The Future of the Open Skies Agreements after the ECJ judgements - Legal and Economic Aspects

Table of Contents

Introduction

1. The Chicago Convention of 1944: The foundations of international civil aviation
1.1. The doctrine of airspace sovereignty and bilateralism
1.2. Exceptions to the doctrine of airspace sovereignty: The five freedoms of the air
1.2.1. The doctrine of cabotage
1.2.2. The doctrine of nationality
1.3. The International Civil Aviation Organization
1.4. Evaluating the outcomes of the Chicago Convention

2. Beyond the Chicago Convention
2.1. The practical application of the Chicago Convention : Bermuda I and II
2.2. The emergence of the Open Skies policy
2.3. The structure of the Open Skies agreements

3. The emergence of the Common European aviation market
3.1. The role of the European Commission in the air transport agreements with third countries
3.2. The impact of the ECJ Judgement of 5th Nov. 2002 on the Open Skies agreements
3.3. Developing a common EU approach towards Open Skies
3.3.1. The dilemma of the Member States
3.3.2. A new role for the European Commission- Pro´s and Con´s for a Commission negotiation mandate

4. Approaches for reconceptualizing the air transport regime between the European Union and the United States
4.1. A Transatlantic Common Aviation Area versus a multilateral Open Skies agreement
4.1.1. Selected economic aspects of a TCAA
4.1.2. The failure of a first step agreement
4.2. The tentative accord of November 2005
4.3. Future scenarios
4.4. Including international aviation in the General Agreement on Trade in Services (GATS): Alternative, supplement or unrealistic vision?

Conclusion
References
Internet sources
Expert interview
Annex I

Table of abbreviations

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Introduction

Even though aviation is one of the driving forces of globalization, the airline industry itself remains far from being globalized: A framework of bilateral aviation agreements with rather restrictive national control on cross-border investment and competition mainly governs the civil airline industry.

The Open Skies agreements between 11 EU Member States and the US can be seen as an attempt to introduce various liberal elements to the bilateral aviation agreements, while preserving the strict provisions on cross-border investment.

However, the existence of the Open Skies agreements was put into question when on 5th November 2002 the European Court of Justice (ECJ) judged these agreements between the EU Member States and the US illegal under EU law, as they infringed both primary and secondary EU legislation. Moreover by declaring a mixed competence between the European Commission and the Member States in the field of external air transport, the ECJ judgment marked a decisive turn in the EU´s history of air transport policy. The ECJ judgement thus entailed significant legal and economic consequences for the international civil aviation between the EU and the US. As to the precise future of the Open Skies agreements however, the ECJ remained evasive, imposing on the involved parties the burden of legal incertainty.

Economically a sort of free trade area for air transport between the EU and the US, the two biggest aviation markets, seems the most reasonable solution, being of utmost importance in order to restructure the airlines operating in a context of market globalization and growing international competition.

Politically though, the aviation sector has ever since been a sensitive issue, regarded as an instrument of foreign policy, national defense and national prestige.

The future of the Open Skies has thus has been a topic of heated debate, not only in the scientific arena but as well in political and business circles. Particularly in view of the economic leverage of the EU and US aviation market, the decision about the future of the Open Skies agreements is likely to have a major impact on the way the international aviation industry will develop in the next decades.

After the first renegotiation round between the EU and the US has failed in June 2004, the enthusiastic voices who welcomed the historic opportunity after the ECJ judgement to change the nature of civil aviation away from a highly regulated market to an open and liberalised one made way to a more pessimistic vision of a lengthy, problematic and multi-step process of liberalising the international aviation between the US and the EU, that is caught up in numerous legal issues and opposing views of the negotiating parties. Yet in November 2005 a second tentative accord was reached, which promises to be more successful.

Taking into consideration these historical developments and the outcomes of the ECJ judgements, this paper aims to explain the difficulties of reforming the transatlantic civil aviation and to evaluate possible scenarios for the future of the Open Skies agreements.

For this purpose, this paper explores the foundations of the international civil aviation and the reasons, which lie behind the emergence of the Open Skies agreements. This in turn implies looking into the inefficiencies of the international civil aviation regime of the Chicago Convention of 1944, following later international civil aviation agreements in order to finally understand which new elements the Open Skies agreements have introduced.

In a further step, the emergence of the EU´s common internal aviation market will be traced back, exploring the conflicts arising from the disparity between a harmonised intra-European aviation policy and a fragmented external aviation policy conducted by individual EU Member States. The resulting Open Skies cases will be analysed in terms of major arguments brought forward by the EU Commission and consequences for the following renegotiations between the US and the EU.

Since the future of the Open Skies agreements is particularly shaped by the new role of the Commission, this aspect merits deeper examination in terms of justification and value added of the Commission’s negotiation mandate.

In this regard, it is also essential to juxtapose the negotiation positions of the US and the EU so that the main obstacles and alternatives for the reconceptualization of a international aviation regime between the two parties become evident.

An expert interview with a Commission official in charge of the renegotiations will serve to obtain insight in the most recent developments and possible future scenarios concerning the future of the Open Skies agreements.

As an alternative vision the possibility and challenges of including international civil aviation into the General Agreement on Trade in Services (GATS) will be presented.

1. The Chicago Convention of 1944: The foundations of international civil aviation

The International Civil Aviation Conference held in Chicago from 1st November to 7th December 1944, established the first post-World War II international framework for the operation of civil aviation, also known as the Chicago Convention.

Its importance for the international civil aviation can be compared with that of Bretton Woods for the international financial system according to some authors^[1].

Following a British initiative, US President Roosevelt convened the International Civil Aviation Conference, which assembled 54 countries (Japan, Germany, Austria, Hungary, Romania, Bulgaria, Italy and Finland were not represented as those countries had been at war with the Allied Powers) with around 1000 participants, aiming to develop the international civil aviation “in a safe and orderly manner [...] on the basis of equality and opportunity and operated soundly and economically.”^[2]

The predecessor of the Chicago Convention were the Regulation of Aerial Navigation signed in Paris on 13th October 1919 (as part of the Versailles Peace Conference) and the Convention on Commercial Aviation signed in Havana on 20th February 1928 (its analogue in the Americas), in which the infant civil aviation industry of those days was for the first time defined in terms of international law, has proved insufficient in these matters^[3].

1.1. The doctrine of airspace sovereignty and bilateralism

The Chicago Convention was another attempt to come up with a stable multilateral agreement. It replaced the former agreements, taking over their doctrine of airspace sovereignty, namely “that each state has complete and exclusive sovereignty over the airspace above its territory”, meaning that any civil aircraft flying into or across another state’s airspace, taking or picking up passengers or cargo on the territory of another state, needed special permission (Art. 1–5 Chicago Convention)^[4]. The doctrine of airspace sovereignty, that nowadays belongs to customary international law, can be traced back as far as to the Roman axiom cujus est solum, ejus est usque ad coelum et ad inferos^[5].

Yet the adoption of the doctrine of airspace sovereignty was less a historical reference, but more a matter of national security: World War I had highlighted the military importance of aviation and political leaders were conscious about their nations’ air power^[6]. Governments also wanted to prevent unauthorised photographing of military installations. Moreover, in international negotiations

“air space has been seen as a valuable national asset, access to which can be traded for similar reciprocal benefits or even benefits in areas outside aviation.”^[7]

Another important aspect of the doctrine of airspace sovereignty had to do with unequal developments of the civil aviation sector: Whereas in the US private airlines were already existing since the privatisation of the airmail in 1925^[8], on the European continent the airlines were still state-owned. In addition, the US airline construction sector was booming since Lindbergh’s first transatlantic flight succeeded in 1927^[9]. Besides,

“the United States recognize[d] that much of its military fleet would soon be converted to commercial use [...], which would allow US carriers to capitalize on their impending competitive advantage.”^[10]

Alone between 1938 and 1942 the US produced 250.000 military planes, whereas Britain possessed at the same time just 150 fighters and 50 heavy bombers^[11].

Thus it was just consequent for the US to advocate a liberal, multilateral framework with open competition, market forces setting frequency and fares and unrestricted operating rights.

The European airline companies on the other hand were devastated by the war and feared that free competition in the civil aviation sector would be harmful to the further development of their infant aviation industries.

Great Britain, taking advantage of its leverage over landing rights throughout its Commonwealth, pushed for a more restrictive system by which governments would determine the terms of access on a bilateral basis rather than on an open, multilateral basis with common rules among all countries^[12]. It also argued for the creation of an international organization to monitor competition, coordinate air transport as well as to decide on frequencies and tariffs. To circumvent the sovereignty problem, Australia and New Zealand proposed the creation of a single world airline^[13].

In the end the doctrine of airspace sovereignty remained in place, which Havel resumes to the axiom: “All commercial international air passenger transport services are forbidden except to the extent that they are permitted.”^[14]

1.2. Exceptions to the doctrine of airspace sovereignty: The five freedoms of the air

In order to define the exceptions for the entry to sovereign airspace, the Chicago Convention has identified five freedoms of the air in Annexes III and IV to the Convention, called respectively „International Air Services Transit Agreement“ and „International Air Transport Agreement“^[15].

[...]

^[1] Yergin, Daniel/Vietor, Richard H. K./Evans, Peter: Fettered Flight- Globalization and the Airline Industry. Cambridge: Cambridge Energy Research Associates, 2000, p. 48.

^[2] International Civil Aviation Conference. Final Act and Appendices I-IV. Chicago, 7th December 1944. London: Stationary Office, 1945, p. 33.

^[3] Havel, Brian F.: In Search of Open Skies: Law and Policy for a New Era in International Aviation. London: Kluwer Law International, 1997, p. 31-34.

^[4] International Civil Aviation Conference (1945), p. 33-34; 50.

^[5] „Whosoever has the soil, also owns to the heavens above and to the center beneath“. See Havel (1997), p. 31.

^[6] Yergin/Vietor/Evans (2000), p. 49.

^[7] Balfour, John: Aviation Relations between EC Member States and Other States. In: European Foreign Affairs Review, vol. 2, issue 1. London: Kluwer Law International 1997, p. 97.

^[8] Brown, Anthony: The Politics of Airline Deregulation. Knoxville: University of Tennessee Press, 1987, p. 5.

^[9] Wikipedia: http://de.wikipedia.org/wiki/Airline

^[10] Warden, Jacob A.: “Open Skies” at a Crossroads: How the United States and European Union Should Use the ECJ Transport Cases to Reconstruct the Transatlantic Aviation Regime. In: Northwestern Journal of International Law and Business, Fall 2003, vol. 24, issue 1, p. 229.

^[11] Yergin/Vietor/Evans (2000), p. 50.

^[12] Yergin/Vietor/Evans (2000), p. 50.

^[13] Gidwitz, Betsy: The Politics of International Air Transport. Lexington: Lexington Books, 1980, p. 49-50.

^[14] Havel (1997), p. 19.

^[15] Jönsson, Christer: International Aviation and the Politics of Regime Change. London: Frances Pinter Publishers, 1987, p. 32.