Examination of Witnesses (Questions 359
- 379)
THURSDAY 9 JULY 1998
MS GLENDA
JACKSON, MP, MR
MICHAEL SMETHERS
and DR MIREN
LETEMENDIA
Chairman
359. Minister, you are most welcome. I think
I am right in saying this is the first time you have actually
been able to give evidence in front of this Committee, in which
case you are doubly welcome. You are, of course, more than fully
aware of the enquiry we are doing at the moment on the proposed
EU airline Regulations. Would you like to make an opening statement
and perhaps introduce your colleagues first? I do tend to be a
rather well worn record on this but we find that by far the greatest
benefit on these occasions is in the question and answer period
rather than a monologue.
(Glenda Jackson) I am most grateful for your welcome.
I am accompanied by Mr Smethers from our multilateral division
and Dr Letemendia from the legal department. If it is in order
I would like to make a brief opening statement beginning with
an apology to the Committee, in effect correcting an error in
the Department's Explanatory Memorandum (EM). At the time the
memorandum was written it was our understanding that both British
Airways (BA) and Virgin Atlantic supported the Government's position.
We have, however, since learned that Virgin Atlantic support the
Commission's proposals. We have told Virgin Atlantic that we will
correct the situation and, again, I apologise to the Committee
for this misunderstanding. In light of this, we have double checked
and BA continue to support the Government's line. As you are aware,
the European Commission has presented proposals to extend the
scope of the Regulations implementing the competition rules of
the EC Treaty to the air transport sector. The current Regulations
apply only to intra-EEA services. The Commission is empowered
to investigate, take decisions and has sole power to grant exemptions
under Article 85(3) of the Treaty. By contrast, in cases affecting
extra-EEA routes, Member States play the key role in enforcement
under the transitional regime which is provided in Articles 88
and 89 of the Treaty. Article 88 confers on Member States the
jurisdiction to apply competition rules, including sole power
to grant exemptions, whereas by virtue of Article 89 the Commission
may only investigate possible infringements with the assistance
of the Member States and propose appropriate measures to end an
infringement or authorise Member States to take such measures.
The effect of the proposals we are considering today would be
to put an end to the transitional regime in cases affecting extra-EEA
routes and confer on the Commission full powers of investigation,
enforcement, and sole power to grant exemptions. As a result the
Commission would rule on all significant aviation competition
cases, regardless of the market question, and the Member State
most closely involved would lose its locus except for participation
in an advisory Committee composed of representatives of all Member
States. We believe these proposals are premature. In 1987 the
Community took its first steps towards creating the single aviation
market by agreeing rules on market access on routes between Member
States. At the same time competition implementing regulations
were adopted applying only to services between Member States.
When cabotage services were included within the single European
aviation market in 1992 the regulations were extended to apply
to air services within individual Member States, and we believe
that this parallel approach should be maintained. In our view,
exclusive competence to apply the Treaty's competition rules to
air services to and from third countries should be linked to the
competence to negotiate the relevant air services agreements.
With the exception of mandates covering what would, in effect,
be an extension of the Community single aviation market to geographically
neighbouring countries, the Commission has so far failed to secure
the necessary authority from the Council to negotiate air services
agreements with third countries on behalf of Member States. In
our view, it would, therefore, be inappropriate to grant the Commission
exclusive competence to apply the competition rules of the Treaty
to routes between Member States and those third countries. Since
Member States have maintained the right to negotiate bilaterals,
there is no case for extending the scope of the competition regulations.
Thank you.
360. Thank you very much, and thank you
for that initial statement regarding Virgin Atlantic's position.
Indeed, in evidence to us they have confirmed exactly the position
that you have made. Could I just ask you a bit further on this
question of competence and probe slightly more as to why the British
Government are not in favour of the proposed Regulation? In your
supplementary, it is not really an EM—it is supplementary
written evidence which you kindly recently supplied to us—in
paragraph 11, incidentally I am very glad you brought your legal
expert with you because one does get into the most frightful problems
on these clauses——
(Glenda Jackson) Not as grateful as I am!
361. We are still slightly reeling from
this but in paragraph 11, which I find very significant, you say
in the last sentence of that, "By enabling the Community
to intervene in respect of the competition provisions of those
bilateral arrangements"—which you referred to earlier
on—"the proposed Regulations might extend the Community's
competence to negotiate aviation relations with third countries".
Now I think I have been around the tracks long enough—particularly
in this House—to read between the lines as to the definition
of the word "might" which seems to me to infer that
they probably will. Would you like to comment and expand on that?
(Glenda Jackson) It is certainly our perception
that this would enable the Commission to participate in bilateral
negotiations with third countries on air service agreements by
the back door. This is a proposal that they have presented to
the Council. The Council has consistently refused to grant this
political mandate but, if these Regulations did come into being,
it would mean that the Commission would have exclusive and sole
powers in the examination and application of the competition rules
to flights between a Member State and a third country and, therefore,
we believe it would be by this means that the Commission would
be able to actually intervene in bilateral air service agreements
which, at the moment, are essentially within the exclusive powers
of the Member State and the third country. We do not believe this
is an appropriate means. It is actually ceding powers for which
the Commission has not managed to obtain any kind of political
mandate from the Council.
362. Is that therefore one of the main,
if not the main, reason why the British Government are not in
favour of the proposed regulations?
(Glenda Jackson) It is one of two main reasons
why we are opposed to these regulations. The first, which, as
I said, would give exclusive powers to the Commission in the examination
and application of the existing competition rules, would be to
exclude from this process what I would call the local knowledge,
in a sense—the experience, the expertise, the detailed awareness
of the particular market forces which the individual Member State
brings to bear in the present situation. As I have already said,
the second reason is that we do believe this would give the Commission
powers in the negotiation of bilateral air service agreements
for which they have absolutely no political mandate.
363. If I could just home in on that first
reason, I am very interested because it is absolutely consistent
with virtually every piece of evidence we have had—including
that obtained from a very interesting visit to Brussels yesterday
which Lord Berkeley led—and I am sure he will comment on
that in a minute. First of all, by definition, that expertise
is not going to be present in the Commission because the Commission
does not have the authority or the competence, but it is not beyond
the wit of man or woman that that expertise could be seconded
to Brussels. I am not quite sure why that is a prime reason for
objection.
(Glenda Jackson) The present situation where that
expertise is utilised is because there are essentially equivalent
and balancing powers under the equivalent Regulations. If these
proposed Regulations came into being, then the individual Member
State would be excluded. I am not wishing to imply that the skills
of the Commission are less than those of the individual Member
States' departments who have responsibility in competition areas,
but it does seem to us that (a) there would be this expertise
which would be excluded, and (b) there would be the concern that
any such negotiations would, of necessity, be infinitely longer
possibly, because we are, are we not, considering the possibility
where one group within the Commission, within the European Union,
would have exclusive competence over fifteen Member States. I
know there are already allegations that such inquiries take too
long but it is possible that if it was exclusively the Commission,
in a sense the work would not only be doubled or quadrupled but
would be multiplied fifteen times.
364. Could I probe one more point on the
reasons for the British Government's stance? The Commission states
in its memorandum "the existence of these"—by
which they mean bilateral agreements -"is partly responsible
for the lack of competitive pressure on the Community market".
Does the Government take a different view from that?
(Glenda Jackson) We think it is somewhat overstated.
There may be existing bilaterals which are very tightly drawn
but in a sense, if they do have an impact, it is on essentially
short-haul feeder services. If we look at the capacity for expansion
in markets between the EU and third countries, with the exception
of London there are essentially only five long-haul destinations,
five routes, where competition between more than two airlines
is currently borne so we think, in essence, it is somewhat overstated.
365. Could you give us those five?
(Glenda Jackson) That answer would probably better
come from Mr Smethers.
(Mr Smethers) Tokyo, New York, Boston, Chicago
and Los Angeles. Those are the destinations.
366. All ex Heathrow?
(Mr Smethers) No. This is not London.
(Glenda Jackson) These are excluding Heathrow
where there are more services of an international nature. These
are the destinations from points within the European Union, excluding
London. We deem that there would not be any great scope for increasing
competition on other international routes in that way. There are
essentially are there not five major international air market
areas in the world.
367. I said the previous question was the
last one but I want to ask just a vague general one: we are approaching
this enquiry asking whether the proposed Regulations will or will
not increase competition, by which I think we define that as giving
a better deal to the customer. Would you go along with that?
(Glenda Jackson) Clearly the whole purpose of
competition is to ensure that the customer is best served and
that those who can provide those services should not be victimised
by mere size by being excluded from the market by larger players,
but I do not see that the application of these Regulations would
provide any greater assurance for the consumer. The rules have
been agreed; the application of the rules, in a sense, will not
be changed. It is simply that the decision making power would
rest exclusively within the hands of the Commission and, therefore,
the perspective, the perception—if you like the individual
Member State's consumers' perception of what constitutes a better
service for them—could, I would argue, be excluded because
the Commission would have to be arguing from the perspective of
all fifteen Member States.
Lord Berkeley
368. Minister, you opened your introduction
by saying that Virgin Atlantic were supportive of the Commission's
view and British Airways were in favour of the Government's view.
Do you have any explanation as to why that should be and why some
airlines are in favour of Member States looking after their own
interests and others believe that the Commission is better able
to do so? Could I put it to you that this may be connected with
the continuing notion among many Member States that there is a
national airline and therefore the national Government is more
likely to support them than a Community wide institution, where
there might be competition with other national airlines of other
Member States?
(Glenda Jackson) That could be a perception but
certainly, as far as the United Kingdom competition authorities
are concerned, it would be utterly inaccurate. I would strongly
refute the idea that, as I said, the competition authorities within
the United Kingdom would favour one airline over another. There
is no evidence to support that. There is equally no evidence—although
I must admit my experience here is somewhat limited—that
any such situation applies with any other European Union country.
I believe, for example, the competition authorities in Germany
have acted against Lufthansa on two occasions in what, they believed,
to be uncompetitive practices on internal routes within Germany.
Lord Howell of Guildford
369. I was interested in your use of the
word "premature" when we were talking about the proposed
Regulations. Does that imply that there might one day be circumstances
in which the Government would be happy to see these Regulations
adopted and the transfer of powers both in this area, and by extension
and implication to negotiations generally with countries, to Brussels?
(Glenda Jackson) If a mandate was given to the
Commission by the Council to enter into, for example, Community-wide
negotiations with, say, the United States of America, and if a
successful agreement was reached, then, yes, we would be prepared.
That, we think, would be the appropriate way, and why we say that
we think these kinds of regulations are premature—that there
should be this kind of parallel approach to possible Community-wide
negotiation with third countries.
370. So there is not behind the present
stance, as it were, a really fundamental objection that this kind
of new arrangement, if the mandate was available to the Commission,
might actually lead to a less competitive and a more cartelised
European airline structure? That does not worry you?
(Glenda Jackson) I do not know that I would see
it leading to that necessarily. If you are meaning that there
would possibly be, if the Commission had the powers to which we
are referring, more alliances between fewer Community airlines
and the rest of the world's airlines, I would not have thought
that the regulations themselves would have automatically led to
that. I would have thought those kinds of alliances, or proposed
alliances, stem from the actual economic realities of the market
but, as I have said, if there was a mandate granted to the Commission,
if they did successfully conclude a Community/US agreement as
far as air services are concerned, then we could see that clearly
there would be the requirement then for the application of the
competition rules. I must stress here, however, that the Commission
has significantly failed to receive such a mandate up to now—not
least because we do not know what model of mandate is being proposed
in a sense, and there has been certainly no agreement within the
Member States on what model that mandate should be.
Lord Paul
371. Minister, taking this Clause 11, the
last sentence, if this actually happens, what is Britain likely
to lose, especially when we are trying to play a stronger role
in Europe? How are you going to take the perception away from
the newer airlines in other countries that Government will always
play ball with what is perceived to be the national airline?
(Glenda Jackson) If the Regulations came into
force it would not be a loss exclusively for the United Kingdom—it
would be a loss for every single Member State having any say in
the investigation and application of competition rules. I also
do not accept the argument that Member States—and certainly
not this Member State, the United Kingdom—prioritise one
of their airlines over another. Where you do see perhaps market
dominance as far as airlines of a particular nation state are
concerned is because they effectively compete within world markets
and the idea that any airline of any size could, in a sense, be
a global player in that market place is not something that the
market could support. In that, the existing competition rules—or
the rules of the EU in a sense—do not have any part to play.
It is the actual market that decides in that sense.
372. Why is it that Virgin Atlantic is so
upset that they want to follow the Commission rules? They are
a British airline so there must be something in their perception
that is bothering them.
(Glenda Jackson) With respect, I think that should
be addressed to Virgin Atlantic but I would put forward the point
that theirs is not necessarily an objective opinion because they
are in direct competition themselves not only with BA but with
all other airlines, and I can only repeat that I refute very strongly
that the United Kingdom's competition authorities would be, in
any way, partial in the application of the existing competition
rules. It is my somewhat limited knowledge and experience that
there is no such prioritisation of any one airline over another
in any of the other European Member States.
Chairman
373. Given the dominance of the trans-Atlantic
market in this context, would you prefer that these Regulations
applied only to the US—in other words, Europe/US—and
leave other countries out of it just for the time being? Would
that make any sense?
(Glenda Jackson) It does not alter the basic concerns
we have (a) on the first point of the exclusion of the actual
experience and expertise of the Member State but (b) perhaps more
importantly that it seems to us that the Commission would be taking
powers to itself which they had not received the political mandate
for and I think that, on the matter of principle, is probably
the weightier of the two, in a sense.
Baroness Dean of Thornton-le-Fylde
374. You said that, in the Government's
view, these proposals were premature and you explained why. You
talked about the consumer and competition. If these proposals
went through now, what impact do you think they would have on
air transport users? What benefits would there be for them?
(Glenda Jackson) I cannot in all honesty see there
would be any benefits at all. The rules themselves would not change—although
the application of them would be ceded to one exclusive power
base. In a sense, I could conceive that there would be demerits
as far as the consumer would be concerned, simply on the level
of possibly an even longer period before a decision was reached.
We have seen the most recent example where that has been a very
lengthy process and, as I have pointed out earlier, it seems to
me that, if the Commission was exclusively in charge of such competition
procedures, then that process of itself would inevitably lengthen.
We are talking about a market that is very fluid, fast moving,
and highly competitive and if there is going to be an interminable—perhaps
that is slightly exaggerated—a very long period of time
before a decision is introduced, I cannot see that that would
necessarily be to the benefit of the consumer.
Lord Berkeley
375. We took evidence from Mr van Miert
yesterday and officials from DG IV and DG VII. Their view on the
timescale was that, in terms of the complexity of this particular
proposal—and I am talking about the American Airlines/British
Airways' one—they had actually worked very closely with
the Department of Trade and Industry (DTI) (and maybe we should
look at that later) and they had reached unanimity of view with
Margaret Beckett—as they had with the German equivalent
of the Ministry of Transport on the Lufthansa deal. They felt,
considering the complexity of it, it was not considerably longer
than if it had just been done in one particular Member State—the
competition element of it. They went on to comment, and I would
like your views on this, that they felt that the ownership rules
on airlines—and in the US it is, I think, 25 per cent on
maximum foreign and in the European Union I think it is 49 per
cent—was a disincentive because it means allowances rather
than straight takeovers and Mr van Miert was very strongly of
the opinion that the best thing would be a phased scrapping of
these limits—first of all, getting the Americans to bring
their limit up to 49 per cent and then maybe widening it on both
sides on a bilateral basis. Would you support such a move of reducing
these ownership restrictions on airlines in particular Member
States or other countries?
(Glenda Jackson) I understand the argument that
has been put forward but we have no powers to change the United
States' approach to these matters and it is my understanding that,
if such a change in ownership was considered by the United States,
it would require legislation and therefore that, in a sense, is
an internal argument for the United States. There is nothing in
these Regulations, and nothing in any of the Community Regulations,
that in a sense could impact upon that.
376. But coming back on this, Lord Chairman,
obviously you do not have any powers with respect to US legislation
but in negotiations with the US such a subject could be brought
up if it was felt that it would be beneficial to Community based
airlines or British based airlines, freeing them up to get more
business in the United States—eventually it might work the
other way as well, but freeing up the market. I think really Mr
Van Miert was arguing "Why is airline business so different
from any other? Why should it have so many special rules and regulations?
Why should there not be normal competition law applying here and
in the rest of the world?"
(Glenda Jackson) They are very good questions
and I have to say, in certain areas, I would agree with him. Why
is there not? There are obviously national interests, I think,
in these areas but also practical reasons as well why there has
to be a regulatory regime in a sense. No airport in the world
is going to, for ever and a day, be able to accept ever increasing
capacity and it is foolish, is it not, to pretend that every airport
in the world has the same attractions for people flying into or
out of it. Certainly in how independent sovereign nation states
approach these issues, however, (and I take the point on the issue
of ownership which can be raised and I have little doubt that
it is raised), reaching agreement on such issues I do not think
would ever be achieved in isolation. There has to be a much broader
agreement between all the negotiating parties of what are the
desirable outcomes. In some instances, of course, there would
be totally disparate views on what that desirable outcome would
be.
Chairman
377. Can I come back to Lady Dean's point
on timing, or time taken? What you have said is the perception
that, if the negotiations were entirely in Brussels' hands, they
might take for ever and a day—those are my words—and,
indeed, all the evidence we have had until yesterday confirmed
that. All the witnesses said "One entity dealing on behalf
of fifteen members—the mind boggles". As I understand
it, Commissioner van Miert reversed that and said that, in his
opinion, it actually would make things a great deal quicker. Would
you like to comment on that?
(Glenda Jackson) I am tempted to say there is
no evidence to support that statement but that would be somewhat
extreme. I do not in all honesty see how it could be—I will
rephrase that. I could see how it would be quicker but there is
no guarantee, is there, that conclusions after what he would claim
would be a speedier process would be necessarily acceptable. As
Lord Berkeley said, such negotiations, such examinations, are
extremely complex which is why we believe that it is necessary
to have the experience of the Member State present in all such
negotiations. If it devolved exclusively to the Commission, although
they undoubtedly could ask for advice from the individual Member
State and the relevant bodies who are also part and parcel—although
somewhat outside—the exclusive competition authorities in
these issues, that would not of itself necessarily speed up the
process. I think there could be justifiable concerns that the
process itself, because it lacked this kind of input, because
there was no longer the balance of power—and in essence
this is what we are talking about—the decision could possibly
be subject to a perception that it had not taken into consideration
all the very relevant concerns of the particular Member State.
Lord Haslam
378. Lord Berkeley has covered quite a bit
of what I wanted to say. However, I understand Mr van Miert said
it would be better if the airline industry were treated like any
other industry and that view was endorsed by Virgin Atlantic and
consumer groups who have given evidence. I believe that this spate
of alliances that is taking place is making the situation worse
and indeed these alliances are substitutes for mergers in other
industries. The key therefore is exactly what Lord Berkeley was
saying—that the removal of these limits in the US and in
Europe would be one of the essential factors leading to a preferred
solution. I would have thought that the United Kingdom Government
ought to have a view on this. In the US, you have the Open Skies
policy linked to an anti trust immunity and that is a total anathema.
The US has the most strict regime of anti-trust activities on
every other industry but the airline industry. Is it inconceivable
that one could argue quite positively with the US Government that
this immunity should not exist? It seems to me that the Government
ought to be saying there is not too much benefit to be gained
from these new Regulations and we ought to be putting forward
some alternative proposal, ultimately for treating the airline
industry as any other industry.
(Glenda Jackson) But that would pre-suppose that
these Regulations would actually change America's attitude to
Open Skies.
379. I was not suggesting that the proposed
Regulations would change that attitude; I was just saying that
if the Government does not wish to participate in this new approach—and
I too am not very much in favour of it—the key resolution
of this industry, in my view, goes back to resolving this ownership
situation in Europe and the US. I cannot see why the European
Union cannot argue with the US Government about actions which
are so contrary to everything they impose on other industries.
(Glenda Jackson) I have no doubt that such arguments
are, indeed, put forward and I have heard arguments you have been
putting forward to me actually emanating from chief executives
of American airlines and this is obviously something that in the
future would, conceivably, be desirable—always I think,
however, with the caveat, as I have said earlier, that there is
no airport in the world that is going to be able to accept, for
ever, constant expansion. There are considerations there that
are specific to airline operations, not least the environmental
ones. The issue here surely, however, is in essence the powers
and the abilities of the negotiators on both sides of the Atlantic.
We believe we have a really good prospect within a very short
space of time of completing a liberal Air Services Agreement with
the United States. We argue that these regulations would, indeed,
give the Commission the power to actually enter into those kinds
of negotiations. You are looking at a prospect where everything
would have to go on hold, if we were actually arguing for a bilateral
agreement between the US and the EU. Everything would come to
a halt and one could conceive of a very long period of time indeed
before any such agreements could be reached.
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