RESTRICTEDWORLD TRADE
ORGANIZATIONS/C/M/62
17 October 2002
(02-5659)
Council for Trade in Services
REPORT OF THE FOURTH SESSION OF THE REVIEW MANDATED
UNDER PARAGRAPH 5 OF THE AIR TRANSPORT ANNEX
HELD ON 18 MARCH 2002
Note by the Secretariat1
1. The Council for Trade in Services held a meeting on 18 March 2002 devoted to the Review of
Air Transport.  The agenda for the meeting is contained in document WTO/AIR/1739.
2. The Chairman proposed that the Council adopt the agenda as circulated.
3. The Council so agreed.
I. DEVELOPMENTS IN THE SECTOR
4. The Chairman opened the debate by indicating that a new Secretariat document, the second
part of the Executive Summary of the documentation provided thus far covering commercial aviation
services, document S/C/W/ 200/Add.1, was now available.
5. The representative of Australia introduced document S/C/W/206, a joint communication from
the Delegations of Australia, Chile and New Zealand.  The debate on the developments in the sector
so far had been extremely interesting.  Discussions held at the WTO and elsewhere had concluded that
the current state of economic regulation of aviation was the product of immense change and this
change had not ended.  The final shape of the new system for regulating aviation, one which best
suited the national interests of all WTO Members, was still far from certain.  It was also clear from the
discussions that the aviation industry was inextricably linked to Members' potential economic well-
being through the opportunities it opened in sectors such as trade and tourism.  The co-sponsors of
document S/C/W/206 sought to ensure that the review did not lock away an option for managing achange identified in the Review, particularly where that option was in Members' national interests and
could be examined without commitment.  This was important to bear in mind as Members approached
the next stage of the review -–the possible further application of the GATS to the sector.
6. In establishing the WTO, Members had agreed to support the basic principles and further the
objectives underlying the multilateral trading system.  Now that Members were completing thediscussion of developments in the sector, it was time to consider how they should approach the further
application of the GATS in this sector, in the context of an overall commitment to the WTO trading
system.  In doing so, there was a need to discuss the practical implications of the interaction between
the MFN-based system and the reciprocity-based system.  For example, was it possible to have an
MFN-based system for ground handling, whilst still preserving the reciprocity-based system for theexercise of traffic rights?  Or, another example, could one group of the WTO Membership commit to
an MFN-based approach to ground handling and still preserve a working relationship on this subject
with Members who preferred to maintain a recipr ocity-based approach to the same sub-sector?
                                                     
1 This document has been prepared under the Secretariat's own responsibility and without prejudice to
the positions of Members and to their rights and obligations under the WTO.S/C/M/62
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Through understanding such interaction, Members could explore what were the actual possibilities for
the further application of the GATS in this sector.
7. The representative of Australia noted that the Secretariat, in providing background
developments in the sector over the past five years, had drafted a shopping list of classifications that
might be relevant to any further application of th e GATS.  This list was published as an Annex to
S/C/W/200.  There had been some disucssion during the course of the review about the extent to
which the Agreement applied in this sector, based on differing interpretations of paragraph 2(b) of the
Annex.  It was not the intention of the paper to go into the issue of what should or should not be
covered by the GATS, but rather to note that the Review presented both an opportunity and an
obligation.  The co-sponsors of S/C/W/206 believed that it was important to understand that the
GATS offered an opportunity for each Member to pursue sectoral liberalization at a pace consistent
with its national interest and consistent with the overall principles and concepts underlying the WTOAgreement.  Finally, the representative of Australia requested the derestriction of the document.
8. The representative of New Zealand stated that, while at present, Members had different ideas
or perspectives on the questions posed by the revi ew, the Review process was an on-going process in
which Members were trying to better educate themselves.  Turning to the Secretariat document
S/C/W/200/Add.1, he considered that paragraph 5 of this document (the operational freedoms of theair) raised some very important questions.  It suggested that Members might want to discuss the
effects of the non-application of the GATS in this area (the operational freedoms) in view of three
considerations.  The first was the wider membership of the WTO in comparison to International Air
Services Transit Agreement (IASTA).  The second was an apparent discrepancy between the GATS
rules applying to air transport of goods, and the status under the GATT of aircraft in transit.  The thirdwas the effectiveness of the dispute settlement systems of the WTO and ICAO.  These questions
would definitely have to be considered further, and the representative of New Zealand hoped to
provide substantive thoughts in relation to these questions at the next session of the review.
9. The second point was in relation to the ninth freedom.  As the representative of New Zealand
saw it, this ninth freedom (domestic air services) was not related to the operation of traffic rights per
se.  It was actually a question of investment focusing only on the domestic sphere.  The representative
of New Zealand also considered that the paragraphs in relation to ownership in the Secretariat paper
were very useful.  There were a number of observations in relation to this section, which would need
to be seriously considered in this on-going process.
10. The representative of Chile supported the views expressed by the Australian Delegation.  As
stated in paragraphs 4 and 5 of document S/C/W/206, the revision process had shown that the
question was not so much whether the reciprocity-based system was in need of reform, but how thisreform process might best be approached.  He expressed disappointment on the date retained for the
meeting.  Consultations should have been held in order to take into account elements such as the
events of the 11 September and its consequences in terms of subsidies and retaliatory instruments.  He
thanked Brazil for the written answers to its questions, but indicated he would have liked more
detailed responses.  On the Secretariat document, he concurred with the opinion of the New ZealandDelegation that placing ninth freedom (stand-alone cabotage) in international aviation services did not
really make sense since it was not an international service.  The definition of traffic rights specifically
referred to international services, whereas the ninth freedom was more a question of foreign
investment stemming from the legislation of each country, and not from international legislation.
11. The representative of Chile also noted that the rights of consumers had not been referred to
with regard to rates, to shared routes or to measures, which had been adopted by some Members in
order to protect consumers – for example, in the case of predatory pricing or abuse of dominant
position.  Commenting on paragraph 51 of the document by the Secretariat, the representative of Chile
indicated that it considered codesharing as an operational element of flexibility rather than as a marketS/C/M/62
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access instrument.  On slot allocation, the representative of Chile would have liked to see the aspect of
public interest developed further.
12. Finally, the representative of Chile considered that paragraph 9, indicating that 40 per cent of
the bilateral agreements contemplated the fifth freedom, overstated the phenomenon since it did not
distinguish between intermediate rights and beyond rights, only the latter being the sign of a true openmarket.  The representative of Chile also sought clarification on the "indirect air carrier" concept.
13. The representative of the Dominican Republic supported the views indicated in the document
submitted by the Delegations of Australia, Chile and New Zealand.  The review of the GATS Annex
on Air Transport Services provided both an opportunity and an obligation to establish to what extent
the GATS could actually be applied to the sector.  The link between the liberalization of tourism and
the liberalization of air transport had also to be borne in mind.
14. The representative of Morocco recalled her previous positions on the possible expansion of
the Annex.  This was that the scope of the Annex should be clearly defined and limited to the three
services explicitly covered.  ICAO should be very closely involved in the exercise.
15. The representative of European Communities welcomed the document presented by the
Delegations of Australia, Chile and New Zealand, which was an enlightening and relevant
contribution at this stage.  He was particularly interested in question 2 about how elements of thesector could exist under different regimes.
16. Commenting on the document by the Secretariat, he expressed interest in paragraphs 4 and 5,
about the operational freedoms and transit and the three possible benefits that would stem from their
inclusion within the scope of the Annex.  There were cases in practice of compulsory payments to an
airline as a condition in some bilateral aviation agreements, and this was a blatant example of the lackof rules or the lack of enforcement of rules when they existed.  The representative felt there was
greater scope to apply the WTO rules in this area.
17. The next sections of the executive summary dealt with the so-called freedoms of the air.  In
that respect a common aviation area had been created in Europe, which included, not only the first
five elements of freedoms, but included up to the ninth freedom.  It also included a range of otherelements that were necessary once it had been decided to go beyond the third and fourth freedoms.
These elements included questions such as capacity, competitions, environment and other areas.  The
EC had no firm view at this stage about how that could be transposed in the WTO context.  However,
they noted that these elements would have to be  taken into account in their relation with third
countries.  The same could be said for the paragraphs on ownership and control issues.
18. Finally, the EC recalled that they clearly considered freight forwarding, storage and
warehousing as already included in the scope of the GATS.
19. The representative of Switzerland indicated that he would like to give further consideration to
the question of operational rights and to revert to it at a later stage.  He thanked the Delegations of
Australia, New Zealand and Chile for their very useful new paper.  As far as services not directly
related to traffic rights were concerned, the representative of Switzerland could share the general spirit
of this document.  This paper also asked four excellent questions.  The first three questions seemedparticularly interesting and Switzerland wanted to give further consideration to them despite the fact
that question three seemed rather complicated.  An agreement on question 4, classification, appeared
unrealistic as previous discussions in this context had shown that a consensus would be very difficult
to achieve on this point.  However, it was clear that there was a problem of legal certainty.S/C/M/62
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20. The representative of New Zealand stated that the questions raised in S/C/W/206, particularly
the first three, went to the heart of some of the most difficult questions which Members were trying to
confront in this review process.  In relation to the fourth question, on classification, he reminded
Members of the proposals made by the New Ze aland Delegation in document S/C/W/185 dated 1
December 2000 and presented at the Special Session of the Council.  He also recalled that documentS/C/W/200 from the Secretariat contained a whole range of classifications.
21. The representative of Canada welcomed the paper from the Delegations of Australia, New
Zealand and Chile.  Commenting on the position just expressed by the European Communities on first
and second freedoms, Canada reiterated its position that these freedoms were excluded from the
GATS through the definition of traffic rights in the Annex.  Canada granted rights to overflight
Canadian territory as part of its bilateral air transport agreements.  The granting of such rights was
contained in a standard clause of all these agreements.   Where bilateral agreements did not exist.,Canada was prepared to permit overflight and technical landing privileges on the basis of reciprocity.
Canada strongly supported the freedom of the skies embodied in the granting of overflight rights but,
due to the need to control effectively its vast ai r space, found it necessary to reserve the discretion to
withhold, revoke and suspend all conditions of such rights and privileges.
22. Answering the question from the Chilean Delegation on fifth freedoms, the Secretariat
recalled that document S/C/W/163/Add.3 contained, on page 13, a chart describing the different types
of fifth freedoms granted from 1993 to 1999 including cases of limited fifth freedoms.  On indirect air
carriers, the Secretariat explained that they appeared as the carrier for the customer, but that in
practice they did not themselves operate the flights, and were therefore not directly subject to capacity
and frequency limitations.
23. The representative of the European Communities asked the Australian Delegation to elaborate
on how the reciprocity-based system and the most favoured nation system could co-exist for the
different parts of the aviation sector, such as ground handling, air cargo or all cargo (paragraph 6(ii))
of S/C/W/206 or even for the same part (paragraph 6(iii)).
24.  The representative of Australia indicated that one of the rationales of paragraph 6(ii) and
6(iii) was that it had been difficult to determine what was, and what was not, covered by the Annex.
Therefore, deciding what should be covered in the future was likely to be even more difficult.  The
questions posed in 6(ii) and 6(iii) could be used as tools to identify if the co-existence could exist in
areas like ground handling, air cargo and ownership, and where it couldn't.
25. The representative of New Zealand considered that these questions aimed to explore the
possibility to complement and effectively marry th e traditional reciprocity-based system with the
multilateral-based system.  New Zealand had no quick solutions to these questions, particularly for6(ii) and (iii), which were very difficult and complex, but had to be tackled.
26. The representative of Brazil supported the statement made by the Canadian Delegation on
first and second freedoms.
27. The representative of Japan reiterated that the review process should be strictly distinguished
from negotiations and felt it should focus on ex change of views and the information analyzed
intensively and in an objective manner.  Member countries and the Secretariat had made valuable
contributions and had come to a consensus that the Chicago regime had worked effectively in the area
of promoting competition after the conclusion of the Uruguay Round.  Therefore, the representative of
Japan saw no need to continue the review process, and proposed that the review be concluded and
then resumed after a five year interval.  In addition, the representative of Japan saw no need to expandthe current coverage of the Annex of the Air Transport sector in which hard rights had been
comprehensively excluded from the application of the GATS.S/C/M/62
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28. Responding to the European Communities Delegation, the representative of Chile indicated
that the question was quite simple, but the answers complex.  In many countries, two systems
operated in parallel.  One was based on the air policy of a country (such as air traffic rights) and the
other was based on common rules for services of that country that applied to related services such as
catering, ground handling and so on.  A co-existence of the MFN, or the reciprocity-based system,was possible even in the same sector.  For instance, there were various regimes applied to the same
service.  Cargo, for instance, was a much more open service than an air passenger service.
29. Reacting to the proposal of the Japanese Delegation, the representative of New Zealand
considered that it was premature to close the review process.  Too many questions were still waiting
for an answer.  The representative of the European Communities echoed this view.
30. The representative of the United States thanked the Delegations of Australia, Chile and New
Zealand for their paper.  He shared the view expressed by the Japanese Delegation that the review had
addressed the basic issues.  The United States had stated their perspective on this review in document
S/C/W/198.  He was willing to take up a few questions that had been posed in S/C/W/206 from the
Delegations of Australia, Chile and New Zealand, but to some extent they were already addressed
directly in the US submission.  One of those was in paragraph 5 of that document, which spoke about
how the reform process might best be approached.  It was a fact that the reform process was beingapproached by individual countries, WTO Members, individually, bilaterally and plurilaterally, but
outside the WTO.
31. With respect to the questions posed in paragraph 6 of S/C/W/206, the United States
Delegation was not convinced that these were new issues.  Points (ii) and (iii) in paragraph 6 had
already been tackled, as one could see from the situation of computer reservation services and sellingand marketing of air transport services.  For those services, Members of the WTO had quite
adequately dealt with a combination of MFN and non-MFN approaches.  For instance, the United
States Delegation happened to have MFN exemptions in these two covered activities, whilst other
countries didn't.
32. Finally, the United States supported the statement made by the Canadian Delegation
regarding first and second freedoms, and directed Members' attention to paragraph 32 of the US
submission and its footnote 9, where it was explained that first and second freedoms were clearly
excluded from the GATS.
33. The representative of Cuba recalled its previous positions on the review process, and
supported the views expressed by the Delegations of Canada and Brazil on first and second freedoms.
34. The representative of Brazil fully supported the statements made by the Delegations of Japan
and the United States concerning the objectives of this review and the conclusions that should be
drawn thereof.  In that regard, he referred to paragraphs 20-25 of the paper circulated by Brazil at the
last meeting, S/C/W/201.  He further adhered to the view expressed by the United States Delegation
about the non desirability of any further meeting.
35. The representative of Mexico thanked the Delegations of Australia, Chile and New Zealand
for their contribution and restated his country's position throughout this whole review process that it
was not the time to clarify positions in the Annex, nor to extend its scope.  Mexico continued the
bilateral system under ICAO administration and theref ore, for the time being, its Delegation felt there
was no room for extending the Annex.
36. The representative of India thanked the Delegations of Australia, Chile and New Zealand for
their paper and indicated he would comment on it at a later meeting.S/C/M/62
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37. He stated that bilateralism was the preferred mode for liberalization in air transport services.
However, the present bilateral system could better address the needs of the sector.  The Indian
Delegation felt that multilateralism in the sector could pose greater challenges for the weaker and
smaller carriers.  Furthermore, India was concerned about the treatment of reciprocity under the
GATS, since the market potentials and points of call in different Member countries variedsignificantly, and it would be difficult to ensure reciprocity among such Members.  Therefore, the
application of the principle of MFN could present significant difficulties in the context of the present
operational system.  The Indian Delegation was also against the extension of the GATS to other core
areas in the sector as this would seriously undermine Members' capability to negotiate on a country-
by-country basis according to national priorities.
38. On the issue of designation criterion, the representative of India noted the importance of
substantial ownership and control by nationals of the country.  India considered that this criterioneffectively precluded the possibility of major cross-border holdings, even though it would make
commercial sense for the carrier of one state to invest in the carrier of another state.  The
representative of India therefore suggested that this issue could be discussed under the GATS and that
designation criteria could be made more flexible, requiring instead that the place of incorporation and
the place of business be in the designating country.
39. As regards operation of leased aircraft and routing flexibility, the Indian Delegation reserved
its right to return to the subject  with comments at a later meeting.
40. The representative of Australia felt that having the review continue was very important in
permitting Members to have a forum in which to discuss the impact of the changes and challenges
faced by their own aviation sectors.
41. The representative of Uruguay reiterated the position that the existing system was preferable
and that ICAO should continue to have full competence in this area.  The representative of Uruguay
understood from paragraph 44 of the minutes of the last meeting (S/C/M/57) that a consensus was
required to decide to hold any future m eeting and sought clarification on that point.
42. Reacting to the statement by the Australian Delegation, the representative of the United States
considered that the review should not become a standing committee, continuously monitoring
developments in the sector.  The Annex required Members to look at this issue periodically, which
implied that at some point they had to stop so that they could start again.
43. The representative of New Zealand, recalling the terms of paragraph 5 of the Annex,
considered that nowhere in the Annex was there an in-built cut-off date on the review.  Therefore, a
consensus was needed to conclude the Review.  In fact, there were very close similarities to the
situation Members faced on MFN exemptions.  With regard to the Review on MFN exemptions, itwas very clear that consensus was needed to conclude the Review and Members secured that
consensus.  In the MFN Review, Members had worked  through all the issues in relation to the Annex
on MFN exemptions and agreed, by consensus, that they could conclude it and then come back to it in
a number of years.  In the case of the Annex on Air Transport, Members were still working through
these issues.  The Delegation of New Zealand accepted and acknowledged that some of the Membershad already achieved the end game and had made up their minds.  However, a number of other
Members were still grappling with many issues.
44. The representative of Australia echoed the New Zealand Delegation's statement.  Paragraph 5
of the Annex had three points that Members needed to cover in this Review:  developments in the
sector; operation of the Annex; and the possibility of further application of the Agreement.  So far,Members had not even finished the first one of those three.  Developments in the sector were still
under discussion.  The operation of the Annex was still to be discussed, and it had not been possible toS/C/M/62
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talk about further application of the Annex or further application of the GATS to services covered in
the Annex.
45. The representative of the European Communitie s agreed with the views expressed by the
Delegations of New Zealand and Australia, especially in the light of the extremely rapid pace of
change in the sector.
46. The representative of Chile recalled that  in March 2003, ICAO would hold its meeting on
international air transport at the world level.  Many countries would follow this very carefully since
ICAO would be studying the different sorts of liberalization formula.  In the Chilean Delegation's
view, the WTO should contribute to that meeting and submit a report on the review process, and on
the discussions on air transport in the Special Session of the Council.
47. The Chairman concluded the debate on the first item of the agenda "developments in the
sector" by stating that the debate had been lively,  that many points of view had been expressed on a
preliminary basis, and that there were diverging opinions as to whether the review was to be
concluded or not.
II. OPERATION OF THE ANNEX
48. The Chairman opened the floor on the second item of the agenda.  He recalled that at the last
meeting communications were received from the delegations of the United States (S/C/W/198) and
Brazil (S/C/W/201) and that comments had been received from other Delegations on a preliminary
basis.  Other Members such as Poland, New Zealand, Chile, Australia and the European Communities
had also provided contributions, in the first two m eetings of the Review, which contained views of the
operation of the Annex.  It seemed to him that, at that stage, Members should have a global discussion
on the operation of the Annex.
49. The representative of New Zealand noted that the joint paper from the Delegations of
Australia, Chile and New Zealand dealt with the developments in the sector, as well as the operation
of the Annex; as did the New Zealand Delegati on's document S/C/W/185.  Further work by Members
was clearly needed on this subject.
50. The representative of the European Communities echoed the view of the New Zealand
Delegation.  The EC communication (S/C/W/186) listed a number of activities that related to the
operation of the Annex and the EC had mentioned areas that were not, at present, covered explicitly in
the Annex.  For example, ground handling and airport management had become during the 1990's
industries separate from the core business of air transport and subsequently strongly internationalized.
These sub-sectors and sectors, facilitating the effective and efficient use of traffic rights, were
certainly worth further investigation.
III. POSSIBLE FURTHER STEPS FOR THE REVIEW
51. The Chairman noted that many Members had expressed the need for more time to consider
proposals on the table, and therefore suggested holding another meeting in July 2002 to cover items I
and II of the present agenda.
52. The representative of New Zealand suggested that this meeting should be held in the latter
part of the year due to the workload created by th e start of the requests/offers process in the summer
and the possibility of WTO input into the ICAO meeting next March, suggested by the Chilean
Delegation and supported by the New Zealand Delegation.  The WTO work on air transport could
also benefit from the work that was ongoing in ICAO.S/C/M/62
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53. The representative of Brazil acknowledged the absence of consensus for concluding the
Review at the meeting.  He considered that it would not be realistic to expect to reach any consensus
on issues, other than traffic rights, that were on the table for discussion, for example, classification.  If
there was a need to further examine developments in  the sector, particularly in the aftermath of 11
September and in the light of other factors, this s hould take place in the ICAO, the priority forum for
aviation.  The air transport conference of ICAO was to be held next March, and would touch upon all
the issues related to the development of the sector, and to the liberalization efforts being undertaken in
the context of that Organization.  The representative of Brazil further reminded Members that in order
to prepare the ground for that meeting, the air tran sport regulation panel of ICAO would meet in May
2002 in Montreal.  Therefore, in light of all these factors, the representative of Brazil was of the view
that Members should not need to meet before the air transport conference of ICAO.  In his view, they
could wait until these issues were discussed at length in the priority forum before they came back tothe issues at the WTO.
54. The representative of the European Communities echoed the position of the New Zealand
Delegation.  The workload of the requests/offers process, as well as the time needed to reflect on the
Australian, Chilean and New Zealand document on the notion of operational rights, transit, and on
other possibilities that were raised in the Secretariat document, justified a session late in the year.
55. The representative of Canada indicated that, like the Delegations of the United States, Brazil,
Japan, Mexico, Uruguay and others, the Canadian De legation would have preferred to see the Review
end at this meeting.  However, the representative of Canada had no objections, in principle, to the
continuation of the Review.  Nevertheless, in the light of the clear lack of consensus and the
improbability that any consensus could be reached, the representative of Canada believed that allDelegations should ask themselves whether the Review process offered any further value at this time.
Members had to take into account the fact that shar ply divergent views were not likely to be readily
resolved and that, as a result, the Review would not be able to come to an early conclusion.  He also
indicated that the Canadian Delegation would seri ously consider the Brazilian Delegation's proposal.
56. The representative of Uruguay recalled that, as stated by many other Delegations, his
understanding of this process was that this was a Review, which was different from negotiations.
Firstly, there was the Review, which clearly had a different scope from that of negotiations carried out
in Special Session.  This had to be borne in mind.  Secondly, one of the arguments put forward on
several occasions in the three previous meetings in the course of this Review, was that this Review
was important precisely because it should reach conclusions.  This should have happened before the
start of the negotiations.
57. If some Delegations wanted to hold a new meeting the Delegation of Uruguay would go along
with the consensus.  However, their representative felt that there should be a set target and that the
objective should not be to ask for new meetings merely to keep the process alive.  Whilst some
Delegations wanted to continue the process, many others did not.  If the matter continued in this
fashion, the Review would become an  Annual Review rather than every 5 years.  Meetings should not
be requested just for the sake of meetings.
58. The representative of Switzerland supported the view of the Delegations of New Zealand and
the European Communities on the timing and the Chairman's proposal to discuss item I and II of the
agenda at this meeting.
59. The representative of the European Communities reiterated that the Review had highlighted
areas, which had not previously been well docu mented, and therefore found the process extremely
valuable and thought that it should continue.S/C/M/62
Page 9
60. The representative of the United States indicated that if all Delegations were not prepared to
conclude the Review at this point, they could agree with the proposal for the next meeting in July.  He
also supported the view expressed by the Delegation of Uruguay on the need for a target date for the
conclusion of the Review.
61. The representative of Australia considered that it would be more productive for the purpose of
the Review to meet later in the year – possibly October – so that Members could consider providing
input to the ICAO meeting.  He also suggested scheduling another session after the ICAO meeting in
March 2003 in order to discuss the impact it might have on the objectives listed in the mandate of the
Annex.
62. The Chairman concluded that, due to the differing points of view with regard to the timing of
the next meeting, he would hold informal consultations over the coming months on these points.  He
then adjourned the meeting.
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