Select Committee on European Communities Minutes of Evidence

Examination of Witnesses (Questions 320 - 339)



Lord Methuen

  320.  In the circumstances of the Commission negotiating with third party countries for traffic rights, if that country then imposes limited route availability, how would you see those limited number of routes distributed among those countries in the Union which might wish to use them and for which there could be conflict?
  (Mr van Houtte)  That is a very difficult question.

  321.  Thank you.
  (Mr van Houtte)  The Commission made a proposal for exactly this area—how to enter into Community-wide agreements—back in 1992 and it was not taken up by the Council at the time. One of the reasons was that the Council and Member States felt that it did not provide sufficient indications of how the Commission practically wanted to deal with difficulties like this. It is true that it is a very hard area and it is difficult to lay down in law and say that X number of traffic rights have to go to Dutch airlines and Y to British airlines because you cannot really practically do that[3]. What will happen in practice is that when the negotiations have been concluded, if there has been a set of traffic rights negotiated on behalf of Community airlines, then the Commission, together with the Member States, sit down and discuss the most sensible allocation of those traffic rights and see it in terms of where the traffic originates and which airports need to be served especially. So the traffic rights, and this is probably an important detail, would have to be allocated within the Community, not on the basis of the nationality of the airline, but on the basis of the airport which is going to be served, regardless of which airlines accept those traffic rights.


  322.  You are really talking then about a bilateral agreement between the European Union as one body and, keeping the United States out of this example, a third country—a bilateral between a third country and the European Union en bloc—are you not, really?
  (Mr van Houtte)  That would be the idea, yes, exactly.

Lord Methuen

  323.  One of our witnesses suggested, to quote, "It would, in principle, be possible to allocate traffic rights by auction. Community airlines would bid for the traffic rights and these would be allocated to the highest bidder".
  (Mr van Houtte)  That is a possibility. It sounds a little bit academic but it could be done that way, that is correct, yes.


  324.  I believe the Commission is taking court action against certain Member States who have agreed open-skies deals with the United States on their own. Is this correct?
  (Mr van Houtte)  That is right.

  325.  How does this fit in with your present plans?
  (Mr van Houtte)  Well, there are now eight Member States which are the subject of a court procedure. It is not quite at the court stage yet and we have sent out what we call a "reasoned opinion", but it would eventually lead to a case before the Court of Justice. The argument basically has two elements. One is that we feel that since the entering into force of the internal market in 1993, the Commission now has exclusive competence to develop the external policy vis-à-vis third countries and there is a legal theory saying that if the Community deals with the internal aspect of a certain policy, then the necessary implication is that the Community is also best placed to develop that policy vis-à-vis countries outside the European Community, so that is the first line of argument. The second line of argument is that the bilateral agreements in question contain some provisions which are not compatible with Community law, and that is essentially the nationality clauses, so the fact that traffic rights are only given to airlines which are substantially owned and controlled by nationals of the Member State in question, we feel that that is contrary to the freedom of establishment within the European Community. It would not be possible for Air France, for instance, to establish a subsidiary in Germany and to claim traffic rights from Germany because the German bilaterals do not allow that, and that is contrary to Community law.

  326.  One could argue, starting from a clean sheet of paper, why do we even have to go for the 49 per cent ownership figure and why not 100 per cent? Does it matter who owns airlines within the Community?
  (Mr van Houtte)  Probably not, I think. We have made a proposal for negotiating with the United States for specific air transport agreements and one of the objectives which we are pursuing is to get rid of ownership restrictions so that it would be possible for Community airlines——

  327.  Completely, you mean?
  (Mr van Houtte)  ——completely in the long run, but that would have to happen in a balanced way and agreed by both sides.

Lord Methuen

  328.  It would still be subject to competition law.
  (Mr van Houtte)  Absolutely.


  329.  But this could apply to other countries outside the European Union and the United States of course too.
  (Mr van Houtte)  Yes.

  330.  If there was a wish from Eastern or Far Eastern airlines, for example, it is probably more difficult then.
  (Mr van Houtte)  Well, the procedure is that the Commission is authorised by the Council to enter into negotiations and we then set the objective for those negotiations and I imagine in most cases we would wish to see the removal of ownership restrictions.

  331.  You have got negotiating rights, which I believe is the right word, with Eastern European countries already approved for the Commission to take the lead. Is that going well or are there any problems?
  (Mr van Houtte)  Well, it is a bit early to tell. We have had a number of technical discussions with the Eastern European countries. We are now in the process of making a formal proposal for multi-party agreements, with the Community on one side and ten Central and Eastern European countries on the other side. The practical difficulty will be to put into place effective mechanisms which make sure that the airlines in those countries are actually subject to all the Community Regulations, that they offer adequate guarantees in terms of safety and of all the other things which we have achieved within the Community.

Chairman]  We put this to another witness, and I cannot remember who it was off-hand, that if the Council of Ministers have given the Commission authority to negotiate with Eastern European airlines, what is the problem with doing it for the rest of the world, and the response was, as I recall, "Well, it is because Eastern European airlines need a kind of motherhood and support". I think "motherhood" was not used, but it was something like that.

Lord Thomas of Macclesfield]  That they were not skilled and sophisticated.


  332.  It was a slightly patronising argument. Do you accept that or do you think it is just somebody putting the other argument?
  (Mr van Houtte)  The Eastern European negotiations take place in a wider perspective. We are developing a close relationship with those countries and that will lead to a number of policy areas being closely aligned and air transport is just one of them, so that is a very specific perspective which we are pursuing with those countries. I do not think we would call it patronising.

  333.  I am not saying you are being patronising. It is just that the comments of other people could be seen as patronising.
  (Mr van Houtte)  The long-term objective clearly is to prepare the way for participation of those countries into the European Community.

Lord Thomas of Macclesfield

  334.  So it is different in that respect?
  (Mr van Houtte)  It is different, yes, that is correct.

  335.  If the Commission is to take further or wider responsibility in this area, do you have the resources to do that and, before I listen to the answer, one can say, "Well, if the Commission decides it is going to have the resources, it will have the resources", but I am more concerned about the skills and the expertise, rather than the actual hard cash, to negotiate a commercial contract? This is not a contract between sovereign states but it is a matter which must have commercial advantage or else whatever you negotiate will not fly, so do they have that expertise?
  (Mr van Houtte)  Clearly it would be something we have to work on. Negotiating air transport agreements requires a lot of skill and a lot of expertise in that specific area, but the way we would envisage doing this is together with the Member States to develop some mechanism for making use of the expertise which now exists in the Member States and probably develop teams including people from different Member States, negotiating on behalf of the Community.


  336.  On that particular subject, do you have a kind of hit-list, a working order of which countries outside the EU, so do you do them in some kind of an order or do you want to hit the whole world at once or do you have set priorities?
  (Mr van Houtte)  There already is a hit-list in the sense that we have a mandate with Switzerland, with Central and Eastern European countries, and with the United States.

  337.  Of course.
  (Mr van Houtte)  So I think they come on top. Below that, I think it is a bit early to tell which one we will address next. We will have to wait and see how the negotiations under the existing mandates go, whether we are successful with the United States, and then we will see whether the most effective use of resources is to take on another developed country, like Japan, or whether it is more effective to look at maybe Latin America which is also developing multilateral structures on its own, so there are a number of options and I think it is too early to tell.

  338.  Is there any Commission policy which links these two draft Regulations and a court action? In other words, is there a policy saying that the Commission are going to get this by one means or another? Is there any link between the two?
  (Mr van Houtte)  The policy indeed is that we feel that the time is right to develop an external Community policy in the field of aviation and we are trying to achieve that objective by the combination of legislative proposals and court action. We would hope very much that in the long run the court action is not necessary and we can work on the basis of legislation.
  (Mr Drabbe)  When you talked about the two proposals, were you referring to the proposals under proposed changes to Regulations 3975/87 and 3976/87?

  339.  We have been straying a little bit, and it has been very useful to stray, but those are the two proposals which the enquiry we are undertaking is concerned with.
  (Mr Drabbe)  I think that indeed, as Mr van Houtte says, the motivation is the same: where there is the liberalisation of air traffic internationally, because of more general liberalisation in the aviation sector, first, in the United States and now also in Europe, it creates, as it were, space for competition authorities to intervene. In the old times when bilateral agreements fixed everything and regulated very precisely all activities that airlines could develop, there was no scope for the implication of the competition rules and it is only where you create a market that the competition rules come in, because there may be distortions of competition by the companies concerned. Mr van Miert talked a lot about the difficulties which we have in applying the competition rules, that we have the competence, but we do not have the enforcement mechanisms and the procedural rules to do our work efficiently and effectively. That is why, I think, certainly in terms of timing, it is only logical that these questions are raised[4]. There was one point which I still want to make which is when you asked about taking on these proposals in the Council. I think one other concern also is that the Member States fear that once the Commission has the effective and efficient powers to scrutinise forms of co-operation between airlines on the international scene between the Community and third countries, that that would interfere with their existing bilateral agreements, over the whole network of bilateral agreements. Then, as it were, the Commission, by pinpointing at certain competition issues which might arise in these bilateral agreements between two countries, would sort of upset the existing bilateral agreements. I think that is also a real concern and I think I have an answer to that concern.

3   Note by witness: Of course, one would have to bear in mind that the Commission would expect that such negotiations would produce a very liberal air services agreement with open market access, so that traffic rights become meaningless. In practice, however, that may not always be possible. Back

4   Note by witness: Where scope for intervention by the competition authorities has been created (by the liberalisation of international aviation traffic), but adequate enforcement mechanisms are lacking, the time is right for the Commission to table these two proposals extending the scope of Regulations 3975/87 and 3976/87. Back

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