NEW ERA FOR AIR TRANSPORT: LOYOLA DE PALACIO WELCOMES THE MANDATE GIVEN TO THE EUROPEAN COMMISSION FOR NEGOTIATING AN OPEN AVIATION AREA WITH THE US
The Transport Council today agreed on a package of measures that passes responsibility for conducting key air transport negotiations to the European Commission. In particular, it granted the European Commission a mandate to begin negotiations on a new transatlantic air agreement. It also agreed that the Commission should open negotiations with other foreign states on airline ownership restrictions and that member states should be permitted to continue bilateral negotiation subject to a degree of Community control.
“This is an historic decision. Today we have reached a deal that will enable the European Union to assert itself at international level and to work for the benefit of its consumers and its aviation industry,” said Loyola de Palacio, European Commission Vice-President in charge of Transport and Energy. “We aim to launch negotiations with the US within a month on an agreement that will bring together the two largest aviation markets in the world.”
The package agreed today consists of three different parts:
- a Council decision on authorizing the Commission to open negotiations with the United States in the field of air transport;
- a Council decision authorizing the Commission to open negotiations with third countries on the replacement of certain provisions in existing bilateral agreements with a Community agreement;
- a proposal for a Regulation of the European Parliament and of the Council on the negotiation and implementation of air service agreements between member states and third countries.
Mandate for negotiating an Open Aviation Area with the US
The agreement reached at the Council authorizes the Commission to open negotiations with the United States and, in addition, grants it a general mandate to open negotiations with any foreign country in order to secure market access for all Community airlines on a non-discriminatory basis. This agreement marks a historic development in the Community's aviation policy. For the first time, representatives of the two largest aviation markets in the world—the US and the EU—will be able to discuss opening up their markets and investment rules directly. The mandate covers a wide range of issues, among them: traffic rights, routes, capacity, frequency, slots, fares, application of competition rules and high standards of safety and aviation security.
Replace the bilateral agreements with Community agreements
On the basis of the decisions taken today, the European Commission will present new mandates for negotiation with other countries in view of the liberalization of air transport. The priorities for negotiations will have to respond to the economic and commercial expectations of the industry, starting with the countries which are ready to negotiate “open skies” agreements. As a reminder, Community agreements already exist with Norway, Iceland and Switzerland.
Correct the legal problems
Another agreement gives the European Commission a general negotiating mandate that will allow the Community to open negotiations with other countries to correct the legal problems identified by the European Court of Justice—the cases only involved agreements with the US but the same problems exist in almost all other bilateral aviation agreements. The Commission and the member states will work together to identify the priority countries with which the Community should seek to open negotiations.
Changing the nationality restrictions
The package recognizes the fundamental importance of changing the nationality restrictions that exist in most bilateral agreements in this sector. These restrictions mean that international routes to and from a member state can be flown only by air carriers owned and controlled by nationals of that member state—in most cases the national flag carrier. Because an air carrier cannot risk losing its nationality, since it would also lose its traffic rights, European airlines have been prevented from taking any restructuring measures, such as mergers or acquisitions that would involve cross-border deals. With many traditional carriers facing economic problems, it is important that they are given this freedom and greater access to international capital. The nationality clauses will therefore need to be changed to allow this possibility.
“Under our new general mandate, we will start discussions with member states immediately in order to identify the countries with which we should open negotiations as a priority to change the national ownership restrictions that are so damaging to our aviation industry,” said de Palacio.
Coordination between the European Commission and the member states
The general mandate will allow the Commission to pursue negotiations to seek the amendment of the nationality rules with any country, allowing for a series of targeted negotiations with important partners. Nevertheless, in view of the immense and extraordinary task to renegotiate and amend hundreds of existing bilateral agreements, it was also agreed that member states—in the framework of a new regulation—are to be authorized to negotiate agreements under the control of a system of coordination and on the basis of standard texts agreed at European level. The framework of cooperation established at EU level will ensure proper coordination and remove discrimination between different European airlines. “This will enable the international aviation system to continue without threat of breakdown,” explained de Palacio.
In November, the European Court of Justice ruled on the legality of bilateral agreements between eight member states and the US.
The Court found that the agreements had two legal faults. First, they contain commitments in areas that are covered by Community law, when only the Community itself can make such commitments. Second, they restrict access to the air transport market between each member state and the US on the basis of nationality. This means, for example, that a European airline must be majority-owned by German interests if it is to fly between Germany and the US or majority-owned by Finnish carriers if it is to fly between Finland and the US. Inside the EU, the Treaty forbids such discrimination. Governments may not discriminate in favor of their own nationals or companies.
As a result of the first finding, the Community must be involved in the negotiation of agreements. Community law now covers a wide range of issues such as safety, security, ground handling, fares, computerized reservation systems, slots and passenger protection; and the Community must ensure that these rules are properly reflected in all agreements with foreign countries.
As a result of the second finding, all air transport agreements that include discriminatory clauses must be renegotiated to give any European airline with an establishment in a member state the same level of access to international markets as the national carrier.
These are major changes. In particular, the current bilateral system has strictly controlled the ownership of airlines, preventing them from restructuring on an international level in the same way as other global businesses. The recognition that these ownership rules must be dismantled within the EU will permit the emergence of pan-European airlines, as well as providing a stimulus for the opening up of investment rules and market access worldwide.
Q&A on the air transport agreements with third countries :
Why was this package of measures needed and what does it contain? Who will negotiate agreements from now on?
The package contains three elements:
- A negotiating mandate that will allow the Community to negotiate with the US to redress the legal problems in the existing agreements identified by the European Court of Justice, to build a more open aviation market comprising the American and European markets and to open up the international investment regime for the airlines.
- A negotiating mandate that will allow the Community to open negotiations with other countries to correct the legal problems identified by the Court—the cases only involved agreements with the US but the same problems exist in almost all other bilateral aviation agreements. The Commission and the member states will work together to identify the priority countries with which the Community should seek to open negotiations.
- A general framework for individual negotiations between member states and foreign states. Given that there are hundreds of bilateral agreements between EU member states and third countries, it was essential to establish a system that would also allow member states to continue to negotiate with third countries on an individual basis and to manage existing agreements. The Regulation under discussion creates a system of cooperation between member states to ensure that proper account is taken of common interests. The final details of the framework will be confirmed once the Regulation has been formally adopted by the Council and the Parliament, but it will operate on an interim basis from today.
These three measures will allow the Community to focus its attention on moving its relations with the US to a new level and on negotiations with countries with whom there is a general Community interest. At the same time, it will allow member states to use their experience and resources to ensure that the existing bilateral system is managed effectively and updated as necessary to meet legal requirements.
What is going to happen with the current agreements?
The current agreements with the US that were the subject of the Court rulings will remain in force until they are superseded by a completely new EU-US agreement.
In the case of existing agreements with other countries, the agreements will remain in force in most respects, but they must be amended to comply with Community law—in particular with a view to allowing all European airlines non-discriminatory market access on routes to and from EU member states. These amendments will either be made by the Community in its negotiations or by the member states individually, subject to Community oversight.
Current agreements will not be systematically denounced. However, the Community or its member states will seek amendments where the current text of an agreement does not comply with Community law. Ultimately, any party to an agreement always has the option of denunciation if they are not content with the outcome.
What effect will a renegotiation have on the industry?
The nationality restrictions in most bilaterals require beneficiaries of the agreement to be owned and controlled by nationals of one of the parties. In the case of the EU, this means that a carrier wishing to fly from Germany to the US must be German. This is contrary to the right of establishment in the Treaty, which requires all airlines established in a member state to be treated equally. This means that any European airline, based anywhere in the EU regardless of its ownership, must have access to the international routes concerned as long as it has a business establishment in Germany. This should pave the way for more cross-border investment activity, airline mergers and the expansion of successful carriers outside their home member state.
How will the system of negotiations work?
As for all Community negotiations, the Commission will negotiate on behalf of the Community. It will work in close consultation with member states throughout the negotiations. It will also consult with the European aviation industry and other interested parties, such as airports and trade unions.
For member state negotiations, a member state will notify the Commission and the other member states of its intention to open negotiations, giving the opportunity to exchange information about the plans. Once negotiations are complete, member states will report back to the Commission and the other member states so that the outcome can be checked. The agreement will have to permit all Community carriers with an establishment in the territory of that member state to be treated equally.
What issues will be negotiated?
EU/US negotiations will seek to replace existing agreements between individual member states and the US with a single comprehensive EU/US agreement. The negotiations will therefore cover all the arrangements governing air transport between and within the EU and US. This will include the rules governing market access (routes, capacity, frequency), how air fares are set, how to ensure effective application of competition rules and how to ensure maintenance of high standards of airline safety and aviation security.
The negotiations will also address opening up each side’s internal market to the airlines of the other side. A key element in this will be the removal of the special restrictions which currently apply to foreign ownership and control of airlines in the US and EU.
What would be the impact of an Open Aviation Area (OAA) between the EU and US?
An OAA would essentially create a free trade area for air transport between the EU and US. This would produce a more competitive market than today, generating greater choice of services and lower fares for air travellers. It would give EU and US airlines complete freedom to serve any pair of airports in the EU and US—EU airlines are currently able only to operate between their own member state and the US and among airports within the EU. Relaxing restrictions on ownership and control would also make it easier for EU and US airlines to enter into mergers and takeovers with each other.
A report by US consultants, The Brattle Group, has estimated that an EU/US Open Aviation Area would generate upwards of 17 million extra passengers a year, consumer benefits of at least $5 billion a year and would boost employment on both sides of the Atlantic.
Will the Commission propose other negotiations?
The Commission will make proposals for further full mandates to allow it to enter into negotiations on all aspects of air transport with foreign states as and when it identifies priority markets for EU airlines and consumers and in response to requests made by foreign states for full negotiations with the EU.