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Siim Kallas

Vice-President and Commissioner for Transport

Building bridges: making more of rail's potential to link Europe and Asia

International Rail Business Forum

Sochi, 31 May 2012

Ministers, honoured guests, ladies and gentlemen: thank you for inviting me to speak at such an important event for the international rail community.

International connections and cooperation are, for me, a large part of what transport is all about. They link people, goods and businesses across the world; they help to open up markets and develop trade. They are essential for stimulating economic growth and creating employment.

Globally, sea-based transport remains the largest carrier of large-volume goods. So we should perhaps ask what is the role that land-based continental transport can play, how it fits into the overall transport architecture.

Today, more than 95% of container traffic between Europe and Asia is moved by sea. That is the long way round - a journey by ship from central Europe to the east coast of China is twice the distance, and takes twice as long as by train. For the moment, maritime freight is much cheaper than land-based alternatives.

While rail will not overtake maritime or aviation, I believe more can be made of it. If connections are smoother and more efficient, then rail is the answer.

China's rapid export growth has brought some of its eastern coast ports to saturation point. Many are too shallow for larger container vessels and have limited internal connections. There are also some bottlenecks on waterways.

So now we see parts of China’s industry shifting operations further inland, westwards – and a little closer to Europe.

This gives a good opportunity for a competitive transport corridor in the form of a rail 'bridge'. It would also give surface transport operators access to a rapidly expanding market and huge economic area.

If containers are to reach Europe coming overland from a country like China, they have to cross Russia – or use an alternative southern route, through Turkey and the Caucasus to Central Asia.

For such a long logistics chain, rail is an regular, reliable and effective means to transport different types and quantities of goods.

In Europe, we are always interested in route diversification and more business choice to transport goods in the most efficient way possible.

So I welcome recent successes in developing transcontinental rail freight corridors that use Russia to connect Europe with China, and further east.

Take the Beijing to Hamburg route, for example, and most recently, a direct rail freight service between Antwerp and China's huge industrial hub of Chongqing. These rail links now bring Chinese goods from the River Yangtze and its key trading ports to the Rhine, Elbe, North Sea and beyond.

But there is a still long way to go. It remains a major challenge to offer a real alternative to maritime transport. Above all, it has to be commercially viable. To achieve that, the crucial elements are quality of service, price and speed.

So, given all the difficulties and challenges, is there a reasonable market for rail freight running between Europe and Asia? The answer is yes – in theory.

If we look at the strong trade and economic ties between European, Asian and Pacific region countries, there is a clear potential to increase cargo volumes in containers via the Trans-Siberian Mainline.

Industrial goods such as high-value machinery and equipment, chemical and agricultural products, consumer goods and food - the list is almost endless.

Several Eurasian corridors are now competing for the freight transport market. But each one is hampered by obstacles - poor quality of infrastructure, non-standardised and cost-intensive border formalities, lack of communication technology and arbitrary application of procedures.

It would therefore make sense to channel traffic flows onto a few high-performance international corridors. For Russia, the Trans-Siberian Mainline is an obvious choice: a high-capacity double track electrified line that can carry up to 100 million tons of cargo per year.

But what can help to develop an economically worthwhile continental alternative for businesses interested in moving goods between Europe and Asia?

Apart from the elements I have mentioned, economic conditions – such as customs procedures, transparent and fair track access charges and tariffs – play a very important role.

On tariffs, for example, several countries on the Europe-Asia route, including Russia, apply discriminatory fees to international rail freight that leaves, enters or transits the country. We expect these fees to be phased out as part of Russia's WTO accession.

There are also questions of cargo security and reliability, and the application of compatible transport law, to which I will return a little later.

Ladies and gentlemen

In Europe, we are working hard to smooth out the anomalies, bottlenecks and inefficiencies in our railways, which today are a patchwork of national systems. The aim is to create a single rail transport area that will be a major element of our Trans-European Network: a single market for rail services and equipment.

On a practical level, this means working towards achieving compatibility between EU Member States in their legal and regulatory environments, in safety and security, and in technical standards. That also applies to the west-east corridors which link Europe, Russia and the Far East.

Apart from the familiar issue of track gauge, it makes sense for the two rail systems to be "in tune" with each other as much as possible. That applies as much to other technical differences between the systems as to the legal and operating environment for international rail freight.

This is where the "Transsib in 7 days" project, which aims to boost rail freight traffic between Europe and Asia, might serve as a good base for further discussions in both technical and legal aspects. So I welcome the opportunity here in Sochi to discuss the benefits that this project could give Russia and the European Union, and to hear about the progress of the project.

What happens if a train carrying hundreds of containers from China through Russia to Germany is hijacked and goes "missing"? What are the legal and financial consequences? How large is the uncertainty for a transcontinental shipper? We need to align the legal environment to deal with situations like this.

For rail freight to be transported efficiently, we need that environment to be transparent, stable and as standardised as possible. That means minimum standards, conditions and targets for operating railway lines.

At the moment, rail transport between Western Europe and the Far East is governed by two different bodies of transport law. Apart from the extra work and cost, this also prevents railways from properly competing on international long-distance routes with alternatives such as road and maritime.

We need to work together with Russia and the 1520 Community to achieve direct and seamless rail transport from the Atlantic to the Pacific.

A stable legal environment is a hugely important factor for doing business and ensuring fair competition. If we are to create more of an intercontinental corridor between Asia and Europe, then there has to be some legal certainty.

Ladies and gentlemen

The concept of Eurasian land bridges is not new. They have been a reality since traders used the ancient Silk Road routes to transport all manner of commodities between China and Europe. As technology has advanced, of course, Europe-Asia land routes have been regularly developed and expanded.

By working together, we can make much more of our railways' combined potential to build a modernised and efficient trade link - an improved intercontinental corridor.

Russia's involvement is essential to make this work. This is how we can all benefit: better connections, more trade, economic prosperity and opportunity.

Thank you for your attention.

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