General

Industry structure

How is the rail transport industry generally structured in your country?

Rail infrastructure and rail operations over the infrastructure are controlled by the same companies in Japan. However, there are a number of exceptions. For example, in the Shinkansen Railways project, which will be carried out under the Nationwide Shinkansen Railways Development Act in accordance with the 1973 plan, the Japan Railway Construction Transport and Technology Agency (JRTT), an independent administrative agency, constructs and owns the railway facilities in question and leases them to the passenger companies, which were derived from Japanese National Railways (JNR) (see question 2). Further, in the metropolitan areas, control of the rail infrastructure and rail operations over them are separated into several passenger railway sections, in order to promote and facilitate network access for multiple railways. In addition, because of a surge in land prices in the metropolitan areas, in some cases public organisations construct the railway facilities and a private company is responsible for the operation of the railway (eg, the Hokuso Railway in the Tokyo metropolitan area, and the Kansai Rapid Railway and Nara-Ikoma Rapid Railway in the Osaka metropolitan area). Lastly, for a few airport-access railways and several local railways, control of the rail infrastructure and rail operations over it are separated.

Ownership and control

Does the government of your country have an ownership interest in any rail transport companies or another direct role in providing rail transport services?

After World War II, the most important railways in Japan were owned and managed by JNR, a public enterprise wholly owned by the government, which was established in 1949. However, in 1987, JNR was divided into six passenger railway companies (Hokkaido Railway Company (JR Hokkaido), East Japan Railway Company (JR East), Central Japan Railway Company (JR Central), West Japan Railway Company (JR West), Shikoku Railway Company (JR Shikoku) and Kyushu Railway Company (JR Kyushu)), and one freight railway company, Japan Freight Railway Company (JR Freight)), for the purpose of privatisation. Of these seven companies, four have been listed on the stock market as private companies, with the aim that the remaining three will eventually be listed. However, considering the business conditions of the respective companies and the stock market environment, JR Hokkaido, JR Shikoku and JR Freight are currently being treated as private holding companies, which are wholly owned by the JRTT.

In addition, subways in the major cities (Tokyo, Osaka, Sapporo, Sendai, Yokohama, Nagoya, Kyoto, Kobe and Fukuoka) are owned and managed by the local municipalities, excluding two of the ‘privatised’ services, Tokyo Metro Co, Ltd (Tokyo Metro) and Osaka Metro Co, Ltd (Osaka Metro). Tokyo Metro and Osaka Metro were converted from public organisations to joint-stock companies, although all of the stocks are still owned by the government and the local municipalities. However, it is intended that Tokyo Metro will be listed on the stock market in the future.

Are freight and passenger operations typically controlled by separate companies?

Although there is no particular regulation on this issue in Japan, generally speaking, freight operations and passenger operations are controlled by separate companies. As mentioned in question 2, in 1987 JNR was divided into six passenger railway companies and one freight railway company, JR Freight. The former companies only operate for passengers and the latter only operates for freight shipments. Among private railway companies, only a very limited number of the companies, which are connected with JR Freight, engage in freight operations.

Regulatory bodies

Which bodies regulate rail transport in your country, and under what basic laws?

Rail transport in Japan is regulated by the Ministry of Land, Infrastructure, Transport and Tourism (MLIT), the JRTT and the Japan Transport Safety Board (JTSB).

The MLIT is the main regulator of rail transport and it is responsible for the use, development and maintenance of land, the promotion of transport policy, the development of tourism, etc. It therefore deals with various matters relating to railways, including maintenance, transport, safety, development of business, manufacture, distribution and improvement of equipment. The JRTT is responsible for construction of railways, support for promoting the development of railway facilities, disposal of the assets that were owned by JNR after it was divided and support of the management of the unlisted successors of JNR, JR Hokkaido, JR Shikoku and JR Freight. The JTSB is responsible for the following:

  • researching the cause of accidents and incidents on railways;
  • giving an opinion on incidents and accidents to the relevant authorities and the relevant parties, and giving advice in order to prevent the recurrence of incidents and accidents; and
  • conducting studies and research on accident prevention and mitigation of damages.

Essentially, the MLIT exercises its authority under the Railway Business Act and the Railway Operation Act, and the JRTT and JTSB exercise their authority under the Act on the Japan Railway Construction, Transport and Technology Agency and the Act for Establishment of the Japan Transport Safety Board, respectively.

Market entry

Regulatory approval

Is regulatory approval necessary to enter the market as a rail transport provider? What is the procedure for obtaining approval?

When a person or a corporation (the applicant) wishes to enter the market as a rail transport provider, the licence to do so is granted by the Minister of Land, Infrastructure and Transport. In relation to the respective route and the respective categories of the railway business provided in Railway Business Act, the applicant has to submit an application form, which must include several documents relating to the basic business plan, information on the assets and background of the applicant, the relevant charts of the planned route, etc, to the MLIT or the responsible local department of transport.

Railway business is categorised as follows:

  • Category I: businesses that provide transport services by using their own railway facilities;
  • Category II: businesses that provide transport services by using facilities owned by third parties (ie, a Category I railway business provider or a Category III railway business provider); and
  • Category III: businesses that construct railway facilities for the purpose of transferring the business to a Category I railway business provider, and businesses that construct and maintain railway facilities for the purpose of leasing them to a Category II railway business provider.

In order to grant the licence for a railway business, the Minister has to review the following requirements:

(i) the appropriateness of the plan from a business perspective;

(ii) the appropriateness of the plan from a safety perspective;

(iii) how effective the plan will be for conducting business if it fulfils requirements other than (i) and (ii); and

(iv) the applicant’s ability to properly conduct the business by itself.

Whether item (iv) is satisfied or not is judged by considering, among other things, the applicant’s ability to finance and repay, its ability to manage the business, and its competency in technology. Although there is no legal requirement regarding the period for the review, it should be conducted in one to five months.

 

Is regulatory approval necessary to acquire control of an existing rail transport provider? What is the procedure for obtaining approval?

In relation to the acquisition of control of an existing rail transport provider, different types of approval are required depending on the deal.

First, in relation to the transfer of the railway business, approvals from the MLIT are required for the transferor and the transferee. Both parties shall submit the application for transfer to the local transport bureau, together with a copy of the transfer agreement of the railway business in question, statements of the transfer price for the transferor and transferee, etc.

Second, regarding mergers and company splits, approval is required for both a merger between railway business providers and the splitting up of a railway business provider. In relation to a merger, both parties must submit the applications for merger to the local transport bureau, together with a copy of the merger agreement of the railway business in question, explanatory materials of the method and conditions of the merger, etc. With respect to a company split, the parties to the company split agreement of the railway business in question shall submit the applications for company split to the local transport bureau, together with a copy of the company split agreement, explanatory materials of the method and conditions of the split, etc.

Is special approval required for rail transport companies to be owned or controlled by foreign entities?

According to the Foreign Exchange and Foreign Trade Act, (i) acquisition of not less than 10 per cent of the shares of the listed company operating railway business or (ii) acquisition of shares of the unlisted company operating railway business requires the submission of a report to the Minister of Finance and the Minister of Land, Infrastructure, Transport and Tourism in advance. As a result of the Ministers’ review, it may be recommended that the investment plan be changed or cancelled if (i) national security is impaired, the maintenance of public order is disturbed or the protection of public safety is hindered, or (ii) the smooth management of the Japanese economy will be significantly adversely affected. However, as the meaning of ‘national security’ and ‘public order’ is not clear in Japanese law, it is uncertain how the acquisition of shares of companies operating railway business by foreign companies will be treated as such by the relevant authorities.

Is regulatory approval necessary to construct a new rail line? What is the procedure for obtaining approval?

Yes. Regulatory approval is required in order to commence construction of a new rail line. The railway business provider must determine the plan for constructing the facilities required for the railway as are provided in the ordinances enacted by the MLIT, including but not limited to the rail line and stations. The railway business provider must then apply for approval to commence construction by the deadline designated by the MLIT, attaching the relevant documents and charts of the planned route as provided in the ordinances enacted by the MLIT.

Market exit

Discontinuing a service

What laws govern a rail transport company’s ability to voluntarily discontinue service or to remove rail infrastructure over a particular route?

The Railway Business Act provides for the following procedures for the railway company to voluntarily discontinue service or to remove rail infrastructure over a particular route:

  • In relation to suspension, the railway business provider shall submit the report of suspension to the MLIT. The period of suspension cannot exceed one year.
  • In relation to abolition of a railway service for passengers, the railway business provider shall submit the abolition report to the MLIT one year prior to the date of abolition. The Minister hears the opinions of the relevant local municipalities and the stakeholders on whether the public will be inconvenienced if the service is abolished and if the Minister finds that there is no risk of this happening, the railway service provider will be notified of the decision.
  • In relation to the abolition of a railway service for freight, the railway business provider shall, in principle, submit the abolition report to the MLIT six months prior to the date that the service is abolished.

On what grounds, and what is the procedure, for the government or a third party to force a rail transport provider to discontinue service over a particular route or to withdraw a rail transport provider’s authorisation to operate? What measures are available for the authorisation holder to challenge the withdrawal of its authorisation to operate?

The grounds for cancellation or suspension of the railway business’s licence are as follows:

  • if the railway business breaches the Railway Business Act, an order based on the Act or an administrative decision that directly forms or decides the rights and obligations of the people, or breaches the conditions of the approval or the licence;
  • if the railway business fails to perform the action approved or licensed without any reasonable ground;
  • if the railway business performs any action that falls under the reasons for disqualification in article 6 (excluding item (ii) thereof) of the Railway Business Act;
  • if the railway business does not receive approval to commence construction under article 8.1 of the Railway Business Act;
  • for a Category I railway business provider, abolition of the railway business or cancellation of approval for the licence granted to the Category III railway business provider that is the counterparty of the assignee of the rail line in relation to the railway business in question, for the route relating to that line;
  • for a Category II railway business provider, abolition of the railway business or cancellation of approval for the licence granted to the Category III railway business provider, who is the granter of the use of the rail line in relation to the railway business in question, on the route relating to that line; and
  • for a Category III railway business provider, abolition of the railway business or cancellation of approval for the licence granted to:
  • the Category I railway business provider that is the counterparty of the assignee of the rail line in relation to the railway business in question; or
  • all of the Category II railway business providers that are users of the rail line in relation to the railway business in question, on the route relating to that line.

If the licence holder would like to challenge the validity of the cancellation or suspension of the licence, there are two options available: he or she can initiate an administrative procedure in accordance with the Administrative Appeal Act; or he or she can bring a lawsuit against the government in a judicial procedure in accordance with the Administrative Litigation Act.

Under the Administrative Appeal Act, the complaint regarding the administrative decision to cancel or suspend the licence, or other acts constituting the exercise of public authority by administrative agencies, shall be submitted in writing. The complaint must be submitted within 60 days of the moment the applicant knew of the decision or within one year after the decision was made. The standing to submit the complaint is accepted if the applicant is the person whose rights or legally protected interests are infringed or are to be infringed by the decision. The review of the case is based on the documents and the agency in charge of the review handles procedures.

Under the Administrative Litigation Act, the lawsuit regarding the administrative decision can be brought to the district courts. The complaint must be submitted within six months of the moment the plaintiff knew of the decision or within one year after the decision was made. The standing to submit the complaint is accepted if the plaintiff is the person whose rights or legally protected interests are infringed or to be infringed by the decision. The parties of the litigation have the initiative of performing the procedures.

Insolvency

Are there sector-specific rules that govern the insolvency of rail transport providers, or do general insolvency rules apply? Must a rail transport provider continue providing service during insolvency?

There are no sector-specific rules in relation to the insolvency of rail transport providers - general insolvency rules apply. There is no legal obligation for a rail transport provider to continue providing services during insolvency. If a railway service provider submits a petition for bankruptcy, it is necessary for the company to obtain the approval of the court in order to continue the business.

Competition law

Competition rules

Do general and sector-specific competition rules apply to rail transport?

General competition rules, as provided for in the Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade (the Act on Antitrust), apply to rail transport. It regulates private monopolisation, unreasonable restraint of trade and unfair trade practices.

There are some specific rules that apply to rail transport, which are provided in article 16 of the Railway Business Act on fares for passengers (see question 17). Fares are strictly controlled by the authorities on the basis of what is considered to be appropriate profit of the railway companies and can be changed from the perspective of promoting competition, in accordance with the provisions of the Railway Business Act. For a similar purpose, the agreement on transport between the railway business providers must be reported to the MLIT. In this sense, the provisions of the Railway Business Act can be seen as sector-specific competition rules.

Regulator competition responsibilities

Does the sector-specific regulator have any responsibility for enforcing competition law?

Generally, the Fair Trade Commission has the authority for enforcing competition law in accordance with the Act on Antitrust. The MLIT has the authority to enforce the provisions of the Railway Business Act.

Competition assessments

What are the main standards for assessing the competitive effect of a transaction involving rail transport companies?

In relation to the Act on Antitrust, there has only been a small number of cases in relation to the competitive effect of a transaction involving rail transport companies, so the main standards are not well established.

With respect to the Railway Business Act, the number of cases is very limited (most were dismissed) and the observable standard is quite vague. For example, in a case involving Hokuso Railway Co, Ltd (judgment dated 19 February 2014), the Tokyo High Court said that even if a passenger on a short-distance train pays a higher fare per kilometre than a passenger on a long-distance train that incorporates the same section of the line, it does not mean that the passenger on the short-distance train is ‘unreasonably treated in a discriminatory manner’ because both passengers are paying the same fare for the same section.

Price regulation

Types of regulation

Are the prices charged by rail carriers for freight transport regulated? How?

No. In 2003, the price regulations on freight transport by railway were abolished. Before 2003, any changes to the prices for freight transport had to be approved by the relevant authorities. However, reflecting the political movement of deregulation in the early 2000s in Japan, the requirement for this approval was abolished.

Are the prices charged by rail carriers for passenger transport regulated? How?

Yes. As mentioned in question 12, these prices are regulated under article 16 of the Railway Business Act. The railway business provider must decide the upper limit of fares for passengers and must obtain approval for this from the MLIT. The same rule applies to changing the upper limit. In relation to the process of approval, the MLIT will review whether the upper limit does not exceed the amount of the appropriate costs and the appropriate profit under efficient management. The railway business provider determines the prices of passenger fares, which must not exceed the approved upper limit, and submits them to the MLIT in advance. The same rule applies to changing the fares. Moreover, the MLIT may order the railway business provider to change the prices of fares for passengers if specific passengers are treated in a discriminatory manner or the fare may cause unreasonable competition with other railway business providers. If the agreement on the transport is to be executed by the railway business provider, the agreement must be reported to the MLIT under article 18 of the Railway Business Act.

Is there a procedure for freight shippers or passengers to challenge price levels? Who adjudicates those challenges, and what rules apply?

Yes. As mentioned in question 16, according to article 16 of the Railway Business Act, deciding on and changing the upper limit of prices for passengers requires approval from the MLIT. Generally speaking, this approval takes the form of an administrative decision. Therefore, if other requirements for the relevant procedures are satisfied, price levels can be challenged under the procedures in accordance with the Administrative Appeal Act and Administrative Litigation Act (see question 10).

Must rail transport companies charge similar prices to all shippers and passengers who are requesting similar service?

Yes. According to article 16 of the Railway Business Act, the MLIT may order the railway business provider to change the fares for passengers if specific passengers are unreasonably treated in a discriminatory manner.

However, see question 14 in relation to the Hokuso Railway Co, Ltd case.

Network access

Sharing access with other companies

Must entities controlling rail infrastructure grant network access to other rail transport companies? Are there exceptions or restrictions?

No. There are no laws and regulations that require entities controlling rail infrastructure to grant network access to other rail transport companies. However, in practice, there are many examples of railway companies granting network access to other rail transport companies by contract. This is particularly the case in Tokyo and its suburban area, and, in accordance with the advice of the Transportation Policy Council (an advisory body of the MLIT) in 2000 and 2016, the construction of a rail line is being planned on the assumption that network access will be granted to some extent.

Access pricing

Are the prices for granting of network access regulated? How?

No. The prices for granting of network access are not regulated by legislation but are determined by negotiation between the parties. In Japan, generally speaking, every railway business provider owns the cars and the rail lines, and is responsible for the operation of the line in question, so granting network access is usually managed by a railway business provider leasing the cars to another railway business provider. Therefore, in most cases, the parties that require network access negotiate the car rental fee with the railway business provider, which determines the prices.

Competitor access

Is there a declared policy on allowing new market entrants network access or increasing competition in rail transport? What is it?

In the advice of the Transportation Policy Council after the 1980s, promotion of network access in the metropolitan area is strongly emphasised, although ‘allowing new market entrants’ or ‘increasing competition in rail transport’ is not clearly mentioned. Japanese policy focuses more on the promotion of network access between existing railway services.

However, in relation to railway services for passengers, which are or may be difficult to continue, network access to existing railways may be permitted for new market entrants for the purpose of improving the management of the existing railway business provider. In such cases, the local municipalities and an existing railway business provider jointly draft the plan for restructuring railway services and execute it, in accordance with Act on Revitalisation and Rehabilitation of Local Public Transportation Systems.

Service standards

Service delivery

Must rail transport providers serve all customers who request service? Are there exceptions or restrictions?

No. According to article 6 of the Railway Operation Act, rail transport providers do not have to serve customers who are not in compliance with the laws and regulations on railway transport; who request a special condition for transport from the rail transport provider; whose transport would be against the public interest; whose transport by rail would not be appropriate; or whose transport is inappropriate because of unavoidable circumstances, including but not limited to acts of God.

Are there legal or regulatory service standards that rail transport companies are required to meet?

Yes. The Railway Business Act and the Railway Transport Regulations provide for the standards that rail transport companies are required to meet. Based on these, JNR provided for the Passenger Business Rules and the Freight Business Rules. After the division and privatisation of JNR, each of its successors adopted these Rules and slightly revised them from time to time depending on its respective circumstances. Private rail companies and public rail entrepreneurs in Japan adhere to terms and conditions that are modelled on the Passenger Business Rules.

Challenging service

Is there a procedure for freight shippers or passengers to challenge the quality of service they receive? Who adjudicates those challenges, and what rules apply?

Yes. As the relationship between freight shippers and passengers and a railway business provider is understood to be a contractual relationship between private parties, the Civil Code applies. Therefore, the district courts have authority to adjudicate and the Civil Procedure Act applies.

Safety regulation

Types of regulation

How is rail safety regulated?

Rail safety is mainly regulated by the Ordinance providing for the Standards on Technology relating to the Railway and the Ordinance relating to the Assurance of Safety of Operation, both of which are enacted by the MLIT. The former Ordinance assures the technical standards, including those which relating to safety. The latter Ordinance is more closely related to the operation of the railway. It provides for the most important rules, with which the employee engaging in the operation of railways shall be compliant.

Competent body

What body has responsibility for regulating rail safety?

The MLIT is responsible for regulating rail safety. In addition, the JTSB has the authority to advise the parties involved in a railway accident and to publish an opinion relating to the accident.

Manufacturing regulations

What safety regulations apply to the manufacture of rail equipment?

The following regulations apply to the manufacture of rail equipment:

(i) the Ordinance providing for the Standards on Technology relating to the Railway;

(ii) the Notification providing for the Standards on Technology relating to the Railway;

(iii) the Notification in relation to Periodical Inspection of Facilities and Cars; and

(iv) the Notification providing the Technical Standards in relation to the Special Railways.

The MLIT enacts (i), and notifies (ii), (iii) and (iv).

Maintenance rules

What rules regulate the maintenance of track and other rail infrastructure?

The regulations referred to in question 27 also apply to the maintenance of track and other rail infrastructure.

What specific rules regulate the maintenance of rail equipment?

The regulations referred to in question 27 also apply to the maintenance of rail equipment.

Accident investigations

What systems and procedures are in place for the investigation of rail accidents?

The JTSB, which was established in 2008, has authority to investigate rail accidents. Conceptually, the JTSB is an ‘independent administrative committee’, which is independent from any ministries, including the MLIT, although the members of the committee are appointed by the Prime Minister. Generally, the JTSB has the authority to determine its budget and manage its personnel, to enact regulations and notifications in certain matters as designated by the law, and to publicise these regulations and notifications at its discretion.

In relation to the railways, the JTSB investigates the following:

  • accidents caused by collision of trains;
  • accidents caused by derailment (except for those relating to working snowploughs);
  • accidents caused by fire;
  • any other types of accidents, which are limited to:
  • accidents that caused the death of a passenger, member of the train crew, etc;
  • accidents that caused a minimum of five casualties, including at least one death;
  • accidents that involved a death that might have been caused by the fault of rail staff, or disorder, damage or destruction of railway facilities;
  • accidents that involved a death at a railway crossing without a barrier; and
  • particularly abnormal accidents; and
  • material incidents.

When the accident is reported, the JTSB appoints a chief investigator and other investigators to assess the accident, and coordinates with other relevant authorities, including the police. During the investigation, the investigators will obtain the relevant information by interviewing train crews, passengers, eye witnesses, etc; collecting the materials relating to the accident; and investigating the damage to the train and railway facilities. The information they have collected will then be examined and analysed. Afterwards, the JTSB drafts a report, advice and an opinion, which are discussed internally, and then hears the opinion of the parties involved in causing the accident (or causing damage in connection with the accident) and determines whether the report, advice and opinion should be submitted to the MLIT and disclosed to the public.

Accident liability

Are there any special rules about the liability of rail transport companies for rail accidents, or does the ordinary liability regime apply?

The ordinary liability regime applies to rail accidents. The Civil Code governs the liability of private companies. In relation to the acts that fall under ‘exercise of public authority of a state or of a public entity’, companies owned by government agencies or municipalities, the State Redress Act applies, although such cases seem to be very rare.

Financial support

Government support

Does the government or government-controlled entities provide direct or indirect financial support to rail transport companies? What is the nature of such support (eg, loans, direct financial subsidies, or other forms of support)?

The JRTT has supported rail transport companies by providing direct financial subsidies. For example, it is involved with the following:

  • construction of railways - the JRTT is involved with the construction of Shinkansen railways and the private railways in metropolitan areas, the provision of construction services, etc;
  • payment of subsidiaries to railway businesses - in 2017, the JRTT had a budget of approximately ¥144 billion for subsidiaries;
  • contribution to the regional public transportation networks - in 2017, the JRTT had a budget of ¥1.2 billion for this purpose; and
  • liquidation of JNR - since 1987 the JRTT has been involved with the disposal of the assets transferred from JNR, included but not limited to the lands acquired.

Requesting support

Are there sector-specific rules governing financial support to rail transport companies and is there a formal process to request such support or to challenge a grant of financial support?

As mentioned in the answer to question 32, the JRTT is involved in the payment of subsidiaries to railway businesses. This process is regulated under the Act on Regulation of Execution of Budget Pertaining to Subsidies, etc. The decision regarding subsidiaries can be challenged under the procedures of the Administrative Appeal Act and Administrative Litigation Act (see questions 10 and 17).

Labour regulation

Applicable labour and employment laws

Are there specialised labour or employment laws that apply to workers in the rail transport industry, or do standard labour and employment laws apply?

No. When JNR existed, the legal status of its employees was different from those of other employees, and the Japanese National Railway Act specifically provided for the relationship between the JNR and its employees. However, this Act is no longer in effect and there are no specialised labour or employment laws that apply to workers in the rail transport industry - standard labour and employment laws apply.

Environmental regulation

Applicable environmental laws

Are there specialised environmental laws that apply to rail transport companies, or do standard environmental laws apply?

There are no specialised environmental laws that are applicable to rail transport companies - standard environmental laws apply.

Update and trends

Update and trends

Are there any emerging trends or hot topics in your jurisdiction?

JR Central hopes to begin construction of the Linear Chuo Shinkansen Line, which is scheduled to operate in 2027 and will travel between Tokyo and Nagoya reaching a top speed of around 500km per hour. In theory, this journey will take 40 minutes.

The Linear Chuo Shinkansen Line is different from the Shinkansen railways. The latter will be constructed by the JRTT under the Nationwide Shinkansen Railways Development Act according to the 1973 plan, and the JRTT owns the railway facilities in question and will lease them to the passenger transport companies derived from JNR. However, as the Linear Chuo Shinkansen Line was planned after 1973, the features of the Shinkansen railways (in particular, separation of the owner of rail infrastructure and the rail operator) do not apply to it.

Another interesting legal issue concerns the method of construction of the Linear Chuo Shinkansen Line. JR Central hopes that in the metropolitan areas the line will be constructed mainly by using ‘great depth’, which generally means a depth of more than 40 metres underground. If the area of construction includes this depth, which means that the ownership of the land is restricted, the construction will be easier than in other areas.