WORLD TRADE
ORGANIZATIONS/C/W/179
14 November 2000
(00-4862)
Council for Trade in Services Original:  English
COMMUNICATION FROM AUSTRALIA
The GATS Review
An Opportunity for Phased Reform of Air Transport Services
The attached communication has been received from the delegation of Australia with the
request that it be circulated to Members of the Council for Trade in Services.
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Introduction
1. This paper builds on Australia’s contribution (S/C/W/167) to the September 2000 session of
the Review of the GATS Annex on Air Transport Services by discussing some further benefits of
multilateral reform of international aviation and the implications for the MFN obligation.
2. Australia noted in S/C/W/167 that the Review may be the last opportunity for all WTO
Members, large and small, to participate equally in discussing and determining multilateral solutions
to problems with the bilateral system of regulating access to aviation markets.
Limitations of Bilateral and Plurilateral Reform
3. In Australia's view, one of the main reasons for the enduring success of the bilateral system
is that it allows governments to manage the pace and direction of market access liberalisation. Growth
and innovation in the international aviation market, however, are placing great strain on the bilateralsystem. Ownership and control restrictions and the time lags between market developments and new
or renegotiated air services agreements can impede  efficiency and competitiveness in international
aviation.
4. The trend towards  regional and plurilateral agreements represents an attempt to overcome
some of the limitations of the bilateral system. Au stralia is involved in developing several such
agreements. Nonetheless, the cost of entry can be high. Individual members, particularly non-
founding members and members from developing countries, are unlikely to be able to influence the
construction of the core agreement, or dictate the terms on which they become members.
5. More importantly, the plurilateral or regional agreement can be a dead end in terms of
liberalising market access. Once the membership of the agreement has reached a critical mass,consensus on amending the agreement becomes virtually impossible to obtain, and any remaining
barriers to market access in the agreement may b ecome permanently locked in. Countries which agree
to membership of these regional and plurilateral ‘clubs’ may well be taking one important step toward
liberalising market access, but they might also be sacrificing their control over the pace and direction
of liberalisation.S/C/W/179
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The GATS: Progressive Liberalization
6. The GATS offers governments the ability to make choices based on their national interest.
The architecture of the Agreement enables Members to choose to make sector-specific market access
and national treatment commitments. It is also largely a ‘standstill’ Agreement; that is, Members
undertake not to impose new or more restrictive trade measures in those sectors which they list intheir national schedules. Hence, Members are free to pursue any policy objectives they wish, and their
right to regulate is recognized.
7. Progressive liberalization under the GATS is pursued in a controlled manner, one which takes
into account Members’ different development levels. GATS Article IV provides for the increasing
participation of developing countries facilitated through negotiated specific commitments, with the
extent and level of commitments linked to the development situation in each country. Article XIX
Paragraph 2 provides for the process of liberalization to take place with due respect for national policyobjectives and the level of development of individual Members, particularly developing country
Members.
8. A decision to extend the GATS Annex on Air Transport Services would not oblige
Members to liberalize, nor would it mean the deregulation of the sector. Each Member would
continue to be free to control the pace of liberalization. If, during the course of the Review,Members agreed to expand the Annex to include a subset of additional air transport services,
the extension of GATS coverage would simply give Members the option of making commitments
on those services. Subsequent Reviews, as mandated by the Annex, would provide Members an
opportunity to consider any further expansions.
9. The GATS, therefore, offers Members an opportunity to adopt a phased approach to
international aviation reform, which respects Members’ different development levels. This contrasts
favorably with plurilateral or regional alternatives which are often presented as ‘take it or leave it’
agreements. Members would not have to sacrifice control over the pace and direction of liberalization
as the price for greater market access. In this respect, one of the major benefits of the bilateral system
– individual countries’ control over the pace and the direction of liberalization – would be retained,along with the attendant benefits of the multilateral framework.
Most-Favoured-Nation Stat us and Air Services
10. The WTO’s ‘single undertaking’ allows trade-offs between all goods, services, forms of
trading and almost all countries. In contrast, international aviation agreements are sector-specific and
country-specific; nearly all commitments and entitlements are negotiated between pairs of countries
and the benefits accrued are restricted to those countries.
11. The Annex on Air Transport Services specifically excludes traffic rights and "services
directly related to traffic rights", and MFN does not apply to these services. Currently, only aircraft
repair and maintenance services, the selling and marketing of air transport services, and computer
reservation system services are specifically covered. According to a 1999 UNCTAD paper
(TD/B/COM.1/EM.9/2), 40 countries made initial commitments in at least one of the three air
transport services covered by the GATS, and 28 took out exemptions on at least one of these services.
12. Some have suggested that an expanded GATS Annex on Air Transport Services would need
to recognize the legitimacy of sector-specific reciprocity as it applies in the bilateral system. Some
Members have suggested making use of conditional MFN, or allowing Article II exemptions in air
transport services currently excluded from the GATS.
13. In addition to reciprocity, another issue is the way MFN treatment might affect the allocation
of scarce resources such as airport slots. Arguably, following the precedent of radio frequencies, thereS/C/W/179
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would be no need for Members to consider MFN exem ptions in this case. Slot allocation could follow
a similar procedure to that set down in the Basic Telecommunications Reference Paper: ‘Any
procedures for the allocation and use of scarce res ources, including frequencies, numbers and rights of
way, will be carried out in an objective, timely and transparent manner.’
14. MFN is a core obligation of the multilateral trading system and Australia considers that
derogations from it should be avoided. We recogn ise, however, that addressing the potential
application of MFN to air transport services raises very complex issues, and we would welcome
debate on these issues during the Review.
Conclusion
15. The architecture of the GATS and the special tr eatment accorded to air transport services in
the Annex allow Members to implement a phased approach to liberalisation, at a pace that reflects
their national interest. Expanding the Annex would not oblige Members to liberalise or deregulate; itwould merely give them the option of making commitments.
16. The relationship between the bilateral system and GATS principles raises complex, but not
unresolvable, questions. The Review provides Members with an opportunity to devise solutions to
these issues and lay the foundations for a more efficient international aviation system which builds
upon the best features of the bilateral system.
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