CHAPTER 6: conclusions of the Committee
The ECJ Judgments
111. The declared reason why the Commission took
Member States to the Court was to ensure that ASAs were consistent
with the single market rules and to address matters of Community
competence. However, it may well have been, in part, to put pressure
on Member States to grant the Commission a mandate and a locus
standi in what had hitherto been an almost exclusive preserve
of Member States.[72]
The Commission has pointed out that the growth of competition
policy and commercial policy has inevitably leaked into aviation.
It is no longer feasible to exclude aviation as was once thought
possible. However, whatever the Commission's intentions, the outcome
has been claimed as a victory by both sides. The Court has found
Member States in default on specific clauses in their existing
ASAs, but, at the same time, has reiterated the competence of
Member States to conclude bilateral ASAs.
A "First" Mandate for
the Commission
112. In our view, this now requires a fresh look
at the way in which ASAs are handled. There is clearly mixed competence,
and the balance between Member States' competence and the areas
of Community competence is likely, over time, to move in the direction
of the latter. However, in the short term, our concern has been
to address the specific issues on which the Court found the eight
Member States wanting. Should Member States try to bring their
ASAs to conformity with the Court's judgments, or should the Commission
be given a mandate as it has proposed in its Communication of
26 February 2002? We have concluded that it makes more sense
for Member States to concede a mandate to the Commission to deal
with the amendments to ASAs to take account of the ECJ judgments.
The most persuasive argument in favour of a mandate for the Commission
is that this is the only way, in our view, that changes can be
brought about uniformly and at the same time.
A Wider Mandate
113. We have also looked at the wider issue of
a second mandate for the Commission to conduct a renegotiation
of all EU Member State ASAs with the United States in the first
instance, and later perhaps with Russia, Japan and others. Here
again, we have concluded that the arguments in favour of a Commission
mandate outweigh the case made by those who would prefer to stick
to a mixed bag of bilateral ASAs. The Commission can deploy more
weight, and might well achieve concessions in areas where the
Member States individually have so far been unsuccessful. But
we recognise that even armed with a mandate, a full negotiation
on these issues, which include cabotage, cargo, wet-leasing, ownership
and control, and the right of establishment will take time. We
think it important, therefore, that the first mandate mentioned
above should be granted as soon as possible provided that the
conditions set out in paragraph 51 are adhered to—and certainly
no later than the June 2003 Transport Council.
Liberalisation
114. Whilst superficially it may appear that
the benefits from greater liberalisation that the Brattle Report
examined could be to a significant degree achieved by an EU/US
"open skies" type of agreement, and that such an agreement
could be achieved more quickly because it was manifestly in the
interests of the United States, it would not remove other distortions
in market opportunities which currently favour US airlines. Nor
would it address key issues of ownership and access to international
capital. In our opinion, therefore, HMG should ensure that a wider
mandate is designed to bring about a fully liberalised Trans-Atlantic
Common Aviation Area, and to include those areas currently subject
to United States and EU legal restrictions. This would include
the ability to buy into American airlines, to wet-lease to American
clients for all-cargo operations to obtain internal US cabotage
rights. We recognise that this wider requirement will inevitably
take time, but we think it is worth waiting for.
Competition
115. Liberalisation will not, in itself, necessarily
bring economic benefit either to the economy or to the airlines.
There is currently excess capacity in global aviation and many
airlines survive because the bilateral ASAs support the existing
international route system. But many also survive on subsidies,
hidden or overt. We have indicated some of the latter, especially
in the USA, in paragraphs 72-74, but there is also believed to
be a range of practices in some EU Member States, which are tantamount
to hidden subsidies, often in defence of national airlines. Until
such practices are rooted out, many of the benefits of an open
market through transparent competition on a level playing field
will fail to come through.
116. There is widespread agreement that the airline
industry requires a degree of consolidation in both the USA and
the EU, while at the same time enabling new airlines to emerge
in a competitive environment. If airline consolidation and restructuring
is to take place within and between the USA and the EU, the relevant
competition authorities on both sides of the Atlantic will need
to reflect further upon the application of competition policies
to the aviation industry, especially in the international context.
Denouncing Existing ASAs
117. The Commission has demanded that Member
States denounce existing ASAs with the United States as a necessary
prelude to any negotiation with the United States, both on the
infringements identified by the ECJ, and on negotiation to a wider
liberalised EU/US aviation market. Given that the United States
has already indicated that it is willing to negotiate in both
areas, it seems to the Committee unnecessarily confrontational
at this stage to denounce ASAs in the way proposed by the Commission.
An Opportunity
118. The Committee concludes that the Government
and other Member States should give two mandates to the Commission:
the first, to remedy the specific breaches of Community law identified
by the ECJ in its judgments of 5 November 2002; the second, to
address the imbalance in the existing ASA system between the United
States on the one hand and the European Union on the other. The
Government is right to be cautious. Heathrow is the priority target
for the Americans, and we cannot expect our European competitors
to make our position any easier. The main constraint is the limited
capacity at Heathrow, and the intense competition that this generates
for slots. These are matters of considerable importance for the
Government, the aviation industry and the United Kingdom economy.
Nevertheless, we think that the ultimate benefits that would flow
from a fully liberalised Trans-Atlantic Common Aviation Area could
outweigh the potential disadvantages of widening access to Heathrow
(see box 6). The Government has argued that any mandate to the
Commission should not be exclusive, and that Member States should
have the right to negotiate bilaterally if they think the mandated
negotiations are unlikely to succeed. We are not convinced that
this is a sustainable argument: there are areas of Community competence
where the Member States no longer have the right to take action,
and even on the matter of the "nationality" clause,
there are divided opinions about whether or not Member States
could act separately from the Commission.
119. Having said this, it is, in the view of
the Committee, important that this opportunity be seized. We sense
that witnesses such as Virgin Atlantic are right when they describe
this as an historic opportunity to change the nature of civil
aviation away from a highly regulated market to an open and liberalised
one. We recognise it cannot happen quickly, but we note that action
to deal with the matters raised by the ECJ Judgments has to be
taken quickly. We urge the Government, therefore, to attempt
to achieve agreement at the June Transport Council so that negotiations
can be opened quickly thereafter with the Americans on these specific
issues.
120. We also see benefit in Member States granting
the Commission a wider mandate to negotiate an EU/US open aviation
area. We agree strongly with the Government that this negotiation
must not settle for anything less than full liberalisation—an
extension of the US "open skies" system will not lead
to the type of consolidation in the airline industry and restructuring
of that industry that will ultimately bring the fullest economic
benefit. However, we urge the Government to keep the objective
of a fully liberalised aviation market firmly in its sights. We
think that the economic benefits to the United Kingdom economy
will justify risks taken in negotiation to achieve them.
- The Committee considers that the European Court
of Justice judgments and their effect on existing bilateral air
service agreements between EU Member States and the United States
of America raise important questions to which the attention of
the House should be drawn and makes this Report to the House for
debate.
72 See M. Ayral's oral evidence, Q 178. Back
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