Select Committee on European Scrutiny Twenty-Eighth Report





COM(02) 110

Draft Regulation concerning protection against subsidisation and unfair pricing practices in the supply of airline services from third countries not members of the European Community.

Legal base:

Article 80(2) EC; co-decision; qualified majority voting


Document originated:

12 March 2002

Deposited in Parliament:

11 April 2002


Transport, Local Government and the Regions

Basis of consideration:

EM of 24 April 2002

Previous Committee Report:


To be discussed in Council:

Not known

Committee's assessment:

Politically important

Committee's decision:





  10.1  The financial involvement of the Swiss government in the creation of a new national airline after the failure of Swissair and the substantial US package of financial aid to its airlines following the terrorist attacks of 11 September has led the Commission to propose some protection for European airlines against subsidies to third-country airlines and unfair pricing.

The document

  10.2  Under the draft proposal, duties could be imposed on products offered by non-EU airlines found to be involved in unfair pricing practices based on government subsidies or other market-distorting mechanisms detrimental to EU carriers operating on the same routes.

  10.3  The Commission has stated that the proposal should not be seen as a reaction to the recent US announcement on the safeguarding of its steel industry. The proposal is based on the precedents of the Anti-Subsidy Regulation on the international trade in goods (2026/97) and Regulation (4057/86), which covers unfair pricing practices in shipping.

  10.4  Under the proposal, the Commission would be able to take action against third country airlines either on its own initiative or on the basis of industry complaints. If, following an inquiry, it was deemed that there was evidence of unfair pricing practices resulting from actions on the part of the third country government, the Commission could impose either provisional or definitive measures to offset the benefit conferred on the third country carrier as a result of such actions. Investigations could be terminated without the imposition of provisional or definitive measures upon receipt of satisfactory voluntary undertakings. Any duties imposed would not exceed the value of the subsidies or the non-commercial advantages deemed to have been enjoyed by the recipient carrier. The 'normal fare rate' for a route would be calculated from the rate charged by a like air service on the same or comparable route by a non-subsidised carrier over at least a six month period, or, where that was not possible, from the costs of a comparable air carrier plus a reasonable rate of profit.

The Government's view

  10.5  In his Explanatory Memorandum of 24 March 2002, the Parliamentary Under-Secretary of State, Department for Transport, Local Government and the Regions (Mr David Jamieson) says that Community action may be appropriate in situations where EU carriers are faced with unfair competition from third country carriers based on state subsidy, and where this cannot be resolved by existing bilateral arrangements. However, the Minister considers that the proposed instrument would be difficult to apply in practice, not least because pricing in the aviation industry and the determination of a "normal fare" for an airline is highly complex, especially for state-controlled airlines enjoying subsidies in kind. The Minister also refers to potential competition issues if third country operators are deterred by the threat of an inquiry from competing fairly on price. The Minister suggests that an instrument that focuses on the subsidy issue only may be preferable.

  10.6  The Minister adds that, if implemented, the instrument may hardly be used and may simply be a means to send out a warning to third countries, particularly to the Swiss Government after its unhelpful response to Commission concerns over the restructuring of Swissair, rather than introducing an instrument which will be used extensively in practice.



  10.7  We have no questions and are content to clear the document.


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