Examination of witnesses (Questions 150
- 159)
THURSDAY 18 JUNE 1998
MR ULRICH
SCHULTE-STRATHAUS
Chairman
150. Mr Schulte-Strathaus, we are most grateful
to you. I understand you have flown in this morning from Frankfurt.
(Mr Schulte-Strathaus) From Hamburg.
151. I beg your pardon. Was it a direct
flight?
A. Yes.
152. We might pursue that later on! We are
very grateful to you and to your company for agreeing to give
evidence in front of this Committee. I think you understand that
we are looking at the proposed airline regulations. We would be
particularly interested in hearing the views of Lufthansa in this
context. I am glad that I saw that you had sat in on the previous
evidence session and so you now realise how we conduct these affairs.
If you have any introductory remarks you would like to make we
would love to hear them, but we tend to get the most benefit from
a question and answer session rather than a long monologue. If
I may repeat my comments regarding BA/AA. If you wish to make
an opening comment, please do so.
A. Thank you
very much, my Lord Chairman. I apologise that Lufthansa was not
able to provide you with a written submission beforehand. I have
taken the liberty of preparing a brief statement that I would
like to present to you this morning and I will leave it with you.
I also have a number of comments that I have written down on some
of the questions that were alluded to in inviting us to attend
today's meeting. Thank you very much indeed for giving Lufthansa
the opportunity to provide its views on the proposed extension
of Regulations 3975/87 and 3976/87 to air transport with third
countries. I will make my comments brief and tectonically candid.
It is extremely important to distinguish between two issues. The
first is whether it is desirable to give the Commission the power
to negotiate international air service agreements with third countries
on behalf of the European Union as a whole. For reasons that I
will go into a little later, Lufthansa supports such a grant of
authority in principle, provided that the agreements are properly
structured and serve the interests of the Community. The second
issue is whether it is desirable to extend Regulations 3975/87
and 3976/87 to give the Commission direct enforcement competence
under Articles 85 and 86 in respect of air services to third countries.
This is the specific issue now under consideration by the Sub-Committee.
Lufthansa is opposed to giving the Commission this authority until
such time as Community-wide agreements governing air services
to third countries are in place. Lufthansa is opposed to extending
the Commission's direct enforcement powers at this time for three
reasons. First, we are unconvinced that the current situation,
where the enforcement powers of the Commission can only be exercised
under Article 89, is in fact unsatisfactory for either the airlines
or consumers. Lufthansa is unaware of any case where there has
been real inconsistency between the enforcement activities of
national competition authorities in the aviation field. Second,
Lufthansa sees definite advantages in the present system until
such time as Community-wide air transport agreements are in place.
Under existing bilateral arrangements the EU carriers providing
air transport from a Member State to a third country will almost
invariably be based in that Member State. This means that the
principal EU parties to any agreement subject to Article 85 or
any practice that is allegedly abusive under Article 86 will usually
be based in that country. The principle of subsidiarity, which
as you may be aware is becoming increasingly popular in Germany,
suggests that it would be appropriate and desirable for the national
competition authority to exercise the primary responsibility for
enforcement under these circumstances. Furthermore, as long as
the Member State remains responsible for the political relationship
with the third country involved, this arrangement makes it easier
to ensure that the authorities responsible for competition policy
are sensitive to the political issues that enforcement activity
may raise in the other country involved. Third, and most important,
Lufthansa opposes giving the Commission added enforcement powers
because it is concerned that the Commission will use such powers
to push its own political agenda. It has been very evident that
the Commission is using the Article 89 cases involving the various
transatlantic alliances as a lever to obtain additional political
authority vis-à-vis the United States and various Member
States. I would like to stress that I would not have the same
reservations if competition law enforcement at the Community level
were the responsibility of an independent enforcement authority.
The problems we see are the result of the political nature of
the Competition Directorate. Lufthansa has had its problems with
the German federal kartel office over the years, but we have always
respected the fact that they approach cases on the basis of competition
policy as they understand it and not on the basis of some overt
political agenda. As regards the question of a mandate for the
Commission to negotiate air service agreements on behalf of the
Community, I would stress that the Lufthansa position in favour
of such a mandate is not based on a precise calculation of the
likely commercial advantages and disadvantages for itself in such
an arrangement. We are, however, confident that as an efficiently
managed privatised airline we can benefit from any measures that
illuminate regulatory barriers and reduce government intervention
in the airline markets. I do not that it is necessary to be too
concerned at this stage about the winners and the losers. The
creation of a broader market is not necessarily a "zero sum
game". All EU carriers and passengers on all routes, long
haul or short haul, could potentially benefit from the increased
opportunity created by a properly drafted agreement. If any carriers
lose out, it will be because they are too dependent today on state
subsidies or have taken ill-fated commercial decisions. I have
just referred to the benefits of a properly drafted agreement.
A properly constructed agreement with a third country should incorporate
all the parameters for an external aviation policy, including
competition policy, upon which a single aviation agreement could
be concluded with a third country. Such an agreement should also
include the guidelines for the enforcement of a competition policy
and such a competition policy must be agreed upon with a third
country, it should not be imposed universally by the European
Union. I realise that I may start to sound like the famous prayer
of Saint Augustine "Give me celibacy Lord, but not yet!"—I
do see the logic of giving the Commission increased enforcement
powers in the context of a single aviation agreement with a third
country but not yet; not until there is an EU agreement in place
with a given third country, not until there are guidelines for
the exercise by the Commission of its powers, and not until we
can be reasonably confident that the Commission would not use
those powers as a lever to achieve political ends. Until that
time I would oppose extending the scope of Regulations 3975/87
and 3976/87. In essence, that is the brief presentation I wanted
to give, my Lord Chairman.
153. Thank you. That has given us quite
a lot to digest. You started by saying you welcomed the proposed
Regulations and that lasted about three seconds and you then proceeded
to say "but" and for the rest of what you said you said
you did not welcome them. You have just finished by saying not
yet. I am not quite sure why you said you welcomed them in the
first place.
A. Because there
is an inherent logic in the proposals. We currently have a single
aviation market within Europe and there is a level playing field
for competition in this area. We cannot, however, have a single
aviation market in Europe completely irrespective of the goings
on outside of Europe and we believe that it is necessary to have
a level playing field not just within Europe but also for services
to and from Europe. Therefore, the logic of applying some kind
of competition rules to cover not only transportation within Europe
but also to and from Europe is one we cannot deny. The question
is how does one proceed in achieving that goal? The Commission's
approach is one which we do not take kindly to because what they
are currently doing, in our view, is to act upon individual cases
and these cases then drive the competition policy which in turn
then dictates the contents of a negotiation mandate from the Member
States to the European Union. We believe it should be the other
way round. We believe that, first and foremost, the Council of
Transport Ministers should develop an aviation policy, as I outlined
before, which includes what they consider as the important and
necessary elements of the competition policy. They should then
determine the way in which such a competition policy could be
enacted. The Commission should then come up with specific proposals
as to which countries should be considered as potential partners
for such a new agreement. There are several criteria that would
have to be met. First of all, the third country involved would
have to have open skies arrangements in place with several, if
not all, European Member States. They would certainly have to
be prepared to negotiate a liberal aviation agreement, which means
no market access restrictions, no capacity limitations, no tariff
clauses. The ultimate objective of the aviation policy of the
European Union should be to ensure that aviation becomes an industry
like any other. The extent to which the other country is prepared
to accept these goals would then be the determining factor for
the Commission and everyone would have to negotiate a single aviation
agreement with that country. Once that is done competition policy
can be implemented and enforced.
154. I think what you are saying is—and
I quote a joke but only to make the point—that it is really
like the Irishman giving directions saying, "I would not
start from here if I were you"! You seem to be implying that
you would like this concept to be driven by DG VII and you mentioned
European aviation policy and it would have as part of that a competition
element to it which would involve DG IV. Please contradict me
if I am getting the wrong impression.
A. This is true,
my Lord Chairman, because we are dealing with third countries.
As long as we remain in the scope of the European Union DG IV
must clearly implement and enforce the competition rules that
we have in place within the European Union. Once we move to third
countries their concerns must also be taken into consideration
and that can only be based upon an agreement. The European Union
cannot dictate the way it wishes to have aviation policy enacted
and it cannot dictate the way it wishes to have competition policy
enacted. Therefore, it appears to me reasonable that DG VII should
first try and develop such a basis or framework based upon guidelines
set forth by the Council and once that is achieved you then have
the framework for the implementation of whatever kind of competition
policy they agree upon.
155. You must be lobbying quite hard in
Brussels—and I am not asking you to answer that question,
I am assuming that that is a fact—but do you find that there
is any difference of opinion between Directorates VII and IV in
this context?
A. Yes, we do.
156. Could you expand?
A. It appears
to me that the Competition Directorate (DG IV) is becoming a little
impatient with the progress achieved in coming up with a mandate
to negotiate, at least with the United States. As outlined in
the introductory remarks, DG IV would now appear to be taking
the alliances hostage as a means to increase the pressure on the
Member States to grant that mandate. I also have the impression
that DG IV has different views on the contents of such future
negotiations between the European Union and third countries and
DG VII, issues such as slot trading, for example. The question
of whether DG IV or DG VII should be entitled to regulate in areas
such as CRS displays (Computer Reservation System) or frequent
flyer programmes is also one which appears to be in dispute between
the two Directorates.
Lord Berkeley
157. You have been very critical of the
European Commission's competition policy. How different is that
policy from the German competition policy, for example, and are
you critical of it because it is coming out of Brussels or because
you do not like its policy?
A. We are critical
of it for both reasons. As long as the responsibility for trade
in the aviation area remains with the Member States we perceive
there would be enormous difficulties in the third countries accepting
any form of intervention from the Commission because this would
in effect erode the contents of the bilateral arrangements in
place between the Member State and the third country. That is
one reason for being somewhat reluctant to accept the competence
of the Commission. The second is that we foresee technical difficulties
for the Competition Directorate in actually enforcing whatever
kind of competition policy they have with third countries. This
is not just lack of expertise, it is also difficulties for them
being able to focus on competition policy as such. We have made
the observation that they are a politically driven entity and
that it is just not possible to discuss with them some of the
specificities of the airline industry.
158. Is not the German government politically
driven? Is not the British government politically driven? What
is the difference?
A. The German
government is, but the German competition authority, the Kartellamt
office, has constitutional rights which make it completely independent
of the German government and that is something that has given
rise to concern within Lufthansa at certain times, but as a matter
of principle it is something that we completely adhere to.
Lord Haslam
159. You mentioned the Kartellamt. Is it
still called the Kartellamt?
A. Yes.
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