Examination of Witnesses (Questions 380
THURSDAY 9 JULY 1998
JACKSON, MP, MR
and DR MIREN
380. Can I follow that up? In the press
release issued yesterday on the proposed BA/AA allianceand
I may say it is some relief to this Committee that we can at last
talk about that, because we had an embargo on that subject until
yesterdayat the end of that release the Commission has
said the United Kingdom authorities "shall permit all EEA
carriers to enter air transport markets between the US and the
United Kingdom under conditions of tariff freedom". It may
be that we do not understand these things but that seemed to me
to be a huge opening. Would you like to comment on that?
(Glenda Jackson) As you are aware, the competition
analysis is for the DTI but, in essence, the Commission have made
it clear that their approval of the alliance is subject to conditions
and one of those is that the new liberalised bilateral arrangements
should be concluded. This is also the position of the United States'
Government. However, I have to say that it should be remembered
that negotiations with the US are a two-way process which is why
there is the requirement on both sides of the Atlantic for these
381. Let me come back to something that
has really puzzled us. On the evidence received yesterday it was
very clear that it was the DTI that, in our opinion very logically,
was leading the negotiations or were the negotiating department
with DG IV. Yet when we came to discussion of those regulations
within the United Kingdom, we got very strong advice from your
Department and the DTI that it is the Department of the Environment,
Transport and the Regions (DETR) that is leading and it is the
DTI supporting the DETR. To put it bluntly, we are confused.
(Glenda Jackson) So am I! My Department is not
the lead department in any competition issuethat is the
DTI. Clearly DETR, which does have aviation as part of its transport
remit, is interested but the actual power rests with the United
Kingdom's competition authority and the lead department there
is the DTI.
382. Maybe this is a very unfair question,
and if it is I apologise but, as I understand it, when our Clerk
very rightly approached the two respective departments as to who
was actually the one going to speak on this subject, both departments
said the DETR. The DTI referred to your Department and your Department
picked up the ball. So I am now even more surprised.
(Glenda Jackson) I presume it is because what
is being proposed in these regulations requires a decision from
the Transport Council of the European Union and that is most certainly
the responsibility of my Department.
383. As the discussion this morning has
continued, I have been getting more and more confused on the competence
issue. As I understand the position, the power to conclude bilaterals
by individual Member States exists at the moment but it is subject
to Articles 87 and 88 of the Treaty which, in effect, give an
overlooking power to the Commission to hold a watching brief,
as it were, of what the individual Member States are up to and,
if they then want to, to interfere. Is that right?
(Glenda Jackson) My understanding is it is Articles
85 and 86 which give the powers to the individual Member States
to act, not independently, but to conduct bilateral negotiationsbut
I do have Dr Letemendia with me who is our legal expert and perhaps
it would be more appropriate if she filled in on this particular
(Dr Letemendia) The first part of your question
concerned the power of Member States at the moment to conclude
bilateral agreements and that is a matter of external competence
in the air transport sector. It is separate from the question
of competition law and the application of competition rules.
384. But there is no doubt about it, so
I was right as far as that part goes, was I?
(Dr Letemendia) Yes. In relation to the application
of the competition rules to air services between the Community
and third countries, the Community has not yet (or the Council
has not yet) granted the Commission full implementing powers so,
at the moment, it does not have the legislative authority to take
full decisions and grant exemptions in respect of air services
between the Community and third countries. So that is what we
are discussing at the moment.
385. Nonetheless, are Member States not
bound by the Treaty to support the position that the Council takes
at any particular moment and not seek to jeopardise itas
long as it is within the rules which have been given to the Council?
(Dr Letemendia) I think that is probably a rather
wide interpretation of an obligation contained in Article 5 of
the Treaty. I do not think Member States would accept they have
a duty to grant these powers.
386. Would you like to redefine, from your
own point of view, what I have just said?
(Dr Letemendia) I think we indicated in our written
supplementary evidence that Member States are bound to respect
the principles of competition law, Articles 85 and 86, but that
does not necessarily mean that they have an obligation to grant
the Commission the powers that it is seeking.
Chairman] I think
we had better hold it there. We are in danger of getting extremely
technical. We do, of course, have our own legal adviser who is
quite learned on this subject. I think we will pursue this internally.
I am conscious of the clock and the importance of your time.
Lord Thomas of Macclesfield
387. I am really concerned for you and the
Government inasmuch as do you feel comfortable with the facts
we are being given at the moment - bearing in mind when we do
our report it can only reflect what we have been toldand
the facts we have been given at the moment are that the only people
who have come here and who have categorically said that this is
a competitive industry is British Airways and yourselves. I find
that very strange. Other airlines do not say that - in fact, they
say the opposite. The Commissioner does not think that. The German
cartel office do not think that. Indeed, the evidence we have
had is that it is a complex monopoly situation. It is not only
slots and equality of slots but also ownership, ground handling,
business travel, frequent flyers, travel agents, computer reservation
system (CRS) displays and large corporate agreements. We are talking
here of multiple monopolies, not just one, acting against the
interest of the consumer. Clearly these are agreements not developed
in the interest of the consumer. That is one issue which I feel
uncomfortable about. Secondly, in terms of what I understood from
the Commissioner yesterday, there are block exemptions by which
I understand to mean that there is the ability for every sovereign
country and carriers to enter into an agreement which, if they
fall within the definition of the block exemptions, are OK and
they would only be called in if the Commission thought they were
outwith the flavour of those block exemptions, so I am really
puzzled as to why the Government wants to hold the view that this
is a nice clean industry, when everybody else tells us it is not.
(Glenda Jackson) I must admit I am not quite clear
where you are seeing the lack of competition. We have within the
European Union the single aviation market. What we are being asked
to consider are proposals that would actually impact on competition
between the European Union and a third country and we would argue
that, for the Commission to take exclusive powers in this area
excluding individual Member States, is not in the best interests
of either the Member State or, in effect, to take your argument,
the consumer. Our other concern is, as I have said, by this means
we believe that the Commission would actually take upon itself
the powers to participate in bilateral negotiations which is a
power which the Member States of the European Union have consistently
failed to cede to them but I am not clear why you think this is
an industry where there is no competition.
388. If you take the evidence, as we have
done, in terms of the small carriers trying to enter the market
place, the view of the Government is "Hands off" and
the status quo is actually showing preference to the main airline
in any one country at any one time. It is not treating airline
carriers equally. It is not promoting competition or new entrants
to come in and establish a market share.
(Glenda Jackson) But within the European Union,
if that was deemed to be the case, then clearly that would be
an infringement of the existing competition rules and success
or failure of a small airline attempting to enter that market
place is precisely on competition grounds - whether they can or
cannot manage to attract customers away from the existing airlines.
I cannot agree with you that competition does not exist because
we have seen within the European Union itself a growth in airlines
that strip their services down to the very bone so that what you
buy is, in many instances, an infinitely cheaper ticket than that
available on existing airlines because that is the kind of service
they are providing. It is easy to get on to them; they take you
directly where you want to go from where you happen to be, and
we have seen an increase in the competition in the presence of
those kind of services within the European Union. The issue we
are considering today, however, is the issue of competition outside
the single European market where individual Member States wish
to enter into bilateral agreements with third countries and I
would have thought it could be argued that this is in the interests
of the consumer because increasingly what we are seeing is that
the consumers wish to be able to make single journeys. They wish
to be able to get on in a particular airport and be carried to
their destination in a single journeysetting aside obvious
requirements of aeroplanes having to re-fuel and so on. What we
are concerned about is that this is a way for the Commission itself,
without being given the valid mandate from the Member States,
to enter into those bilateral negotiations.
389. Are you saying that the different sovereign
states would then be prevented from entering into new bilateral
agreements because, as I understand it, they still have the freedom
to do that?
(Glenda Jackson) Their power, in a sense, would
have been superseded by the Commission because the Commission
would then be central to those actual, direct, bilateral negotiations
between one sovereign state and another and, as I have said, the
Council has consistently refused to give this mandate to the Commission.
I have said, however, that if such a mandate was ceded to the
Commission on the part of the European Union, for example, to
enter into US/EU negotiations and a successful negotiation was
concluded, then we think that is the time when these kinds of
Regulations could most appropriately be introduced. I have to
say though, again, the Council has not ceded these powers to the
Commission; there is no agreement yet on the type or model that
such a mandate could take; there is disagreement within the fifteen
Member States on what form that model should be and we do believe
that these Regulations are a way of the Commission taking to itself
powers which the Council has significantly failed to cede to it.
390. We have heard a lot about slots and
the methods of allocation and trading between various companies
of slots, which is strictly illegal and hotly denied by many people.
Would you care to comment on that? What is your Department's view
on the matter?
(Glenda Jackson) We believe the current regulations
are not sufficiently clear to make it absolute that slot trading
is illegal and any such definitions of illegality in this area
are for the interpretation of the courts but we are waiting for
the Commission to put forward its proposals which we hope will
be sometime this summer on the whole issue of slots and slot allocations.
We have been at the forefront of urging the Commission to consider
the regional requirements as far as slot allocation is concerned
and when we see their proposals then we will examine them closely
and present our views on them. We hope that will be this summer.
391. Does the Department have any view on
who owns the slots?
(Glenda Jackson) Setting aside the existing situation
whereby there are grandfather rights when slots are moved around,
we are very clear the Government does not own them. As you know,
the present situation is that the allocation is within the remit
of the Commission which is why we are awaiting with some interest
their proposals on how the whole issue of slot allocation is going
to be viewed in the future because there have been concerns expressed
which we share, certainly as far as regions are concerned and
the peripheral nature of some of our regions, which find it impossible
to obtain slots in some of our airportsparticularly in
the south east of the country.
Chairman] You said
quite clearly the Government do not own them. The airlines have
told us equally clearly they do not. Who does?
392. Maybe it is the airport operators who
own them. I was interested, Minister, in your statement just then
that the allocation responsibilities were the EC's.
(Glenda Jackson) No. The actual allocator of slots
for airports is the airport co-ordinator but, as I say, we do
wish to see the whole issue of slot allocation reviewed which
is why we are waiting, with some anxiety, I think, the proposals
that are going to emanate from the Commission.
393. I personally would certainly support
you looking into the needs of regional airlines because I think
that is important.
(Glenda Jackson) We have certainly been at the
forefront in urging the Commission to look at that.
394. So the allocation and implementation
of Mr Van Miert's instruction to reduce the AA/BA slots by 267
would be in the hands of this co-ordinating body in the United
Kingdom, would it?
(Glenda Jackson) The actual dissemination of them
throughout the other airlines in particular airports, yes.
395. This is Heathrow and Gatwick, is it
(Glenda Jackson) Yes.
396. Could we finish on two general notes.
My first question is almost philosophical. What do you think the
Commission is trying to achieve by promulgating these Regulations?
Is there any significance in the timing of bringing those forward?
(Glenda Jackson) I really cannot answer. I believe
only the Commission could answer those questions. As I have said,
Lord Chairman, it is our perception that this is a means by which
the Commission would wish to take to itself powers to enter into
bilateral negotiations with third countries. It could well be,
because they have not in the past received the political mandate
from the Member States, as I have said, this is a way of attempting
to achieve that. Why they have chosen this particular time, again
I am in no position to be able to answer in any informed way.
It could just be that they are wishing to make a particular attempt
in this area at this time.
397. Thank you. That was, if I may say so,
a very good answer. It has also led me straight into the second
question and that is the one of political mandate. Can you give
us any steer as to how you think other Member States of the EU
are reacting to this politically? Put it another way, what chance
do you think it has of getting through?
(Glenda Jackson) It has not so far.
398. I am aware of that, Minister!
(Glenda Jackson) Actually, I misinterpreted your
question. You were referring to these particular Regulations.
I was referring to the powers of the Commission to participate
in bilateral negotiations with third countries. That is something,
as I have said, that the Member States have denied. It is my understanding
that there is widespread opposition to these particular Regulations
throughout the whole of the European Union. I do not believe that
there is a major grouping within the 15 Member States that will
look with approval on these proposals.
399. Would it be fair to interpret that,
that you do not think they are going to get through?
(Glenda Jackson) I would hesitate to speak on
behalf of my colleagues within the Council. I can only speak from
the perspective of Her Majesty's Government. Our approach to these
proposals: as you know we do not favour them, and it is our understanding
that there is no broad support for these Regulations within the
400. On that note, Minister, thank you very
much indeed. I think, by definition, the fact that we have been
going for an hour absolutely underlines the quality of the replies
that you have given to us, and we are very grateful both to you
and your colleagues.
(Glenda Jackson) I am very grateful to you. However,
I would argue that it is the quality of the questions.
401. I love the mutual self-congratulation
society. It is one of the best I have ever been in.
(Glenda Jackson) Thank you very much.