To some the exclusion of so-called 'hard rights' from Gats marked an inauspicious beginning for the agreement. At present, only three 'doing business' issues fall within the scope of the accord: aircraft repair and maintenance services (but not line maintenance); the selling and marketing of air transport services; and computer reservation system (CRS). But Gatt proponents point out that the agreement calls for 'progressive liberalisation' and that despite its cautious beginnings, some countries - Australia, New Zealand, Malaysia, the Nordic countries and Singapore - have already called for the creation of a working party to look at broadening coverage to other issues.
The inclusion of air transport in Gats has had a rough ride. Faced with opposition from most major trading nations, the agreement not only excludes traffic rights but makes an explicit commitment that Gats will not be permitted to reduce or affect a member's obligations under bilateral or multilateral agreements already in effect. Moreover, the 'dispute settlement' provisions of Gatt, one of the keys to liberalisation, cannot be used until the dispute settlement procedures in existing bilateral or multilateral air transport arrangements have been exhausted.
It can therefore be argued that the Gats air transport annex currently represents little change from the regulatory status quo. Why, then, did countries resist bringing more substantial issues within the Gats framework? There are a number of reasons, but clearly the basic Gatt principle of Most Favoured Nation (MFN) tops the list.
Under MFN, a trading partner must accord to the service suppliers of other parties treatment no less favourable than that accorded to the service suppliers of any single country. In aviation terms, that could mean for example that liberal country A, having offered - say - an open skies agreement to liberal country B, must then offer it also to protectionist country C, even though critics say country C would be under no corresponding obligation to open its own skies. 'In the early 1990s, MFN made hardly any sense to anyone who considered themselves liberal,' says Jeffrey Shane, a lawyer with Wilmer, Cutler & Pickering, and the former chief US air transport
negotiator in the Bush Administration. It was, and is, the perceived absence of reciprocity in MFN that bothers the countries that have valuable home markets.
Another important Gats principle, national treatment, also caused problems for aviation negotiators. National treatment requires a party to accord to the service suppliers of all other parties treatment no less favourable than that which it accords its own service suppliers. This was said by critics to present thorny legal and conceptual problems for aviation. If national treatment were fully applied, it was said, foreign airlines could essentially have the same domestic market rights as native carriers, including the right of establishment and the right to advertise and sell tickets.
Daniel Kasper, chairman of the transportation industry programme at Coopers & Lybrand, says national treatment is not a liberalising principle for US airlines, since it would eventually provide non-US carriers with US cabotage rights - now illegal under US law - without equivalent opportunities for US carriers abroad. 'Equivalence [for US airlines] would require something like assured access to the European internal market in exchange for European carrier access to the domestic market,' Kasper says. Kasper claims national treatment would increase market access for nations with closed domestic markets without significantly expanding access for airlines whose markets had already been deregulated.
Gatt officials counter that both MFN and national treatment are subject to negotiation and exemptions. Exemptions requested under MFN are automatically granted for five years, and in principle can last as long as 10 years. But even that has not silenced the MFN critics: 'Even if you suspend MFN, you have the obligation to keep explaining and explaining,' says Jeffrey Shane.
It is instructive to look over the list of countries that have applied for exemptions from MFN for the three categories of air transport now within the Gats framework. Of the first 26 nations to sign the Gats, 25 (all but Singapore) requested an MFN exemption for selling and marketing; 24 (all but Canada and Romania) requested such an exemption for CRS; and three (Canada, Kuwait and Thailand) requested a comparable exemption for repair and maintenance. In effect, that means that MFN will be largely inoperative except in limited cases affecting repair and maintenance. In that field one US source reports: 'We signed up because we didn't want to be seen as obstructionist'.
Taking the specific case of CRS, virtually 'everyone that matters', according to an Iata source, has filed an exemption from the Gats MFN provisions, maintaining that they have a code of conduct on CRS already in place that could clash with the MFN requirement.
The European Union countries, for example, requested their MFN exemption on the basis that the EU code requires that EU vendors and carriers receive 'equivalent treatment' in CRSs operated in other countries or regions, something Gats would not necessarily provide. Again, there is the stumbling block of reciprocity.
Apart from concerns about MFN and national treatment, resistance to Gats by most aviation powers is linked to confusion as to how the system operates and a lingering sense that air transport remains a special case. One aviation expert, who has studied Gats for several years, says: 'It's such an arcane area it's hard to see what effect it will have on you.' The problem is that you sign up for one provision and then find that you liable for other requirements as well, he adds. 'You're just as likely to face problems by omission as by commission.'
Some of these complaints stem from lack of familiarity with a system that has worked reasonably well to liberalise trade in goods. But there is little doubt that Gats can be a highly complex business. Aside from the general obligations, such as MFN, for which countries may or may not apply for exemptions, there are the principles - such as market access - that require specific commitments from states as to how they intend to apply them. There are four different modes of supply within the specific commitments for which states have to file their intentions to comply fully or with conditions or limitations. The modes, each with its own set of characteristics, are: cross-border, consumption abroad, commercial presence and presence of natural persons.
Moreover, a state can elect to adhere unconditionally to one mode of supply and delay or impose restrictions on another. The Slovak Republic, for example, has made a specific commitment to apply the repair and maintenance provision for 'consumption abroad', but has made no commitment - or is 'unbound' in Gats terminology - to apply the same provision 'cross-border' and will only adhere to the 'commercial presence' mode of supply on a restricted basis. 'It creates a very intricate web of responsibilities,' says an Iata source.
Despite these impediments, it would be unwise at this early stage to write off Gats as a future vehicle for multilateral air transport liberalisation. The apparent complexities may appear less onerous once states have learned to apply Gats in practice and Gats proponents therefore tend to focus less on the complications of the process than on its 'flexibility'. 'It's a system whose structure is broad enough to encompass all the existing approaches, including the contradictory ones,' says Mario Marconini, a Counsellor at the World Trade Organisation (WTO). 'There is nothing in the current annex or in the current structure of the Gats agreement which would prevent countries from getting together bilaterally, plurilaterally or multilaterally to achieve greater liberalisation,' he adds.
Marconini and other proponents see the GATS as a complement to, not a replacement for, current negotiating practices. And they believe that MFN, rather than being a hindrance to liberalisation, will enhance it. The idea is that after countries have gone through the horse trading of bilaterals for limited multilaterals among like-minded states, they will come to Gats and bind their agreements together under the Gats on a MFN basis. This will then give them the leverage to extract liberalisation commitments from the much larger pool of countries covered by the WTO, subject to certain conditions.
Even the earlier opponents of Gats, such as Jeffrey Shane, believe it may be time to revisit Gats in the light of changing circumstances. Noting the problems the US has had negotiating liberal bilaterals with France, Germany, the UK and Japan - and the inconclusive outcome of the 1994 Icao conference on international air transport regulation - Shane says that the leverage the US enjoyed in the bilateral process during the 1970s and 1980s has long since disappeared. 'Maybe an agreement around Gats warrants a re-examination,' Shane says.
What about the air transport establishment? It must be said that most airline executives - with the qualified exception of some at KLM and Singapore Airlines, both of which operate from negligible home markets - remain hostile to, or suspicious of, a Gats solution. Meanwhile Iata and Icao talk of the dangers of a 'dual system of regulation', code words for concerns that they will be deprived of their preeminent role in aviation. And one still hears claims about the 'special nature' of air transport.
Mario Marconini considers such talk unrealistic. 'Aviation cannot escape broad-based economic discipline forever,' Marconini says, adding: 'It is no longer the unique, glamourous sector it used to be.'
Source: Airline Business
