scheduling (additional commitments on access to /use of the network), monopolies, competition
and the government procurement regime (for the concessions).
48. As far as MFN exemptions are concerned and setting aside the "all sectors derogations" it
appears that two types of exemption affect the supp ly of rail transport services:   those concerning
land transport in general and those concerning rail transport in particular.  In seven cases out of ten,
the general land transportation exemptions concern regional agreements in South and Central
America.  The three other cases concern reciprocity requirements, among which one case of tax
reciprocity (VAT).  There are five proper rail transportation exemptions:  three of them have beenmade in identical terms by Central European countries to cover existing or future agreements
regulating traffic rights and operating conditions, one concerns preferential treatment for leasing
charges for railway wagons for specified neighbouring countries, and one a reciprocal deduction of
tax on earnings from the use of rolling stock.  These MFN exemptions have a noticeable effect on the
commitments as seven Members out of the 15 that have made exemptions have made commitments(two out of the ten have made general land transportation exemptions, all of the five have made
proper rail transport exemptions).
V. INFORMATION SOURCES
Relevant sources of information also include the following websites :
- International Union of Railways (UIC)
(http://www.uic.asso.fr/uk/about/annualreport/p1uk.htm)
- European Conference of Ministers of Transport (ECMT)
(http://www.oecd.org/cem/resol/index.htm)
- Organisation  for Economic Co-operation and Development
(OECD) (http://www.oecd.org/)
- World Bank (http://www. world bank.org/html)- United Nations Economic Commission for Europe (UN-ECE) 
(http://www.unece.org/oes/eceintro.htm)S/C/W/61
Page 13
ANNEX 1
MTN.GNS/W/120/ CPC PROVISIONAL
DESCRIPTION OF RAIL TRANSPORT SERVICES
(Nota bene  the level of concordance between MTN.GNS/W/120 and CPC provisional is
indicated in bold).
SECTION 11.E:  RAIL TRANSPORT SERVICES :
711 Transport services by railway
7111 Passenger transportation (11.E. a)
71111 Interurban passenger transportation
Interurban passenger transportation provided by  railway, regardless of the distance covered
and the class used.
71112 Urban and suburban passenger transportation
Urban and suburban passenger transportation by railway. Urban traffic is defined as traffic the
origin and destination of which are within the borders of the same urban unit; and suburban
commuter traffic as traffic within a greater metropolitan area including contiguous cities.
Included here are services provided by urban mass transit railways (underground or elevated
railway).
7112 Freight transportation (11.E.b)
71121 Transportation of frozen or refrigerated goods
Transportation by railway of frozen or refrigerated goods, e.g./perishable food products, in
specially refrigerated cars.
71122 Transportation of bulk liquids or gases
Transportation by railway of bulk liquids or gases in special tank cars. These cars may also berefrigerated.
71123 Transportation of containerized freight
Transportation by railway of individual articles and packages assembled and shipped in
specially constructed shipping containers designed for ease of handling in transport.
71124 Mail transportation
Transportation of mail by railway on account of national and foreign postal authorities.71129 Transportation of other freight
Transportation by railway of freight, not elsewhere classified.
7113 71130 Pushing or towing services(11.E.c)
Railway pushing or towing services, on a fee or contract basis, e.g. the movement of wagons
between terminal yards, industrial sidings, etc.
8868**  8680 Repair services of other transport equipment, on a fee or a contract basis
(11.E.d)
(no description as the items of division 88 "agricultural mining and manufacturing services" are not
described by the CPC.)
743 Supporting services for railway transport (11.E.e)
7430 74300 Supporting services for railway transport
Railway passenger terminal services, except cargo handling, and other supporting services for
railway transport, not elsewhere classified.
Exclusions:  Shunting services are classified in subclass 71130 (Pushing or towing services).
Railway freight cargo handling services are classified in subclass 74110 (Container handlingservices), if for containerized freight, and in  74190 (Other cargo handling services), if for
non-containerized freight or passenger baggage.S/C/W/61
Page 14
ANNEX 2
ANALYTICAL TABLES OF COMMITMENTS
Table 1:  Summary of Specific Commitments - Rail Transport  Services
COUNTRIES 11.E.a. 11.E.b. 11.E.c. 11.E.d. 11.E.e. TOTAL
Brazil X 1
Bulgaria X1
Canada X X X 3
Czech Republic X1
European Community X 1
Finland X1
Hungary X X X 3
Japan X1
Mexico X 1
New Zealand X X X 3
Nicaragua X X X X X 5
Nigeria X1
Norway X X X 3
Philippines X X X 3
S i e r r a  L e o n e XXXXX 5
Slovak Republic X1
Slovenia X1
Sweden X1
Switzerland X X X X 4
Thailand XX 2
Turkey X X 2
USA X X X 3
Total 10 10 5 18 4 47
Key:
11.E.a. Passenger transportation11.E.b. Freight transportation
11.E.c. Pushing and towing services
11.E.d. Maintenance and repair of rail transport equipment
11.E.e. Supporting services for rail transport servicesS/C/W/61
Page 15
Table 2:  Analysis of Commitments Made by Members on Railway Transport Services
(Number of Full, Partial and No-Commitments by Subsector and by Mode of Supply)
Market access
(Number of Members withcommitments)Cross-border supply Consumption abroad Commercial presencePresence of natural
persons
FPN FPN FPN FPN
Railway passenger transportation
(CPC 7111)415
2*1 00027128 0
Railway freight transportation
(CPC 7112)4 1 5
1*90126119 0
Railway pushing and towing
services
(CPC 7113)30250032005 0
Maintenance and repair of rail
transport equipment
(CPC 8868**)40 1 3
12*1 601
1*1 2321 1 6 1
Supporting services for railway
transport
(CPC 743)20240022004 0
  F:  Full commitment (indicated by "none" in the market access column).
  P:  Partial commitment (limitation recorded in the market access column of the schedule).
  N:  No commitment (indicated by "unbound" in the market access column of the schedule).S/C/W/61
Page 16
Table 3:  Analysis of the Types of Measures (Number of Measures in Land Transport Services, Excluding Pipelines)
Sector Rail Road
M O D E 1234 1 2 34
MARKET ACCESS
Number of suppliers 2 - 6 - 1 - 10 -
V a l u e  o f  t r a n s a c t i o n s  o r  a s s e t s ---- - ---
N u m b e r  o f  o p e r a t i o n s ---- - -1 -
N u m b e r  o f  n a t u r a l  p e r s o n s ---3 - --4
Type of legal entity - - 10 - - - 10 -
Participation of foreign capital - - 6 - - - 11 -
Other measures n.e.c18--1 7 - 1 -2 8 -
NATIONAL TREATMENT
T a x  m e a s u r e s ,  s u b s i d i e s  a n d  g r a n t s ---- - ---
Nationality and residency requirements - - 5 - - - 7 2
Licensing, standards, qualifications - - 1 - - - 2 -
R e g i s t r a t i o n  r e q u i r e m e n t s ---- - -6 -
Authorization requirements - - 4 - - - 5 -
P e r f o r m a n c e  r e q u i r e m e n t s ---- - ---
T e c h n o l o g y  t r a n s f e r  r e q u i r e m e n t s ---- - ---
O t h e r --2 - - -2 -
                                                     
18The numbers in "other measures n.e.c" correspond to  cases where an entry could not be classified in
one or other of the separate categories of limitations.  In some cases, this was due to lack of specificity in the
description of the measure, while in others it was becau se the measure itself did not correspond to any category.S/C/W/61
Page 17
Table 4:  Rail Transport in Europe 1995
Members of the UIC Length of line
(kilometres)Passenger/kilometres Tonne/kilometres
Millions % 95/94 Millions % 95/94
BR + Railtrack United Kingdom 16,564129,216 2.0 12,537 -3.5
CFL Luxembourg 275 286e -1.0 529 -18.0
CH Greece 2,474 1,568 -1.9 292 -5.8
CIE Ireland 1,954 1,291 2.5 602 5.8
CP Portugal 2,850 4,809 -5.9 2,019 23.5
DB AG Germany 41,718 60,514 -1.3 68,490 -2.6
DSB Denmark 2,349 4,784 -1.0 1,926 -4.1
EPS United Kingdom - 18 - - -
EUROTUNNEL France/
Great Britain58 182 - - -
FS Italy 16,003 49,700 1.6 22,243 8.6
NS Netherlands 2,739 13,977 -3.2 3,097 9.4
ÖBB Austria 5,672 9,628 4.6 13,084 5.5
RENFE Spain 12,280 15,313 3.1 10,011 16.7
SJ + BV Sweden 9,782 6,219 5.3 18,542 -0.3
SNCB / NMBS Belgium 3,368 6,757 1.8 7,304 -9.8
SNCF France 31,939 55,319 -5.9 48,137 -1.7
VR + RHK Finland 5,880 3,184 4.8 9,559 -3.9
Total EU 155,905 262,765 -0.7 218,372 -0.0
 BLS Switzerland 245 410 4.9 402 -9.3
CFF / SB Switzerland 2,98 11,712 -3.1 8,156 1.2
NSB Norway 4,023 2,381 -0.7 2,715 1.4
Total EU + EFTA 163,160 277,268 -0.8 229,645 0.0
BDZ Bulgaria 4,294 4,693 -7.2 8,595 10.9
CD Czech Republic 9,430 8,023 -5.4 22,634 -0.7
CFARYM FYR of Macedonia 69 65 -3.0 169 11.2
CFR Romania 11,376 18,847  3.1 24,041 11.5
GYSEV / RÖEE Hungary 22 104 1.0 265 -1.9
HSH Albania 674 197 -8.4 53 -0.4
HZ Croatia 2,296 943 -2.0 1,975 19.2
JZ2Yugoslavia 4,031 2,612 2.2 1,460 5.3
MÁV Hungry 7,606 6,120 -2.7 7,254 10.9
PKP Poland 23,986 20,960 -3.7 68,206 5.4
SZ Slovenia 1,201 595 0.8  2,881 25.4
ZBH Bosnia and
Herzegovina1,032 21 - 16 -
ZSR Slovakia 3,668 4,202 -7.6 13,763 11.6
Total “CEEC”370,513 67,382 -2.3 151,312 6.9
Baltic countries and CIS
BC Belarus 5,543 12,505 -22.2 25,510 -8.8
CFM Republic of Moldova 1,326 1,019 -15.4 3,004 -10.8
EVR Estonia 1,021 421 -21.6 3,573 7.4
LDZ Latvia 2,413 1,373 -23.5 9,757 2.5
LG Lithuania 2,002 1,130 -28.2 7,220 -9.7
UZ Ukraine 22,607 63,752 -10.1  195,762 -2.3
Total for the 6 networks 34,912 80,200 -12.9 244,826 -3.1
TCDD Turkey 8,549 5,797 -8.5 8,409 3.8
TOTAL 277,134 430,647 -3.6 634,192 0.4
1Data for 1994.
2 Railways of Belgrade and Montenegro.
3 Central and Eastern Europe.
e Estimate.
Source:  UIC, Statistics Centre.S/C/W/61
Page 18
Table 5:  Rail Transport Worldwide 1995
Members of the UIC Length of line
(kilometres)Passenger/kilometres Tonne/Kilometres
(Millions) % 95/94 (Millions) % 95/94
Maghreb
ONCFM Morocco 1,907 1,564 -16.9 4,509 0.0
SNCFT Tunisia 1,941 996 -4.0 2,302 4.2
SNTF Algeria 4,290 1,797 -19.6 1,946 -14.6
Middle East
ARC Jordan 293 - - 706 0.7
CFS Syria 1,525 492 -13.2 1,285 8.0
IRR Iraq 2,409 2,198 -5.8 1,139 -40.9
ISR Israel 610 267 15.6 1,175 7.9
RAI Iran 5,332 7,294 12.6 11,865 10.9
SRO Saudi Arabia 1,392 164 18.0 822 0.7
Other networks
BoR Botswana 971 86 7.5 626 7.0
CFCO Congo 609 302 33.0 267 20.3
CFM Mozambique 3,123 251 48.9 886  19.4
ENR Egypt 4,810 52,406 13.1 3,727 2.9
KR1Kenya 2,740 408 -15.4 1,282 -14.1
NRC Nigeria 3,557  - - - -
OCTRA Gabon 683 77 11.6 503 45.0
RNCFC Cameroon 1,006 317 -5.1 812 7.3
SARCS South Africa 2,228 9,085 9.3 - -
SPOORNET South Africa 23,327 590 -41.4 99,850 1.1
SIPF Côte d’Ivoire 639 129 - 187 -
SITARAIL Burkina Faso/
Côte d’Ivoire-5 2 -5 8 -
SOPAFER Burkina Faso 622 202e-4 5 -
SNCS Senegal 906 194 4.4 475 23.1
SNCZ1Zaire 4,752 29 20.8 176 3.6
SRC Sudan 4,595 220 - 1,538 -
TRC 1 Tanzania 2,600 694 - 1,354 -
TZR Tanzania/Zambia 1,860 689 -11.4 763 -1.0
URC Uganda 1,250 30 -7.6 236 6.5
ZRL Zambia 1,273 267 -20.6 462 -29.2
CFRC Cambodia 650 38 -0.4 9 -41.3
CR People's Republic of China 54,616 354,261 -2.5 1,283,601 3.3
IR India 62,660 319,365 7.8 249,5643-1.1
JR Japan 20,134 248,993 1.9 24,747 2.6
KCRC Hong Kong 100 4,038 3.4 41 -12.8
KNR Republic of Korea 3,101 29,292 1.5 12,889 -8.4
KTM Malaysia 1,798 1,270 -5.8 1,416 -3.2
TRA Chinese Taipei 1,108 9,489 -0.2 1,801 -5.2
AAR Class
1U.S.A. 201,284 - - 1,906,268 8.8
AAR
AmtrakU.S.A. 39,429 8,692 - 8,0 -
VIA Rail1Canada 13,490 1,341 1.8 - -
EFE Chile 2,742 689 -15.5 64 -
ENAFER Peru 1,609 216 -7.7 407 -19.4
ARM1Armenia 830 - - - -
AZ Azerbaijan 2,123 791 - 2,409 -
TRK Turkmenistan 2,153 1,876 26.4 8,568 -34.0
QR Australia 9,452 994 -2.9 26,492 5.2
1 Data for 1994.
2 Including empty private-owners' wagons.
e Estimate.
Source:  UIC, Statistical Centre
__________