Appendix 7 US Official Comments on EU
"Open Skies" Ruling
Date: November 8, 2002
U.S. bilateral "open skies" and other
air services agreements with European Union (EU) member states
remain in force despite the European Court of Justice's November
5 ruling that certain provisions of those agreements are contrary
to EU law, says a U.S. Department of Transportation official.
The EU court decision "did not have any immediate
impact on the rights of U.S. and European airlines to continue
to conduct services pursuant to the challenged bilateral agreements,"
Assistant Deputy Secretary of Transportation Jeffrey Shane said
November 8 to an American Bar Association forum in Florida.
Shane described his remarks as "a first reaction,
and largely a personal one," to the long-awaited European
Court ruling. He emphasized that the U.S. government is still
studying the decision carefully and examining its implications.
The court decision affects U.S. bilateral air
services agreements with eight EU countries: Austria, Belgium,
Britain, Denmark, Finland, Germany, Luxembourg and Sweden. The
case was brought by the European Commission, which argued that
EU law gives the Commission sole authority to represent its members
in air services negotiations with third countries and that EU
members' bilateral agreements with the United States are therefore
Shane said the ruling was the subject "of
some of the most galactically erroneous reporting in recent history."
Contrary to many press reports, he said, the European Court "did
not strike down" the bilateral agreements nor did it prohibit
EU member states from continuing to conduct negotiations with
the United States in their own right.
Instead, the court decision focused on specific
provisions of the bilateral air services agreements dealing with
four areas: 1) the allocation of airport slots; 2) the pricing
of intra-European air services; 3) the rules governing computer
reservation systems established in EU territory; and 4) restrictions
on airlines owned by nationals of EU member states that are not
party to the bilateral agreement.
Of those areas, Shane said, the fourth -- dealing
with nationality clauses -- was the most interesting and potentially
far-reaching element of the decision.
He said that press reports on this question had
mischaracterized overall U.S. aviation policy as seeking to restrict
competition. In fact, he argued, the United States has over the
past decade sought Open Skies agreements with as many partners
as possible, and has concluded 59 such agreements, including 11
with EU member states.
With respect to the air services agreements that
were challenged in the European Court, Shane described the nationality
provisions as "permissive," and said the United States
has sometimes waived its objections under such clauses "in
the interest of ensuring fuller participation in the aviation
market by certain trading partners and to encourage competition."
He also pointed to U.S. agreements "with partners from Scandinavia
to Africa to the Caribbean" that explicitly accommodate operations
by airlines under multinational ownership.
As further evidence of the United States' willingness
to seek "creative" alternatives to nationality clauses,
Shane cited the U.S. multilateral Open Skies agreement with Brunei,
Chile, New Zealand, Singapore and, most recently, Peru. The agreement
is "notable," he said, because it expressly prohibits
any signatory country from objecting to operations by an airline
that does its principal business in that country but is owned
Shane also touched on the question of possible
U.S. aviation negotiations with the EU, as an entity, following
the European Court decision. While the decision did not confer
a negotiating mandate on the European Commission, the United States
"is not celebrating that fact," he said. U.S. officials,
he added, "have said for many years that we look forward
to the day when U.S.-EU negotiations will be possible."
Following is the text of Shane's remarks as prepared
OPEN SKIES AGREEMENTS AND THE EUROPEAN COURT OF
I am very happy to be here this morning -- and for
more reasons than you might think. As I explained at the Forum's
last meeting in Washington earlier this year, when I re-entered
public service I was told I had to resign prematurely as Chairman
of the Forum. I felt pretty guilty about that. My term, and the
heavy lifting that goes with it, had only just begun. I felt that
I'd managed to add the Forum Chairmanship to my resume without
really earning it. Under the circumstances, therefore, the arrival
of the Forum's invitation to speak to you today carried special
meaning: it meant I'm not persona non grata around here after
all. That's a great relief.
As you know, the European Court of Justice issued
a very important and long-awaited decision three days ago. Because
it was immediately the subject of some of the most galactically
erroneous reporting in recent history, I want to offer you some
facts about what the decision actually said -- at least as I understand
it -- and some very preliminary thoughts about its implications
for the future of trans-Atlantic aviation relations. I should
emphasize, of course, that the U.S. Government is still studying
the decision carefully and thinking hard about its implications.
These remarks, in other words, are essentially a first reaction,
and largely a personal one.
The case arose in 1998 as an effort by the European
Commission to establish the proposition that bilateral air services
agreements between individual Member States of the European Union
on the one hand and countries outside the EU on the other -- notably
the United States -- are contrary to EU law. The Commission argued
that only it had the legal authority -- or "competence"
in EU parlance -- to represent the Member States in the conduct
of air services negotiations with third countries.
U.S. airline officials often discuss the U.S. Government's
competence to conduct aviation negotiations, but I suspect they
are not talking about our legal authority.
Anyway, the Commission's theory was that, within
the EU, competence -- legal authority -- for the conduct of aviation
relations with third countries has been vested in the Commission
since the mid-90's, when the so-called "Third Package"
completed the establishment of a single aviation market within
the EU. The Commission argued that seven bilateral Open Skies
agreements forged between particular Member States and the U.S.
subsequent to that time -- and the U.S.-U.K. air services agreement
-- were contrary to EU law. According to the Commission, the Member
States simply did not have the legal authority to enter into those
A lot of speculation preceded the issuance of the
decision -- particularly on this side of the Atlantic. What if
the Court agreed with the Commission and invalidated our bilateral
agreements? Would U.S. airlines continue to enjoy the rights they
have to serve European destinations and beyond? Would European
airline services to U.S. communities be interrupted? Would U.S.
and European airlines still be able to price their trans-Atlantic
services without worrying about regulatory restrictions as they
can today? Would they be allowed to maintain productive trans-Atlantic
marketing and code-sharing alliances, which are predicated most
importantly on the guarantee of unrestricted market entry and
the open route descriptions that are central features of every
Open Skies agreement?
What if EU Member States were prohibited from conducting
bilateral negotiations with the U.S. in their own right, but the
Commission did not yet have authority to negotiate on behalf of
the EU as a whole? We'd have nobody to negotiate with.
Mirror-image concerns, of course, were expressed
Last Tuesday, November 5, we got the answers. The
European Court of Justice rendered what American lawyers would
call a "surgical" decision. Contrary to a great many
headlines that appeared in the press, it did not strike down the
bilateral agreements that were the subject of the Commission's
complaint. Nor did the Court prohibit EU Member States from continuing
to conduct negotiations with the U.S. in their own right. The
Court certainly did not -- and indeed could not -- confer competence
on the Commission to conduct negotiations with the U.S., a political
decision that can only be taken by the EU Council of Ministers.
And most importantly, the decision did not have any immediate
impact on the rights of U.S. and European airlines to continue
to conduct services pursuant to the challenged bilateral agreements.
Instead, the Court found that certain specific types
of provisions in those bilateral air services agreements -- because
they implicated subject matter that is now the subject of internal
EU regulations that address the rights of non-EU nationals --
are contrary to EU law.
Specifically, provisions in bilateral aviation agreements
that the Court found objectionable were those that:
-- addressed the allocation of slots;
-- governed the pricing of intra-European air services
-- so-called "fifth freedom" pricing provisions;
-- addressed computer reservation systems; and
-- reserved the right to operate services under the
bilateral agreements in question only to airlines substantially
owned and effectively controlled by nationals of the EU Member
State that is a party to the agreement.
I know that assessments of the decision from this
side of the pond are not likely to be of great interest either
to the European Court of Justice or to the Commission, but I have
to say that, to this observer at least, the decision seems entirely
unsurprising. Indeed, American lawyers will be reminded of our
own doctrine of pre-emption: the well-established principle that
state governments are prohibited from legislating with respect
to any subject area "occupied" -- and thus pre-empted
-- by our national government. Aviation lawyers in particular
know about the principle because of a number of important decisions
-- including some by the U.S. Supreme Court -- relating to whether
and to what extent state governments retained the ability to regulate
airline behavior following Congress's passage of the Airline Deregulation
Act in 1978.
What the European Court said -- if I can paraphrase
it in American terms -- was that certain aspects of civil aviation
have been pre-empted by EU regulations, and no EU Member State
has the ability to agree to any provision in an air services agreement
that runs counter to those regulations. Conversely, those aspects
of aviation that the Commission has not pre-empted through regulations
remain legitimate fodder for bilateral negotiations.
Many of the press stories earlier this week said
that the Court struck down "central features" of the
aviation agreements between the U.S. and the eight EU Member State
Let's examine that proposition. As most observers
of the aviation negotiating process know, there is only one feature
of any bilateral agreement that can legitimately be termed "central."
That is the provision that spells out the traffic rights made
available by the agreement. These agreements are mainly about
one thing: the operation of commercial flights between the territories
of the contracting parties, as well as operations from the other
party's territory to the territories of non-contracting parties.
Without traffic rights, there would be no purpose in having any
agreement at all. Traffic rights, in a real sense, are the whole
point of an air services agreement.
The European Court of Justice did not find the provisions
awarding traffic rights to be contrary to European law, except
in one respect that I will come to in a moment. So the most central
feature of all was not struck down by the decision.
Let's consider, then, the provisions that were struck
First, provisions relating to the allocation of airport
slots were held to be contrary to EU law. But the Court also found
that not one of the bilateral agreements that were the object
of the Commission's complaint contained any such provision. So
no action is necessary on that score.
Second, provisions governing the pricing of intra-European
air services were also held to be contrary to EU law.
In an earlier day, when airplanes had much shorter
range and Fifth Freedom operations represented an important factor
in the conduct of economically viable air services, the U.S. fought
hard to secure the ability of U.S. carriers to be price leaders
in those so-called "beyond" markets. The provision therefore
can be seen as a vestige of a bygone era.
Today, particularly in Europe, U.S. combination carriers
have mostly abandoned Fifth Freedom operations in favor of code-shared
connections with alliance partners. Moreover, the EU itself no
longer regulates prices for intra-European air services, so that
even all-cargo operators -- those who might otherwise want to
retain the comfort provided by those Fifth Freedom pricing provisions
-- can rest easy. And finally, because most of our open-skies
agreements with EU member states already recognize that EU law
does not entitle U.S. airlines to be price leaders on intra-EU
routes -- the agreements even cite the relevant EU regulation
-- the ruling actually doesn't affect the pricing opportunities
actually available to U.S. airlines today. It is hard to argue,
in other words, that these very narrow provisions relating to
Fifth Freedom pricing are in any way essential to the integrity
of our Open Skies agreements.
Third, the Court found provisions dealing with computer
reservation systems objectionable because, again, there are EU
regulations on the subject. I know a lot about those provisions
because I negotiated a few of them during the 1980's when I was
at the State Department. They were important provisions then for
two important reasons: First, a few U.S. carriers owned their
own systems and felt that they could not compete fairly in Europe
unless they were in a position to place their systems in European
travel agencies alongside the systems owned by the competing national
carriers. Second, the U.S. Government was concerned about the
serious bias that it found throughout the European systems at
The situation today is quite different. First, no
U.S. airline owns a CRS [computer reservation system] solely in
its own right. Second, as the Court found, the EU does indeed
have regulations governing the CRSs deployed in EU territory.
The U.S. and the Commission have sparred from time to time over
whether EU rules are overly prescriptive and thus impede innovation.
That debate aside, we can certainly acknowledge one important
feature of those rules: Their underlying purpose is to ensure
fair competition. Indeed, our European counterparts think their
rules are better than ours in that regard. The point now is not
whether EU rules are better than U.S. rules or vice versa; the
point is that we both have rules! Some of our open Skies agreements
even include an explicit statement acknowledging that in the event
of a conflict between EU rules and the rules set forth in the
agreement, our EU partners will have to abide by the EU rules.
Again, therefore, the continuing requirement for these CRS provisions
in Open Skies agreements with our EU trading partners seems open
Finally, the European Court held contrary to EU law
all provisions allowing the U.S. and our EU trading partners to
prohibit air services under a bilateral agreement by any airline
that is not a citizen of the EU Member State party to the agreement.
Because EU law, dating as far back as the Treaty of Rome, includes
the right of establishment and national treatment for all Member
States, any provision in which an EU Member State agrees to allow
the United States to veto services by an airline owned or controlled
by citizens of a second EU Member State represents discrimination
by the first Member State against the second. In other words,
Germany is not allowed to discriminate against the airlines of
France by agreeing that the U.S. may reject services offered between
Germany and the U.S. by any carrier that isn't substantially owned
and effectively controlled by German citizens -- which Air France
certainly is not.
This is the element of the Court's decision that
is most interesting and that is likely to have the most far-reaching
The first thing to be said about this finding is
that it's all about Europe; not about the U.S. To refer again
to the press, I've seen accounts suggesting that the clever Americans
have established a huge advantage over our European trading partners
by retaining these nationality clauses in our bilaterals. That
characterization misses some very important points about U.S.
First, as you know, U.S. policy since 1992 has been
to seek Open Skies agreements with as many partners as possible.
We are up to 59 such agreements, including eleven with member
countries of the EU. When the U.S. signs an Open Skies agreement
with another country, it agrees to allow airlines of that country
to fly to any airport in the vast landmass of the United States
from anywhere in the world, usually subject only to the requirement
that the flight serves a point in the carrier's home territory.
Because the U.S. has Open Skies agreements with eleven EU Member
States, we have already agreed that flights from the airlines
of those countries can depart Europe from any city in any of those
Second, the offending nationality provisions are
permissive. In other words, they do not require the U.S. to reject
a carrier originating flights to the U.S. from a country on the
ground that it isn't owned and controlled by citizens of that
country. Indeed, the U.S. from time to time has waived its objections
under such clauses in the interest of ensuring fuller participation
in the aviation market by certain trading partners and to encourage
competition. And we have agreements with partners from Scandinavia
to Africa to the Caribbean in which we have worked out understandings
that explicitly accommodate operations by airlines characterized
by multinational ownership.
Finally and most important, we entered into a multilateral
Open Skies agreement a couple of years ago with four of our partners
in APEC -- the Asia-Pacific Economic Cooperation forum. The partners
are Brunei, Chile, New Zealand, and Singapore. Peru acceded to
the agreement earlier this year and we have actively encouraged
other trading partners -- both within and outside of APEC -- to
join as well.
That agreement is notable for its departure from
the conventional approach to airline nationality. The agreement
expressly prohibits any signatory country from objecting to operations
by any airline that has its principal place of business in the
country from which its flights originate on grounds that it is
not owned by citizens of that country. The airline must be controlled
by such citizens, and the benefit is available only to airlines
of countries that are parties to the multilateral agreement, but
the agreement nevertheless represent a significant step forward
in the liberalization of the traditional nationality clause.
I hope that I have made clear here today that the
United States is prepared to look creatively at nationality clauses.
We certainly do not treat the traditional formula as sacrosanct.
The last point I would make about the Court's decision
relates to the prospects for conducting negotiations with the
EU as an entity. As I indicated earlier, the Court did not and
could not confer a negotiating mandate on the European Commission.
But the U.S. is not celebrating that fact. We have said for many
years that we look forward to the day when U.S.-EU negotiations
will be possible.
The U.S. quest for liberalization in air services
has not abated. In Europe and elsewhere, we have sought that liberalization
wherever we could find it. We might have saved a lot of money
and a lot of time if we could have negotiated with the Commission
in Brussels instead of conducting talks with the Member States
one by one. But negotiating separately with each Member State
has resulted in a broad array of trans-Atlantic air services that
are already largely deregulated -- at least compared to the regimes
in place a decade ago, prior to our first Open Skies agreement
with the Netherlands. The bilateral option is still available
to the U.S., and you can be sure that we will continue to pursue
it where further market opening initiatives appear to be within
The question now is this: How can we take liberalization
to the next level? In my judgment, an essential prerequisite is
a like-minded partner on the other side of the negotiating table
that represents an airline industry and an aviation market comparable
to our own. The EU airline industry, taken as a whole, and the
EU aviation marketplace, taken as a whole, certainly satisfy that
test. Will it be a long, difficult negotiation? Of course. Will
we need time to transition to a more liberal regime? Probably.
But such negotiations would compel both sides to think seriously
about how the trans-Atlantic market can be made more robust and
competitive. And the end result, by creating a more open market
and the economic and structural opportunities that come with it,
will be a healthier airline industry and increased consumer welfare
on both sides of the Atlantic.
We have no control whatsoever over the timing, form,
or content of a possible Commission mandate. We will continue
to watch and wait. Some speculate that this week's decision by
the European Court of Justice will accelerate the delivery of
a mandate to the Commission. We look forward to hearing from our
European counterparts whether they think that will happen, and
if so, when.
Many thanks for allowing me to share these thoughts
with you this morning.
(Source: the Office of International Information
Programs, U.S. Department of State.)