Geert Goeteyn, partner at Howrey Simon Arnold & White law firm in Brussels, looks at some of the implications resulting from the European Court's recent open skies ruling.
On 5 November 2002, the European Court of Justice (ECJ) delivered its long awaited judgments in the open skies cases brought by the European Commission (EC) against seven member states - Austria, Belgium, Denmark, Finland, Germany, Luxembourg and Sweden. The ECJ also ruled in the case relating to the UK/USA Bermuda II agreement.
The ECJ largely rejected the EC's argument that it was exclusively competent to negotiate international air transport agreements, recognising such powers only in the following limited areas: slot allocation, the establishment of fares on intra-European Union (EU) routes, and computer reservation systems.
National issue
The ECJ held that the air service bilateral agreements infringed the EC's competence to the extent they included rules relating to the latter two areas (none of the bilaterals contained provisions relating to slots).
However, the ECJ also found that the nationality provisions reserving traffic rights to carriers owned by nationals of the contracting parties breached European law.
The impact of the Court's rulings is profound. Being deprived of the possibility to favour their own national carriers, the member states are now more likely to consider that it is in their best interest to negotiate as one block with non-EU countries, in particular the USA. However, an EU/USA agreement is not imminent. First, an EC mandate needs to be approved by the member states by qualified majority. Furthermore, the negotiations will be arduous and time-consuming.
The USA's initial reaction was guarded. In a recent speech, the Associate Deputy Secretary of Transport Jeffrey Shane characterised the Court's judgments as "surgical". He noted that, while certain provisions were held to infringe European law, the ECJ did not annul the bilateral agreements. On future developments, Shane said that the USA would welcome an EU mandate. He also stated, however, that any negotiations were likely to be long and difficult. In the meantime, the USA would pursue the bilateral option where necessary.
So where are we now? Under the EC treaty, the member states are obliged to amend the infringing provisions, most importantly the nationality clause, aligning them with European law requirements. While the USA has signalled its willingness to find creative solutions, such flexibility will come at a price. In the longer term, most industry observers expect the EC will receive a mandate to negotiate an EU/USA bilateral agreement, together with the member states.
Competitive issue
The judgments have a second, often overlooked consequence. The EC is likely to revive its efforts to obtain the power to apply EC competition law to the provision of bilateral agreements on routes between the EU and third countries.
Although it can currently investigate such cases - as proven by its examination of certain transatlantic alliances - the final decision lies with the national competition authorities.
The EC considers that its limited jurisdiction to deal with competition issues arising from arrangements relating to services on third country routes undermines the European common aviation area.
It has repeatedly attempted to obtain the power to enforce competition rules in such cases, most recently in 1997. However, the member states refused to grant such competence as long as the issue of the external power to negotiate bilaterals remained unresolved.
The extension of the EC's enforcement powers would have a number of important consequences. Provisions frequently found in the more traditional bilaterals, such as revenue and capacity sharing, and schedule co-ordination for example, infringe the principles of competition law.
However, in line with the EC's 1997 proposals, block exemptions are likely to be adopted clearing some of these clauses under certain strict conditions, at least for a period of time. A gradual phasing out of these block exemptions would allow the contracting parties time to bring the agreements in line with the competition law requirements.
A mechanism would also need to be put in place to deal with potential conflict between EU competition rules and restrictive provisions in the bilaterals that are not exempted. In its 1997 proposals, the EC included a consultation procedure to deal with such situations.
Although an important step towards liberalisation, the open skies judgments do not spell the immediate demise of the Chicago Convention era. The road ahead will be long and arduous, but the chances of creating an open and free aviation market have received a welcome boost.
Source: Airline Business
