S/C/W/270/Add.2 
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PART E 
 
AIR CARGO SERVICES 
  S/C/W/270/Add.2 
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  A. AIR CARGO SERVICES  
1. Commercial developments 
376. According to IATA, the air freight industry r ecorded total revenues of US$55 billion in 2006 
(compared with US$40 billion in 2000), or 12 per cen t of the turnover of commercial air transport 
services.  IATA also estimates that the total valu e of goods transported by air was US$3.25 trillion in 
2006, equivalent to roughly 35 per cent of the goods trade in value terms. 
(a) Traffic trends 
377. Trends traffic, as measured in freight tonne k ilometres (FTK) in the sector were very uneven 
during the period under review, ranging from double-dig it growth to declines in absolute value, as is 
shown by Table 35. 
Table 35 
Annual growth of air freight in freight tonne kilometres, 2001-2006 
Year 2001 2002 2003 2004 2005 2006 
Growth rate in 
relation to previous 
year   -7%  +5%  +3.5%  +13%  +4%  +4.6% 
Source : Aviation Week & Space Technology, 15 April 2007. 
378. These trends are illustrated in more detail by  Chart 10 which provides revenue and traffic 
volume data over a slightly longer period. 
Chart 10 
Freight revenues and traffic growth in tonne kilometres, 1999-2007 
 
 
 
Source : ICAO/IATA. 
379. Averaged over five years, the growth rate for the period settled at 5.8 per cent, a figure very 
close to the 6 per cent predicted by the two main ai rcraft manufacturers (Boeing and Airbus).  It is 
generally accepted that air freight growth is double that of global GDP, although some observers see 
this ratio developing unfavourably, mainly because of growing intermodal competition from maritime 
transport. S/C/W/270/Add.2 
Page 310  
 
  380. Like air passenger transport, air cargo tran sport is extremely sensitive to the economic 
climate.  Any slowdown or downturn in growth can result in a sharp regression in industry revenue 
and traffic. 
381. Again like air passenger transport, the sector suffe rs from cyclical erosion of freight yields, 
albeit on a less drastic scale.  This erosion is illust rated by Chart 11 in respect of US and European 
freight carriers. 
Chart 11 
Airline freight yields, 1999-2005 
(revenue per freight tonne kilometre) 
 
 
Source : ATA, AEA, Airclaims, compiled by IATA. 
382. An interesting sidelight from the standpoint of airlines that engage simultaneously in 
transporting passengers and freight is the fact th at the economic cycles for these two activities do not 
coincide. 
383. Thus, during the period under review, freight  traffic figures rebounded in 2000 following the 
decline caused by the Asian crisis of 1997-1998. 
384. Traffic had began shrinking in 2001, even before  the terrorist attack of 11 September, mainly 
because of the bursting of the internet and telecom bubbles.  The events of 9/11 certainly aggravated 
the situation by paralysing traffic for several days and generating a multitude of uncertainties 
regarding the legal regime for security and insura nce.  Carriers reacted to these developments in 
different ways:  while fleet sizes were reduced in Japan, Chinese Taipei and Korea, all three being 
important producers of information technology goods hard-hit by the crisis.  At the same time, 
Singapore Airways went on with its investment plan s and China Southern ordered its first all-cargo 
aircraft. 
385. Freight traffic growth picked up in 2002, while pa ssenger transport remained in the doldrums.  
Revenues, however, remained sluggish.  The growth  in Chinese air cargo exports and in intra-Asian 
traffic in general was one of the key factors in th is revival, as was the renewed growth of computer 
exports, given that computers purchased in 1999 in  anticipation of the y ear 2000 millennium bug were 
becoming obsolete. 
386. The 2003 SARS epidemic had only a marginal impact on the sector.  In fact, it delayed the 
traffic "peak" by one month, from early Septem ber to early October, as North-American and 
European buyers were obliged to postpone their tr ips to Asia until the end of the summer.  The SARS 
epidemic even had a paradoxically positive effect on a ll-cargo air traffic.  Freight that could no longer  S/C/W/270/Add.2 
 Page 311  
 
 
  be carried in the belly of passenger flights because of flight cancellations (the "belly crunch") was 
transferred to all-cargo flights.  Cargo volumes gr ew by 3.5 per cent in 2003, at a time when, once 
again, there was a drop in passenger traffic. 
387. Air freight had a banner year in 2004, with traffic volumes up 13 per cent and revenue growth 
even higher. 
388. There was a return to more moderate growth  in 2005, and this continued into 2006. 
389. However, the overall figures do not clearly reflect  the diversity of regional situations.  In 
2005, for example, Chinese cargo throughput (i.e. traffi c from, to and within China) grew by 13.8 per 
cent, compared with a global growth rate of only 4 per cent. 
390. Charts 12 to 15 and Table 36 give a comparativ e breakdown of regional traffic levels at the 
beginning and end of the period under review, show ing the cumulative effects of these divergent 
patterns of growth.247 
Chart 12 
Regional breakdown of cargo traffic in 2000 
(millions of tonne-km) 
North 
America 
45,270Europe
39,002Middle East 
4,370
Asia-Pacific 
48,783Africa
1,236Central/
South 
Am erica
4,438
 
Source : Airline Business, November 2001. 
Chart 13 
Regional breakdown of cargo traffic in 2004 
(millions of tonne-km) 
Europe
41,211Central/
South America
4,010Middle-East
9,509 Africa
1,788
Asia-Pacific
64,457
North America
45,669
 
Source : Airline Business, November 2005. 
                                                      
247 No data were available for 2005. S/C/W/270/Add.2 
Page 312  
 
   
Chart 14 
Regional breakdown of cargo revenues in 2000 
(US$ million) 
Asia-Pacific 
11,248
North America 
28,967Europe
8,959North/
South America 
672 Africa
203Middle East
815
 
Source :  Airline Business, November 2000. 
 
Chart 15 
Regional breakdown of cargo revenues in 2004 
(US$ million) 
 
 
Europe  
9,332 Middle East 
1,172 Africa
346Central/  
South America  
1,083 Asia-Pacific 
13,043
North America 
27,051
 
 
Source :  Airline Business, November 2005. 
  S/C/W/270/Add.2 
 Page 313  
 
 
  Table 36 
Regional breakdown of cargo traffic and revenues, 2000 and 2004 
(millions of tonne-km and US$ million) 
2000  2004  
Region  Cargo 
traffic 
(millions of 
tonne-km)  % Cargo 
revenues 
(US$ million) % Cargo traffic
(millions of 
tonne-km)  % Cargo 
revenues 
(US$ million) % 
Asia 
Pacific  48,783 33.9  11,248 22.0  64,457 38.6  13,043 25.0 
North 
America  45,270 31.4  28,967 56.0  45,669 27.3  27,051 52.0 
Europe  39,002 27.0  8,959 17.5  41,211 24.7  9,332 18.0 
Central/ 
South 
America  4,438 3.0  672 13.0  4,010 2.4  1,083 2.0 
Middle 
East  4,370 3.0  815 16.0  9,509 5.7  1,172 2.3 
Africa  1,236 0.86  203 4.0  1,788 1.0   346 6.6 
TOTAL  143,099 100  50,864 100  166,645 100  52,026 100 
Source : Airline Business, November 2001 and November 2005 
 
391. Between 2000 and 2004248, freight volumes posted strong growth in two regions (from 33.9 
per cent to 38.6 per cent of the world total in Asia -Pacific and from 3 per cent to 5.7 per cent in the 
Middle East) and marginal growth in a third (from 0.8 per cent to 1 per cent in Africa). 
392. On the other hand, declines were recorded in the mature markets of North America (31.4 per 
cent in 2000, 27.3 per cent in 2004) and Europe (27 per cent in 2000, 24.7 per cent in 2004).  Central 
and South America also showed a downturn (3 per cent in 2000 and 2.4 per cent in 2004). 
393. The situation is structurally very different w ith regard to cargo revenues, as such revenues go 
directly to the carriers, most of which are of Nort h American or European origin.  To generalize, one 
could say that "cargoes are in the east, carriers in the west".  This explains the overwhelming dominance of North America in revenue figures ( 56 per cent in 2000, 52 per cent in 2004), due in 
large part to the express carriers, although their pos ition is weakening somewhat.  Asia-Pacific lies a 
distant second, but saw a substantial improvement in  performance (22 per cent in 2000, 25 per cent in 
2004). 
394. Europe comes in third with a marginal impr ovement in performance (17.5 per cent in 2000, 
18 per cent in 2004).  The Middle East (16 per cen t in 2000, 2.3 per cent in 2004) and Central and 
South America (13 per cent in 2000, 2 per cent in 2004) experienced a collapse in their share of revenues, for which there is no clear explanation.  Africa's share, on the other hand, is unexpectedly 
high (4 per cent in 2000, 6.6 per cent in 2004) and growing. 
                                                     
 
248 No data were available for 2005. S/C/W/270/Add.2 
Page 314  
 
  395. Chart 16 completes this picture by showing growth rates on the different intra- and 
interregional routes for 2006. 
Chart 16 
Tonnage growth by route and relative route size, 2006 
 
Source : IATA.  
 396. China and India are both seen as extremely pr omising regions.  In China, the easing of 
restrictions on foreign capital holdings in all-car go air carrier joint ventures in 2003 prompted a 
veritable joint venture "gold rush".  Deals already concluded or under negotiation include: 
 - Ongoing negotiations between Air France-KLM and China Southern; 
  - the joint venture between Korean Air ( 25 per cent), Korean institutional investors 
(24 per cent) and the Chinese freight fo rwarder SinoTrans involving five or 
six Boeing 747 cargo planes; 
 
 - the investment by Lufthansa (25 per cent) and a number of German institutional 
investors (24 per cent) in the new compan y Jade Cargo, in association with Shenzen 
Airlines; 
  - the investment by China Airlines, a Ch inese Taipei carrier (25 per cent), and other 
Chinese Taipei institutional investors (24 per cent) in Yangtzé-River Express, in 
association with Hainan Airlines; 
  - the investment by EVA Air, another Chin ese Taipei carrier (25 per cent), in Shanghai 
International Cargo Airlines; 
 
 - the ongoing negotiations between Cathay Pacific and Dragon Air, on the one hand, 
and Air China, on the other, concerning an all-cargo joint venture based in Shanghai; 
  - the ongoing negotiations between China Eastern and Singapore Airlines.  
397. China is also a prime location for hub establis hment by express operators.  China alone is 
thought to account for 30 per cent of growth in the world cargo market
249, but its non-costal market is 
                                                      
249 Financial Times, 27 March 2007.  S/C/W/270/Add.2 
 Page 315  
 
 
  still largely untapped (Air France-KLM cargo for example, has just opened a direct link between 
Amsterdam and Cheng Du), and much of the re gional cargo hub-and-spoke ne twork still has to be 
established. 
398. In China, 76 per cent of cargo is carried by foreign airlines, and two-thirds of inbound cargo 
is forwarded via hubs outside the continental territo ry (Hong Kong, China;  Seoul;  Tokyo).  Chinese 
airlines, which have had priorities other than frei ght expansion, look to joint ventures as a means of 
gaining access to an already established global network. 
399. India is also considered a promising, thou gh nascent, market by freight professionals.  
Currently, there are only nine all-cargo aircraft operati ng in the country, but Airbus estimates that this 
figure should rise to 126 by 2015.  International freight tr affic in India is growing by 12 to 15 per cent 
a year on average, and domestic traffic by 20 to 25 per cent. 
400. All-cargo carriers such as First Flight and Bl ue Dart (40 per cent owned by DHL) already 
have Indian operations.  The start-up carrier Fl yington became India's first widebody freighter 
operator in 2003, and several major Indian airlines, such as Air India, Jet Airways and GO Air, plan to 
launch freighter operations.  As is indicated below in the regulatory section, India's air freight policy 
is a liberal one, and the difficulties encountered by operators are linked only to infrastructure and 
customs constraints. 
401. Chart 17 gives comparative forecasts by Boeing and Airbus for passenger and cargo traffic up 
to the year 2025. 
Chart 17 
Boeing and Airbus passenger and freight traffic forecasts to 2025 
(in terms of annual growth in revenue passe nger kilometres and freight tonne kilometres)  
 
 
Source : Boeing, Airbus, IATA. 
 
402. As is shown by Chart 17, the growth outlo ok for the sector remains promising despite 
economic uncertainties.  Both Boeing and Airbus – wh ich admittedly both have an interest in issuing 
optimistic forecasts – predict a growth rate of roughl y 6 per cent a year over the next 20 years, that is 
to say a tripling of traffic and a doubling of fleet size in unit terms. 
403. Chart 18 gives a detailed breakdown of growth rates on the main freight routes within and 
between regions, as forecasted by IATA. S/C/W/270/Add.2 
Page 316  
 
  Chart 18 
Forecasted new international freight traffic in millions of tonnes, 2005-2010 
 
 
 
Source : IATA. 
 
404. As Chart 18 shows, these forecasted growth rates are geographically uneven, being less 
optimistic for mature markets and higher for emergi ng markets.  Intra-Asian trade and, to a lesser 
extent, outbound services from Asia to Europe and No rth America account for the bulk of anticipated 
growth in global volumes.  For example, according to Airbus, India's freighter fleet should increase from its current level of five aircraft to 126 in 2005.   Similarly, IATA expects the intra-Asian market 
(and Sino-Japanese bilateral links in particular) to become the world market leader, with 26 per cent 
of total freight volume, by 2010. 
(b) Inter-modal competition 
405. The various estimates of the size of the in termodal component in air freight transport 
operations place its volume share at  between 0.5 per cent (IATA, 2006)
250 and 2 per cent (OECD, 
1999)251 and its value share at between 33 per cent (OECD, 1999) and 35 per cent (IATA, 2006).  The 
latter figure was revised downwards by IATA from its recent pre-oil price spike level of 40 per cent. 
406. According to IATA itself, during the period under review (2000-200 5), maritime freight 
services grew by 9.5 per cent a year, i.e. almost doubl e the growth in air cargo (5.8 per cent) while 
maritime freight rates fell 20 per cent in real terms over the five-year period, compared with a drop of only 8 per cent for air freight rates, thus intensifying price competition. 
407. However, the increasingly frequent comparisons that are made between air cargo and 
maritime transport by specialized writers and journalists are to some  extent misleading.  Some goods, 
particularly perishables such as cut flowers, are onl y carried by air.  Only a limited number of high-
tech and other products generate competition between the two modes.  When their value per unit falls 
below a certain threshold, as is now happening with  LCD screens, high-tech exports pass directly 
from the air transport mode to maritime transport one.  Moreover, improvements in maritime services 
productivity (the near doubling of the size of ocean going container ships in ten years over the same 
routes) cannot for technical reasons be matched by air cargo services (even the cargo version of the 
                                                     
 
250 IATA Economics Briefings, "The value of air freight", January 2006. 
251 OECD (1999), "Liberalisation of air cargo transport".  S/C/W/270/Add.2 
 Page 317  
 
 
  A380 will not achieve such a quantum leap).  Given the same value of additional freight, the cost of 
an additional ship is much lower than that of an extra aircraft.  Finally, the increased price of oil, a 
merchandise which is carried almost exclusivel y by ship, automatically inflates the value of 
merchandise carried by sea to the detriment of air transport. 
(c) Economic trends affecting actors in the air freight supply chain 
408. In addition to the actual carriers, air cargo tr ansportation involves a whole range of actors:  
freight forwarders, airport opera tors, ground handlers, customs clearance providers, reservation 
systems, brokers and service providers specia lizing in the routing of electronic documents. 
(i) Developments affecting carriers 
409. Table 37 lists the top 50 air freight carriers in 2000 and 2005 in terms of traffic volume, as 
well as their cargo revenue and the share thereof in total revenues.  
  S/C/W/270/Add.2 
Page 318 
Table 37 
Top 50 cargo airlines by tonne kilometres, 2000 and 2005 
2000 2005 
Rank Airline Country/ 
Territory Cargo 
traffic 
(millions of 
tonne-km) Cargo 
revenue 
(US$ 
million) Cargo 
share of 
revenue Rank Airline Country/ 
Territory Cargo 
traffic 
(millions of 
tonne-km) Cargo 
revenue  
(US$ 
million)) Cargo 
share of 
Revenue 
1 FedEx Express USA 11,438 15,534 100% 1 FedEx USA 14,641 21,446 100% 
2 Lufthansa Cargo Germany 7,666 2,363 100% 2 Air France-KLM  France 10,830 3,498 13% 
3 Korean Air South Korea 6,590 1,475 30% 3 United Parcel Service USA 8,460 3,920 95% 
4 UPS USA 6,336 2,530 100% 4 Korean Air South Korea 8,139 2,273 31% 
5 Singapore Airlines Singapore 6,075 1,197 21% 5 Singapore Airlines 
Cargo Singapore 7,874 1,953 24% 
6 Air France France 5,384 1,180 11% 6 Lufthansa Cargo Germany 7,829 3,209 14% 
7 United Airlines USA 5,055 931 5% 7 Cathay Pacific China 6,618 1,653 25% 
8 British Airways UK 4,732 855 6% 8 China Airlines Chinese Taipei 6,078 1,409 44% 
9 Japan Airlines Japan 4,579 1,534 10% 9 Cargolux Airlines 
Int'l Luxembourg 5,292 1,446 100% 
10 KLM Netherlands 4,304 1,007 16% 10 EVA Air Chinese Taipei 5,285 1,242 45% 
11 Cathay Pacific China 4,161 1,301 29% 11 Japan Airlines Japan 5,177 2,017 10% 
12 China Airlines Chinese 
Taipei 4,136 837 36% 12 Air China Cargo China 5,060     
13 Northwest Airlines USA 4,024 857 8% 13 British Airways UK 4,933 884 6% 
14 Cargolux Luxembourg 3,813 722 98% 14 Emirates UAE 4,451 1,214 19% 
15 American Airlines USA 3,663 721 4% 15 Martinair Netherlands 3,518 874 63% 
16 EVA Air Chinese 
Taipei 3,558 752 43% 16 Northwest Airlines USA 3,335 947 8% 
17 Delta Air Lines USA 2,946 583 3% 17 American Airlines USA 3,226 622 3% 
18 Swissair Switzerland 2,795 924 27% 18 United Airlines USA 2,949 729 4% 
19 Asiana Airlines South Korea 2,607 555 30% 19 Asiana Airlines South Korea 2,857 836 28% 
20 Martinair Netherlands 2,356 360 44% 20 Air China China 2,763 454 10% 
21 Nippon Cargo Airlines Japan 2,246 552   21 Polar Air Cargo USA 2,599 556   
22 LanChile Chile 2,047 594 42% 22 Nippon Cargo 
Airlines Japan 2,598 911 100% 
23 Malaysia Airlines Malaysia 1,869 463 20% 23 Malaysia Airlines Malaysia 2,534 574 18% 
24 Air Canada Canada 1,811 351 6% 24 LAN Airlines Chile 2,392 910 36% 
25 Continental Airlines USA 1,759 360 4% 25 Qantas Australia 2,329 572 6%  
   S/C/W/270/Add.2
 Page 3192000 2005 
Rank Airline Country/ 
Territory Cargo 
traffic 
(millions of 
tonne-km) Cargo 
revenue 
(US$ 
million) Cargo 
share of 
revenue Rank Airline Country/ 
Territory Cargo 
traffic 
(millions of 
tonne-km) Cargo 
revenue  
(US$ 
million)) Cargo 
share of 
Revenue 
26 Alitalia Italy 1,743 502.4 10% 26 China Eastern 
Airlines China 2,152 607 18% 
27 Qantas Airways Australia 1,718 340 6% 27 Delta Air Lines USA 1,987 524 3% 
28 Thai Airways Int'l Thailand 1,690 516 17% 28 Thai Airways Thailand 1,986 637 16% 
29 Air China China 1,648 378 23% 29 China Southern 
Airlines China 1,766 378 8% 
30 All Nippon Airways Japan 1,640 611 6% 30 All Nippon Airways Japan 1,607 858 9% 
31 Emirates UAE 1,356 303 16% 31 Continental Airlines USA 1,490 973 9% 
32 Varig Brazil 1,238     32 Dragonair China 1,409     
33 Polar Air Cargo USA 1,223 398 100% 33 Alitalia Italy 1,404 587 10% 
34 ABX/Airborne Express USA 1,170 3,210 98% 34 Air Canada Canada 1,371 531 6% 
35 Evergreen Int'l Airlines USA 1,169 290 100% 35 Varig Log Brazil 1,282 569 100% 
36 Emery Worldwide USA 1,092 1,013 100% 36 China Cargo Airlines China 1,276     
37 Virgin Atlantic Airways UK 1,016     37 Evergreen Intl's 
Airlines USA 1,210 445 96% 
38 Saudi Arabian Airlines Saudi Arabia 1,000 215 7% 38 Virgin Atlantic 
Airways UK 1,157     
39 Air Hong Kong China 912     39 Swiss Switzerland 1,141 396 14% 
40 China Eastern Airlines China 904 257 19% 40 Volga-Dnepr Airlines Russia 1,048 340   
41 El Al Israel 894 242 20% 41 Saudi Arabian 
Airlines Saudi Arabia 1,046 363 9% 
42 Air New Zealand New Zealand 821 159 9% 42 ABX Air USA 1,041 1,464 100% 
43 SAS Sweden 812 279 5% 43 SAS Cargo Denmark 1,039 429 1% 
44 Iberia Airlines Spain 778 210 5% 44 Iberia Airlines Spain 1,033 349 6% 
45 DHL Airways USA 717 1,497 100% 45 Southern Air USA 1,011 81   
46 China Southern Airlines China 686 175 10% 46 World Airways USA 992     
47 South African Airways South Africa 680 160 11% 47 South African 
Airways South Africa 911 251 8% 
48 Aeroflot Russia 672     48 Qatar Airways Qatar 870 144 13% 
49 US Airways USA 575 160 2% 49 Aeroflot Russian 
Airlines Russia 833 248 10% 
50 Gulf Air Bahrain 557     50 Air New Zealand New Zealand 799 159 8% 
  Source :  Airline Business, November 2001 and November 2006.  S/C/W/270/Add.2 
Page 320  
 
  410. The top six carriers (FedEx, Air France-KLM, UPS, Korean Air, Singapore Airlines Cargo 
and Lufthansa Cargo) remain the same, but their orde r is slightly changed as a result of Air France's 
merger with KLM, which propelled this group into  second place ahead of Lufthansa Cargo, relegated 
to sixth place.  Two Asian carriers, namely EVA Air (Chinese Taipei) and Air China Cargo (China), 
make their appearance in the top twelve, in addition to the five already in that group, and the strong 
progression of Emirates is also noteworthy. 
411. Apart from the two express operators (FedEx, fi rst in 2000 and 2005, UPS, fourth in 2000, 
third in 2005), the top US carrier, Northwest, dropped four places to sixteenth in 2005.  Differences in 
investment strategy explain the fallback of British Airways and Swiss, and the rise of the Luxembourg 
all-cargo carrier CargoLux.  Apart from Emirates, the top carriers from countries not belonging to the 
three main traffic poles (Asia, North America and Western Europe) are Lan Chile, Qantas, Varig Log 
(once a candidate to take over its parent company), followed by the specialized Russian carrier Volga-
Dnepr, and Saudi Arabian Airlines.  The top African carrier is South African Airways. 
412. Table 37 groups together an extremely heteroge neous set of companies.  They can roughly be 
divided into six categories: 
 - Low-cost carriers and leisure carriers, which regard freight as more of an impediment 
to their operational efficiency than a revenue opportunity (typically AirAsia and Condor); 
  - "belly carriers" which do not operate all- cargo planes and regard freight as a marginal 
income source (typically the US majors); 
 
 - "mixed fleet" carriers operating both be lly-cargo passenger aircraft and dedicated 
freighters (typically Korean Air, Air France-KLM and Lufthansa); 
  - all-cargo carriers operating only freighters (typically CargoLux, Air Foyle and Polar 
Air).  This category also includes niche ope rators such as outsized shipment carriers 
(typically Volga-Dnepr) and the Aircraft Crew Maintenance and Insurance (ACMI) 
operators (typically Atlas Air before it file d for bankruptcy or the Icelandic carrier 
Air Atlanta); 
  - express carriers which operate their own fleets but also have leased or franchised 
capacity to transport parcels and a limite d amount of freight within a hub-and-spoke 
system where trucking complements, and sometimes takes the place of, air transport services (typically FedEx, UPS and, to a lesser extent, ASTAR, the air carrier arm of DHL, but with a capital structure different from that of DHL to take account of US airline ownership rules); 
 
 - lastly, for the sake of completeness, menti on could additionally be made of the virtual 
airlines operated by certain freight forwarders, which wet-lease aircraft on a seasonal basis over certain routes from ACMI or other operators (typically ASB Air, the airline affiliate of Panalpina from Atlas Air and Swiss Cargo, or Danzas AEI from the Turkish operator MNG). 
 
413. During the period under review, developments a ffecting each of these types of carrier varied. 
(a) Low-cost carriers and leisure carriers 
414. The period under review was extremely profitable for low-cost carriers and more uncertain 
for leisure carriers.  In the area of freight, howeve r, both types of carrier were confronted with the 
same difficulties:  on the one hand, the lack of sales platforms, ground handling facilities, 
warehousing and interlining necessary for the operati on of economically viable freight services, and  S/C/W/270/Add.2 
 Page 321 
 
 
  on the other hand the operational inconvenience of unloading freight, which may delay the rapid 
turnaround of aircraft, a key parameter of the low-cost model. 
415. In view of these constraints, many carriers in this category have abandoned freight services 
and confined themselves to transporting baggage fo r their passengers.  Othe rs have attempted to 
convert this handicap into a source of profit by su bcontracting management of their belly space to a 
third company.  Lufthansa, for example, set up a specialized subsidiary, Cargo Counts, in 
October 2003, which has already signed contracts with AirAsia, Condor, Spanair, Hapag Lloyd and 
the charter operators SunExpress of Turkey and Luxor of Portugal.  For the same services, other airlines have turned to general sales agents (G SA) (see also S/C/W/270, page 47, paragraph 201).  
These include SN Brussels which outsourced the management of its belly space on African routes to 
the GSA European Cargo Services.  Third companies managing the belly cargo operations of airlines 
are now called cargo management companies. 
Members may wish to consider whether or not th e activities of these cargo management companies 
fall within the scope of the GATS and, if so, what sui generis  definition and/or what CPC item(s) 
could be assigned to them. 
 
(b) Belly carriers 
416. Cargo revenues made a marginal but useful contri bution to the balance sheet of belly carriers, 
requiring no particular investment.  Economic deve lopments over the period under review gave such 
revenues more critical importance than before, and at  the same time contributed to a weakening of 
belly carriers' economic position in the area of freight transport. 
417. The growth of freight services (roughly 6 per cent per year in the medium term) is structurally 
greater than that of passenger transport (4 per cen t per year).  Subject to technical developments 
affecting the belly capacity of passenger aircraft252, the market share of belly carriers will 
automatically decrease to the benefit of carriers operating dedicated freighters.  For the same 
customer/freight forwarder, they will therefore be  carrying proportionally smaller loads, whereas a 
significant trend among freight forwarders is their growing consolidation and their tendency to group 
capacity purchases to the benefit of certain preferred carriers.  Generally speaking, infrastructure costs 
became too high for small and medium-sized carriers during the period. 
418. In the face of this squeeze on their operations, belly carriers have several options:  to accept 
the situation, to try to concentrate their marke ting efforts on a few high volume customers, to form 
alliances with a variety of partners in the air tran sport supply chain, to subcontract management of 
their belly space to third parties, to purchase dedicated  freighters, or finally to  get out of the freight 
business. 
419. A number of examples serve to illustrate these different strategies.  Air Lingus stopped 
carrying cargo on its European routes in 2004;  British Airways and Emirates moved in the opposite 
direction by purchasing dedicated freighters;  and SN Brussels and US Airways subcontracted management of some of their belly cargo operations on long-haul routes. 
(c) Mixed fleet carriers 
420. "Mixed fleet carrier", a term not universally accep ted, is used here to mean carriers operating 
both the cargo holds of passenger planes and dedicat ed all-cargo aircraft, such as Air France-KLM, 
Lufthansa, or Korean Air. 
                                                     
 
252 Specialized journals contain contradictory information on future belly capacity of new models of 
planes, some affirming that they will be higher, others that they will be lower. S/C/W/270/Add.2 
Page 322  
 
  421. One of the main developments in this subsect or is the appearance of cargo alliances.  These 
are not the exact equivalent of passenger allianc es, since they are fewer in number (two global 
alliances instead of three) and have fewer members.   In practice, however, the members of a cargo 
alliance have hitherto always been memb ers of the corresponding passenger alliance. 
422. The first of these alliances, New Global Car go, was set up in May 2000 and was renamed 
WOW in September 2001.  Its members are Lufthansa Cargo, Singapore Airlines Cargo and 
SAS Cargo, all members of Star Alliance.  They were joined in 2004 by Japan Airlines.  The second 
alliance, Sky Team Cargo, was launched in September 2000 with a membership comprising Delta 
Airlines, Air France, Korean Air and AeroMexico, which were later joined by Alitalia and Czech 
Airlines, and by KLM in 2003. 
423. As is shown by a comparison of Table 38, w ith the left-hand section of Table 37 listing the 
top 50 freight carriers, the appearance of th ese alliances has drastically altered the competitive 
landscape. 
Table 38 
Top five air freight carriers including alliances, 2000 
Rank Alliance Cargo traffic 
(billions of tonne-km) Freighters/combis 
1 Sky Team 16.8 50 
2 WOW 14.6 32 
3 FedEx 11.4 331 
4 KLM-Northwest 8.3 34 
5 UPS 8.3 245 
Source : Airline Business, November 2001 
 
424. Unfortunately, no comparable data are available for the end of the period.  In the meantime, 
the fourth alliance, KLM-Northwest, has ceased to ex ist, having largely been absorbed by Sky Team, 
while WOW has undergone considerable expansion. 
425. It would appear, however, that the alliances are ha ving only a limited impact at this stage.  It 
is difficult to speculate about the degree of actual integration in each alliance.  They have already 
harmonized their product portfolios.  Sky Team Car go has integrated its sales teams and practises 
joint ground handling, while WOW members are requ ired to reserve 10 per cent of capacity on each 
of their flights for their partners' express products.  But neither of the two alliances coordinates fleet 
utilization in terms of capacity, scheduling, tariffs  and procedures, so as to establish a harmonized 
global network capable of competing with the express carriers.  Each continues to fly to the markets 
of its partners.  True integration appears to mate rlise only on a very small scale, for example within 
the Air France-KLM Group or under the Air France- Delta joint venture for North American sales. 
426. The strategy of cooperative linkage between mixe d fleet carriers is not limited to the alliances 
of such carriers.  It may also take the form of i nvestment in dedicated freight joint ventures such as 
Lufthansa Cargo's 25 per cent stake in the new Chin ese all-cargo carrier, Jade Airlines, with German 
institutional investors holding a 24 per cent stake and with Shenzen Airlines as local partner.  
Similarly, Lufthansa Cargo launched a cooperative ve nture with DHL on five long-haul routes, with 
more tightly integrated modalities than in the case of WOW, as they extend to the joint planning of 
available capacity and it is planned to use traffic rights owned by the two companies for flights.  The 
logistical affiliate of Swiss (SAIR Logistics) has also set up the Swiss Global Cargo joint venture with 
the freight forwarder Panalpina.  DHL's 40 per cen t stake in Air Hong Kong, the cargo affiliate of 
Cathay Pacific, is another example, especially as it is combined with an agreement under which belly 
space on Cathay's passenger aircraft is sold to DHL on certain flights.  S/C/W/270/Add.2 
 Page 323 
 
 
  427. Some mixed fleet carriers have spun-off their fre ight operations within a specific affiliate, as 
in the case of Lufthansa, Singapore Airlines, SAS a nd Air Canada.  Others envisaged this step but 
then gave up the idea (Korean Air).  Yet others have retained an integrated structure (Swiss). 
428. Generally speaking, the mixed fleet carriers, in the same ways as the all-cargo carriers, 
increasingly have recourse to leasing contracts that ar e flexible – and hence more costly – to cope 
with sudden spikes in traffic or restrictions on cargo hold carrier capacity (belly crunch) linked to 
events affecting air transport (9/11, SARS, second Gulf War, etc.). 
429. At the same time, divergent expansion strate gies were followed by the mixed fleet carriers 
during the period under review:  internal growth (E mirates) and/or external growth (Lufthansa), or 
redeployment to niche markets by carriers like Swiss for premium products such as pharmaceuticals 
that require temperature-controlled transportation. 
430. A major difficulty faced by mixed fleet carriers, and even more by all-cargo carriers, is 
structural route imbalance.  Thus, two to four  times more goods are carried from China to North 
America and Europe than from Europe and North America to China. 
431. The considerable imbalance in volumes is ev en more pronounced in value terms.  For 
example, Airline Business cited differences of nine  to one in freight rates for China in November 
2005:  US$0.25 per kilo on the Europe-China leg, an d US$2.2 to 2.3 per kilo on the China-Europe leg 
(excluding fuel and security surcharges in both directi ons).  It is crucially important to offset these 
imbalances, even if only partially, by ne gotiating fifth and seventh freedom rights. 
432. The situation is however less difficult for Eur opean carriers, which have the possibility of 
taking on cargo at an intermediate stop in the Middle East (fifth freedom) than it is for North 
American carriers which have to cross the North P acific with no possibility of a profitable extra stop. 
(d) All-cargo carriers 
433. Paradoxically, little is available in the way of data or documentation on these carriers, which 
are not very visible.  Apart from some well-known names, the majority of these companies specialize 
in niche markets and do not therefore appear in the list of the top 50 freight carriers from all 
categories.  Among those that do appear on the list, some have been bought by express carriers, such 
as ABX-Airborne Express in 2003, then Polar Air in 2006, by DHL Deutsche Post.  ABX-Airborne's 
operations also include freight forwarding.  Deutsche Post has copied the capital structure of Astar by 
splitting off the air branch renamed ABX Air and sc aling back its holding.  Between 2000 and 2005, 
ABX fell from 34th to 42nd place.  Polar Air, on the other hand, rose from 33rd to 21st place, and 
MartinAir and Cargo Lux also moved up.  Emery Worldwide has disappeared from the list, while 
Volga-Dnepr has been included. 
434. Boeing and Airbus concur in foreseeing a bright  future for this segment using all-cargo 
aircraft.  The increase in the number of joint ventur es purely involved in cargo operations in China is 
another indicator of this trend, even though some ob servers consider that the main hub in Shanghai is 
reaching its capacity limit. 
(e) Express carriers 
435. The review of the Annex on Air Transport Serv ices is probably not the right place to describe 
in detail the developments that have affected e xpress services inasmuch as this activity goes well 
beyond air transport alone and involves logistics a nd road transport in particular.  Only some 
developments, that concern solely the air transport aspects, will be described here. 
436. One major development has been the buy-out of the US express services company DHL by 
the Deutsche Post Network group, which then acqui red the air freight forwarder AEI (Air Express 
International) and 45 per cent of Polar Air, an a ll-cargo carrier, in 2006.  Air transport ownership S/C/W/270/Add.2 
Page 324  
 
  regulations obliged Deutsche Post to split DHL's US  operations into two, with the air transport 
component renamed Astar, in which Deutsche Post  has only a 25 per cent holding.  The two other 
express services, UPS and FedEx, contested this  restructuring because Deutsche Post exercised 
effective control of Astar, but their complaints we re rejected in succession by the US Department of 
Transportation and by the US courts. 
437. Virtually in parallel, Deutsche Post lodge d a complaint with the European Commission 
because UPS had de facto control of the Danish carri er Star Air by bringing to it the totality of its 
turnover.  There has been no follow-up to this complaint. 
438. It is the express carriers which, because of the structure of their networks, have taken the 
concept of hubs furthest and have invested mass ively, more than freight companies, in special 
facilities or even dedicated airports abroad.  This is the case, for example, with UPS in Shanghai, 
Hong Kong, Manila and Cologne, in  addition to Louisville;  FedEx in Beijing, Shanghai, Guangzhou, 
Subic Bay and Roissy, in addition to Memphis;  and DHL in Sydney, Leipzig, Hong Kong and Shanghai, in addition to Cincinnati.  This worldwide expansion, particularly in China
253, represents a 
growth factor in a market in which the North American parcel service has reached maturity and 
expedited trucking competes increasingly strongly , so that domestic air transport volumes are 
stagnating.  Likewise, express operators are incr easingly tending to transport freight and no longer 
only parcels weighing less than 30 kg. 
(ii) Trends affecting other actors in the air freight supply chain 
(a) Freight forwarders 
439. In the case of air transport, these service provide rs play a key role as intermediaries between 
airlines and the end customer.  Unlike maritime tran sport, where the end customer is frequently in 
contact with the carrier, it is nearly always the freight forwarder who buys the air carrier's capacity 
and not the end customer.  Exceptions to this rule  are confined to niche areas (for example, British 
Airways with British supermarkets for the import of  tropical fruit), so much so that a KLM manager 
created an uproar at one of the industry's congresses by envisaging the possibility of direct contacts 
between airlines and end customers. 
440. When they make use of third parties' cap acity for regulatory ec onomic reasons, express 
operators are in the same position as freight forwar ders.  They are large buyers of capacity with 
considerable negotiating power. 
441. During the period under review, there was a marked  increase in the concentration of freight 
forwarders and air transport customers in general, to  the extent that since 2004 the five leading buyers 
alone control 55 per cent of total volume, as can be seen from Table 39. 
                                                      
253 Where cargo traffic rights to and from the United States have been totally liberalized through 
two successive bilateral negotiations during the period under review.  S/C/W/270/Add.2 
 Page 325 
 
 
  Table 39 
Leading air freight customers, 2004 
Company Total revenue 
(US$ million) Express services 
turnover 
(US$ million) Logistics/forwarding 
(US$ million) 
Deutsche Post  49,772  19,021  7,311 
UPS  36,582  33,372  3,210 
FedEx  24,710  19,485 - 
TNT  15,715  5,846  5,100 
Exel  11,617 -  11,377 
Schenker  10,002 -  5,193 
Kuehne + Nagel  9,320 -  9,320 
Panalpina  6,006 -  6,006 
Source : Airline Business, November 2005 
 
442. Since this table was drawn up, the pace of con centration has accelerated:  Deutsche Post, at 
the top of the table, has bought Exel, in fift h place;  TNT has bought Wilson;  Schenker has bought 
BAX Global;  and UPS has bought Menlo. 
443. These freight forwarders or express operators, as air freight transport customers, are 
increasingly tending to use hubs and group their purchase of capacity, reserving it for a dozen or so "preferred carriers" in exchange for ever more complex arrangements that imply a guarantee of capacity on the part of the carrier, paid by the frei ght forwarder whether or not it is used ("take or 
pay"), and a commitment by the freight forwarder to use the holds of mixed-fleet carriers throughout 
their network for goods whose volume does not justify the use of an all-cargo plane. 
444. Airlines themselves cannot practise consolida tion because of the rules governing airline 
ownership and therefore see their negotiating power eroded as the disproportion in size between them 
and their customers grows wider. 
445. Some freight forwarders now even have airlines  at their disposal, wet-leasing aircraft for a 
whole season on some routes, either from ACMI carriers or from mixed-fleet or all-cargo operators.  
This is the case for the examples already cited:  Pa nalpina with its affiliate ASB Air leasing capacity 
from Atlas Air and Swiss;  Danzas AEI from MNR;  and DHL from Lufthansa Cargo.  These "virtual" companies allow freight forwarders to exert closer control over the supply chain, particularly for "just 
in time" deliveries.  This is one of the reasons  why the forecasts of Airbus and Boeing concur in 
predicting stronger growth for all-cargo aircraft, utili zed by these virtual companies, than for aircraft 
used to carry passengers. 
446. Airlines are particularly concerned at the buy- out of freight forwarders by express operators, 
fearing not only their negotiating power but also that freight could be diverted to other carriers or to 
the express operators' own air freight networks.  Up until now, these fears do not seem to have 
materialized and forwarding operations, which are structurally different from express services, have 
not been integrated or merged with the latter. 
(b) Airports 
447. In Europe at least, environmental constraints ha ve become even more acute during the period 
under review and have led several major airports e ither to ban night flights (Frankfurt as of 2006 in 
return for building a fourth runway) or to limit them (Paris, Brussels). S/C/W/270/Add.2 
Page 326  
 
  448. Cargo carriers, whether express or mixed-fleet , use night flights in passenger hubs because 
this allows them to interline with belly servi ces and thus to "hub-and-spoke" cargo operations, and 
also because long-haul flights can arrive in the morning. 
449. Two factors at least tend to keep freight carriers away from these hubs:  one is general 
congestion and the other is restrictions on night flight s, which are justified by the fact that a large part 
of the cargo fleet is made up of fairly old passenger aircraft retrofitted as all-cargo aircraft, which are 
thus generally noisier, or even extremely noisy in the case of the former Soviet bombers used to 
transport heavy loads.  As indicated in the secti on on slots, for these reasons DHL abandoned its hub 
in Brussels and fell back on Leipzig, which offered 24-hour service. 
450. In this context, efforts to develop all-cargo ai rports – situated in areas that are not densely 
populated
254 and offering 24-hour service with motorway connections – are going forward with 
varying degrees of success, because cargo carriers do not want to give up the interlining afforded by 
passenger hubs.  While Vatry, near Rheims, and Hahn,  close to Frankfurt, are finding it difficult to 
develop, Glasgow Prestwick, supported by the presence of the "Silicon Glen" electronics industries, Vittoria in Spain, specializing in stopovers to and from South America and maritime products, and 
Midlands-Manchester and Liège, which both have  liberal policies as regards noise pollution, are 
reasonably successful.  At this stage, these deve lopments appear to be confined to Europe. 
451. One other significant development as far as airpor ts are concerned is the creation of hubs by 
carriers outside their own countries, a development th at is still extremely rare for passenger traffic.  
These hubs have mainly, but not exclusively, been created by express operators, and much of the investment in joint ventures in China by Lufthan sa, Air France, Korean Air, Singapore Airlines, etc., 
can be explained by the desire to  establish such hubs in China. 
452. Table 40 shows the 50 leading freight airports cl assified according to volume of traffic at the 
beginning (2000) and end (2005) of the period under review. 
                                                     
 
254 These are often former military bases:  Chateauroux, Vatry an d Hahn, for example.  
   S/C/W/270/Add.2
 Page 327Table 40 
The 50 cargo airports by traffic volume, 2000-2005 
2000 2005 
Rank City Airport Country/ 
territory Tonne/km 
(thousands) Rank City Airport Country/ 
territory Tonne/km 
(thousands) 
1 Memphis International US 2,489 1 Memphis  International US 3,599 
2 Hong Kong Chek Lap Kok China 2,267 2 Hong Kong Chek Lap Kok China 3,433 
3 Los Angeles International US 1,933 3 Tokyo Narita Japan 2,291 
4 Tokyo Narita Japan 1,933 4 Seoul Incheon International S. Korea 2,150 
5 Seoul Kimpo South Korea 1,874 5 Paris Charles de Gaulle France 2,010 
6 New York Kennedy US 1,826 6 Frankfurt International Germany 1,963 
7 Frankfurt Rhein-Main Germany 1,710 7 Los Angeles International US 1,938 
8 Singapore Changi Singapore 1,705 8 Shanghai Pu Dong China 1,857 
9 Miami International US 1,642 9 Singapore Changi Singapore 1,855 
10 Louisville Standiford Field US 1,520 10 Louisville International US 1,815 
11 Chicago O'Hare International US 1,464 11 Miami International US 1,755 
12 London Heathrow UK 1,402 12 Taipei Chiang Kai Shek Int'l Chinese Taipei 1,705 
13 Paris Charles de Gaulle France 1,380 13 New York JFK US 1,661 
14 Amsterdam Schipol Netherlands 1,267 14 Chicago O'Hare International US 1,546 
15 Taipei Chiang Kai Shek 
Int'l Chinese Taipei 1,209 15 Amsterdam Schipol Netherlands 1,496 
16 Indianapolis International US 1,174 16 London Heathrow UK 1,390 
17 New York Newark US 1,083 17 Dubai International UAE 1,315 
18 Osaka Kansai Japan 1,001 18 Bangkok International Thailand 1,141 
19 Dallas/Fort Worth International US 905 19 Indianapolis International US 985 
20 Atlanta Hartsfield Int'l US 872 20 Newark Liberty Int'l US 950 
21 Bangkok International Thailand 871 21 Osaka Kansai International Japan 869 
22 San Francisco International US 870 22 Tokyo Haneda Japan 799 
23 Dayton International US 832 23 Beijing Capital China 782 
24 Tokyo Haneda Japan 770 24 Atlanta Hartsfield Int'l US 768 
25 Oakland International US 703 25 Guangzhou Baiyun China 751 
26 Sydney Kingsford Smith Australia 665 26 Luxembourg   Luxembourg 743 
27 Brussels Zaventum Belgium 634 27 Dallas/Fort Worth International US 742 
28 Dubai International UAE 582 28 Oakland International US 673 
29 Philadelphia International US 563 29 Brussels National Belgium 661 
30 Beijing Capital China 555 30 Kuala Lumpur International Malaysia 657 
31 Kuala Lumpur Subang-KL Int'l Malaysia 524 31 Cologne/Bonn Konrad-Adenauer Germany 644 
32 Shanghai Hongqiao China 492 32 San Francisco International US 591  
  S/C/W/270/Add.2 
Page 328 2000 2005 
Rank City Airport Country/ 
territory Tonne/km 
(thousands) Rank City Airport Country/ 
territory Tonne/km 
(thousands) 
33 Honolulu  International US 482 33 Bogota El Dorado International Colombia 561 
34 Sharjah   UAE 475 34 Philadelphia International US 548 
35 Denver International US 470 35 Ontario International US 522 
36 Boston Logan International US 466 36 Sao Paulo Guarulhos Int'l Brazil 497 
37 Ontario   US 464 37 Shenzhen Baoan Int'l China 466 
38 Cologne   Germany 442 38 Honolulu International US 457 
39 Seattle/Tacoma International US 441 39 Mumbai Chaprati Shivaji Int'l India 435 
40 Toledo   US 427 40 Manila Ninoy Aquino Int'l Philippines 412 
41 Sao Paulo Guarulhos Int'l Brazil 422 41 Toronto Lester B Pearson Canada 410 
42 Copenhagen Copenhagen Denmark 419 42 New Delhi Indira Gandhi Int'l India 389 
43 Zurich Zurich Switzerland 417 43 Houston George Bush US 388 
44 Manila Ninoy Aquino Philippines 390 44 Milan Malpensa Italy 385 
45 Washington Dulles International US 384 45 Mexico City Benito Juarez Int'l Mexico 380 
46 Cincinnati Northern Kentucky US 381 46 Madrid Barajas Spain 365 
47 Minneapolis/St Paul   US 370 47 Shanghai Hongqiao China 360 
48 Houston George Bush US 368 48 Boston Logan Int'l US 356 
49 Tel-Aviv Ben Gurion Israel 344 49 Copenhagen Kastrup Denmark 355 
50 Phoenix Sky Harbor US 339 50 Toledo Express US 352 
Source : Airline Business, November 2001, and November 2006. 
  S/C/W/270/Add.2 
 Page 329 
 
 
  453. This highly informative table shows more fa r-reaching changes than the corresponding table 
on carriers. 
454. The airports which have lost ground include Los Angeles, Tokyo, New York JFK, Chicago, 
London and San Francisco.  Among those which have moved up, there have been spectacular, but hardly surprising, performances by Shanghai an d Dubai, as well as Paris, Taipei, Bangkok and 
Beijing.  The arrival of Mumbai and New Delhi on this list, in 39
th and 42nd place respectively, after 
being absent from the previous list, is worthy of note, as is that of Luxembourg, also not among the previous leaders, but now in 26
th place with a volume that is almost double that of New Delhi or 
Mumbai, which gives some idea of th e potential for growth in India. 
455. Lastly, there has been little or no change in the ranking of certain airports on the list:  
Memphis, Hong Kong, Seoul, Frankfurt, Singapore and Louisville.  Overall, Asia moved from 12 to 
17 rankings in the top 50, North America from 24 to 18 and Europe from 8 to 9;  in 2000, as in 2005, these three regions accounted for 44 of the top 50 airports. 
(c) Other service providers involved in the air transport chain 
456. The air transport chain includes many other service providers: 
 - Airport ground handling services, which have already been mentioned in the 
documentation (see document S/C/W/270, pages 88-104, paragraphs 291-375); 
  - customs agents (customs clearance providers ), some of which specialize in air freight 
exclusively, whereas others clear goods for all modes of transport; 
 
 - cargo reservation systems, which have al ready been mentioned in the documentation 
(see document S/C/W/270, page 41,  paragraphs 178 and 179); 
  - brokers such as Chapman Freeborn, Air Part ner and Star Broker, whose role is similar 
to that of their maritime counterparts (" Ship for cargo, cargo for ship"), but on which 
there is virtually no documentation; 
  - firms specializing in forwarding the electronic documentation accompanying freight, 
such as Traxon; 
  - providers of automated ready-to-use air cargo solutions, such as the joint subsidiary 
of SITA Cargo and Cargol ux, Champ Cargosystem. 
 
Members may wish to consider whether or not th e activities of these various service providers fall 
within the scope of the GATS and, if so, what sui generis  definition and/or CPC item(s) could be 
assigned to them. 
 
(d) Other economic developments 
457. Outsourcing has started to appear in air freight, spreading beyond the example of cargo 
management companies, whose scope is still fairly  limited.  In 2003, for example, the employees of 
SwissPort Cargo Services and Worldwide Flight Services Inc. replaced 1,500 warehouse and cargo 
call centre employees at 17 warehouses owned by United Airlines. 
458. Some analysts, for example, Christopher Shawdon of Unisys, forecast the imminent 
emergence of low-cost freight carriers because they  consider that the "low-cost" model (simplified 
pricing, highly productive teams, a nd high rate of aircraft utilization) can be transposed to freight.  To 
date, however, there are no concrete examples. S/C/W/270/Add.2 
Page 330  
 
  459. Pro memoria , the growing role of electronic transac tions in cargo transport has been dealt 
with in detail in the section concerning distri bution of air transport services in document S/C/W/270 
(page 41, paragraphs 178 and 179).  This is the ca se in particular for IATA's "e-freight" initiative 
(S/C/W/270, page 55, paragraphs  243 and 244) and the Cargo A ccounts Settlement System (CASS) 
also administered by IATA (S/C/W/270,  page 56, paragraphs 245 to 248). 
460. As is the case for baggage handling, widespread  use of radio frequency identification (RFID) 
tags is seen as the next major development in the actual handling of freight, the ultimate goal being to 
track each shipment individually, an area in whic h express operators have opened up a strong lead. 
461. In a joint effort aimed at catching up on the tec hnical and organizational lead held by express 
operators, 15 traditional freight carriers and nine freight forwarders, togeth er accounting for 65 per 
cent of traffic, have joined forces in an IATA-led  initiative entitled "Cargo 2000".  The origin of this 
initiative is a study by the company Unisys in 1996, which showed that, on average, a shipment by air 
took six days to complete and involved 40 separate processes. 
462. The aim of Cargo 2000 is to halve the number of processes, and to create a "route map" for 
each shipment, showing what phases it must pass th rough and when, in order to alert the shipper 
whenever a phase has been missed or delayed.  Anot her objective is to compile statistics to measure 
performance, identify any problems and resolve them. 
463. The initiative got off to a difficult start because those involved feared that they would be 
called on to invest in a common IT platform when they had already invested  heavily in their own 
systems.  Cargo 2000 was thus given a boost in 2003 when the idea of a common IT platform was 
abandoned and replaced by the definition of standa rds.  Cargo 2000 is designed in three phases:  
phase 1 from airport to airport, phase 2 from door to door, in both cases tracking the consolidated 
shipment under a single master air waybill, and phase 3 allowing each individual shipment with a 
separate air waybill to be monitored.  At the end of 2005, only one member out of 25 had implemented phase 2, but the indicators generated by phase 1 were unanimously deemed extremely useful. 
2. Regulatory Developments 
(a) Aspects directly related to market access 
(i) Bilateral developments 
464. According to IATA, carriers operating passenger f lights with freight in their holds ("belly 
carriers") carried 48 per cent255 of th e total volume of air freight in 2006.  This share is forecast to 
decline to 40 per cent in 2020.256 
465. By definition, these flights are governed by th e same regime as passenger flights, except for 
any additional restrictions only applicable to fre ight that are not codified in detail in the 
ICAO World's Air Services Agreement database.  Consequently, QUASAR already describes the 
regulatory regime applicable to aroun d 50 per cent of the volume of freight. 
466. However, for the remaining 50 per cent, i.e. a ll-cargo flights including express services, there 
is no set of publicly accessible regulatory data on which to build the equivalent of QUASAR, i.e. a 
detailed study of the regulations specific to all-car go flights and their correlation to the corresponding 
traffic data. 
                                                     
 
255 Quoted in Aviation Week & Space Technology, 7 May 2007. 
256 Idem .  S/C/W/270/Add.2 
 Page 331 
 
 
  467. Indeed, the WASA database, which served as the regulatory basis for QUASAR, only deals 
very summarily with the cargo and express service aspects of bilateral agreements.  It simply uses a "yes/no" option regarding the existence of provisi ons specific to cargo and express flights, without 
going into any further detail. 
468. Another ICAO database, the Database of Ae ronautical Agreements and Arrangements 
(DAGMAR), which contains the full texts
257 of 1,836 bilateral agreements , could no doubt be used as 
the regulatory basis for such a study.  However, th e WTO Secretariat has not yet been able to obtain 
from the ICAO Secretariat access to this database. 
469. The QUASAR methodology can easily be transposed to the problem area of express and all-
cargo flights subject to some minor alterations, such  as the identification and weighting of obstacles 
specific to such flights and the elimination of factors specific to passenger flights that would be 
meaningless in respect of freight (controlling fares, for example). 
470. Subject to Members' approval and the availab ility of regulatory data, the Secretariat is 
planning to expand the scope of the QUASAR study to cargo and express flights in the medium to long term. 
471. Although it is impossible to give a detailed account  of the structure and development of the 
all-cargo and express service aspects of bilateral agr eements during the period under review, a picture 
of the kind contained in the first review (see co mpilation, pages 268-284) can be drawn up on the 
basis of information available from disparate public sources. 
472. The resulting table is markedly more liberal than  that for passenger transport.  For example, 
there are "round-the-world" services whose existence implies the granting of a combination of seventh 
freedom traffic rights, a system that has no equivalent in the area of passenger transport, where it is 
largely unthinkable. 
473. Likewise, as there is frequently no national flag  to defend, the application of ownership and 
control criteria is much more flexible and there are even 100 per cent foreign-owned subsidiaries 
operating on and from national markets, such as Tampa Cargo, the Colombian affiliate of the 
Netherlands carrier MartinAir, whic h would be highly exceptional in the case of passenger transport.  
Joint ventures are very rare in passenger transpor t but relatively common for freight, particularly in 
China. 
474. According to the Aero-Accords consultancy' s December 2005 study on the liberalization of 
air freight, liberalization has gathered significant momentum since 2001.  For example, negotiations including discussion of clauses specific to all-cargo flights accounted for only a small percentage of 
cases in the 1980s, but for over 50 per cent today, as can be seen from Table 41. 
                                                     
 
257 With the exception of confidential memoranda. S/C/W/270/Add.2 
Page 332  
 
  Table 41 
Air Services Agreements containing "all-cargo" provisions 
With cargo routings Granting "equal and 
separate rights" Period Number of 
agreements 
signed Number Share Number Share 
2001-2005  234  107  46%  68  29% 
1996-2000  294  98  33%  133  45% 
1991-1995  678  36  5%  98  14% 
1986-1990  477  9  2%  38  8% 
1981-1985  294  10  3%  13  4% 
1976-1980  538  12  2%  33  6% 
Notes: - "Number of agreements signed" = the number of finalized negotiations during each period; 
 - "With cargo routings" = negotiations with special all-cargo routes; 
 - "Granting equal and separate rights" = cases w ithout special routes but which contain all-cargo  
  clauses/articles. Source
: Airline Business, January 2006 
 
475. Over the same period, fifth freedom rights concerning both passengers and freight were 
granted on a fairly wide scale.  Sixth freedom rights were also granted, although they do not need legislative approval before they can be exercised.  In 10 per cent of the negotiations, seventh freedom 
rights were granted, whereas for passenger traffic su ch rights are virtually non-existent.  Table 42 
gives a rundown of all beyond-fourth-freedom rights recently granted. 
Table 42 
Air Services Agreements containing be yond-fourth-freedom traffic rights 
With general fifth 
freedom With general sixth 
freedom All-cargo seventh 
freedom 
Period Number of 
agreements 
signed Number Share Number Share Number Share 
2001-2005  234  52  22%  37  16%  24  10% 
1996-2000  294  177  60%  51  17%  29  10% 
1991-1995  678  130  19%  15  2%  0  0% 
1986-1990  477  117  25%  1  0.2%  0  0% 
1981-1985  294  53  18%  0  0%  0  0% 
1976-1980  538  162  30%  0  0%  0  0% 
 
Note: "Number of agreements signed":  the number of finalized negotiations during each period. 
Source : Airline Business, January 2006 
 
476. The possibility of making intermediate stops guaranteed by fifth and seventh freedoms is 
crucial for cargo transport.  There is often an im balance between the flows in both directions over the 
same route whereas for passengers they almost bala nce out.  This directional imbalance can be found 
in maritime transport on virtually the same routes (Asia-Europe, Asia-North America, Europe-Africa) 
and creates a problem of returning virtually empty, thereby affecting the profitability of flights.  The possibility of making an intermediate stop, which is seen as a constraint by passengers, is on the 
contrary an opportunity for freight carriers becau se it enables them to load other cargo and create 
triangular traffic.  S/C/W/270/Add.2 
 Page 333 
 
 
  477. Some examples show the advantages of these fi fth and seventh freedoms:  Cargolux derives 
12 per cent of its revenue from fifth freedom rights, particularly on the routes (fifth freedom segments 
underlined) Luxembourg – United States - Mexico , Luxembourg – Malaysia - Australia , and 
Luxembourg - Chinese Taipei -Hong Kong, China ;  British Airways uses fifth freedom rights from 
the airports at Porto and Athens;  European carriers frequently stop over in the Middle East on the 
way to China or on the return leg. 
478. For seventh freedom, MartinAir, a Netherla nds company, and AviaLeasing, an Uzbek 
company, have their operational bases in the Un ited States and enjoy seventh freedom rights from 
these bases.  Singapore Airlines has seventh freedom  rights to fly to the United States from its 
Chinese hubs of Xiamen and Nanjing. 
479. In order to follow up the expansion of traffi c, carriers have acquired more wide-bodied 
aircraft – 245 in 1994, 852 in 20 04 – but in return the profitable operation of these wide-bodied 
aircraft means a large number of stops (provided by fifth, sixth and seventh freedom rights) and 
organization as a network.  Aero-Accords considers that by 2015 around half of the agreements will 
have specific all-cargo clauses but that seventh free dom rights should peak at most at 15 to 20 per 
cent of agreements by the same date. 
(ii) Discussions at ICAO 
480. The references to liberalization of freight traffic at the Fifth Worldwide Air Transport 
Conference provide a glimpse of the progress of liberalization in recent years. 
481. The discussions appear to point to the emerge nce of a degree of consensus on the special 
nature of freight transport and the objective to be pur sued:  its separate and accelerated liberalization.  
On the other hand, the participants differed signifi cantly as to the ways of achieving this objective. 
482. In its own contribution to the Conference on freight, "Liberalizing air cargo services" 
(ATConf/5-WP/10), the ICAO Secretariat  came out more clearly in favour of liberalization than it 
had done in respect of passenger traffic.  For p assengers, ICAO proposed three distinct optional 
approaches for a model air transport agreement (Template Air Services Agreement)258:  traditional, 
transitional and full liberalization.  On the other hand, ICAO considered that freight could be the 
subject of special regulatory treatment. 
483. ICAO first of all notes that freight traffic is di stinguished from passenger traffic by a number 
of special features:  goods are less sensitive to el apsed time, they can be moved along different routes 
and make numerous stops.  They only move in one direction and there is  usually an imbalance in their 
flow.  Air transport is frequently combined with other modes, so more remote and less congested 
airports can be used. 
484. ICAO then indicates that one of the major problems facing all-cargo operators is the lack of 
flexibility in market access rights under air services agreements.  The limitations usually imposed on 
passenger service in respect of routes, traffic rights, frequency, etc. may also apply to all-cargo services.  As there are limited synergies between passenger and cargo operations (different customers, 
different departure/arrival time requirements, direct ional imbalance of traffic movement), it is often 
difficult for air carriers to sustain an economically  viable all-cargo service because of the regulatory 
restrictions. 
485. All-cargo operators are also constrained by a range of other rules affecting operational and 
"doing business" opportunities, for example, national ownership and control requirements, restrictions 
                                                     
 
258 For further details concerning this model agreement, see the observations pertaining to it in 
document S/C/W/270/Add.1, pages I.37-39, paragraphs 82-86, and Annex B-I, pages 66-80. S/C/W/270/Add.2 
Page 334  
 
  on the use of leased aircraft, ground handling, and commercial cooperative arrangements such as 
blocked space and code-sharing. 
486. Other regulatory problems facing all-cargo oper ators are airport curfews, which often limit 
flexibility in flight scheduling, particularly fo r express services, and in some cases limitations on 
airport slots that can be used by cargo flights,  especially at congested airports where all-cargo 
operations are often given lower priority than passenger services. 
487. ICAO recognizes that there are two main obstacles to separate and accelerated liberalization 
of freight transport.  The first is the concern of States that they will lose leverage in aviation 
negotiations, the second is the fear of "belly carri ers" that they will see their competitive situation 
deteriorate in comparison with all-cargo carriers, which have greater freedom. 
488. ICAO nevertheless considers that the disadvantag es need to be weighed against the general 
economic benefits in terms of trad e and development that can be expected from liberalization of air 
freight transport. 
489. This is why ICAO suggests that States: 
 - Either consider the possi bility of unilateral liberalization of market access for all-
cargo services without the requirement for bilateral reciprocity or negotiation; 
  - or consider measures to liberalize all-car go operations in their existing and future air 
services negotiations and regulatory treatment. 
 490. ICAO therefore suggests that States negotiate th e following provisions for all-cargo carriers: 
 - Granting of fifth and seventh freedom traffic rights; 
  - measures to allow the following in particular:    (a) operation of flights in either or both directions, combination of different 
flight numbers within one aircraft operati on and omission of stops at any point or 
points; 
   (b) unrestricted frequency, type of aircraft and capacity to be used;    (c) conclusion of commercial agreements with other carriers such as blocked 
space, code-sharing and interline arrangements; 
   (d) combination on the same aircraft of traffic originating in the territories of the 
parties concerned, as well as from that of third parties; 
 
 - liberalization of ownership and control requirements; 
  - authorization to lease aircraft, including crew, subject to observance of safety 
requirements; 
  - more liberal arrangements for other aspects specific to all-cargo operations, including 
pricing freedoms, intermodal transport, gr ound handling and warehousing (but in the 
latter two cases with priority given to safet y and security considerations), as well as 
customs clearance and other facilitation. 
 491. ICAO suggests that States should formalize these  various proposals by incorporating an 
"Annex on air cargo services" in their bilateral ASAs .  The text proposed by ICAO for this annex 
appears in Box 3.  S/C/W/270/Add.2 
 Page 335 
 
 
  Box 3 
Annex on air cargo services proposed by ICAO 
 
 "The Parties agree that: 
 
 1. Every designated airline when engaged in the international transport of air cargo 
 
 (a) Shall be accorded non-discri minatory treatment with respect  to access to facilities for cargo 
clearance, handling, storage, and facilitation; 
 
 (b) may use and/or operate directly other modes of transport; 
 
 (c) may use leased aircraft, prov ided that such operation complies with the safety and security 
standards applied to other aircraft of designated airlines; 
 
 (d) may enter into cooperative arrangements with other air carriers including, but not limited to, 
code-sharing, blocked space, and interlining; 
 
 (e) may determine its own cargo tariffs which shall not be required to be filed with the 
aeronautical authorities of either (any) Party. 
 
 2. In addition to the rights in paragraph 1 above,  every designated airline when engaged in all-cargo 
transportation as scheduled or non-scheduled services ma y provide such services to and from the territory of 
each (any) Party, without restriction as to frequency, capacity, routing, type of aircraft, and origin or 
destination of cargo." 
 
 
492. At the same conference, the International Chamber of Commerce  (ICC), which to a large 
extent represents the interests of shippers, intr oduced a paper (ATConf/5-WP/36) entitled "Air cargo 
and the World Trade Organization (WTO)".  Following an analysis of the special features of air cargo 
fairly similar to that made by ICAO, the ICC discusses the feasibility of applying the common legal 
framework for services, the GATS.  The ICC indicates in particular that:259 
"The GATS framework has frequently been dismis sed as unsuited to the special features of 
the air transport industry because the two basic GATS disciplines, MFN and national 
treatment, are extended to all parties regardless of reciprocity. 
 
While recognizing that the application of the reciprocity principle/conditional MFN is not common within the WTO framework, ICC would like to point out that applications of 
conditional MFN can be found in the appendi ces to the WTO Agreement on Government 
Procurement signed in Marrakesh on 15 April 1994. 
 
The MFN principle ought therefore to apply to the most favourable equal exchange of inbound and outbound access to transborder markets wh ich a country is prepared to make.  In 
other words, the MFN principle would be app lied in such a way that every WTO Member 
should be required to offer to all Members th e elements of its most favourable bilateral 
agreement, on the basis of mirror reciprocity. 
 
For example, a Member prepared to enter into  liberal arrangements might offer to all other 
Members all points, multiple destination, doubl e disapproval pricing and unrestricted capacity 
in exchange for the same.  A more restric tive Member might, for example, offer only one 
point, single destination, double approval pricing, and specified capacity in return for the 
                                                     
 
259 Rather than awkwardly paraphrasing the ICC's th inking in a matter that concerns it directly, the 
WTO Secretariat has preferred to quote th e principal elements of the ICC paper. S/C/W/270/Add.2 
Page 336  
 
  same.  Each Member would have to identify in  its market access schedule the most liberal 
terms upon which it is currently prepared to  enter into equal exchange of rights. 
 
To achieve this, the Annex on Air Transpor t Services could be amended to include a 
definition of 'hard rights' incorporating the no tion of reciprocal exchange of equal access.  
This approach would therefore combine existing bilateralism with the MFN principle, thereby 
meeting the main objection against inclusion of hard rights within the GATS. 
 
Under the GATS, the MFN principle would be  coupled with market access commitments 
establishing a threshold of liberalization beneath which a Member could not go in the future.  
Over time, this would evolve into a true mu ltilateral arrangement.  Similarly to the Bermuda 
agreement, which became a model for internationa l bilateral arrangements, a pattern of liberal 
market access schedules would emerge, which in subsequent GATS rounds could form the 
basis of a unified regime.  For example, if practices of all point to all point, unrestricted 
capacity and frequency were to appear, those prin ciples could be codified in the Annex on Air 
Transport Services." 
 493. The ideas expressed by the ICC are fairly similar to those set out in a draft amendment to the 
GATS and its formal Annex, cont ained in one of the rare reference works on this subject, 
"International Air Cargo Transport Serv ices:  Economic Regulation and Policy"
260 by R.J. Fennes, the 
text of which is reproduced fo r consideration in Annex II. 
494. The paper presented by The International Air Cargo Association  (TIACA) in document 
ATConf/5-WP/83, "The case for all-cargo liberalization" , takes as its starting point an extremely clear 
position of principle:  "The current rules don't suit the air cargo business". 
495. TIACA points out that all-cargo carriers are govern ed by the same bilateral agreements as 
belly carriers and in general are subject to the same restrictions.  There are, however, two essential 
differences between belly and all-cargo carriers:  on the one hand, the fact that all-cargo carriers have 
to meet all their costs whereas belly carriers can sell at  marginal prices and, on the other, the structural 
imbalance in flows and the need to find a return  load whereas passenger flights are more or less 
balanced in both directions.  Consequently, many fre ight carriers have to fly to a third destination to 
find a load and avoid empty legs.  With the current b ilateral system, this is very difficult for all-cargo 
operators and is one reason why TIACA is calling fo r the separation of traffic rights for all-cargo 
operators. 
496. The bilateral system as it stands also aggr avates the overcapacity problem in the market 
because it provides a form of protection for inefficient carriers against more efficient competitors.  An 
array of artificial devices such as slots, fuel, and ground handling can then be used to give the 
favoured operator an edge.  This often encourages such  operators to acquire capacity that they could 
never justify in an open market.  The system dictates that if there is no fourth freedom to take return 
cargo, the return flight is empty unless the operator is  fortunate enough to find a fifth, sixth or seventh 
freedom opportunity. 
497. In order to take into account the interests of belly carriers as well, TIACA considers that when 
traffic rights are granted to a passenger carrier, they  should automatically include the right to carry 
cargo, whereas some – unspecified – countries refuse this right.  TIACA also considers that all-cargo 
liberalization would permit the optimal use of scarce airport capacity.  It believes that the ultimate 
goal is to achieve total liberalization of access to a ll markets for all-cargo operations and, in order to 
do this, recommends that ICAO Contracting States  implement as soon as possible the reduction or 
                                                      
260 "International Air Cargo Transp ort Services:  Economic Regulation and Policy", doctoral thesis, 
University of Leyden, January 1997.  This work is not purely academic inasmuch as Mr Fennes belonged to the 
Air Transport Unit of the European Commission's Directorate General for Energy and Transport before moving 
to the Association of Eu ropean Airlines (AEA).  S/C/W/270/Add.2 
 Page 337 
 
 
  elimination of constraints imposed on all-cargo carriers by the current regime of bilateral agreements.  
Contracting States should, as a minimum first step, separate all-cargo from passenger and cargo rights, leading to a multilateral approach for like-minded States. 
498. In its paper ATConf/5-WP/94 on "Air cargo liberalization", Airports Council International  
(ACI), another important player in the air transport logistics chain, in general shares the views 
expressed by ICAO and TIACA.  It considers, in particular, that ICAO provides a cogent and 
convincing argument for liberalizing all-cargo interna tional services where they have not already been 
liberalized. 
499. One extremely interesting fact is that ACI' s cargo forecasts are much lower (4.4 per cent 
growth annually up to 2020) than  the concordant forecasts of Boeing and Airbus (6 per cent per 
annum).  ACI's forecasts were co mpiled from a sample of 300 airports, many of which are capacity-
constrained.  ACI considers that in a more liber alized international cargo environment, currently 
under-utilized secondary airports could accommodate higher growth rates of all-cargo traffic, and overall growth rates could be even higher.  Moreover, ACI believes th at liberalization of cargo traffic 
rights could reduce diversion to other modes of transport by opening up new, more direct services 
between secondary airports and bypassing costly  transfers from hubs to secondary airports, thus 
helping to keep air transport competitive.  ACI c oncludes that cargo liberalization would open up new 
opportunities for secondary airports, relieve pressure  on capacity-constrained hubs, lead to more 
efficient use of scarce airport capacity in general,  and provide a stimulus for world trade and job 
creation. 
500. The ICAO Contracting Parties which presented papers on the cargo issue (Singapore, the 
Republic of Korea, the United States and India) are a ll in agreement on the special nature of cargo and 
the ultimate goal of its liberalization.  Neverthel ess, their positions differ quite considerably regarding 
the nature of the instruments to be impl emented in order to achieve this goal. 
501. Singapore , in its paper ATConf/5-WP/38, "Libera lization of air freight on a multilateral 
basis", considers that liberalization of air freight  services could be achieved within the framework of 
bilateral, plurilateral or multilate ral agreements.  Possible measures for liberalization include de-
linking freight provisions from those concerning passenger services, having an open route schedule, and lifting restrictions on third, fourth and fifth fr eedom traffic rights.  Singapore notes that in the 
WTO, several countries have proposed including air freight services in the Annex on Air Transport 
Services to the GATS.  The Asia-Pacific Economic Cooperation Conference (APEC) economies have also highlighted air freight for priority action among eight options for the liberalization of 
international aviation.  The European Common Aviati on Area, which came into effect in 1997, allows 
any European Union carrier (passenger or cargo) to operate anywhere it wishes in the European 
Union, including on the domestic routes of any other Member State. 
502. Singapore's proposal for the liberalization of air freight services, first presented during the 
fourth Association of South-East Asian Nati ons (ASEAN) Transport Ministers meeting in 
September 1998, was positively received by the ASEAN Transport Ministers and culminated in the 
adoption by the ASEAN air transport authoriti es of the ASEAN Memorandum of Understanding on 
Air Freight Services on 19 September 2002 in Jakarta (Indonesia).  This Memorandum of 
Understanding is seen as a significant milestone in  ASEAN as it is the first ASEAN multilateral 
agreement on air services jointly accepted and adopted by all ASEAN members. 
503. Singapore therefore proposes that ICAO Contracting States accelerate the pace of 
liberalization of air freight, particularly all-car go services, multilaterally or plurilaterally and on a 
reciprocal basis to the greatest extent possible.   Such multilateral or plurilateral air freight 
liberalization could comprise the following elements: 
 - Phased approach to allowing the designate d carriers of member countries to exercise 
third to seventh freedoms of the air for all-cargo services operated on a scheduled or 
non-scheduled basis with maximum operational flexibility; S/C/W/270/Add.2 
Page 338  
 
   
 - non-discriminatory treatment of carriers with respect to access to ground facilities, 
clearance and other services;  possibilities for cooperative arrangements such as code-
sharing to take place among carriers;  and 
 
 - a definitive time-line for the phased and progressive multilateral liberalization of air 
freight, taking into account the varying ci rcumstances and levels of development of 
various economies. 
 504. In its paper ATConf/5-WP/86 on "Liberalizing air cargo and tourist charter operations", India  
emphasizes that for over a decade it has applied a un ilateral open-skies policy for air cargo operations.  
Any cargo airline, including any foreign one, can operate  any number of flights by any type of aircraft 
to any airport having customs and immigration facilities without any bilateral agreement.  The 
operators are free to charge rates according to the supply and demand situation.  There is no 
requirement of compliance by the operator with the national ownership criterion.  According to India, 
the benefits of this policy are that exporters and importers are assured of the capacity available at 
competitive prices, that cargo movement has been f acilitated as there are no bottlenecks in the system, 
that growth in exports has thus been help ed and administrative procedures facilitated. 
505. In view of the success of this policy, Indi a recommends that States follow its example by 
unilaterally liberalizing market access for all-car go services without the requirement of bilateral 
reciprocity, which will set the pace for liberalization of other areas of the air transport sector. 
506. The United States , in its paper ATConf/5-WP/49, "Liberalizing air cargo services", notes that 
many air services agreements in force today are not  open-skies agreements and therefore lack the 
commercial and operational flexibility necessary to al low air cargo carriers to meet user demand as 
efficiently, economically and expeditiously as possibl e.  The rights granted in the US model open-
skies and similar agreements provide that flexib ility and furnish the basis upon which the air cargo 
industry can best flourish.  While preferring full open-skies agreements, the United States believes 
that pursuit of air cargo liberalization separately fro m passenger liberalization is appropriate where it 
does not inhibit liberalization of the passenger sector. 
507. In addition to the negotiation of market access,  States should consider the effect on the air 
cargo industry of regulatory restrictions that fall outside air services agreements.  The imposition of restrictions such as night curfews and their effect on air cargo carriers is of particular concern.  States 
should not impose operating restricti ons, including those on night flights, as a first resort, but should 
implement the balanced approach to noise management contained in ICAO Assembly 
Resolution A33-7. 
508. In its brief paper ATConf/5-WP-100, "Liberalization of air cargo services", the Republic of 
Korea  expresses the view that the liberalization of  air cargo services should be given priority over 
that of the passenger sector and that a separate air cargo framework should be adopted to ensure stable 
operation of such services, both all-cargo and combined. 
509. On the other hand, it considers that the liberalization of air cargo services should preferably 
be limited to third and fourth freedom traffic right s in order to maintain a balance among the States 
involved.  In its view, eighth freedom traffic shoul d also be included in order to keep a balance 
between/among States involved if the fifth and seventh freedom traffic rights are to be liberalized in 
air cargo services. 
510. These discussions at ICAO's Fifth Worldwide Air Transport Conference led to the adoption 
of a "Declaration of Global Principles for the Libera lization of International Air Transport", adopted 
by acclamation by all ICAO's Contracting States .  Paragraph 4.7 of this Declaration prescribes that:  S/C/W/270/Add.2 
 Page 339 
 
 
  "States should give consideration to liberalizi ng the regulatory treatment of international air 
cargo services on an accelerated basis, provided that clear responsibility and control of regulatory, safety and security oversight is maintained." 
 
(iii) Regional developments 
(a) Andean Pact 
511. In its working paper on "Liberalizing air cargo services", ICAO noted that the Andean Pact 
provided full freedom for all-cargo non-scheduled flights of member country airlines within the region and between member countries and third countries. 
(b) ASEAN Memorandum of Understanding on Air Freight Services 
512. This Memorandum of Understanding has alr eady been mentioned in connection with 
Singapore's contribution to discussions at ICAO's Fi fth Worldwide Air Transport Conference.  It is 
also analysed in detail in the section of  this document on bilateral agreements. 
(c) OECD 
513. In order to complete its work begun in 1997 on air freight (the analytical part of that work 
was described in detail in the compilation, pages 268- 284, paragraphs 12 to 58, and the regulatory part 
is the subject of a separate document:  S/C/W/181,  "Excerpts from the OECD document 'Principles 
for the liberalisation of air cargo'", dated 27 N ovember 2000), in 2002 the OECD Secretariat made 
available on its web site a set of documents entitle d "Liberalisation of air cargo transport".  This 
"package" is structured around two alternative approa ches:  a bilateral protocol or a draft multilateral 
agreement on air cargo transport.  The bilateral prot ocol focuses on the liberalization of traffic rights 
for air cargo services on a bilateral basis, ancillary  services and other specific air cargo transportation 
issues that can be dealt with separately under exis ting bilateral air services agreements.  The draft 
multilateral agreement is intended to provide a means for liberalizing existing market restrictions and 
restrictions on operational and commercial flexib ility on a multilateral basis, without compromising 
safety and security. 
514. The references concerning the original texts of the bilateral protocol and the draft multilateral 
agreement envisaged by the OECD were circulated to  Members, at the time of the first review.  There 
were only minor alterations to these texts in the 2002 version.
261  On the other hand, the 
2002 "package" adds new analysis to the OECD's  previous ideas regarding the way in which a 
plurilateral agreement on air cargo traffic could function under the GATS.  This analysis is 
reproduced in full in Box 4. 
Box 4 
Functioning of a plurilateral agreement under the GATS, as seen by the OECD 
 
"Another possibility would be to seek a gr adual transition, whose aim would be to allow substantial liberalisation between a 
core group of like-minded WTO Members first, with a view toward s the fuller application of GATS at a later stage.  As part 
of this process, it has been proposed to break up the aviation sector into two parts.  The first would deal with the so called 
"hard traffic rights", which essentially encompasses the seven air transport freedoms that are the principal subject matter of 
all bilateral agreements .  It is here that concerns have been most widely  expressed.  The second part would comprise all other 
components of air transport, including for example ownershi p and control, ground handling se rvices etc.  While still 
important, these activities are not quite so jealously guarded, and could conceiva bly be subject to GATS disciplines. 
 
Under this scenario, it would be possible to deal with the issue of hard traffic righ ts in a sectoral U nderstanding, open only to 
those WTO Members who would be willing to open up those rights to others who subscribed to  that Understanding.  There 
are already some precedents in the WTO for such an appro ach, for example in the field of government procurement, and 
plurilateral (or variable geometry) appr oaches have been advocated by some WTO Members as one possible means of 
addressing the "new" issues of investment and competition policy. 
                                                      
261 These texts are available at the following link:  http://www.oecd.org/dataoecd/44/2/2086192.pdf  S/C/W/270/Add.2 
Page 340  
 
   
The creation of such an Understanding amongst like-minded WT O Members would mean that the liberalisation of hard 
rights could be undertaken in a more contro lled manner within this limited group, sa fe in the knowledge that carriers from 
illiberal countries would not be able to enter the open markets.   Such an Understanding would specify limitations on market 
access and limitations on national treatment. 
 
WTO Members who chose not to join the Understanding would likely be required to take an MFN exemption for their 
various bilateral agreemen ts (which many have already done), so that they  were not obliged to offer MFN treatment in the 
sector. 
 
This approach would introduce hard traffi c rights into the WTO structure for lim ited liberalisation, without hindering the 
possible coverage and more extensive liberalisation of arguably less sensitive soft rights by the GATS. 
 
Under such a scenario (as with the previous one) the core prov isions of the GATS would then ap ply to air transport, opening 
up foreseen benefits such as use of WTO dispute settlement proc edures, disciplines on domestic regulation, legal certainty in 
foreign markets and fair and equal treatment for all service provi ders.  Only in respect of the most sensitive of issues, that of 
traffic rights, would there be some addi tional protection for those Members seeking to move ahead towards greater freedom 
to provide services. 
 
A special GATS Understanding on Air Transpor t would thus give those Members who pa rticipated a secure environment in 
which to make progress until such time as there is a broader glob al consensus.  Such a restricted and controlled introduction 
of air services to the GATS may well appeal to a suffi cient number of governments who would like to see some 
liberalisation, without exposing the entire aviati on sector to greater competitive pressures. 
 
Opponents of this approach contend that it would set up a fals e dichotomy between "hard" and "soft" rights, both of which 
are in fact essential for the provision of air services, and that  applying different regimes to th em would create less, not mor e 
legal certainty, especially in dispute settlement.  They are al so sceptical of the prospects for assembling a significant numbe r 
of countries prepared to cover hard rights in this manner and to make market access and national treatment commitments. 
 
A GATS Understanding on Air Transp ort and Possible "Conditional MFN" 
 
An orthodox approach would, if it were stri ctly followed, be offset by a reducti on of liberalisation previously achieved 
bilaterally.  Liberal bilaterals bind national treatment for inte rnational services, whereas this is altogether discretionary i n 
GATS.  Preserving bilateral liberalisation already achieved w ould require parties to take MFN exemptions under GATS, and 
MFN exemptions are in turn deemed illiberal and must, if maintained, be periodically defended. 
 
Although MFN as it stands appears difficult to implement and appl y to air transport, the special position of air transport may 
lead negotiators to create an innovative solution.  One opti on would be to combine existing bilateralism with "Conditional 
MFN".  To achieve this, the Annex on Air Transport Services would have to be am ended to include a definition of "hard 
rights", incorporating the notion of reciproc al exchange of access.  In practice, this would mean that a Member of the WTO 
would offer to all other WTO Members the elements of its most  favourable bilateral agreement.   Under such an approach, 
the commitment would only become operational for those Members that in return offer the same elements.262 
 
The advantage of such an innovative approach would be that, wh enever a more liberal bilatera l agreement is concluded, it 
will be automatically offered to all other Members, provided that  they offer the same market access level in return.  Again 
this is a measured way of gr adually opening up the aviation sector within the WTO umbrella, but in practical terms this 
approach could be somewhat cumbersome. 
 
It is probably fair to note that because the aviation industry has been so tightly regulated for so long, and because national 
governments have been used to participa ting directly in both the regulation and operation of air services, a GATS-centric 
approach may represent too great a change.  One needs to l ook no further than the extremely limited Air Services Annex 
concluded at the end of the Uruguay round to see evidence of this reluctance.  Therefore at this stage it may be prudent to set  
sights on something more modest, but with  perhaps a greater chance of success." 
 
 
                                                      
262 This approach can best be illust rated by the following example:  country A and count ry B have very 
liberal air service agreements while co untry A and country C have a less liberal agreement.  Under the proposed 
model, country C would be entitled to the same liberal access to country A that country B gets if country C 
becomes as open as country B.  For country A, this would also signify that if country C were to sign a liberal agreement with coun try X the elements of that agreement would be  immediately available to country A and all 
other countries on the basis of reciprocity.  S/C/W/270/Add.2 
 Page 341 
 
 
  (iv) National developments 
515. Apart from India's maintenance of its open-skies policy already mentioned in connection with 
discussions at ICAO and the opening up to as much as 49 per cent foreign capital of all-cargo joint 
ventures in China, also referred to above, the sp ecialized press does not mention any particular 
developments at the national level. 
516. This silence could nevertheless be deceptive.  Only the ques tionnaires sent to Members as 
suggested in paragraph 9 of document S/C/ W/270 or those sent by ICAO or professional 
organizations such as TIACA or IATA would allow a sy stematic appraisal of the situation to be made. 
517. Such a systematic appraisal is, however, available for one of the areas of air freight, namely, 
express services, for which the Global Express Asso ciation (GEA) has put on-line an extremely 
comprehensive inventory263, country by country, type of restriction by type of restriction.  
Table 43 summarizes those restrictions that may affect the air services of express delivery operators. 
 
                                                      
263 http://www.global-express.org/flags.php.  
  S/C/W/270/Add.2 
Page 342 Table 43 
Global Express Association's inventory of restrictions that ha ve an impact on the air serv ices of express delivery operators 
Country Entry restrictions 
in the express 
delivery sector Restrictions on 
foreign investment 
that relate to 
express delivery 
services Requirements for 
or restrictions on 
the use of local 
services Restrictions on the 
weight, price, etc. 
of express 
shipments Discriminatory 
licensing 
requirements, or 
taxes or fees Discriminatory 
restrictions on 
slots and ground 
handling Restrictions on 
transport and 
delivery operations Other significant 
restrictions 
Albania         
Algeria N/A N/A N/A N/A N/A N/A N/A N/A 
Andorra  X     X X 
Angola   N/A N/A N/A N/A N/A N/A 
Antigua & 
Barbuda     X     
Argentina X1  X2 X3     
Armenia X  X  X X X  
Australia     X4    
Austria     X    
Bahamas  X5       
Bahrain X6        
Bangladesh X7  X X     
B a r b a d o s          
Belarus X    X X X X 
Belgium     X  X X 
Belize   X8      
Benin         
Bermuda X9 X10   X11    
                                                      
1 Requirement to be licensed as a postal operator.  Also requir ed to obtain an import and export licence and a customs transport  agent number. 
2 Requirement to use an external  broker for shipments above 50 kg. or US$1,000 or when another government agency intervention or  certification is needed. 
3 50 kg, US$1,000. 
4 Express companies are subject to unit-base d entry fees that do not apply to mail. 
5 Foreign investors are required to have local partners. 
6 Restrictive licensing. 
7 Restrictive licensing. 
8 Use of a local broker is required. 
9 Restrictive licensing. 
10 Companies must be at least 60 per cent Bermudan-owned.  
   S/C/W/270/Add.2
 Page 343Country Entry restrictions 
in the express 
delivery sector Restrictions on 
foreign investment 
that relate to 
express delivery 
services Requirements for 
or restrictions on 
the use of local 
services Restrictions on the 
weight, price, etc. 
of express 
shipments Discriminatory 
licensing 
requirements, or 
taxes or fees Discriminatory 
restrictions on 
slots and ground 
handling Restrictions on 
transport and 
delivery operations Other significant 
restrictions 
B h u t a n          
Bolivia X12  X13 X14 X15    
Bosnia and  
Herzegovina    X  X   
Brazil X16   X X   X 
Brunei Darussalam   X17      
Bulgaria X    X18  X  
B u r k i n a  F a s o          
Cambodia         
Cameroon N/A N/A N/A N/A N/A N/A N/A N/A 
Canada  X19  X20     
Central African 
Republic  N/A N/A N/A N/A N/A N/A N/A N/A 
C h i l e          
China X X  X X    
Chinese Taipei  X21 X22  X23 X    
Colombia X24   X25     
                                                                                                                                                                                                                                                                    
11 Bermuda imposes a US$1.75 tax per package not applicable to similar postal packages. 
12 Restrictive licensing. 
13 Ban on using an in-house broker. 
14 40 kg. and US$1,000. 
15 Certificate from the Ministry of Transport required, annu al payment of US$1,000 to the Bolivian postal service. 
16 Restrictive licensing and taxes (new law under consideration). 
17 All cargo required to be transferred to the Brunei International Air Cargo Warehouse prior to release. 
18 Fees for express shipments required to be priced at five times an equivalent postal shipment. 
19 All courier/LVS programme participants must  be Canadian-based companies in order to  obtain the appropri ate licences and certif icates. 
20 Couriers may not deliver urgent letters unless they charge a fee at least equal to an amount that is three times the regular r ate of postage payable for delivery in Canada 
of similarly addressed letters weighing 50 g;  shipments valued in excess of C$1,600 are not eligible for treatment as express shipments. 
21 Multiple licensing requirements;  US$1,200 air freight forwarder service permit. 
22 Domestic express services prohibited to foreign-owned companies. 
23 70 kg. 
24 Restrictive fees, newly-expanded postal monopoly. 
25 20 kg. and US$1,000.  
  S/C/W/270/Add.2 
Page 344 Country Entry restrictions 
in the express 
delivery sector Restrictions on 
foreign investment 
that relate to 
express delivery 
services Requirements for 
or restrictions on 
the use of local 
services Restrictions on the 
weight, price, etc. 
of express 
shipments Discriminatory 
licensing 
requirements, or 
taxes or fees Discriminatory 
restrictions on 
slots and ground 
handling Restrictions on 
transport and 
delivery operations Other significant 
restrictions 
C o m o r o s          
Cook Islands N/A N/A N/A N/A N/A N/A N/A N/A 
Costa Rica         
Côte d'Ivoire         
Croatia X   X  X   
Cyprus X X26       
Cuba X X X X   X  
Czech Republic    X     
Democratic 
Republic of the 
Congo          
D e n m a r k          
Djibouti N/A N/A N/A N/A N/A N/A N/A N/A 
D o m i n i c a          
Dominican 
Republic         
Egypt X27 X28  X29 X30    
Ecuador    X     
El Salvador X31        
E r i t r e a          
E s t o n i a          
Ethiopia         
Fiji  X32 X       
France   X  X  X  
                                                      
26 For non-EU countries. 
27 Restrictive licensing and special taxes. 
28 Requirement for Egyptian partner or manager. 
29 100 kg. per delivery and 30kg. per unit. 
30 Special licensing requirements  for all express operators. 
31 20 per cent tax on gross receipts from international operations. 
32 Local partner or shareholder is required for a necessary customs brokers' licence.  
   S/C/W/270/Add.2
 Page 345Country Entry restrictions 
in the express 
delivery sector Restrictions on 
foreign investment 
that relate to 
express delivery 
services Requirements for 
or restrictions on 
the use of local 
services Restrictions on the 
weight, price, etc. 
of express 
shipments Discriminatory 
licensing 
requirements, or 
taxes or fees Discriminatory 
restrictions on 
slots and ground 
handling Restrictions on 
transport and 
delivery operations Other significant 
restrictions 
Gabon         
G a m b i a          
Georgia     X X   
G e r m a n y         X33 
Ghana         
Greece X   X34 X35   X36 
Guatemala         
G u i n e a          
G u y a n a          
Haiti   N/A X37     
Honduras X38   X39     
Hong Kong, China    X40     
Hungary X41        
Iceland         
India  X42 X43 X44 X X45   
Indonesia X46 X47 X48 X49     
                                                      
33 Restrictions on evening operations at several airports. 
34 20 kg. per package. 
35 Postal «authorization» fee based on gross receipts of express operators. 
36 Express delivery vehicles are subject to traffic rest rictions from which the postal services are exempt. 
37 22 kg. 
38 Customs permit required. 
39 300 kg. 
40 Ban on transporting letters weighing less than 2 kg. 
41 Special tax of up to 0.2 per cent of revenue. 
42 Local partner required. 
43 Domestic pick-up and delivery must be performed by a majority locally-owned entity. 
44 US$1,000 per shipment;  tr ade samples only, no commercial shipments;  no electronic article s or pharmaceuticals. 
45 Prohibition on self handling. 
46 Restrictive licensing. 
47 Foreign ownership limited to 49 per cent. 
48 Customs brokerage and warehousing required to be locally owned.  
  S/C/W/270/Add.2 
Page 346 Country Entry restrictions 
in the express 
delivery sector Restrictions on 
foreign investment 
that relate to 
express delivery 
services Requirements for 
or restrictions on 
the use of local 
services Restrictions on the 
weight, price, etc. 
of express 
shipments Discriminatory 
licensing 
requirements, or 
taxes or fees Discriminatory 
restrictions on 
slots and ground 
handling Restrictions on 
transport and 
delivery operations Other significant 
restrictions 
Islamic Republic 
of Iran X50 X X X X X  X 
Ireland X51       X52 
Israel X53      X   
Italy X54     X55   
J a m a i c a          
Japan       X56  
Jordan X X       
Kazakhstan         
Kenya X   X     
Kiribati N/A N/A N/A N/A N/A N/A N/A N/A 
Kuwait X57 X58       
Kyrgyzstan X59        
Latvia N/A N/A N/A N/A N/A N/A N/A N/A 
Lebanon X X   X X X  
L e s o t h o          
L i b e r i a          
Libyan Arab 
Jamahiriya  X  X60     
Liechtenstein    X61   X62  
                                                                                                                                                                                                                                                                    
49 Less than 110 kg, 274 cm length and less than US$500 in value. 
50 Restrictive licensing. 
51 €15,000 fee. 
52 Postal operator exempt from VAT and receives preferential customs treatment. 
53 Restrictive fees. 
54 Requirement to obtain po stal licence and pay a levy to the postal service. 
55 Requirement to use local ground handling service. 
56 Express delivery operators are required to have a licence from the Ministry of Infrastructure and Transport;  postal vehicles are exempt from this requirement. 
57 Restrictive licensing. 
58 Requirement to operate under the umbrella of a local sponsor. 
59 Restrictive licensing requirements and taxes. 
60 30 kg.  
   S/C/W/270/Add.2
 Page 347Country Entry restrictions 
in the express 
delivery sector Restrictions on 
foreign investment 
that relate to 
express delivery 
services Requirements for 
or restrictions on 
the use of local 
services Restrictions on the 
weight, price, etc. 
of express 
shipments Discriminatory 
licensing 
requirements, or 
taxes or fees Discriminatory 
restrictions on 
slots and ground 
handling Restrictions on 
transport and 
delivery operations Other significant 
restrictions 
Lithuania X63        
Luxembourg X64 N/A N/A N/A N/A N/A N/A N/A 
Madagascar N/A N/A N/A N/A N/A N/A N/A N/A 
Malaysia X65 X66    X67   
Maldives N/A N/A N/A N/A N/A N/A N/A N/A 
M a l i          
Malta X68 X69   X70    
Mauritius X71        
Mexico  X72 X73   X   
Monaco X74  X  X  X  
Morocco N/A N/A N/A N/A N/A N/A N/A N/A 
M y a n m a r          
N a m i b i a          
Nepal X75 X76  X77 X    
Netherlands       X78  
                                                                                                                                                                                                                                                                    
61 Less than 1 kg. 
62 Restrictions on parking and night movement of trucks over 3.5 tonnes apply to express delivery operators but State postal oper ator is exempt. 
63 Restrictive licensing. 
64 Information on freight rates must be communicated. 
65 Restrictive licensing and spec ial fees US$4,000 per year. 
66 Foreign ownership limited to 49 per cent. 
67 Ground handling must be perfor med by a specific local company. 
68 Special taxes and licences. 
69 Maltese shareholder required. 
70 Express delivery companies, but not the post, required to pay VAT on documents. 
71 Restrictive licensing. 
72 Only domestic applicants may obtain the requisite licences to allow trucks to operate on highways. 
73 Required to use external broke r for shipments above US$5,000. 
74 Restrictive licensing. 
75 Licensing, special taxes. 
76 25 per cent local partnership requirement. 
77 35 kg., width 70 cm, height 90 cm.  
  S/C/W/270/Add.2 
Page 348 Country Entry restrictions 
in the express 
delivery sector Restrictions on 
foreign investment 
that relate to 
express delivery 
services Requirements for 
or restrictions on 
the use of local 
services Restrictions on the 
weight, price, etc. 
of express 
shipments Discriminatory 
licensing 
requirements, or 
taxes or fees Discriminatory 
restrictions on 
slots and ground 
handling Restrictions on 
transport and 
delivery operations Other significant 
restrictions 
Nicaragua X  X X   X  
N i g e r          
Nigeria N/A N/A N/A N/A N/A N/A N/A N/A 
Norway      X79   
New Zealand    X80      
Oman X X81   X82    
Pakistan X83   X84 X85    
Panama X86        
Papua-New 
Guinea         
Paraguay X87 X88 X89      
Peru    X90     
Philippines X91 X92 X93    X94  
Poland    X     
Portugal X95        
                                                                                                                                                                                                                                                                    
78 Restrictions on vehicle entry to shopping/pedestr ian areas that do not apply to postal deliveries. 
79 Only registered airlines may undertake the first preliminary customs registration of arriving cargo. 
80 The data must be sent to the New Zealand customs through a third party, ECN. 
81 Local partner requirement. 
82 10 per cent tax, from which the public postal operator is exempt. 
83 Licence required to be approved, inter alia, by the postal authority. 
84 Letters weighing less than 100 g. subject to a monopoly. 
85 No separation of postal regulatory and operational functions. 
86 Restrictive licensing and special taxes. 
87 Restrictive licensing and fees. 
88 Affiliates of foreign companies are subject to taxes that do not apply to local companies. 
89 Restrictions on hiring internal customs brokers. 
90 US$2,000, 50 kg. 
91 Two licences required from one ministry. 
92 Foreign ownership limited to a maximum of 40 per cent. 
93 Moratorium on new bonded warehouses forces use of existing, locally-owned warehouses.  
94 Movement restrictions. 
95 Restrictive licensing.  
   S/C/W/270/Add.2
 Page 349Country Entry restrictions 
in the express 
delivery sector Restrictions on 
foreign investment 
that relate to 
express delivery 
services Requirements for 
or restrictions on 
the use of local 
services Restrictions on the 
weight, price, etc. 
of express 
shipments Discriminatory 
licensing 
requirements, or 
taxes or fees Discriminatory 
restrictions on 
slots and ground 
handling Restrictions on 
transport and 
delivery operations Other significant 
restrictions 
Qatar X96 X97 X98  X99 X100 X  
Republic of Korea X101        
Republic of the 
Congo         
R o m a n i a          
R u s s i a          
Saint Vincent & 
the Grenadines         
Saint Lucia         
Saudi Arabia X102 X103 X104 X105 X106 X107 X108 X 
Senegal         
Serbia and 
Montenegro       X   
Seychelles X X       
S i e r r a  L e o n e          
Singapore   X   X109   
Slovakia X110    X     
Slovenia         
                                                      
96 Chamber of Commerce licensing. 
97 Local partner requirement. 
98 Qatar national required to manage customs operations. 
99 10 per cent tax on gross receipts. 
100 Only Qatar Aviation Services is allowed to handle equipment. 
101 Applicants for air express delivery licences must have a worldwide network covering over 50 countries. 
102 Licensing by the postal authority. 
103 Local sponsor requirement. 
104 All customs brokers and customs clearance staff required to be Saudis. 
105 20 kg. 
106 15 per cent tax on gross revenue must be paid to the postal authority. 
107 Government monopoly of ground handling. 
108 Curfew on heavy vehicles. 
109 Ground handling limited to two local companies. 
110 Restrictive licensing.  
  S/C/W/270/Add.2 
Page 350 Country Entry restrictions 
in the express 
delivery sector Restrictions on 
foreign investment 
that relate to 
express delivery 
services Requirements for 
or restrictions on 
the use of local 
services Restrictions on the 
weight, price, etc. 
of express 
shipments Discriminatory 
licensing 
requirements, or 
taxes or fees Discriminatory 
restrictions on 
slots and ground 
handling Restrictions on 
transport and 
delivery operations Other significant 
restrictions 
Solomon Islands         
South Africa         
Spain X111  X112 X   X113  
Sri Lanka X114 X115  X116  X117   
Sweden         
Switzerland    X118   X119  
S u r i n a m e          
Syrian Arab 
Republic N/A N/A N/A N/A N/A N/A N/A N/A 
Tajikistan N/A N/A N/A N/A N/A N/A N/A N/A 
Thailand X120 X121 X122 X123 X X124   
FYROM N/A N/A N/A N/A N/A N/A N/A N/A 
Trinidad and 
Tobago     X  X  
Turkey N/A N/A N/A N/A N/A N/A N/A N/A 
Turkmenistan X X125       
Uganda X126    X127    
                                                      
111 Postal authorization required for packages of up to 20 kg. 
112 Ban on subcontracting some transport activities. 
113 Several cities have traffic restrictions from which postal vehicles are exempt. 
114 Restrictions by postal authority on the registration of new express delivery companies. 
115 Local partner requirement. 
116 Thirty units per shipment. 
117 Sri Lankan Airlines monopoly of ground handling. 
118 Monopoly of domestic shipments of 1 kg. or less. 
119 Restrictions on parking and night movement of trucks weighing over 3.5 tonnes apply to express delivery operators but the Stat e postal operator is exempt. 
120 Restrictive licensing. 
121 Local partner requirement. 
122 Requirement to use locally-owned warehouses. 
123 Deliveries of a value of less than B 40,000. 
124 Ground handling must be performed by TAGS. 
125 Total ban on operations by express delivery companies. 
126 Restrictive licensing.  
   S/C/W/270/Add.2
 Page 351Country Entry restrictions 
in the express 
delivery sector Restrictions on 
foreign investment 
that relate to 
express delivery 
services Requirements for 
or restrictions on 
the use of local 
services Restrictions on the 
weight, price, etc. 
of express 
shipments Discriminatory 
licensing 
requirements, or 
taxes or fees Discriminatory 
restrictions on 
slots and ground 
handling Restrictions on 
transport and 
delivery operations Other significant 
restrictions 
U k r a i n e          
United Arab 
Emirates X X  X    X 
United Kingdom       X128 X129 
United Republic of 
Tanzania          
United States of 
America  X130   X131    
Uruguay X X132       
Uzbekistan         
Bolivarian 
Republic of 
Venezuela X133 X  X134 X    
Yemen X135  X   X136   
                                                                                                                                                                                                                                                                    
127 Licence costing US$10,000. 
128 Express delivery companies are subject to VAT and to parking restrictions from which State operator competitors are exempt. 
129 Limitations on night flights and congestion charges that express delivery vehicles cannot avoid. 
130 Foreign-owned companies may not engage in domestic transport operations. 
131 Foreign-owned companies must obtain a foreign air freight forwarders' licence. 
132 20 kg. 
133 Restrictive licensing and fees. 
134 US$2,000. 
135 Mandatory licence can only be obtained through a local partner. 
136 Ground handling services must be performed by the national carrier.  
  S/C/W/270/Add.2 
Page 352 Country Entry restrictions 
in the express 
delivery sector Restrictions on 
foreign investment 
that relate to 
express delivery 
services Requirements for 
or restrictions on 
the use of local 
services Restrictions on the 
weight, price, etc. 
of express 
shipments Discriminatory 
licensing 
requirements, or 
taxes or fees Discriminatory 
restrictions on 
slots and ground 
handling Restrictions on 
transport and 
delivery operations Other significant 
restrictions 
Z a m b i a          
Z i m b a b w e          
Source : Global Express Association, 2007. 
  S/C/W/270/Add.2 
 Page 353 
 
 
  (v) Recent studies 
518. Important econometric work has been carried out  by two researchers from the Inter-American 
Development Bank and the World Bank, Mr Micco  and Mr Serebrisky.  Their 2004 paper entitled 
"Infrastructure, competition regimes and air transport costs:  cross-country evidence"264 focuses on the 
role of these elements in boosting the growth in ai r transport and lowering its costs.  Based on the 
example of the United States in the 1990s, when air transport's share of imports rose from 24 per cent 
in 1990 to 35 per cent in 2000, while open-skies agr eements liberalizing freight  transport were signed, 
the study finds that infrastructure policy, quality of regulation and competition – in the commercial 
sense of the term – have a real impact. 
519. By reconstituting freight rates, weighting them  by the volume of goods and correlating them 
to developments in the regulatory regime, the author s come to the conclusion that the long-term effect 
of signing an open-skies agreement is a reduction of  8 per cent in the cost of air transport.  
Furthermore, short-term effects are felt almost immediately (a 1 per cent fall in prices the year the agreement is signed and 3 to 4 per cent three years later).  At the same time, because of the elasticity between transport costs and trade, estimated to be 1.3 in a recent study
265 an open-skies agreement 
that lowers transport costs by 8 per cent imp lies an increase in trade of around 10 per cent. 
520. In an unpublished draft266 prepared for publication by the World Bank in its "Global 
Economic Prospects 2004", a World Bank researcher , Mr Carsten Fink, undertook an econometric 
analysis of the determinants of air freight rates on the basis of a sample of 139 city-pairs in the 
western hemisphere.  His conclusions were that: 
• "…distance is a key determinant of internationa l air cargo freight rates – most likely due to 
the cost of fuel and the capital cost of operating aircraft.  Across the sample, a one-
percentage-point increase in city-pair distance leads to a 0.72 per cent increase in prices. 
 
• …there are sizeable economies of scale in the prov ision of air transport.  On average, a 10 per 
cent increase in city-pair traffic volumes leads to  a drop of slightly more than 1 per cent in the 
observed freight rate.  In view of the wide variance in freight traffic volumes, the scale effect can be quite large – and in most cases it works against poorer nations. 
 
• …competition among airlines is found to exert downw ard pressure on freight rates.  City-pair 
routes on which more than two passenger airlines or dedicated freight airlines operate enjoy, 
on average, 10.7 per cent lower prices." 
 521. Although the first factor, distance, cannot be controlled by means of public policies, aviation 
authorities can directly influence the third factor, competition, by liberalizing their regimes and, by 
doing so, indirectly have an impact on the second factor, namely, increased volume and economies of 
scale. 
(b) Security-related regulatory aspects 
522. These aspects have been largely dealt with in the part of the documentation relating to airports 
(see document S/C/W/270, pages 116-118, paragrap hs 409-417), although car go and express services 
have some special features in this respect. 
                                                     
 
264 World Bank Policy Research Working Pa per No. 3355, available at SSRN:  
http://ssm.com/abstract=610399. 
265 Clarke, Dollar, Micco "Port Effi ciency, Maritime Transport Cost s and Bilateral Trade", National 
Bureau of Economic Research, Working Paper 10353, 2004. 
266 Available from the WTO Secretariat upon request. S/C/W/270/Add.2 
Page 354  
 
  523. The definition of rules for belly cargo has been more rapid than for all-cargo flights, where 
regulations are to a large extent still provisional or evolving.  Sin ce September 2001, all belly cargo in 
the United States must either be from a "known shippe r" or systematically X-rayed.  The Transport 
Security Administration (TSA) also tightened the rules for the professional database of known 
shippers that had been created following the Lock erbie crash and the TWA explosion in flight.  
Furthermore, postal packages weighing more than  450 g. have been banned from the hold of 
passenger planes.  In the case of Northwest Airlines, for example, this led to a 20 per cent decrease in 
domestic freight volumes and for all carriers in the US Air Transport Association the volume of postal 
freight fell by 67 per cent. 
524. In April 2004, for all-cargo flights, following a long process of consultation, the United States 
customs administration started to apply its new Adva nced Manifest Rules, largely based on the rules 
applicable to maritime transport but including d eadlines adapted to air transport.  An electronic 
message containing all the details on a shipment mu st reach the US customs four hours before the 
flight reaches US territory. 
525. In November 2003, the TSA presented an outline  of a "multi-layer" approach combining the 
known shipper programme, X-ray screening of a ll cargo not coming from a known shipper, and 
random screening of 10 per cent of cargo.  The No tice of Public Rule Making relating to these rules 
has been delayed several times. 
526. In a recent development, the TSA deferred application of the new rules for freight security 
until mid-2007 in order to give the industry th e time to adapt.  The new rules include, inter alia , 
Security Threat Assessments, which carriers mu st submit to the TSA, as well as background checks 
and proof of credentials for certain employees.  The database of 4,000 known shippers currently 
administered collectively by the industry will b ecome centralized and government-administered and 
300 new inspectors will be posted to 102 US airports .  For its part, Congress is still discussing several 
bills on the extent of the screening to be applied to  cargo carried in the belly of passenger aircraft.  
The TSA has expressed its opposition to 100 per cent screening, which it deems "not feasible without 
impeding commerce and imposing unreasonable cost on the government" and is advocating a layered 
approach with random screening and extension of th e known shipper concept.  The industry estimates 
the cost of 100 per cent screening at US$3.6 billion over ten years. 
527. The European Parliament is examining dr aft regulations establishing common rules for 
security controls in airports and aircraft.  Accord ing to the specialized pr ess, other countries such as 
Canada, Indonesia and South Africa are also examining proposals to tighten security measures for 
freight. 
(c) Other regulatory aspects 
528. Competition policy in the area of freight evol ved significantly during the period under review, 
with the launching of a simultaneous investigation by the anti-trust unit of the US Department of 
Transportation and the European Commission into anti-competitive practices on fuel surcharges and 
freight insurance.  This investigation involves ove r 20 carriers from Asia, Europe and North America 
(including Air France-KLM, British Airways, Lufthansa, Cargolux, United Airlines, Air Canada, Cathay Pacific, JAL, Singapore Airlines and Korean  Air).  The investigation has been extended to 
freight forwarders in the United States.  The comp etition authorities in the Republic of Korea have 
also joined the investigation.  In September 2006 , Lufthansa sought leniency from the authorities and 
offered an amicable settlement of US$85 million to pu t an end to the civil proceedings.  American and 
United Airlines did the same, as did British Airways very recently (May 2007).  S/C/W/270/Add.2 
 Page 355 
 
 
  Annex II 
Example of a "code" or separate agreement on air cargo under the GATS 
 
According to R.J. Fennes in his book titled: 
"International Air Cargo Transport Serv ices:  Economic Regulation and Policy" 
  
"I. CONTENT OF THE ARRANGEMENT 
 
1. The current Annex on Air Transport Services to the GATS is a compromise text which has 
not proven to be very effective.  The best option would be to completely re -draft the Annex and to 
replace it with a more precise and expanded text.  Ho wever, in the Context of the GATS that would be 
a time consuming and uncertain process.  For t hose countries which would like to achieve progress in 
the field of air cargo, it could be more rewarding to try to achieve that progress in a separate framework.  This does not mean that discussions on a new Annex should be avoided, but rather, that 
for the sake of progress, focusing on a separate plurilateral agreement would be more worthwhile.  
The negotiations under th e Annex on Air Transport Services certainly could Continue for those 
GATS Members that would desire progress at a more limited pace.  2. The proposed Code is in fact simply a plur ilateral arrangement, which can either be phrased 
as an outright agreement, or be gradually developed into an international agreement.  It represents a 
plurilateral agreement on air cargo that leaves intact  the existing bilateral a nd multilateral agreements 
that exist between the signatories for air trans port services, but only insofar as these apply to 
passenger transportation.  All cargo elements in th ese bilateral and multilatera l agreements would be 
replaced by the proposed Code. 
 
3. This would imply that on passenger/combination services, cargo is free, but that the ability to 
operate frequencies and routes etc, is dependent on the market access awarded to passenger services.  
But all-cargo services and ancillary cargo services would have complete market access without such "indirect" constraints.  
4. Regarding passenger services signatories of the proposed Code would thus be free to 
conclude bilateral agreements with  each other, to the extent that they have not yet covered such 
services either by expanding the proposed Code or  by increasing their commitments made under the 
GATS.  
5. The proposed Code would be open for accession.   But there are conditions which would need 
to be fulfilled.  First of all, applicants must  be Members of the WTO organization, and thus 
signatories to the GATS.  Furthermore, they need to  be party to the Chicago Convention, except in the 
case of the ED, for which a specific provision is prov ided, which could be extended to other regional 
integration arrangements.  Applicants need to  have made a substantial commitment under the 
GATS Annex on Air Transport Services.  They al so must accept and commit themselves to the 
gradual liberalization of all air tr ansport services.  Finally, they must  accept an eventual inclusion of 
the proposed Code under the GATS.  The idea of th ese conditions is that signatories have the same 
basic approach and policy or are at least like minded enough to make progress in the future. S/C/W/270/Add.2 
Page 356  
 
  II. ANNOTATED TEXT OF THE CODE 
 
A. CODE ON AIR CARGO TRANSPORT SERVICES
267 
 The Parties, 
 
 Recognizing  the growing importance of trade in international air transport services in general 
and air cargo services in particular for the gr owth and development of the world economy; 
  Intending  to establish a multilateral framework of principles and rules for trade in air 
transport services with a view to expansion and development of such services under conditions of 
transparency and progressive liberalization, and as a means of promoting the economic growth of all 
trading partners and the development of developing countries;   Desiring  through the liberalization of air cargo trans port services to take a first substantial 
step in the process towards progressively higher leve ls of liberalization of trade in air transport 
services;   Notwithstanding  the applicability of already very open  bilateral air services agreements in 
force between the Parties and wishing to suppleme nt, further expand, and fully open these agreements 
as far as cargo air transport services are concerned
268; 
 
 Acknowledging  that the existing open bilateral air se rvices agreements in force between the 
Parties shall remain in force insofar as passenge r air transport services are concerned.  And, 
acknowledging  that the air cargo services performed in connection or in combination with these 
passenger air services will be covered by this agreement; 
 
 Being Parties  to the Convention on International Civil Aviation, done at Chicago on 
December 7, 1944269 and in the case of the European Communities, its Member-States being Parties 
to the Convention on International Civil Aviation, done at Chicago on December 7, 1944;   Being Parties  to the Agreement Establishing the World Trade Organization, done at 
Marrakesh on 15 April 1994
270; 
 Hereby agree as follows:  B. COMMITMENTS IN THE NATIONAL SCHEDULE 
 
 The Parties agree with regard to the services liste d in Article 3, paragraphs (a), (b) and (c) of 
the Annex on Air Transport Services of the General Agreement on Trade in Services, that they shall 
make full commitments on Market Access and Nationa l Treatment in their national schedules, without 
                                                     
 
267 The Preamble is adapted from the Preamble to the GATS, see MTN/FA II-AlB at 3. 
268 This paragraph acknowledges the earlier conclusion that an agreement like this is attainable only 
between fairly like-minded states.  Furthermore, these st ates must already have reasonably open air transport 
agreements, in order for a cargo agreement to be accept able in view of the comp etitive position of combination 
carriers. 
269 The agreement should fully conform to the Convention and a clear link should be established 
between the Convention and the GATS. 
270 In the proposed approach signatories to this agreement should be both signatories to the Convention 
and to the WTO/GATS.  The approach would furthermore need to accommodate economic integration like the EU.  This will enhance the attractiveness of the GA TS and it emphasizes the basic political commitment of 
signatories to progressive liberalization.  S/C/W/270/Add.2 
 Page 357 
 
 
  any reservations being applicable, except horizont al reservations on the movement of natural 
persons.271  Parties will, with regard to Article 3, para graphs (b) and (c) be permitted to leave intact 
any exemption they may have made with regard to  Article II of the General Agreement on Trade in 
Services.  
C. COMMITMENTS WITH REGARD TO SIGNATORIES  
  The Parties agree that with regard to air cargo services provided by service providers that are not covered by Part C of this Code, they shall extend to each other full Market Access and National 
Treatment in accordance with the provisions of  the General Agreement on Trade in Services.
272  In 
addition, Parties undertake to accord to such servi ce providers treatment no less favourable than has 
been awarded to airlines and air cargo service providers under Part C.  D. AGREEMENT ON AIR CARGO TRANSPORT SERVICES  1. General Provisions  
 In accordance with Article 2 of the Annex on Air Transport Services of the Agreement and 
without prejudicing the Parties' commitments in their respective national Schedules under the Agreement, Parties agreed on this Agreement on Air Cargo Transport Services.  Parties further agreed 
to continue discussions on the eventual inclusion of  this Agreement on Air Ca rgo transport Services 
under the General Agreement on Trade in Services. 
  The Parties agree that this Agreement on Ai r Cargo Transport Services shall not reduce or 
affect a Party's obligations to any other Party, signatory to this Agreement on Air Cargo Transport 
Services, under bilateral or multilateral agreements with regard to passenger air services, but only 
insofar as these obligations apply to passenger air services.
273 
  The Parties agree to meet every two years to discuss the expansion of the Air Cargo Services 
Agreement to include passenger air transport services or to agree on a separate text for an Agreement 
on Passenger Air Transport Services.  Furthermore, the Parties will consider the full, or partial, 
inclusion of this Agreement as a commitment unde r the General Agreement on Trade in Services. 
 
 The Text of this Agreement on Air Cargo Transport Services is as follows:  
                                                     
 
271 Thus most horizontal reservations, i.e. reservations ap plicable to all services s ectors, are also lifted.  
It will be necessary to except reservations on the movement of natural persons, because most countries would 
not accept such an unlimited opening fo r the foreseeable future.  The rese rvations are strictly limited to 
horizontal reservations, so only generally applicable measures may be left intact. 
272 This provision aims to cover a full commitment on all air cargo services which are not provided by 
air carriers in order to ensure all air cargo service prov iders can compete in the open  market environment of the 
Code.  But the applicability is only valid for signatories of the Code, at least at this stage. 
273 This means that the content of any applicable ai r transport agreement rema ins unaffected, except for 
and insofar as they relate to air cargo transport services. S/C/W/270/Add.2 
Page 358  
 
  2. Articles of the Agreement on Air Cargo Transport Services 
 
Article 1.  
Grant of Rights
274 
 
1. Each Party shall enjoy the following rights275 for the conduct of international air cargo 
transport services:   (a) The right to fly across the territory of any other Party without landing; 
 
 (b) the right to land on the territory of any other Party for non-traffic purposes;   (c) the right to take on cargo destined for the territory of any other Party and the right to 
put down cargo coming from any such territory; 
 
 (d) the rights otherwise speci fied in this Agreement. 
 2. Notwithstanding paragraph 1, a Party shall not be required to authorize cabotage traffic rights 
within its territory by a designated airline of a nother Party, unless these traffic rights are exercised on 
a service which constitutes an extension of a service from, or as a preliminary of a service to the 
territory of another Party.
276 
 3. For the purpose of carrying cargo by air, the ai rline(s) designated by a Party shall be entitled 
to operate any route open
277 to international air transport and ser ve any airport open to international 
air transport, without geographical or directional limitation, may operate such routes one-way or vice-
versa, and may omit or add airports on routes or op erate to these airports in any order or sequence, 
unless and insofar as this Agreement expressly determin es otherwise.  Such routes shall be operated in 
accordance with the provisions of this Agreement.278 
 4. The airline(s) designated by a Party shall be en titled to operate any type of aircraft certificated 
to carry cargo alone or in combination with passe ngers, and in any configuration, unless and insofar 
as this Agreement expressly determines otherwise. 
 5. The rights specified in this Agreement shall not  be applicable with respect to routes and/or 
airports utilized for military purposes to the exclusi on of any international air services.  In areas of 
active hostilities or of military occupation, in time of war and in case of a declared national 
                                                     
 
274 This Article is primarily based on Article I Sec tion 1 of the International Air Transport Agreement 
Annex to the Chicago Convention (ATA). 
275 The rights are awarded to Parties, not individual airlines.  This follows closely the system of the 
bilateral regime.  The word "airlines" is used because this is the wording used in most current bilateral 
agreements.  But other descriptions like "air carriers" could also be used. 
276 This means the inclusion of so-called consecutiv e cabotage, as used in Regulation 2408/92 (EC) 
Article 3(2). 
277 "Open" signifies routes that are navigable by international tr affic because of the available 
navigational, technical and infrastructural provisions, ope n to all international traffic under non-discriminatory 
provisions. 
278 Normally, under bilateral agreements, routes are de scribed in the annex to the agreement.  Since the 
intention in this plurilateral agreement is to fully libera lize air cargo services with only specific exemptions, in 
this case the annex only needs to describe these exemptions and not determine routes.  Routes are open, and traffic rights may be limited.  That is why in this respect a departure is proposed from the normal approach.  But 
a standard description of routes also can be followed should this be deemed more desirable.  S/C/W/270/Add.2 
 Page 359 
 
 
  emergency, the exercise of these rights shall be su bject to the approval of the competent national 
authorities of the Party or Parties concerned.279 
 Article 2.  
Designation and Authorization
280 
 1. Each Party shall have the right to desi gnate any number of airlines for the conduct of 
international air cargo transport services pursuant to this Agreement and to withdraw or alter such 
designations.  Such designation shall be transmitted in writing through diplom atic channels to all 
Parties or by such other mechanisms as may be agreed between Parties.
281 
 2. On receipt of such notification of designati on, the competent authorities of each Party shall, 
without delay, grant to the airline(s) so designate d by a Party the appropriate operating authorizations 
or permissions with a minimum of procedural delay. 
 
3. Upon receipt of the operating authorization of  paragraph 2 of this Article the designated 
airline(s) may at any time begin to operate the agreed  services, in part or in whole, provided that the 
provisions of this Agreement are complied with.  4. Each Party reserves the right to withhold, revoke , limit or set conditions to the authorizations 
referred to above, with respect to an airline or  airlines designated by another Party, but only: 
  (a) In the event that it is not satisfied that  substantial ownership a nd effective control of 
that designated airline are vested in nationals of a Party or Parties to this Agreement
282; 
 
                                                      
279 This clause is adapted from Article I, Section 1,  paragraph 5, third provision of the ATA.  In the 
author's view, a true plurilateral agreement must as stri ctly as possible define the special circumstances that 
could make it necessary to suspen d the rights in the agreement. 
280 In order to follow as much as possible the approach in bilateral agreements, the notion of 
"designation" has been maintained in this proposal.  Another approach could also be feasible, like the one in the 
ATA, where no designation is required, although operating authorizations to airlines may be refused if the 
ownership and control requirements are not met.  Howeve r, see Article I, Section 1, of the ATA, where the 
privilege to take on traffic is linked to "the State wh ose nationality the aircraft possesses".  As more states 
become party to such an agreement it may well be advisable to follow the approach of the ATA to avoid 
increasing amounts of red tape. 
The open designation and its flexible application is particularly important for developing nations.  
Many countries do not have strong and viable international cargo carriers, but have nevertheless an interest in 
having such carriers operating to and from their territo ries.  If a country has the possibility to allow cargo 
carriers from other nations to operate under its traffic rights, then its economic position would be enhanced, and 
the agreement would be more attractive. 
The approach makes no distinction between scheduled  and non-scheduled (charter) services.  For a 
truly open and competitive market the approach of the EU Internal market, to make no distinction whatsoever, 
provides the best solution. 
281 For paragraphs 1 and 2, see the Air Transport Agreement between the US and Canada of 
24 February 1995, Article 2. 
282 A first attempt is made to gradually abandon the classic ownership and control requirements.  It is 
just an example, but one based on an  already existing international agreemen t.  See Article I, Section 6 of the 
ATA, which also takes this approach.  Through accession to this  agreement, ownership an d control are gradually 
made obsolete.  Ultimately, true international air cargo transport companies would be made possible.  It is important to note that under this proposed approach, designation of the same airline by more than one Party is 
possible. S/C/W/270/Add.2 
Page 360  
 
   (b) in the event of failure by such designa ted airline to satisfy the conditions prescribed 
under the laws and regulations which the Pa rty considering the application normally 
applies to the conduct of air transportation,  provided such laws and regulations are 
not inconsistent with this Agreement and are in conformity with the Convention; 
 
 (c) in case the airline does not hold a valid operating license and air operator's certificate 
of the Party designating the airline
283; 
  (d) in case the designated airline otherwi se fails to operate in accordance with the 
conditions prescribed under this Agreement. 
 
 Unless immediate action is essential on safety or security grounds or to prevent further 
infringement of the laws and regulations referred to above, the rights enumerated in paragraph 4 of 
this Article shall be exercised only after consu ltations with the Party or Parties designating the 
airline.
284 
 
Article 3.  
Operational Flexibility
285 
  For the operations and rights mentioned under Article 1, each designated airline may, at its 
discretion: 
  (a) Change aircraft in the territory of any other Party or at any point along the specified 
routes without limitation as to change in type or numbers of aircraft operated; 
 
 (b) use its own equipment and leased equipm ent, under any type or form of lease 
agreement, and may operate under comme rcial arrangements (including but not 
limited to, blocked space agreements
286, code-sharing and inter- line agreements) with 
any other designated airline287; 
 
                                                      
283 This proposal follows the spirit of Regulation 2407/92 (EC) of 23 July 1992 of the Community.  It 
must be read in connection with Article 7 on Safety.  The idea is that a Party designating an airline must give an 
adequate guarantee that the airline in question is financia lly fit and operationally safe.  The approach means to 
ensure that the designating State thus assumes responsibility  and does not carelessly designate an airline.  In all 
probability this approach would mean that a number of possible signatories would have to amend their national 
regulations on this issue, e.g. on registration and ownership. 
It must be noted that an even more open approach would also be possible if the need for "designating 
responsibility" is not felt to be so compelling.  In that  case it would suffice if the airline holds a valid operating 
license and aircraft operators' certificate issued  by one of the Parties to the Agreement. 
284 (b) and (c) as well as the final sentence are st andard clauses in The Netherlands' bilateral 
agreements.  But many other wordings are possible. 
285 The operational flexibility article is mainly derive d from the change of airc raft article (also known 
as "change of gauge") which can be found in the US-Netherlands (1992) and US-Canada (1995) bilateral 
agreements and is adapted to incorporate Regulation 2407/92 (EC) particularly regarding the leasing of aircraft. 
286 See Article 8 of Regulation (EC) 2407/92 of 1992, which for Community air carriers no longer 
requires ownership of aircraft. 
287 Commercial cooperation is thus limited to designat ed airlines of contracting parties.  Admittedly, 
this could be a too significant limitation, and can be left out if desired.  This limitation was inserted to encourage 
accession to this plurilateral agreement.  Note that this approach can lead to problems if a bilateral agreement is 
in existence that allows more liberal  cooperative arrangements.  In that ca se, under this approach, these extra 
possibilities are superseded by this agreemen t.  This is done this in order to obtain uniformity, but Parties could 
adapt the plurilateral agreement so as to leave more liberal rights intact.  S/C/W/270/Add.2 
 Page 361 
 
 
   (c) in the case of leasing, the aircraft leased  shall be registered in a Party in accordance 
with Chapter II of the Convention.  The leased  aircraft and, in the case of wet-lease or 
similar arrangements, its crew and personne l, shall conform to the requirements set 
out in Article 7 of this Agreement288; 
 
 (d) commercial agreements and arrangement s with other designated airlines shall 
conform to the requirements and conditions set out in Article 6; 
  (e) use different or identical flight numbers  for the sectors of its change of aircraft 
operations; 
 
 (f) position aircraft in the territory of any Party at the airports of their choice;   (g) use other modes of cargo transport for an y, all, or part of the specified routes in 
accordance with the provisions of this Agreement. 
 
Article 4.  
Cargo Rates
289 
 1. Each Party shall allow rates for air cargo tr ansportation, including inter-modal transportation 
and ancillary services, to be established by  each designated airline based upon commercial 
considerations in the market place.
290  Intervention by Parties shall be limited to: 
  (a) Prevention of unreasonably di scriminatory rates or practices; 
 
 (b) protection of consumers and shippers  from rates which are unreasonably high or 
restrictive or otherwise predatory because of  the abuse of a dominant position in the 
market or because of an agreement which has the aim to reduce competition or which 
is otherwise contrary to applicable competition laws
291; 
  (c) protection of airlines from rates that are artificially low because of direct or indirect 
government subsidy or support. 
 2. Each Party may, without discrimination on gr ounds of nationality or identity of designated 
airlines, require notification to its aeronautical author ities of rates to be charged to or from its territory 
by the designated airlines of the other Parties.
292  A proposed rate of a designated airline becomes 
effective upon receipt of such notification.293 
 
                                                      
288 For air cargo carriers leasing is very important.  Th e clause proposed aims to take away some safety 
concerns in order that as many co untries as possible can accept leasing.  The wording "similar arrangements" 
aims to cover those countries that consider "w et-lease" to be equivale nt to "sub-charter". 
289 This article is based on the tariff clauses proposed in the multilateral agreement discussed between 
the Dutch and the US in 1980, the preliminary work  done for the Dutch-US Op en Skies Agreement, the 
applicable clause in the US-Dutch bilateral air services  agreement of 1957 and the US-Germany bilateral interim 
agreement of May 1994. 
290 See Art. 11 of the Memorandum of Understanding of 1987, between the US and the Netherlands. 
291 This possible approach aims to incorporate the most important motives for intervention under the 
competition laws of the US and the EU.  Any more subs tantive or less substantive description would depend on 
the particular states involved. 
292 This clause and its approach has been modelled on Regulation 2409/92 (EC) Article 5. 
293 See US-Germany interim bilateral ag reement of 24 May 1994, Article 4D. S/C/W/270/Add.2 
Page 362  
 
  3. If a Party is dissatisfied with any rate proposed or charged: 
  (a) By a designated airline for air ca rgo transportation, including intermodal 
transportation for one-through rate, between th e territory of the dissatisfied Party and 
the territory of any other Party and/or a third country;  or 
 
 (b) by an airline designated by the dissatisfied Party for air cargo transportation, 
including inter-modal transportation for one -through rate, between the territories of 
any other Parties and/or a third country, 
 
 it shall notify in writing such other Parties and the other Party or Parties designating the 
airline(s) and the designated airline(s) concerned.  Such notification shall state the reasons why the 
Party considers such rate to be inconsistent with the considerations set fort h in Paragraph 1 of this 
Article.  Within ten days of this notification, copies of the notification shall be sent to all Parties.  The 
Parties receiving the notice of dissatisfaction shall acknowledge the notice, including an indication of 
their agreement or disagreement with it, within 10 da ys of receipt of notice.  If all notified Parties 
agree that the price in question is inconsistent with the considerations set forth in Paragraph 1 of this 
Article, they shall put their agreement into effect a nd remedy the situation.  If all notified Parties do 
not agree, the rate may go into effect or continue to be in effect.   Any Party that nevertheless remains dissatisfi ed with a rate proposed or charged by a 
designated airline, may submit this issue to  arbitration in accordance with Part D.
294 
 4. No Party shall require the approval or notifi cation of prices proposed or charged by indirect 
providers of cargo air transportation between the territories of the Parties.
295 
 
Article 5. 
 
Commercial Opportunities  
 
1. Each designated airline shall be allowed to fr eely establish in the territory of any Party offices 
for the promotion of air cargo transport services and sale of air cargo transport services, as well as all 
other facilities required for the provision of air car go transport and ancillary services, including, but 
not limited to, forwarding services, cargo service centres, warehousing and storage, agency services, consolidation, expedition a nd intermodal transportation.
296 
 2. Each designated airline shall be allowed, in the territory of any Party, to engage directly and, 
at that airline's discretion, through its agents, or  any authorized agents, in the sale, marketing and 
promotion of air cargo transport services and ancillary services, including, but not limited to, forwarding services, cargo service centres, warehousi ng and storage, agency services, consolidation, 
expedition and intermodal transportation.
297 
                                                      
294 The shortest possible procedure ha s been put forward, in accordance wi th the open market approach.  
The reasons why a rate may not be in acc ordance with this agreemen t are limited and clearly set.  Of course they 
may lead to differing points of view, but chances are that  in extreme cases-and the system has been devised only 
for extreme cases-relevant parties will agree.  No provisi on on consultation has been included.  Parties can use 
the general consultation article, but in view of the constant changing character of rates, any lengthy procedure 
will prove ineffective.  On points of principle or inte rpretation of the Article, arbitration will form the best 
solution. 
295 See US-Germany bilateral agreem ent of 24 May 1994, Article 4E. 
296 Modelled on the standard bilateral agreement of The Netherlands. 
297 Paragraphs 1 and 2 complement each other, para graph 1 giving the right of commercial presence 
and paragraph 2 giving the right of actual sale and marketing.  It is very difficult if not impossible to give an 
  S/C/W/270/Add.2 
 Page 363 
 
 
   
3. Parties shall not limit or prohibit any designa ted airline from issuing and using its own air 
waybills, as well as using and issuing air waybills of other designated airlines and indirect air carriers 
if so authorized.  Neither shall Parties limit or pr ohibit the use of own, and combined, flight numbers 
or designator codes298 by any designated airline for cargo air transportation or intermodal 
transportation under this Agreement.  Nor shall Pa rties limit or prohibit the use by any designated 
airline of any brand name or corporate identity av ailable to that designated airline under applicable 
national and international law.299 
 4. Each designated airline shall have the right to perform any in-terminal airport cargo ground 
handling services or use any authorized ground hand ling service provider or agent.  Each designated 
airline shall have the right to provide its own cargo ramp handling services and cargo ramp handling services for other designated airlines under this Agre ement.  Restrictions on the provision of in-
terminal or ramp services shall only be permitted fo r security reasons or infrastructural constraints, 
and shall be applied on a fair and non-discriminatory basis.  Designated airlines shall have the right to 
use any authorized in-terminal or ramp service provider or agent. 
  Each Party concerned shall use its best efforts to see to it that designated airlines are treated 
by airports and ground services providers at the airports in a fair and non-discriminatory manner.
300 
 5. Notwithstanding any other provisions of this Agreement, designated airlines shall be 
permitted, without restriction, to employ in c onnection with internati onal air cargo transport 
services
301, or as a substitute for international cargo ai r transportation services, any surface transport 
for cargo to or from any points in the territories of the Parties or third countries, including transport to and from all airports with customs facilities, and including, where applicable, the right to transport 
cargo in bond under applicable laws and regulations.  Such cargo, whether moving by surface or by 
air, shall have access to airport customs pro cessing and facilities during hours of operation normally 
provided and where services are available.  Designated airlines may elect to perform their own surface transport or provide it throu gh arrangements with other surface carriers, including surface 
                                                                                                                                                                    
 
exhaustive description of all the possi bilities and services, because the indust ry constantly tends to create new 
ones.  But the proposed wording is fairly broad and should encompass many novel contractual arrangements. For instance, it also en compasses franchising. 
298 IATA assigns designator codes under IATA resolution 762, see IATA JPSC/14 PSC 15 cited in 
J.E. de Groot, Code-sharing, Air and Sp ace Law, Vol. XIX, 2 (April 1994) at 62. 
299 This is a novel clause aimed at accommodati ng the many guises and identities that are today 
assumed by air cargo carriers.  The aim is to enable designated airlines to  operate under the same circumstances 
as other cargo service providers which are no t necessarily bound to one name or identity. 
300 Roughly two types of ground-handling can be distinguished.  The first type is the "air side" or 
"ramp" handling, i.e. the physical presence around the aircraft on the tarmac at the airport, providing loading, 
maintenance and technical services.  In many, if not most , cases this type of handling is restricted because of 
security and infrastructural constraint s, which can be quite logical and acceptable.  However, they should not be 
used to restrict commercial opportunities.  The artic le therefore aims at non-discriminatory treatment. 
The second type of ground handlin g is the in-terminal facility.  Th e ability to receive and expedite 
goods, to perform administrative functions and to palletize goods.  Here too, constraints might be unavoidable. 
Constraints based on security ground s on this issue are acceptable in ex ceptional cases.  There might be 
instances where this also might be nece ssary, e.g. for infrastructural reasons. 
Observe that the ramp handling approach in principle contains the possibility of third party handling, 
albeit that this is restricted to design ated airlines under this Agreement.  Th e limitation to designated airlines is 
there to make the Agreement more attractive (or alternativ ely, increases the pressure) for countries to join.  But 
it is up to the Parties to choose this approach.  Third party handling could also more in general be included, 
i.e. on a non-discriminatory basis. 
301 Another option would be to allow only road or ma ritime transport incidental to air cargo transport.  
The air waybill could be given an extra evidentiary function in this respect. S/C/W/270/Add.2 
Page 364  
 
  transportation operated by other airlines and indirect  providers of cargo air transport services.  Such 
intermodal cargo services may be offered at a singl e through price for the air and surface transport 
combined, and carried under one air waybill, provide d that shippers are not misled as to the facts 
concerning such transport.
302 
 
6. The designated airlines of each Party shall be entitled, in accordance with the laws and 
regulations of the Party concerned relating to entr y, residence, and employment, to bring in and 
maintain in the territory of any other Party mana gerial, sales, commercial, technical, operational, and 
specialist staff required for the provision of air cargo transportation.303 
 
7. Each designated airline shall have the right to  convert and remit to a country, Party to this 
Agreement, on demand, funds obtained in the no rmal course of its opera tions.  Conversion and 
remittance shall be permitted promptly without restric tions or taxation in respect thereof, at the market 
rate of exchange applicable to current transactions  and remittance on the date the designated airline 
makes the initial application for remittance, and sh all not be subject to any charges except normal 
service charges collected by banks for such transactions.304 
 8. With regard to the assignment, allocation, u se and availability of airport slots or ramp space 
each Party shall see to it that rules regarding such assignment, allocation, use and availability shall be 
applied and be implemented on a fa ir and non-discriminatory basis, either by themselves or by the 
airport authorities concerned.
305 
 
Article 6.  
Fair Competition
306 
 
1. There shall be fair and equal opportunity for the designated airlines of all Parties to compete 
in providing the services covered by this Agreement.  2. Each Party shall take all appropriate action w ithin its jurisdiction to eliminate all forms of 
discrimination or unfair competitive practices a dversely affecting the competitive position of the 
designated airlines of the other Parties. 
 
3. No Party shall unilaterally limit, restrict or condition, the rights contained in this Agreement 
as regards the volume of cargo traffic, type of car go traffic, capacity, frequency or regularity of 
service, or the type or types of aircraft operated by  the designated airlines of the other Parties, except 
                                                     
 
302 This clause is based on Art. 10 bis of the US-Netherlands Bilate ral Air Services Agreement of 
3 April 1957 as amended on 29 January 1992, and conforms to the "open skies" definition of the 
US Government, and Section 6, Annex I of the US-Canada Air Transport Agreement of 24 February 1995. 
303 Modelled on Article 10 of the US-Canada Air Transport Agreement of 24 February 1995.  Many 
other alternatives are possible, but this one covers what is generally acceptable. 
304 Modelled on Article 10 of the US-Canada Ai r Transport Agreement of 24 February 1995. 
305 There are cases where the availability of proper slots can be vital to a cargo operation.  One example 
is the express service where it is important to make an  onward connection in as short as possible a time.  
Another example is the specialized carrier of goods like pe rishables and flowers, which needs to bring in or take 
out the goods in such a way that they  can be put on the market at the proper time (for instance the early city-
market or the auction).  So there is a clear rationale to provide for the non discriminatory availability of slots and ramp space. 
306 This Article has been modelled on most open ty pe bilateral agreements (see for example Article 4 
the US-Canada Air Transport Agreement of 24 February 1995), but has been amende d slightly to accommodate 
the aims and purposes of the plurilateral.  In partic ular competition law issues and cooperative arrangements 
have been included.  S/C/W/270/Add.2 
 Page 365 
 
 
  as may be required for customs, technical, operati onal, safety, security or environmental reasons 
under uniform conditions applied in a non-discriminat ory way and consistent with Article 15 of the 
Convention.  4. The competition authorities and air transport au thorities of the Parties shall consult regularly 
with each other in order to prevent conflicts on a pplicable national competiti on laws with regard to 
the services governed by this Agreement.  Where a nd if possible, they shall endeavour to achieve 
harmonization of such laws, coordinate policy in th e execution of those laws and consult each other 
on specific action taken under those laws, when issu es are involved that concern the application of 
this Agreement. 
 
5. Designated airlines shall have the right to en ter into commercial agreements or arrangements 
including, but not limited to, blocked-space agre ements, franchising agreements, code-sharing 
agreements, leasing agreements, multimodal and inte rmodal arrangements, with any designated airline 
or indirect air carrier authorized by a Party to ope rate to, from, via and within its territory, for the 
transportation of cargo, ancillary services as we ll as other services required for such transport, 
provided that such agreements or arrangements ar e in conformity with the applicable national 
competition laws applied in conformity with this  Agreement and in partic ular paragraph 4 above.
307 
 Article 7.  
Safety
 
 
1. Each Party shall recognize as valid, for the purpose of operating the air cargo transportation provided for in this Agreement, certificates of ai rworthiness, certificates of competency, and licenses 
issued or validated by the other Parties and still in  force, provided that the requirements for such 
certificates or licenses at least equal the minimum st andards established pursuant to the Convention.  
Each Party may, however, refuse to recognize as valid for the purpose of flight above its own 
territory, certificates of competency and licenses grante d to or validated for its own nationals by the 
other Parties.  2. Each Party or its aeronautical authorities may request technical discussion concerning the 
safety standards maintained and administered by an y other Party or Parties relating to aeronautical 
facilities, aircrews, aircraft, technical supervisio n and operation of the designated airlines.  If, 
following such technical discussions, one Party finds that the other Party or Parties does not or do not effectively maintain and administer safety standard s and requirements in these areas that at least equal 
the minimum standards established pursuant to the Convention, the other Party or Parties shall be 
notified of such findings and the steps cons idered necessary to conform with these minimum 
standards, and the other Party shall take appropriate corrective action.  Each Party reserves the right to 
immediately implement the rights in Article 2, para graph 4 with regard to the designated airline or 
airlines concerned in the event the other Party or Parties does not or do not take such appropriate 
corrective action within a reasonable time.
308 
                                                      
307 This does not necessarily have to be part of any arrangement.  Since authorities other than 
aeronautical authorities are often involved in applyi ng competition laws, e.g. DG IV of the European 
Commission in Europe, and the Justice Department in th e US, it could be done in a separate arrangement 
prepared by the competition authorities, very much like the way tax agreements are arranged through 
negotiations between finance departments.  This in no way prejudices the possibility of including a limited 
clause on competition in any arrangement if its desired so, provided the competent authorities can agree on the 
text to be included.  See Patricia M. Barlow, Aviation An titrust at 89-131.  See also P.J. Slot and E. Grabandt, 
Extraterritoriality and Jurisdiction  in Common Market Law Review Vol. 23 (1986) at 545-563. 
308 See Article 13 of the US-Canada Agreement of 24 February 1995. S/C/W/270/Add.2 
Page 366  
 
   
Article 8.  
Application of Laws
309 
 
1. While entering, within, or leaving the territory  of one Party, its laws and regulations relating 
to the operations and navigation of aircraft shall be complied with by the other Parties' designated 
airlines.  2. While entering, within, or leaving the territory  of one Party, its laws and regulations relating 
to the admission to or departure from its territory  of crew, staff and cargo on aircraft (including 
regulations relating to entry, clearance, aviati on security, immigration, passports, customs and 
quarantine) shall be complied with by, or on behalf of , such crew, staff or cargo of the other Parties' 
designated airlines.  
3. Cargo in direct transit across the territory of  a Party and not leaving the area of the airport 
reserved for such purpose, or any other area reserve d for such purposes, or carried in bond, under the 
laws and regulations of that Party applied in a non- discriminatory manner, shall, except in respect of 
security measures against violence and air piracy, be subject to no more than a simplified control.  Cargo in direct transit or carried in bond shall be exempt from customs duties and other similar 
charges. 
 
4. In the application of its laws  and regulations, no Party shall give  preference to its own or any 
other airline over a designated airline of any other Party engaged in similar international air cargo 
transportation.  
GENERAL PROVISIONS 
Article 1.  
Consultation and Amendment
 
 
1. Any Party may, at any time, request consulta tions with any other Party or Parties with the 
purpose of discussing the interpretation and applicati on of this Code.  Prior to the commencement of 
such consultations the Parties shall inform any Party not participating therein of the nature and date of 
such consultations and any such Party shall have th e right to attend such consultations as an observer 
or participant, at its discretion.  
 Any Party may, at any time, request consultati ons with the other Parties with the purpose of 
discussing the amendment of this Code.  Such consu ltations shall begin at the earliest possible date, 
but no later than 60 days from the date of the rece ipt of the request by the other Parties, unless 
otherwise agreed.   Amendments to the Code can only be agreed between all Parties, by unanimous decision and 
through a written agreement, confirmed thro ugh the exchange of Diplomatic Notes. 
 2. Parties shall meet at least once every three y ears to discuss the application of this Code with 
the aim of further reducing any barriers still contai ned therein and to discuss and agree on extending 
and amending the Agreement to appl y to all air transport services. 
 
                                                     
 
309 Paragraphs 1, 2 and 4 are modelled on the US-Canada Bilateral Air Transport Agreement of 
24 February 1995;  paragraph 3 is modelled on the Netherlands' standard bilateral agreement (not published).  S/C/W/270/Add.2 
 Page 367 
 
 
  3. Parties shall institute a coordination group consisting of two representatives of each Party to 
monitor the application of this Code and to perform all other work the Parties instruct them to do in 
connection with this Code.  The coordination gr oup shall commence by agreeing on procedures for its 
functioning and on a work program, both of which sh all be submitted for approval to the Parties. 
 
Article 2. 
 
Dispute Settlement310 
 1. If any dispute arises between two or more Par ties relating to the interpretation or application 
of this Code, these Parties shall in the first place e ndeavour to settle it by way of consultation between 
themselves.  2. If these Parties fail to reach a settlement within  two months after consultations have started, 
the dispute may at the request of a Party be submit ted for decision to a Panel of Arbitrators.  This 
Panel of Arbitrators shall be composed by one  representative of each Pa rty to the Code and, 
three arbitrators appointed by the Secretary-General of ICAO.
311 
 3. The Panel of Arbitrators shall endeavour to se ttle and resolve the dispute in the spirit of this 
Code.  Decisions shall be taken by at least two-thir ds majority.  If the arbitrators are unable to settle 
and resolve the dispute, the Dispute Settlement a nd Enforcement mechanism of  Article XXIII of the 
General Agreement on Trade in Services shall apply. 
 4. The Parties undertake to comply with any d ecision given under paragra ph 3 of this Article.  
An equal proportion of the expenses of the arbitral  tribunal shall be born e by each Party directly 
involved in the dispute. 
 
Article 3.  
Registration with ICAO and the WTO
 
 
 This Code and any amendment thereto shall be registered with the International Civil 
Aviation Organisation and the World Trade Organization. 
 Article 4.  
Accession and Withdrawal
 
 
1. This Code shall be open for accession by any State, and/or Organization of States, provided 
such State or Organization of States, is a Party to the World Trade Organization and a Member to the General Agreement on Trade in Services, and Pa rty to the Convention, or in the case of an 
Organization of States, each individual Member State being Party to the Convention.
312 
                                                      
310 This is a very simple example.  It is to be not ed that this will hardly be  acceptable to many states 
and that much more elaborate schemes will have to be devised.  See for instance the huge Article 17 of the US-
Canada Air Transport Agreement of 24 February 1994.  Also see the complex WTO Understanding on Rules 
and Procedures Governing the Settlement of Disputes, at MTN/FA II-A2. 
311 The three arbitrators would be needed to balance the disputing parties.  Many types of arbitration 
clauses are possible, but this is a fairly simple one.  Instead of, or supplemental to, the Secretary-General of 
ICAO, the Director-General of the WTO could also be used. 
312 Organizations like the EU can thus become Party to  the Agreement, provided they are recognized by 
the WTO and the GATS.  Both Member States and the Community can become a Party. S/C/W/270/Add.2 
Page 368  
 
   
2. Any State and/or Organization of States wishi ng to accede to this Code shall deposit, through 
diplomatic channels, a notification requesti ng accession with the Secretary General of ICAO.
313 
  Within 90 days of receiving such notification the Secretary General shall convene all Parties 
and the State wishing to accede to discuss possible term s of accession.  A State, and/or organization of 
States, may only accede to this Code if all the Parties so agree by unanimous decision.
314 
 3. Any Party may at any time withdraw from this Code by depositing a notification of 
withdrawal with the Secretary General of ICAO.  A Party depositing such notification shall cease to 
be a Party to this Code two years
315 after the date of receipt thereof by the Secretary General of ICAO. 
 4. The Secretary General sha ll immediately inform all Par ties and the Council on Trade in 
Services of the GATS of the date of receipt of any notification deposited with that Government pursuant to paragraphs 2 and 3 of this Article. 
 
Article 5.  
Definitions
316 
  The definitions of the Convention and the GATS shall also apply to this Agreement.  In 
addition the following definitions will apply: 
  (a) The term "the Convention" means the Convention on International Civil Aviation, 
opened for signature at Chicago on 7 December 1944, and includes any Annex adopted under Article 90 of that Conventi on and any amendment of the Annexes or 
the Convention under Articles 90 and 94 th ereof, insofar as those Annexes and 
amendments have become effective for, or have been ratified by the Parties; 
  (b) the term "the GATS" means the General Agreement on Trade in Services, which is an 
integral part of the Agreement Establishi ng the World Trade Organization, opened for 
signature at Marrakesh, 15 April 1994; 
 
                                                     
 
313 It would be in line with current international ai r transport practice and the multilateral aim of this 
agreement, for the Secretary General of ICAO to perform this task.  But also one Government may be custodian 
of this agreement, or even the WTO.  But since ICAO and the WTO/ GATS cooperate with each other, see 
Article XXVI of the GATS, there is a ll the reason to use the specialized air transport agency which ICAO is. 
314 This is a suggestion, to speed up the decision making process.  The first parties to such an 
agreement should consider whether th ey would be willing to accept such a clause.  It is important that the 
Agreement must be accepted by the applicant as is, but also that the acceding Party's commitments under GATS 
or on a bilateral level with one or more of the Par ties should be deemed sufficient.  Sufficient commitment 
under GATS and sufficient market access fo r combination air transport services must  be a condition of 
accession! 
315 Two years has been chosen instead of the usual one  year to prevent as much as possible the misuse 
of the possibility of withdrawal as a negotiating instrument. 
316 In most bilateral agreements, definitions can be found in Article 1.  The approach has been followed 
of most multilateral agreements, like the Convention and GATS, which conclude with definitions.  In this example for a Code, States wishing to participate in  the Code need to be signatories to GATS and the 
Convention.  The definitions in these Agreements will apply to them.  The definitions are broad and reflect the 
idea that exhaustive definitions are not possible and will of  necessity leave some items not-covered or in doubt.  
A good example is "selling and marketing".  The broader the concept, the better that concept is able to include 
new items, variants and derivatives.  But it remains up to the states involved to decide.  S/C/W/270/Add.2 
 Page 369 
 
 
   (c) the term "designated airline" means an airline which has been designated and 
authorized in accordance with Article 2 of Part C of this Code; 
  (d) the term "rate" means any amount charge d or proposed to be charged by designated 
airlines, directly or through their agents  and/or representatives, for the carriage of 
cargo (excluding mail) in air transportati on, intramodal transportation and surface 
transportation substituting air transportation, including: 
 
(i) the conditions governing the availab ility and applicability of a rate;  and 
 
(ii) the charges and conditions for any services ancillary to such carriage which 
are offered by designated airlines; 
  (e) the term "operating license" means an aut horization granted by a Party to an airline 
permitting it to carry out carriage by air of cargo, as stated in the operating license, 
for remuneration and/or hire
317; 
  (f) the term "air operator's certificate" (AOC ) means a document issu ed to an airline by 
the competent authorities of a Party which a ffirms that the airline in question has the 
professional ability and organization to secure  the safe operation of aircraft for the 
aviation activities specified by the certificate.
318 
 
 Done at (place) on (date), in a single copy, in the ( … ) languages, each text being authentic.  
In the event of any inconsistencies the English version shall prevail. 
 
Signatures to the Agreement, 
The Governments of: 
The United States of America The Member States of the European Union Canada The United Mexican States The Republic of Singapore 
And … ?" 
  
                                                     
 
317 See Article 2, paragraph (c) of Regulation (EC) 2407/92. 
318 See Article 2, paragraph (d) of Regulation (EC) 2407/92.  S/C/W/270/Add.2 
 Page 371 
 
 
   
    
 
  
 
PART F 
 
SLOTS  S/C/W/270/Add.2 
 Page 373 
 
 
   
F. SLOTS  
529. Three main regulatory regimes exist for slot allo cation:  US regulations, EC regulations, and, 
in almost all other countries, the self-regulated IA TA system.  While the IATA system has remained 
relatively stable (for a detailed description, see comp ilation, pages 251-253), both the US and the EC 
regulations have been the subject of changes, expe riments and consultations, and are in many respects 
a work in progress.  Multilateral discussions have also taken place at ICAO. 
530. From the commercial standpoint, the strategic importance of slots was enhanced during the 
period under review on account of three main f actors:  growing environmental constraints, 
liberalization, and increased traffic.  There was al so an increase in occasional trading in slots, which 
in turn explains the regulatory discussions under way. 
1. Regulatory developments 
531. Any allocation of scarce resources involving a large number of stakeholders is liable to create 
tensions between conflicting interests.  The allocati on and, where applicable, the sale of slots is no 
exception.  Tensions may arise: 
 
- Between airlines, airports and States w ith regard to ownership and rules of 
allocation; 
- between the objective of maximizing cap acity and that of environmental 
protection; 
- between carriers operating small airc raft and/or short and medium-haul 
flights, and carriers operating large aircra ft and/or long-haul flights (a large 
aircraft and a small aircraft occupy the same slot but do not produce the same revenue, either for the airline or the airport, and the same is true for short and medium-haul flights, on the one hand, and long-haul flights on the other); 
- for long-haul carriers dominating a hub,  which have a conflicting interest 
between, on the one hand, obtaining or purchasing slots assigned to short and 
medium-haul links in order to transform them into long-haul slots, and, on the other, retaining short and medium-haul slots to feed long-haul flights with regional customers; 
- for non-dominant long-haul carriers when deciding whether to resell their 
slots, as the immediate added value must be weighed against the loss of 
regular income, new services potentia l and potentially strengthened position 
of the dominant carrier; 
- for short and medium haul carriers, which must also assess, when deciding 
whether to resell their slots, immediate added value against the cost of exile 
to a secondary airport of less practical a dvantage because of the lack of direct 
connection potential; 
- between beneficiaries of grandfather rights and new entrants; 
- between airlines that have the financial resources to purchase slots and those 
that do not; S/C/W/270/Add.2 
Page 374  
 
  - between bilateral agreements under whic h States consent to opening up flight 
destinations and frequencies, and nati onal regulations or self-administered 
trans-national rules on slot allocation; 
- and in consequence, between inte rnational and domestic flights. 
532. These various tensions were particularly appare nt in the discussions held at ICAO on this 
subject during the period under review. 
(a) Discussions at ICAO 
533. In 1999-2000, the ICAO Secretariat  produced a study on the allocation of slots at 
international airports.
319  The study was examined by the ICAO Air Transport Committee in February 
2000 and by the Conference on the Economics of Airports and Air Navigation Services (ANSConf 
2000) in June 2000, and it was eventually up dated and published as ICAO Circular No. 283. 
534. The study describes trends in airport capacity co nstraints and existing regulatory regimes, and 
assesses existing measures and possible improvements or  alternatives to them.  Its main conclusions 
are that more and more States will be faced with sl ot allocation decisions, and that such decisions are 
particularly difficult in the international arena as they are essential to the actual exercising of market 
access concessions.  According to ICAO, increasing cap acity through the construction or enlargement 
of existing airports is still the best method for elim inating congestion.  Clearly, however, this solution 
cannot be transposed to a number of airports wh ere physical, environmental or other constraints 
prevent such construction or enlargement. 
535. ICAO acknowledges that capacity management meas ures are likely to improve the short-term 
situation and prevent bilateral disputes related to  slot allocation for international services.  ICAO 
notes that public policy objectives other than merely  maximizing capacity may be at work here, such 
as competition and market access policy.  ICAO cons iders that liberalization has an ambivalent 
impact on capacity constraint:  for one thing, through the extensive granting of traffic rights and 
multiple designations, liberalization creates additional demand for slots;  at the same time, however, it 
relieves the pressure on those same slots by offering  the possibility of using alternative airports and 
cities capable of accommodating these new or increased services. 
536. ICAO concludes that a number of States will be faced with the task, in the medium to long 
term, of balancing conflicting objectiv es in order to determine which international carriers will be able 
to use their capacity-constrained airports.  In so doing, these States will have to take account of the 
existing legal framework provided in particular  by the Chicago Convention, their bilateral 
agreements, regional320 and national slot allocation rules a nd existing self-regulated mechanisms.  
According to ICAO, the specific situation of each in dividual airport concerned will have to be taken 
into account, and no overall solution can be recommended. 
537. Regarding the proposed alternative(s) to the cu rrent IATA system, it is significant that the 
ICAO study is extremely cautious about "secondary slot trading".321  The latter option, which is 
supported by the Organisation for Economic Co- operation and Development (OECD), has been a 
                                                      
319 A summary of the study is available at the following electronic address:  
http://www.icao.int/icao/fr/atb/ecp/C283_fr.pdf .  The full text of the initial study in English is available on 
request from the WTO Secretariat. 
320 Likely reference to the rules of the European Union. 
321 Secondary slot trading is the trading of slots between airlines, in which monetary compensation is 
involved.   S/C/W/270/Add.2 
 Page 375 
 
 
  recurrent theme over the last 15 years and is legall y available on the domestic market in the United 
States, as well as in Europe, at least at Heathrow , albeit in a somewhat ambiguous legal context (see 
below).  ICAO notes the instability of the slots market  at the end of the 1990s, and considers that a 
strict reading of Article 15 of the Chicago Conve ntion (obligation of national treatment for airport 
charges322) could imply a single price for a slot.  ICAO also notes that the question of the ownership 
of slots (potentially claimable by airlines, airports and the State) remains open and that such 
secondary trading could, in certain – unspecified  – circumstances, strengthen dominant positions.  
ICAO thus concludes that secondary slot tradi ng would require further study and analysis. 
538. Regarding improvements to the current syst em, ICAO notes three possible approaches. 
• The first, which is not exclusive of the two others, would consist in  appointing independent 
coordinators to prevent conflicts of interest that could be created by assigning the role of 
coordinator to national carriers (27 cases out of 45 in the IATA system at the date of drafting 
of the report).   
• The second proposal, which excludes the third, would be to give preference to international 
long-haul flights which have less slot flexibility than other flights.   
• The third proposal would be to give preference  to all long-haul flights.  The advantages and 
drawbacks of these proposals vary  between individual airports, de pending on their traffic mix.  
ICAO does not, therefore, make precise recommendations on the subject. 
539. At the Fifth Worldwide Air Transport Conference323 held in March 2003, IATA  presented a 
working document (ATConf/5-WP/27) entitled "Ensuri ng an effective and globally compatible slot 
allocation system".  In this document, IATA e xpresses opposition to the proliferation of national 
government regulations on the basis of the following arguments. 
540. First, IATA considers that government rules ar e intrinsically inflexible and complex and are 
paradoxically likely to increase congestion, compared with the extreme flexibility of its own system. 
541. Second, the airlines' association is of the view  that national government rules add to its own 
traditional guidelines (maximizing capacity and distri buting it fairly, on the basis of predictability and 
continuity, relying on grandfather rights and the conc ept of "waiting one's turn", while ensuring that 
new entrants are given a fair share of slots) politi cal objectives that are prai seworthy in themselves, 
such as competition and environmental protection, bu t which would disrupt the system and could be 
achieved by other means.  Moreover, these objec tives sometimes conflict with one another324. 
542. Lastly, IATA considers that, having regard to  the extra-territorial consequences of slot 
allocation (every take-off or landing slot allocated  in country A must be matched by a take-off or 
                                                      
322 Article 15 of the Chicago Convention reads:  "Any charges that may be imposed or permitted to be 
imposed by a contracting State for the use of such airports and air navigation facilities by the aircraft of any 
other contracting State shall not be higher:  (a) As to ai rcraft not engaged in scheduled international air services, 
than those that would be paid by its national aircraft of  the same class engaged in similar operations, and (b) As 
to aircraft engaged in scheduled international air services, than those that would be paid by its national aircraft 
engaged in similar international air services." 
323 All the documents of th e conference referred to in this section may be consulted at the following 
electronic address:  http://www.icao.int/i cao/en/atb/atconf5/ . 
324 Although IATA does not say so explicitly, this is  undoubtedly a reference to the conflict between 
the objective of maximizing capacity and the objective of environmental protection, which is frequently 
reflected in night curfews and limitations on the total number of flights or the volume of noise emissions.  S/C/W/270/Add.2 
Page 376  
 
  landing slot in country B), government rules tend to exacerbate the fragmentation of the system at the 
risk of endangering its viability.   
543. IATA therefore suggests in its working document that every slot allocation system should: 
- be globally compatible; 
- be market driven and have as its sole objective the maximum effective use of 
airport capacity; 
- be transparent, fair and non-discriminatory; 
- be simple, practical and economically sustainable. 
544. At the same conference, Airports Council International  presented a working document 
(ATConf/5-WP/91), in which it expressed th e view that airlines have only usage
 rights to slots, not 
property  rights.  ACI considers that, although the IATA sy stem has to a large extent maintained a high 
degree of coherence and stability, it is still dominated  mostly by the interests of airlines.  ACI 
proposes the establishment of "coordination committees" in which airports woul d fully participate, 
alongside airlines, in the establishment of slot allocati on rules.  Airports also wish to participate, at 
least with observer status, in the biannual IATA Schedule Coordina tion Conferences.  The 
appointment of independent coordi nators, the improvement of penalty mechanisms in the event of 
non-use of slots, and the deliberate restriction of sl ot allocation to certain types of flights (small 
aircraft, noisy aircraft, flights of a specific stag e length) are further measures advocated by ACI.   
545. ACI acknowledges, however, that its US members do not share its enthusiasm for 
coordination committees, which they consider to be  potentially anti-competitive and the use of which, 
in their view, should be limited to  emergency situations or in res ponse to weather disruptions.  ACI 
considers that airlines should not be authorized to engage in secondary trading325 of usage  rights 
except on condition that regulations and effective sa feguards be applied and that these exchanges:  
- Reflect the allocation principles of airports; 
- are not anti-competitive; 
- do not exceed the airport's capacity limits; 
- maintain the efficient use of airport capacity; 
- are subject to "use it or lose it" rules326; 
- are overseen by or carried out in clo se cooperation with the airport operator, 
when an independent coordinator is appointed. 
546. At the same Fifth Worldwide Air Transport Conference, the member States of ACAC327 
reiterated in a working document (ATConf/5-WP/64 ) their commitment to the IATA self-regulated 
                                                      
325 Indeed, while in Europe the status of selling remains uncertain, slot exchanges are permitted.  As a 
result, in certain instances slot sales are "disguised" as  exchanges, where a worthless slot is "exchanged" for a 
valuable slot, subject to hidden financial compensation.  The terms "artificial exchanges" or, more colourfully, "junk slots" are also used in such instances .  See discussion later in the main text.  
326 Precisely in order to avoid ar tificial exchanges of slots.  S/C/W/270/Add.2 
 Page 377 
 
 
  system as endorsed by the Fourth Worldwide Air Tr ansport Conference.  In the same document, they 
explicitly oppose one of the possible measures for re lieving congestion:  the peak hours surcharge (see 
also compilation, paragraph 137, page 107).  On the other hand, their opposition to secondary slot 
trading remains implicit. 
547. One interesting aspect of this contribution is the fact that it highlights traditionally discreet 
practices linking slot allocation to traffic rights.  The bilateral agreements do not deal with slot 
allocation, at least in the parts thereof available to the public.  Thus, ICAO's WASA database, which 
codifies some 40 provisions commonly found in bilateral agreements, does not include a heading devoted to slot allocation.  However, the effectiv e exercise of international traffic rights presupposes 
slot allocation.  This explains, for example, why US legislation empowers the Federal Aviation 
Administration ex officio  to allocate slots for international flights, where appropriate, to the detriment 
of domestic flights.  Other States, not mentione d by name in the ACAC working document, have 
resolved this conflict by implementing one or more of the following policies: 
- Refraining from negotiating new or extended traffic rights unless they can be 
fulfilled; 
- negotiating advance access to slots on  a bilateral basis before the new 
capacity becomes available in the form of  a new airport or the extension of an 
already existing one; 
- applying the principle of reciprocity in slot allocation at airports. 
548. The conflict between the objectives of maximizing capacity, on the one hand, and 
environmental protection, on the other, is very clearly illustrated by the contributions of India 
(ATConf/5-WP/85) and France (ATConf/5-WP/88). 
549. India 's contribution highlights the problem of im balance in the provision of air transport 
services caused by non-availability of slots at some ai rports, thereby adversely affecting the growth of 
air transport operations and market access.  India also sees this as going against the basic principle of reciprocity of opportunity in the bilateral process.   The situation is compounded by the night curfews 
imposed by some States.  To overcome the problem, India recommends that the preferential treatment 
granted to new entrant operators to give them thei r fair share of slots should also be extended to 
airlines from countries that are not able to balanc e their services as per thei r bilateral agreements, 
because of non-availability of slots.  The paper al so suggests removal of night curfews, given the low 
noise level of present-day aircraft, and adheren ce to ICAO Standards and Recommended Practices for 
laying down national regulations  to increase slot availability. 
550. The contribution of France  takes stock of the liberalization started in 1986 under the auspices 
of the European Community and notes that it resulte d in a considerable increase in the number of 
movements, a decrease in the size of aircraft, at least on the domestic market, and an increase in the 
quality of services (choice of operators, greater number of flights, reduced waiting time).  On the other hand, noise nuisances were aggravated, as the reduction of flight noise impact was more than 
offset by the increased number and repetition of take -offs and landings.  Similarly, airport congestion 
problems increased, particularly at the most attractive times from the commercial point of view and in the hubs, which also grew in number.  France ther efore placed four of its airports under the 
coordination regime provided for by Community Regulation No. 95/93, placed an upper limit on the 
number of slots available at Paris Orly airport, located in a dense urban fabric, imposed a minimum 
                                                                                                                                                                    
 
327 Bahrain, Egypt, Iraq, Jordan, Lebanon, Libyan Arab Jamahiriya, Morocco, Oman, Qatar, 
Saudi Arabia, Sudan, Syria, Tunisia,  United Arab Emirates and Yemen. S/C/W/270/Add.2 
Page 378  
 
  capacity per flight at the same airport, related to the traffic of the service in question, and lastly 
developed infrastructures at Paris Charles de Gau lle airport and introduced measures to contain noise 
nuisances, particularly at night. 
551. Apart from the particular case of France, these developments were echoed, mutatis mutandis , 
in all the developed countries and, increasingly, in the emerging countries during the period under 
review. 
552. These issues are far from being theoretical.  Th ey even caused political problems in Belgium 
when DHL shifted its hub from Brussels Zaventem  to Leipzig and laid off a number of workers 
because of opposition by local residents to the reduced curfew hours requested by DHL. 
(b) European Union 
553. On two occasions, in September 2001 and in June  2003 after the start of the war in Iraq and 
the onset of the SARS epidemic, the Community aut horities temporarily relaxed the "use or lose" rule 
so that airlines would not lose slots on account of the cancellation of flights due to force majeure .  At 
the same time, the Association of European Airlines, supported by its sister associations in Asia and 
the United States, managed to have this technical is sue of abolition of the 80/20 rule dissociated from 
the broader issue of the reform of the slot allocation mechanisms which the Commission had 
originally intended to deal w ith in a single package.  
554. Following numerous discussions and consu ltations, Council Regulation No. 95/93 was 
eventually amended by Council Regulation No. 793/2004
328 of 30 April 2004.  These amendments are 
mainly of a technical nature, actual revision of th e allocation mechanisms being reserved for a second 
stage which is still under way.  These modifications re late to enforcement, clearer definitions, better 
monitoring tools and stricter sanctions for abuse or non-compliance. 
555. More specifically, the Regulation defines a slot as a "permission given by a coordinator ... to 
use the full range of airport infrastructure ... fo r the purpose of landing or take-off".  Carriers 
operating non-stop services from and to international air ports now have the status of "new entrant", so 
as to give them the benefit of mechanisms for reallocating slots from the pool in order to promote 
competition on intra-Community routes.  Business av iation is now explicitly included in the allocation 
process.  Regular capacity analyses are to be carried out in a transparent manner by airport managers.  
On the basis of these studies, carriers representing at  least half of movements, or the European 
Commission, may request the Member State conc erned to place the airport in question under a 
facilitation or coordination regime.  The coordinators  must be fully independent and they bear sole 
responsibility for the allocation of slots. 
556. It is now explicitly provided that th e coordination committee must be open, inter alia , to all 
airlines, including general aviation companies, whic h regularly serve the airport, as well as to the 
managing body of the airport and the authorities responsible for managing air traffic.  Local 
guidelines may be established by the coordination comm ittee.  The reasons for slots not having to be 
reallocated below an 80 per cent usag e rate are spelled out:  grounding of the aircraft type generally 
used for the air service in question, closure of an airport or airspace, and serious disturbance of 
operations at the airports concerned.  The coordinato r is explicitly given full control of operations and 
monitoring of operations.  The airlines are required to provide him with all necessary information and 
false or incomplete information may be sanctioned by  non-allocation of a slot.  A range of penalties is 
provided for, including withdrawal of slots in ca se of non-compliance with the established rules.  
Lastly, a reciprocity clause with rega rd to third countries is introduced. 
                                                      
328 Official Journal L138 of 30 April 2004, page 52 et seq .  S/C/W/270/Add.2 
 Page 379 
 
 
  557. Over and above these technical or cyclical regulatory developments , the question which 
affects reform of the European re gulations on slot allocation is that  of the legality or otherwise of 
secondary trading.  As is indicated in the Mo tt MacDonald study commissioned by the Commission in 
November 2006 on "The impact of the introduction of secondary trading at Community airports"329, 
"currently, such unilateral slot transfers [against  payment] are not regarded by the Commission as 
compatible with the EC Regulation, although the En glish High Court has ruled they were legal under 
Regulation 95/93".330 
558. The Mott MacDonald report goes on to say that "f ollowing that case, what is often described 
as a "grey market" has achieved a greater legitimacy in the United Kingdom, at least so that it can be 
said that an open market in airport slots now operates at certain of its airports, and there are some 
indications that such a grey market may have operated elsewhere in the Community". 
559. In accordance with that position, the Commissi on, in July 2004, instituted infringement 
proceedings against the United Kingdom, arguing that th e existence of the grey market was in breach 
of Community allocation rules.  However, these proceed ings do not appear to have resulted, as yet, in 
a decision. 
560. Indeed, it would appear that the Mott MacDona ld report, which reiterates the Commission's 
traditionally sceptical position on secondary trading, por trays that position simplistically or, at least, 
does not reflect its latest status.  Indeed, earlier press cuttings331 (March 2005, July 2006) refer to 
working documents of the Commission and to public  pronouncements by the latter in favour of the 
introduction of a market mechanism to maximise the use of slots provided that certain safeguards to 
prevent abuses of dominant position on the part of major hub carriers are established.  This would 
involve, first, the ex post  publication of all the characteristics of the transaction, including the prices 
paid, and secondly, validation of the transaction only if no other carrier is prepared to pay a higher 
price.  The latter potential requirement is contested by the airlines, which prefer to sell slots to their 
alliance partners rather than to their competitors, even if this means earning a little less revenue than 
planned. 
561. In a consultation document of September 2004,  the Commission also referred to a whole 
series of schemes, one of which, involving the partial reallocation of slots (a scheme also found in the rules proposed by the FAA for New York La Guardi a;  see the section on the United States) provoked 
the wrath of the airlines which saw it as a form of "confiscation". 
562. To clarify its options, the Commission commissioned two reports in succession, one in 
January 2004 and the other in November 2006, on the possible reform of its slot allocation regime.  
The first study by the NERA consultancy is entitled "Study to assess the eff ects of different slot 
allocation schemes".  Its main conc lusions are summarized in Table 44. 
                                                     
 
329 http://ec.europa.eu/transport/air_portal/a irports/doc/2006_slots_final_report.pdf , page 2-7, paragraph 44. 
330 "The court held that the exchanges were exchanges in the ordinary meaning of language and this 
meaning was not qualified by the provisions of the Regulati on;  and that ... incidentally ... there was nothing [in 
the Regulation] to prohibit monetary consideration", Mott MacDonald, op cit , page 4-6, paragraph 41. 
331 La Tribune, 16 March 2005;  Aviation Week & Space Technology, 10 July 2006. S/C/W/270/Add.2 
Page 380  
 
  Table 44 
Summary of main properties of market  mechanisms for slot allocation 
 
 Secondary 
trading Higher 
posted 
prices Higher 
posted 
prices and 
secondary 
trading Auction of 
pool slots 
and 
secondary 
trading Auction of 
10% of 
slots and 
secondary 
training 
Approximate estimate of impact on 
passenger numbers      
Low case 2.2% 3.8% 4.1% 2.4% 0.4% 
Central case 4.0% 4.3% 5.0% 4.2% 4.1% 
High case 4.8% 5.2% 5.8% 5.0% 4.6% 
Implementation costs very low low moderate moderate very high 
Other factors      
Potential for instability in airline 
schedules very low low low low high 
Likelihood of increased 
concentration at hub airports moderately 
high moderately 
high moderately 
high high very high 
Consistency with existing scheduling 
procedures good moderately 
good moderately 
good moderately 
good poor 
Risk of international disputes, 
challenges and retaliation low high high low very high 
 
Notes:  Higher posted prices = A mech anism whereby slot prices are increased  in order to reduce the extent of 
excess demand and ensure that sough t-after slots are not a llocated to low value services.  Auction of 
pool slots = A simultaneous ascending auction, where all lots of slots are sold (either individually or in 
combination) in a single auction with repeated rounds.  Auction of 10% of slots = An auction of 10 per 
cent of existing slots each year, in  a rolling programme su ch that each slot came up for auction every 
10 years. 
Source : NERA Economic Consultancy (2004), "Study to asse ss the effects of different slot allocation schemes". 
 
563. The second study, cited earlier, was entrusted to  the Mott McDonald c onsultancy and relates 
to a more specific subject, namely "The impact of the introduction of secondary trading at Community 
airports".  After analysing the US market in seconda ry trading and going on to the "artificial" market 
in slot sales at London Heathrow and London Gatwic k, the study concludes that in both cases the 
secondary trading mechanism has led to a liquid and flex ible market in slots, that it has been effective 
in fostering new entry, that it is supported by the in dustry, that it has facilitated slot leasing, and that 
direct competitors are prepared to trade slots with each other freely. 
564. In Europe, the main purchasers have, generally speaking, been long-haul carriers (British 
Airways in particular) and the main sellers have been short-haul carriers that have transferred their 
operations to airports on the outskir ts of London, resulting in improved efficiency in the use of slots, 
as expressed in available seat-kilometres. 
565. On this basis, and after conducting numerous regi me simulations on the basis of all available 
traffic forecasts for the eight most congested airpor ts (currently or prospectively) in the EC (London 
Heathrow, London Gatwick, Paris Orly, Paris Char les de Gaulle, Amsterdam, Düsseldorf, Frankfurt 
and Milan Linate), the report concludes that the introduction of a secondary trading mechanism would 
make it possible by 2025 to increase the total numbe r of passengers by 7.2 per cent per year, i.e. 
51 million additional passengers in 2025, and to increase  the number of available seat kilometres by 
17 per cent at the end of the period, as a result of the replacement of small medium- and short-haul 
aircraft by wide-bodied long-haul aircraft.  S/C/W/270/Add.2 
 Page 381 
 
 
  566. This would improve consumer welfare by an annual amount of €31 billion in 2025 (at current 
rates) and producer welfare by €1.2 billion at the same date.  Airport finances would be improved by 
7 per cent, not counting the indirect effects on neighbouring areas.  New entrants, especially 
intercontinental carriers – an important point at a time when low-cost intercontinental carriers are 
increasing their operations – will find it easier to ga in access to congested hub s.  However, existing 
dominant hub carriers will see a slight increase in their dominant position, from an average 47 per 
cent to 49 per cent.  Competition between hubs as well as between long-haul carriers is likely to 
increase.  Competition on intra-Community flights, on the other hand, is likely to be weaker.  Routes 
to peripheral regional airports and to the more pe ripheral Member States could be forced out of the 
major airports to less convenient secondary airports, unless they are protected by public service 
obligations.  The impact on carbon dioxide emissions  is likely to be considerable (€6.7 billion) 
although much of this will derive from geographical di splacement of flights between airports rather 
than an absolute increase for Europe as a whole.  Noise impacts in congested airports would be 
minimal, reflecting the replacement of short-haul  aircraft by more modern long-haul aircraft. 
567. The study concludes that no amendment to th e existing community slot regulations could 
simultaneously meet the following public policy objectives: 
- Maximizing the use of airport capacity; 
- maintaining links to the Union's peripheral regions; 
- enhancing competition, particularly on intra-Community routes;  and 
- minimizing the impact on the environment. 
568. The report goes on to examine a number of additional regulatory constraints that could be 
imposed on secondary trading as practised on the grey market, but eventually selects only one:  the 
requirement for post-trade transparency. 
569. Finally, with regard to primary slot allocati on, the report examines three options suggested by 
the Commission:  raising the threshold of the "u se it or lose it" rule from the current level of 
80 per cent to 90 per cent;  auctioning newly created slots;  and withdrawing slots from incumbent 
operators so that they can be reallocated. 
570. The report rejects raising the "use it or lose it"  threshold as a solution that would create too 
many operational difficulties.  Instead, it favours th e auctioning of new slots, while noting airlines' 
opposition to this system.  Its greatest merit woul d be to prevent windfall profits being made by 
airlines.  However, the report considers that the effectiveness of this practice is relative and that 
secondary trading could suffice to achieve the same objective. 
571. As regards the forced withdrawal of slots for s ubsequent reallocation, either by administrative 
procedure or by auction, the report notes that, alt hough such withdrawal is practised in the United 
States under certain conditions332, it would be contrary to IATA guidelines.  It would also be difficult, 
for diplomatic reasons, to withdraw slots from non-Community carriers that use them for 
intercontinental services.  The withdrawal procedure would therefore have to be limited to slots used 
for intra-Community routes, which would give rise to two difficulties:  the first is that a distinction 
between intra-Community and extra-Community slot s does not exist in European legislation as it 
stands at present;  the second is that this would prevent the reallocation of short and medium-haul 
                                                      
332 By the FAA for the benefit of international flights,  at the present time;  by reallocation for ten-year 
periods at La Guardia if the proposed rules are accepted. S/C/W/270/Add.2 
Page 382  
 
  (mainly intra-Community) slots to long-haul flights, whereas such reallocation is the primary 
objective of secondary trading.  The report therefore rejects this suggestion. 
572. Consultations on the basis of the report are ongoing.  IATA, which had not explicitly come 
out in favour of the legalization of secondary trad ing in its contribution to the Fifth Worldwide Air 
Transport Conference in 2003 (see above), now clearl y endorses such legalization.  It suggests that, 
instead of overhauling existing legislation, the Commission should maintain the regulatory status quo  
and change its interpretation of the concept of exch ange in order to include monetary compensation. 
573. The European Union Airport Coordinators Associ ation, for its part, wants no change in the 
current interpretation and considers that any lega lization of secondary trad ing could have adverse 
consequences. 
574. The European Regions Airline Association (E RA) points to three potential losers from the 
possible introduction of a secondary trading mechanism: 
- Customers on routes hitherto served by slot sellers; 
- certain destination areas if remaining service is inadequate to meet local 
business and social needs; 
- airlines that cannot afford to buy slots. 
575. The ERA also considers that this mechanis m will create difficulties for regional carriers, 
while its effectiveness in improving the overall allocati on of slots remains to be proved.  Lastly, the 
ERA is of the view that the efficient use of slots cannot be measured solely by reference to available 
seat kilometres. 
(c) United States 
576. The AIR 21 Act
333, signed into law by President Clinton in April 2000, provided for the 
abolition of the High Density Rule (HDR)334 in three of the four airports affected by this slot 
allocation rule since 1969:  in the case of Chicago O'Hare from 1 July 2002, and in the case of New 
York JFK and New York La Guardia from 1 January 2007.  Thus, only Washington National Airport remains concerned by the HDR. 
577. The new legislation also provided for exemptions  to the HDR during the transitional period in 
the case of the three first mentioned airports and ad aeternam  for Washington National, in order to 
encourage services to smaller communities (defined as  routes with fewer than one million passengers 
a year).  These exemptions which, in certain circ umstances, made it possible to obtain "free" slots, 
reduced the size of the secondary market. 
(i) La Guardia 
578. Liberalization measures resulted in an increase in services of more than 50 per cent over 
existing capacity at La Guardia in November 2000.  Given the accumulated delays, the Port Authority of New York and New Jersey imposed a moratorium  on the number of new flights and requested the 
FAA to intervene on the basis of its powers under the 1958 Air Transport Act in order to maintain 
                                                     
 
333 Official title:  Wendell H. Ford Aviation I nvestment and Reform Act for the 21st Century 
(49 USC sections 41714-41718). 
334 The rule is described in detail in the compilation, pages 290-291, paragraphs 24-29.  S/C/W/270/Add.2 
 Page 383 
 
 
  safety and the movement of air traffic.  The FAA then imposed a temporary cap of 75 operations per 
hour and allocated slots under the AIR 21 legislation by  means of a lottery nicknamed the "slottery".  
These temporary measures were extended on several occasions and are still in force today. 
579. At the same time, in June 2001, the FAA requ ested comments from interested parties on five 
slot allocation options for this airport:  two optio ns based on market mechanisms – landing charges 
adapted to congestion levels, on the one hand, and primary slot auctions, on the other – as well as 
three "administrative" mechanisms:  establishment of  a minimum aircraft size, reservation of slots for 
new entrants and for carriers serving smaller communities, and periodic reallocation of slots. 
580. The FAA suspended the request for comments af ter the tragic events of September 2001 
which resulted in a decline in traffic and a c onsequent easing of congestion, but it revived the 
procedure in March 2002.  In October 2002, noting th e complexity of the problems at issue, the FAA 
postponed the deadline for comments until 30 October 2004, which is the date of expiry of the lottery 
slot allocation systems introduced in April 2000.  Observers consider significant the fact that the 
Department of Justice, in its comments, advocated an auction system.  The airlines represented by the 
Air Transport Association (ATA) have on the contra ry protested against the introduction of such a 
system which, in their view, would bring no impr ovement in operations or waiting times but would 
increase airline costs. 
581. The FAA finally presented a slot reallocation bill in September 2006, for which it will request 
congressional authorization under the FAA reauthoriza tion bill of 2007.  The time-limit for comments 
on this draft regulation (Notice of Public Rule Making) expires on 30 October 2007. 
582. The number of operations was to remain limited to 75 per hour.  Slots, which at present are 
virtually owned by the airlines under grandfather rights, would be reallocated or at least made 
available for reallocation every ten years.  The sal e and leasing of slots would cease to be a private 
matter between two airlines, but would in future be carried out by  means of a "blind auction" process 
administered by the FAA, in which the identity of the seller/lessor on the one hand and the buyer on 
the other, would not be known, ev en between interested parties, until the transaction was concluded.  
Airlines could lose slots if the average number of s eats per departure fell below a target number linked 
to the airport's capacity and the number of exempti ons to this rule granted for services to smaller 
communities.  The averages would be calculated a nnually.  Airlines that fell below the target number 
would lose their lowest-density slots, that is tho se used by small aircraft.  For 2008, depending on the 
number of exemptions granted for services to sma ller communities, the target number could be 105, 
116 or 122 seats whereas flights from La Guardia cu rrently average 98 seats.  Initial slots, renamed 
"operating authorizations", would be allocated in 2007 on the basis of grandfather rights, with expiry 
dates between 2010 and 2019.  These expiry dates w ould be staggered so that 10 per cent of slots 
become due for reallocation every year.  Reallocat ion would take place either  by blind auction or 
under the congestion pricing system, but the FAA has not yet decided which solution to present to Congress in this regard.  Newly allocated slots would have a life span of ten years. 
583. The purpose of all these rules is to avoid the pr actice of "babysitting", whereby large airlines 
use their regional affiliates to occu py an allocated slot with a small aircraft in order to avoid 
application of the "use or lose" rule to a slot whic h would otherwise be returned to the pool and could 
therefore be reallocated by lottery to another airlin e.  The FAA considers that, through this practice, 
airlines increase flight frequencies using small aircraft beyond market requirements (services to smaller communities) and is seeking to encourage the u se of larger aircraft, at the cost of slightly 
lower frequencies, in order to make better use of capacity. 
584. The ATA and the Regional Airlines Association have already commented on the FAA 
proposals, expressing disapproval of the ten-year reallocation scheme (whether based on a blind 
auction mechanism or congestion pricing) and the establishment of a minimum threshold for flight S/C/W/270/Add.2 
Page 384  
 
  size.  The ATA also considers that the ten-year reallocation, on account of the uncertainty it would 
generate, would discourage long-term investment by airlines in airports. 
585. IATA has expressed opposition
335, in principle, to the introduction of any traffic distribution 
formula, including at airports like La Guardia whic h have limited internatio nal operations.  IATA is 
afraid that the formulas proposed by the FAA fo r La Guardia might set a precedent that departs 
excessively from its own allocation rules, and that a general extension of those rules might lead to 
disputes between governments to the detriment of airlines and their customers.  Secondly, IATA 
expresses the fear that these rules may lead to less flexibility and affect the long-term investments of 
airlines at La Guardia.  IATA also criticizes th e operational disruptions for airlines that would be 
caused by reassigning larger aircraft to serve that airport.  Lastly, it considers that the ten-year 
reallocation of slots would be equivalent to confi scation, contrary to the well-established principle of 
historical preference ("grandfathering").   
(ii) Chicago O'Hare 
586. Congestion problems at Chicago O'Hare were also exacerbated by the abolition of the HDR in 
July 2002, culminating in on-time arrivals of only 57 per cent and on-time departures of 67 per cent in 
2003.  Taking note of this situ ation, Congress adopted legislation (49 USC 41722) aimed at providing 
a mechanism to reduce delays.  In  the meantime, the FAA convinced  the two main carriers operating 
at this airport (American Airlines and United Airlin es) to reduce the number of their flights, and in 
August 2004 imposed a maximum limit of 88 fli ghts per hour between 7 a.m. and 8 p.m.  This 
measure has been extended on several occasions. 
587. In August 2006, the FAA published a proposed rule  at the same time as its proposed rule for 
La Guardia.  However, there are significant differences between the two proposals.  First of all, the 
cap on the number of flights would be temporary, since new investment will considerably enhance capacity at Chicago in the near future.  Secondly,  the slots or "operating authorizations" would not 
have a finite time-limit prior to re-allocation.  Th irdly, no minimum aircraft limit would be imposed.  
A lottery system would make it possible to allo cate capacity created by the new investment. 
(iii) New York JFK and Washington National 
588. These two airports were not subject to regulatory intervention during the period under review.   
(d) Other countries 
589. Although the airports of Japan, China, India and Brazil are increasingly congested, according 
to IATA scheduling rules have thus far worked smoothly in these countries. 
590. In Japan, the only major development that occu rred during the period under review regarding 
slots concerns the airport of Tokyo Haneda, which is  mainly used for domestic purposes.  In 2004, the 
Ministry of Land Infrastructure and Transport, after an enquiry, withdrew 40 slots from the two major carriers (22 from the JAL Group and 18 from the ANA Group) and reallocated them.  Of the 20 slots 
reallocated to new entrants, 14 went to actual new entrants such as SkyMark, AirDo, and SkynetAsia, 
and 6 to potential new entrants.  The 20 remaini ng slots were reallocated between the two major 
carriers under a scoring methodology based on the fo llowing criteria:  improvements in customer 
convenience (effort towards lower fares, safety reco rds, comprehensiveness of the network throughout 
                                                     
 
335 Comments of IATA before the US Department of Transportation, Federal Aviation Administration 
on the Notice of Proposed Rulemaking Concerning Congestion Management Rule for LaGuardia airport Airline 
delays and cancellations (14 CFRPart93) , Docket N° FAA-2006-25709  S/C/W/270/Add.2 
 Page 385 
 
 
  Japan, number of airports where night stays are carried out, current ratio of local flights to all flights 
from Haneda and past ratio for the flights previously  allocated), business efficiency (rate of decrease 
of the operating cost per passenger kilometre over th e last five years, rate of increase of operating 
profit per employee over the last five years), slot efficiency measured in available seat kilometres over the last five years and absence of penalties imposed by the authority over the last five years.  As a 
result of this process, JAL was allocated 11 slots an d ANA 9.  The complete results of the reallocation 
are summarized in Table 45. 
Table 45  
Slot reallocation at Haneda airport 
 
 Before After 
JAL 182 171 
ANA 158 149 
New entrants 47 67 
 
Source :  Japanese Ministry of Land, Infrastructure and Transport 
 (available at:  http://www.mlit.go.jp/kisha/kisha04/12/120907_.html). 
 
591. There were no developments regarding interna tional airports (Narita, Kansai and Chubu). 
592. In China, the slot allocation mechanism deriv es from IATA scheduling procedures.  Domestic 
airlines are required to apply for slots to the regi onal offices of the Civil Aviation Administration of 
China (CAAC).  These regional offices then allocate sl ots according to traffic flow and all the results 
are reported to the CAAC air traffic management o ffice which is responsible for reviewing them and 
taking the final decision.  Foreign airlines apply directly to the CAAC air traffic management office, which coordinates with the regional offices for purposes of slot allocation.  The principles of fairness, 
justice and non-discrimination are applied to bot h domestic and foreign airlines.  The following 
sequence of criteria is applied:  historical slots;  ch anges to historical slots;  flights from new airports 
or new routes;  continuation of the previous seas on's schedules;  schedules that have operated for a 
longer period of time, subject to priority being gi ven to slots for international flights over slots for 
Hong Kong, China and Macao, China;  priority for Hong Kong, China and Macao, China slots over 
domestic trunk route slots;  and priority for domestic trunk route slots over domestic regional route slots.   The CAAC recently began amending its Regulation of Civil Flights Schedules. 
(e) IATA regime 
593. The World Scheduling Guidelines are currently  in their twelfth edition (December 2005).  
However, according to IATA itself, no significant or noteworthy changes have been made since the last review. 
594. Table 46 illustrates the developments in the number of fully coordinated airports
336 and their 
geographical distribution during the period under review. 
                                                      
336 As opposed to "facilitated airports ", where airlines must notify in advance their landing and take off 
requirements, and to airports subject to coordination only during the IATA "summer season". S/C/W/270/Add.2 
Page 386  
 
  Table 46 
Fully coordinated airports by region, 2000-2006 
 
Region 2000 2001 2002 2003 2004 2005 2006 Percentage 
increase 
2000-2006 
North America 3 3 3 3 3 4 4 33.3% 
South America 2 0 0 0 0 0 0 -100.0% 
Europe 80 81 83 87 88 91 92 15.0% 
Middle East 6 6 6 6 6 6 4 -33.3% 
Africa 14 14 14 14 5 5 5 -64.3% 
Asia-Pacific 31 31 31 31 31 33 34 9.7% 
Total 136 135 137 141 133 139 139 2.2% 
 
Source :  IATA. 
 
595. Table 46 shows that Europe accounts for the major ity of fully coordinated airports and that its 
relative share has increased over the period under review (from 58.8 per cent to 66.1 per cent).  
Moreover, the number of European fully coordinate d airports has constantly grown during the period 
(from 80 to 92, a 15 per cent increase in total).  As ia-Pacific comes a distant second in relative terms 
(22.7 per cent of the total in 2000 and 24.4 per cen t in 2006), and has also exhibited an increase, 
though less pronounced than the one in Europe.  Af rica comes third, but there the number of fully 
coordinated airports has drastically fallen in 2004, from 14 to 5.  The Middle East exhibits also a 
recent improvement in congestion levels (from 6 to 4 coordinated airports in 2006).  Since 2001, there 
no longer are fully coordinated airports in Latin America, while in North America they remain a 
marginal feature.  
596. Lastly, Table 47 outlines the trends in the number and type of coordinators. 
Table 47 
Types of coordinators, 2000-2006 
 
 2000 2001 2002 2003 2004 2005 2006 
Independent 25 24 25 28 28 28 28 
Other (airports or airlines ) 111 111 112 113 105 115 115 
Total 136 135 137 141 133 139 139 
 
Source : IATA. 
 
597. The proportion of independent coor dinators appears remarkably stable across the period, at 
around 20 per cent.  
2. Commercial developments 
(a) United States 
598. Although secondary trading has been legal in the United States since 1986, very few statistics 
on this trade are available.  One reason is that th e amounts and the conditions of sales between the two  S/C/W/270/Add.2 
 Page 387 
 
 
  parties concerned remain secret.  This could change in the future if the "blind auction"337 mechanism 
envisaged by the FAA is eventually adopted.   
599. The Mott MacDonald study commissioned by th e European Commission and published in 
November 2006338 contains a detailed considerati on of the recent characteristics of this trade.  Its main 
conclusions are that certain transactions are governed  by very short-term operational considerations 
and that monetary considerations are not always in volved.  Such trading is conducted either through 
regular sessions organized by the Air Transport A ssociation (in which case it mainly involves one-for-
one slot transactions) or privately between two air lines.  There is an active slot leasing market.  These 
slots are sometimes held by financial institutions, but their status is that of loan guarantees rather than 
investments as such.  The crisis in the sector follo wing the tragic events of September 2001 led to an 
increase in the number of slots held by financial operators. 
(b) European Union 
600. Given the legally uncertain status of secondary trading in the European Union, the only 
available data are more akin to market rumours th an reliable information and relate only to Heathrow 
Airport (see below).  Despite these limitations, th e information concerned is extremely interesting 
because it appears to demonstrate a continuous rise in the price of slots.  Thus, the price of a pair of 
daily slots is said to have doubled between 2001 and 200 6, to a level of £8 to 12 million, or US$15 to 
22 million. 
601. Operations concluded over the last five years at  Heathrow include the sale by Flybe and Air 
France of six pairs of daily slots to Qantas and Virgin Atlantic for £40 million (US$73.2 million on the day of the transaction), the purchase by British Airways of two slot pairs from United Airlines for 
GB£12 million and of 8 pairs from Swiss for GB£35 million, as well as other transactions of unknown 
amounts with SN Brussels and small carriers (Adria Airways, Balkan Bulgarian Airlines, Lithuanian 
Airlines and Avianca).  
602. The signing of the First-Phase US-EU Air Transport Agreement on 30 April 2007, an 
agreement which will enter into force in the su mmer of 2008, seems to have triggered a further 
spiking of prices at Heathrow.  Hitherto, only  two US carriers (American Airlines and United 
Airlines) and two British carriers (British Airways a nd Virgin Atlantic) have been allowed to serve 
the United States from Heathrow.  The new agreemen t opens the Heathrow link not only to all US 
carriers but also to all European carriers, subject to their having obtained or purchased slots for the 
purpose.  The price of a slot pair usable for tran satlantic flights has recently soared to GB£20 million, 
or US$40 million. 
603. Observers expect alliances to play a key role in  this process.  European alliance partners could 
cede or sell slots previously used for medium-haul fli ghts to their US partner or partners in order for 
the latter to launch (Air France, KLM/Delta, Northw est, Continental for Skyteam, BMI, Lufthansa/US 
Airways for Star Alliance) or improve (BMI, Lufthansa/United for Star Alliance and British 
Airways/American for One World) their tr ansatlantic services to and from Heathrow.  
604. Even more interesting are the structural effects on "grey market" traffic.  A recent study
339 
shows that at Heathrow, since the introduction of th e "grey market", the average size of aircraft has 
                                                      
337 In blind auctions the bidders and the auctioneer do not know any bid ranking until after the blind 
auction has closed.  At closing, the highest bidder is re vealed and that is the bidd er which wins the auction. 
338 "http://www.iata.org/nr/contentconnector/cs2000/siteinterface/sites/whatwedo/scheduling/file/fdc/wsg-
12thed.pdf" 
339 As reported, without further detail, by Av iation Week & Space Technology, 10 July 2006. S/C/W/270/Add.2 
Page 388  
 
  risen from 135 to 255 seats, the average sector le ngth from 575 to 6800 kilometres and available seat 
kilometres from 77,625 to 1,734,000. 
605. Lastly, when India and the United Kingdom lib eralized their bilateral relationship and 
quadrupled their weekly frequencies, 34 per cent of the necessary slots were provided by secondary 
trades, 37 per cent by existing slots reassigned from other destinations and 29 per cent by slots from 
the airport coordination pool.  Fifty per cent of the slots operated by Virgin are thought to derive from 
secondary trading.  606. The Secretariat has found no information concerni ng the price of transactions carried out in 
any European Union country other than the United Kingdom, despite the existence of such 
information being mentioned in the Mott MacDonald Report. 
 
  S/C/W/270/Add.2 
 Page 389 
 
 
   
    
 
  
 
PART G 
 
ALLIANCES AND COOPERATION 
AMONGST AIRLINES  S/C/W/270/Add.2 
 Page 391 
 
 
  G. ALLIANCES AND COOPERATION AMONGST AIRLINES  
607. Airline alliances are voluntary unions of airlin es held together by various commercial 
cooperative arrangements.340   
608. The ICAO Secretariat estimates that, as of Se ptember 2006 there were over 600 such alliance 
agreements in the world which contained a variety of elements, such as c ode-sharing, blocked space, 
cooperation in marketing, pricing,  inventory control and frequent fl yer programmes, coordination in 
scheduling, sharing of offices and airport facilities,  joint ventures and franchising.  Always according 
to the ICAO Secretariat, the steady expansion of tr ans-national alliances, for strategic purposes and to 
achieve market access and synergies, is a consequence of airlines' response to, inter alia , perceived 
regulatory constraints (for example, bilateral restrict ions on market access, ownership and control);  a 
need to reduce their costs through economies of scope and scale;  and a more globalised and 
increasingly competitive environment.341   
609. The documentation produced by the WTO Secretariat for the first air review had given a 
general, though impressionistic, description of th e various forms of cooperation amongst airlines (see 
compilation, pages 223-229, 240-247).  For the second review342, the Secretariat has decided to focus 
on pure market access issues, i.e., in the case at hand, on the types of cooperation amongst airlines 
that require formal approval – be it unilateral, bilateral, or plurilateral – by public authorities.  This 
section will thus only deal with global alliances and code-share. 
1. Global alliances 
(a) Economic developments 
610. Global airline alliances are a relatively recen t, but rapidly evolving, global phenomenon.343  
The Star Alliance, which is the oldest grouping, dates only from 1997. 
(i) Restructuring and membership of global alliances 
611. The documentation produced for the first review had dealt with five "global alliances", i.e. 
groupings made up of some major airline members ha ving different geographical coverage with fairly 
extensive networks, notably:  Star Alliance, oneworld, SkyTeam, Wings and Qualiflyer.  (See 
compilation of the documentation produced for the firs t review, page 228).  Of those, only the first 
three have survived the industry tu rmoil of the past five years.  
612. Qualiflyer , an initiative of Swissair, fell subsequent to the demise of the Swiss carrier and of 
Sabena, its other largest participant.  Following th e example of Austrian Airlines, which switched to 
Star Alliance prior to the demise of Qualiflyer, the surviving members of the alliance which have 
sought alliance membership subsequently have turned to Star Alliance.  Swiss International Airlines, 
successor of Swissair, was integrat ed into Star Alliance in 2006, due largely to its ownership by 
                                                      
340 ICAO Secretariat, "Regulatory and Industry Overvi ew", Information Paper presented at the Global 
Symposium on Air Transport Liberalization, 18-19 September 2006.  Available online at: 
http://www.icao.int/icao/en/atb/ecp/dubai 2006/RegulatoryIndustryOverview.pdf 
341 Ibid. 
342 This is also in accordance with the direction suggested in paragraph 7 of document S/C/W/270 
(dated 18 July 2006) and endorsed by Members at the review meeting of 12 September 2006. 
343 ICAO Secretariat, "Regulatory and Industry Overvi ew", Information Paper presented at the Global 
Symposium on Air Transport Liberalization, 18-19 September 2006.  Available online at: 
http://www.icao.int/icao/en/atb/ecp/dubai 2006/RegulatoryIndustryOverview.pdf S/C/W/270/Add.2 
Page 392  
 
  Lufthansa.  LOT Polish joined Star in 2003 and TA P Portugal in 2005.  Turkish Airlines, another 
founder member of Qualiflyer, is also in the process of joining Star.
344 
613. The Wings Alliance , based primarily around the KLM-Northwest joint venture and the US 
domestic Northwest-Continental cooperation, was not a fo rmal alliance at the time  of the first review 
owing to ongoing antitrust investigations.  By the time these were concluded in 2002, the momentum 
for creating an alliance had been lost as Alitalia  had already departed for SkyTeam and KLM was 
searching for a European partner.  The three surviv ing airlines all ultimately joined SkyTeam after the 
merger between KLM and Air France, whic h rendered the Wings initiative defunct. 
614. Of the three currently existing global alliance grouping, Star Alliance  has remained the 
largest, by continued expansion since 2000.  There were then fifteen members345;  there are now 
seventeen full members, with Ty rolean Airways and Lauda Air, while remaining Star Alliance 
members, are included under the Austrian Airlines' umbrella.   
615. There have been three departures from Star Allia nce.  First, Mexicana, which opted to leave 
the alliance in April 2004, choosing to undertake c ode-shares with American Airlines (oneworld) 
instead of maintaining its linkage with Star by code-sharing with United Airlines.  Second, Ansett 
Australia, which collapsed in 2001.  Third, Varig,  which left the alliance in December 2006 following 
its restructuring and reduced flight schedule. 
616. New joining members have been, in chronologi cal order:  Asiana, Spanair and LOT (2003);  
US Airways (2004);  TAP (2005);  Swiss Internati onal and South African Airways (2006).  The Star 
alliance has also strongly sought out partners within China, and is expected to be boosted in 2007 by 
the anticipated adhesion of Air China and Shanghai Airways.  Ethiopian Airlines is also reportedly 
considering joining the alliance.346 
617. SkyTeam  has surpassed oneworld as the second larg est alliance since the time of the first 
review347, due mainly to the merging of KLM and Air France and the subsequent incorporation of 
KLM and its partners in the United States, Northwest and Continental, into the alliance.  In addition, 
Alitalia joined in late 2001 and Ae roflot in 2006.  In this same year, an official agreement was 
concluded with a Chinese carrier, China Southern Ai rlines, which will formally join SkyTeam in the 
course of 2007.  Other major prospective members are Malaysia Airlines, which has extensive code-
shares with Air France and KLM and which has stated  that it intends to join SkyTeam by 2008-2009, 
and Chinese Taipei's China Airlines, which will be submitting an application for membership in the 
course of 2007.348 
618. Oneworld349 had been the least active alliance in seeking out new members, having focused 
on deepening integration amongst its members.  Ho wever, under pressure from the expansion of the 
other two alliances, oneworld has also started to actively recruit new associates in 2005 and 2006.  
The alliance has announced three new full members in  early 2007:  Royal Jordanian Airlines, Malev 
Hungarian Airlines and Japan Airlines, with the latte r the only one of the ten leading IATA worldwide 
                                                      
344http://www.thy.com/en-NT/corpora te/news/press_room/press_releas es/press_release.aspx?pid=1410 
345 Members at the time of the first review were:  Air Canada, United Airlines, Lufthansa, Thai 
Airways, SAS (founding members), plus Air New Zeal and, All Nippon Airways, Ansett Australia, Austrian 
Airlines, British Midland, Lauda Air, Mexicana,  Singapore Airlines, Tyrolean and Varig. 
346 Airline Business, July 2007. 
347 Members at the time of the first review were: Ai r France, Aeromexico, Delta Airlines, Korean Air 
(founding members), plus CSA Czech Airlines. 
348 Aviation Week & Space Technology, 13 Marc h 2006;  Airline Business, June 2007. 
349 Members at the time of the first review were:  American Airlines, British Airways, Qantas, Cathay 
Pacific (founding members), plus Fi nnair, Aer Lingus, LAN and Iberia.  S/C/W/270/Add.2 
 Page 393 
 
 
  airlines which had not been affiliated to an allia nce until then.  This in crease was offset by the 
departure from the alliance, in April 2007, of Aer Lingus. 
619. Table 48 shows the key data available on the opera tions of the three global airline alliances in 
mid-2007.   
Table 48 
Service data on the three global alliances, mid-2007 
 
 Star SkyTeam oneworld 
Annual passengers (millions) 405.7 364.49 321.3 
Daily departures > 16,000 14,711 9,297 
Employees 351,761 279,133 263,350 
Countries served 155 151 142 
Airports served 855 744 688 
Fleet 2777 2189 2339 
 
Notes:  Fleets do not include second tier carriers' aircraft. 
  Star Alliance data for full members at May 2007 (17 airlines). 
SkyTeam data for full members at su mmer 2007 (10 airlines), except for data on annual passengers 
(2006), employees and fleet (January 2007). oneworld data for full members at July 2007 (10 airlines). 
Sources
:  Alliances' websites (www.staralliance.com;   www.skyteam.com;  www.oneworld.com). 
620. Charts 19 to 21 show the respective market shares of the three global alliances in terms of 
passenger numbers and revenue passenger-kilometres trav elled.  Data is charted for the alliances as 
they currently stand (Charts 19 and 20) and as they will be after their confirmed members join them 
(Chart 21).  Data on market share are often conflicti ng, especially when the source of the data is the 
alliances themselves.  Charts 19 to 21 have theref ore been constructed on the basis of the data 
reported in the annual alliance review  published by Airline Business.  
Chart 19 
Distribution of world passengers by alliance, 2006 
 
Star
17%
SkyTeam
20%Other
52%
oneworld
11%Star
SkyTeam
oneworld
Other
 
 
Source : Airline Business, September 2006. 
 S/C/W/270/Add.2 
Page 394  
 
  Chart 20 
Distribution of world revenue pa ssenger-kilometres by alliance, 2006 
 
Star
21%
SkyTeam
19%
oneworld
15%Other
45%Star
SkyTeam
oneworld
Other
 
 
Source : Airline Business, September 2006. 
 
Chart 21 
Distribution of world revenue pa ssenger-kilometres by alliance  
post confirmed changes to membership 
 
Star
22%
SkyTeam
19%
oneworld
18%Other
41%Star
SkyTeam
oneworld
Other
 
 
Source : Airline Business, September 2006. 
 
621. As the alliances approach global coverage , there remain only a couple of important 
geographical areas which are under-represented.   
622. First, the Middle East, where airlines have la rgely refrained from alliance membership until 
the recent joining of oneworld by Royal Jordan ian and where, furthermore, the prospects for 
expansion by global alliances have been dimmed by the recent establis hment of Arabesk, a Pan-Arab 
airline alliance.  Arabesk, which was set up in October 2006, provides for the coordination of scheduling and code-sharing amongst Eyptair, Gulf Air, Middle East Airlines, Royal Jordanian, Saudi 
Arabian, Tunisair and Yemenia.    S/C/W/270/Add.2 
 Page 395 
 
 
  623. Second, India, where all three alliances are re ported to be seeking partners.  However, the 
ongoing developments in the Indian market, arising from the proposed mergers of Air India with Indian Airlines and Jet Airways with Sahara Air lines, make these carriers difficult targets and may 
result in there being only two potential new partners for the three alliances.  
624. In terms of carriers, the most important ones which currently remain unaligned are Malaysia 
Airlines, Emirates and Virgin Atlantic.  The former is the only one known to be in discussions with an 
alliance, namely SkyTeam. 
(ii) Second tier membership 
625. Conscious of the difficulties involved in main taining an expanding alliance, both Star and 
SkyTeam have each recently introduced a second tier of  membership for smaller or regional airlines.  
The programmes see full members sponsor the adhesi on of smaller airlines.  These smaller members 
then have to integrate their frequent flyer programme s with those of a member of the alliance, usually 
the sponsoring member, and are represented by this sponsor in alliance decisions.  This structure 
allows alliances to gain additi onal network coverage without ad ding organizational complexity. 
626. SkyTeam has enrolled in the capacity of associ ate members:  Kenya Airways, Air Europa, 
Middle Easte Airways, TAROM, and COPA.  Hungarian flag carrier Malev, which had been 
sponsored by CSA Czech Airlines to also join SkyT eam as an associate member, ultimately opted to 
become a full member of oneworld.  Star Allia nce, which refers to its second tier members as 
"regional members", has adopted Blue 1, Adria Airw ays and Croatia Airlines under this status to date. 
(iii) Alliance initiatives 
627. On its founding, Star Alliance declared that 90 per cent of its activity would consist of 
revenue generation and onl y ten per cent of cost reductions. Ho wever, particularly following the 
industry downturn which resulted from the events of 11 September 2001, the focus of alliances has 
changed and they are now also seeking po ssible means to join tly reduce costs. 
 Revenue generation
 
628. Alliances have tried to find new ways to creat e brand recognition, loya lty and improve overall 
customer experience.  Alliance-wide advertising is  a common feature.  Aircraft carry small alliance 
logos, reference is made to the alliance at the beginning and end of each flight and advertising 
programmes have been launched for alliances specifica lly.  Star Alliance has taken this further by 
requiring members to paint a small percentage of  its aeroplanes in Star livery as opposed to their 
traditional design. 
629. Alliances have also created new ticketing optio ns which allow flexibility on the alliance 
network at favourable prices.  Regional and round-th e-world tickets have continued to expand in all 
three alliances with added options  and destinations.  New initiatives have developed particularly to 
attract business travel:  oneworld has offered sp ecial rates to conference and event organizers to 
transport all participants by oneworld carriers, a nd to small and medium-sized enterprises for large 
orders, and SkyTeam has announced similar projects. 
630. To improve passenger satisfaction, alliances have sought to facilitate the "airport experience" 
and to reduce transfer times. All of the groupings have sought to have their members grouped in close 
proximity to each other at airport terminals and progress has been made in this regard.  In Japan, Narita airport has been rearranged to group the part ners of Star and oneworld and to allow a limited 
number of domestic transfers at what was an exclus ively international terminal.  Oneworld has also S/C/W/270/Add.2 
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  managed to reduce the number of terminals used at  Heathrow by its operators from four to two and 
has made similar improvements at th e redeveloped Madrid airport.  
631. Alliance-wide ticketing kiosks and check-in fac ilities at airports are other new features which 
represent not only a tool to reduce costs, but also to  generate greater alliance recognition.  In 2006, for 
instance, Star Alliance introduced alliance-wide self-service check-in kiosks at Charles de Gaulle 
airport.  
632. The development of common information technolo gy systems allows alliances to better serve 
customers.  Major investments have been made by airlines to ensure that alliance members are as 
informed as possible about the operations of their partners.  Star Alliance pioneered this with the 
launch of StarNet in 2000, which allowed comput er systems to interact with each other whilst 
retaining their individuality.  The main benefits  of integrating IT compatibility are to allow 
information on fellow partners' flights and facilita te transfers between a lliance members, mutual 
acceptance of frequent flyer points and interline e-ticketing.  
633. Star has remained at the forefront of developing new technologies with the launch, in late 
2005, of its common IT platform.  This will eventua lly allow all Star carrier s to work from the same 
system and be able to handle passengers from part ners exactly as their own.  Services and products 
will be implemented more quickly and will also re duce costs for the airlines since, for example, 
transaction fees will only be paid on a complete jo urney rather than on individual legs.  The new 
system is expected to be used in the short te rm by Lufthansa and by new member South African 
Airways, with United, a co-founder with Lufthan sa, changing more slowly in 2007-2008 due to the 
more complex migration from its Apollo reserva tion system.  Additional members will gradually 
migrate to the new system, but with StarNet, th eir cross-system communication tool, remaining an 
important tool in the interim period. 
634. SkyTeam has preferred to retain an inter-carrier communication system which sees carriers 
able to mutually access existing systems but without changing over to a common IT platform.  Oneworld, on the other hand, has not even deve loped a multilateral communication tool, preferring 
instead that IT communication remain a bilateral unde rtaking between carriers.  However, as most of 
oneworld's major carriers use Amadeus systems, oneworl d was the first alliance able to offer interline 
e-ticketing on all of its routes, in 2005.  
 Cost reduction
 
635. Alliances have come to recognize that their joint purchasing power could be used to reduce 
costs, even if some of the most ambitious plans ha ve had to be eliminated or scaled down.  The mass 
purchase of aircraft proved to be a difficult pilo t project for Star Alliance members Lufthansa, 
Austrian Airlines, SAS and Air Canada.  However ot her, simpler, projects have succeeded in realizing 
important economies for airlines.  Star members, for instance, have exerted their collective pressure to 
try to reduce airport charges.  Common specifica tions for aircraft to be delivered have been 
introduced within alliances, or between smaller groups  of members of an alliance, to enable savings 
with maintenance charges and, in the future, to al low alliance members to be  able to easily lease 
aircraft from each other to respond to seasonal demand variations.  
636. Star Alliance, as the largest of the groupings, has forged the way in bulk-buying.  It has set up 
its own independent fuel buying company to extract th e best possible prices, in addition to an array of 
other joint purchase orders. SkyTeam has also seen its members work on a mo re informal basis to 
jointly purchase fuel as well as engineering services and parts.  Oneworld, on the other hand, had 
chosen not to resort to joint fuel purchasing on th e grounds that transaction costs are elevated and that 
each of its members has considerab le purchasing power in its own right.  The alliance has however 
undertaken joint purchase of some commodities and service agreements.  S/C/W/270/Add.2 
 Page 397 
 
 
  637. The mutual support of alliance members has been  a less tangible but highly important feature 
of alliance development.  Star Alliance has c ontinued to see its members lend assistance to fellow 
airlines during difficulties.  Air Canada, for instance, benefited from members’ support when faced with bankruptcy.  United, Air New Z ealand and Varig have also been helped in similar circumstances.  
Korean Air was given important support and assist ance from its fellow SkyTeam partners in 2001 
when a series of incidents had raised safety concerns.
350 
(iv) Management structure 
638. The three global alliances differ in the manageme nt structure which they have adopted.  Star 
Alliance is centrally managed with a dedicated staff of over seventy working solely for the alliance.  
Despite its rapid growth in recent years, SkyTeam co ntinues to work as an extension of its members.  
As such, it is only employees of the airlines who manage the alliance and, furthermore, no person 
spends more than half of their time on alliance ma tters.  Although there have been indications that 
some changes may be introduced as the alliance gr ows and becomes more difficult to manage on a 
relatively informal basis, no such  changes have been implemented to date.  Oneworld meanwhile 
operates as an intermediate of these two regimes:  it has a small management, based in Vancouver, but 
also depends heavily on work accomplished by the airlines. 
(b) Regulatory issues 
639. At the time of the first review, oneworld was th e most disadvantaged of the alliances owing to 
its lack of antitrust immunity.  Whilst the Luft hansa-United, Air France-Delta and KLM-Northwest 
pairings all benefited from antitrust immunity, whic h allowed capacity and price coordination, British 
Airways and American had to continue to compete at arm’s length owing to competition concerns at 
Heathrow, where the number of US carriers was restricted and there are severe slot constraints. 
640. Although there is no transatlantic antitrust immun ity for oneworld, it has benefited from some 
positive developments with regard to antitrust issues over the past five years.  In return for the 
liberation of slots to allow competition on some key routes, Iberia and British Airways were freed in 
December 2003 by the European Commission to opera te as a joint venture within Europe.  British 
Airways has also gained limited antitrust immunity from the US DOT to coordinate with American 
Airlines.  The decision, of mid-2003, permits the tw o carriers to code-share on American connections 
within the United States and on British Airways c onnections beyond the United Kingdom.  However, 
code-shares can only be operated between the United Kingdom and the United States on a limited 
number of routes, involving secondary UK airports in  Manchester and Glasgow.  The recent signing 
of the First Phase US-EU Agreement may open the way to new developments in this regard.  Besides 
developments in the transatlantic market, one ma y also note that, in 2005, the Qantas-British Airways 
joint operations were validated by comp etition authorities for a further five years.351 
641. Other alliances have also experienced problems with antitrust bodies as they have expanded.  
In 2005, SkyTeam filed an application to extend transatlantic immunity to KLM, Northwest, Air 
France, Delta, CSA Czech Airlines and Alitalia.  C ontinental, which had joined SkyTeam in 2004 and 
which had domestic antitrust immunity with both Delta and Northwest, was excluded from the 
application.352  However, American Airlines criticized C ontinental's exclusion, arguing that it was a 
move only intended to secure approval and that C ontinental would de facto join the immunized 
carriers.  American therefore requested that C ontinental prove to the DOT how it would operate 
                                                      
350 Airline Business, September 2004. 
351 Airline Business, October 2004. 
352 Airline Business, February 2005. S/C/W/270/Add.2 
Page 398  
 
  within SkyTeam without the immunity enjoyed by ot her partners and how the US partners planned to 
segregate domestic competition from international cooperation.
353 
642. The US Department of Justice voiced its concerns  over the suggested link-up, in particular in 
relation to the risk of colluding on domestic US routes and on transpacific routes as a result of negotiating and coordinating transa tlantic schedules.  Despite changes to the wording of the 
application subsequent to these concerns, in 2006 th e request was still rejected by the DOT.  The 
European Commission has further expressed concerns  about an extensive link-up including all three 
US carriers. 
643. In June 2007, KLM, Northwest, Air France, CSA Czech Airlines and Alitalia re-filed for 
antirust immunity from the DOT, and included a re quest for a joint-venture between Air France, 
KLM, Northwest and Delta.  The airlines' hope is that the increased potential competition stemming 
from the First Phase US-EU Agreement of March 20 07 will facilitate the approval of their request.
354 
644. Star Alliance was also having difficulties in obtaining approval to extend its five partner 
transatlantic coordination program to three further members.  On 19 December 2006, however, the US 
DOT extended antitrust immunity to Star's new three European partners, Swiss, TAP and LOT.355 
3. Code-sharing agreements 
(a) Regulatory aspects 
645. As explained in the compilation (paragraph 21 , page 224), code-sharing is defined by ICAO 
as "the practice whereby one carrier  permits a second carrier to use its airline designator code on a 
flight, or where two carriers share the same airline designator code on a flight". 
646. While the regulatory framework for code-sha ring agreements has not undergone any major 
development during the period under re view, code-sharing deserves, in light of its quasi-universality, 
a more detailed and structured examination than  that contained in the relevant section of the 
documentation for the first review (see compilation, pages 223-227). 
647. Originally, code-sharing was a "trick" used by a few developed country carriers in order to 
appear in the first pages of the CRS displays.  Ov er the years, however, code-sharing agreements have 
become a very widespread practice, promoted by a lliances and by the concrete financial benefits they 
have brought to both marketing and opera ting carriers, as described in Table 49. 
                                                      
353 Aviation Daily, 3 March 2005. 
354 Financial Times, 29 June 2007. 
355 Aviation Daily, 20 December 2006.  S/C/W/270/Add.2 
 Page 399 
 
 
  Table 49 
Benefits and risks of code-sharing for marketing and operating carriers 
 
 Benefits Risks 
Marketing 
carrier Retaining or attracting customers by offering 
a "worldwide network" without needing to 
make the necessary investment or run the operating risks and with minimal financial 
investment (a lump sum paid for the seats 
bought from the operating carrier).  
Making a small, but quasi-guaranteed profit. Damaged reputation if the plane of the 
operating carrier crashes.
356 
 Bankruptcy of the partner threatening the 
existence of the world wide network.
357 
 Inability to sell all the seats bought or to 
sell them at a profit.
358 
Operating 
carrier Attracting new customers, channelled by the 
partner from a geographical area where the operating carriers' commercial network may 
not be very developed (e.g. Air France, 
whose commercial network in the US is not 
very developed, will benefit from Delta's 
passengers wanting to prolong their trip from Paris).
359 
 
In case of a bilateral and reciprocal code-
sharing agreement (e .g. British Airways-
Qantas on all their flights, both ways, on the 
"Kangaroo route") offering an artificially higher frequency to their own customers 
while retaining part of the profits. Being undercut by the marketing carrier 
(which charges a lower fare than the operating carrier would have) with 
customers ending up going to the 
marketing carrier rather than to the 
operating one.
360 
 Source:
  WTO Secretariat 
 
648. While code-sharing agreements are commercia l in essence and do not imply the physical 
exercise of traffic rights by the marketing carri er (for developments on the selling and marketing 
aspects of code-sharing agreement, see also docum ent S/C/W/270, paragraph 198, page 46 and Table 
A1 on page 57), they are still subject to governme ntal approval, for historical reasons, safety 
considerations and compet ition-related concerns. 
649. This governmental approval can be either  bilateral or "doubly unilateral".   
650. Bilateral approval may take the form of a cl ause allowing cooperative arrangements within 
the respective bilateral ASAs.  This clauses have be en analysed in detail in QUASAR (see document 
S/C/W/270/Add.1, paragraphs 71-72 on page I.35, paragraph 144 on page I.46, and Chart 4 on page 
I.51).  Bilateral approval may also be included in a confidential memora ndum of understanding, in 
                                                      
356 Hence, the existence in some countries, such as th e United States, of legislation requiring a safety 
assessment, failing which no governmental agreement will be granted.  
357 For example, Lufthansa and Air France were facing  a similar threat when United Airlines and Delta 
were under Chapter 11 bankruptcy protection.  Paradoxically, code-sharing agreements, and even more so 
alliances, can trigger solidarity and support for airlines  in financial difficulties, precisely with the aim of 
ensuring the survival of the network. 
358 Hence, the multiplication of flexible formulae (e.g. blocked seat agreements, free sales agreements), 
allowing the marketing carrier to adjust the number of seats bought to demand. 
359 Hence, the importance of the choice of the partne r and the race to get major unaligned carriers (e.g. 
from India, China, Japan, Russia) into  alliances and code-sharing agreements. 
360 Hence, the importance of being able to coordi nate schedules and prices, ability which requires 
securing approval from competition authorities. S/C/W/270/Add.2 
Page 400  
 
  which a case it escapes the purview of the WASA da tabase, and, hence, that of QUASAR.  Finally, 
bilateral approval may also be granted through a si mple reference in the records of the relevant 
meeting between the aeronautical authorities of the parties concerned. 
651. A code-sharing approval can also be "doubly unilate ral".  In this case, each party approves 
separately the request for code-share, and the ag reement can enter into force only once the two 
approvals have been secured. 
652. There are two main kinds of code-sharing arrangements.  
653. First, a 
bilateral code-sharing agreement , i.e. an agreement between a carrier from party A 
and a carrier from party B to code-share on a flight between the territory of party A and the territory 
of party B.  In this case, regulatory approval is re quired from party A and party B.  Such a bilateral 
code-sharing agreement amounts to a "virtual" exercise of third and/or fourth freedom traffic rights.  
Since it is also possible to code-share on domestic destinations (e.g. Lufthansa on a Chicago to Dallas 
flight or, symmetrically, United Airlines on a Frankf urt to Berlin flight) bilateral code-sharing 
agreements may include a cabotage segment, be it consecutive ("virtual eighth freedom") or stand 
alone ("virtual ninth freedom"). 
654. Second, a third country code-sharing agreement (TCCS).  In this case, a carrier from party A 
code-shares as a marketing carrier on a flight of a carrier from party B: 
- Between the territory of party B and th e territory of party C as a continuation 
of a flight originating in A ("virtual fifth freedom");  or 
- between the territory of party B and the territory of party C without any link 
to the territory of party A ("virtual seventh freedom"). 
655. The governments from which approval is require d in the case of a TCCS agreement are the 
same as those involved for the granting of the phys ical exercise of fifth and seventh freedoms, as 
explained by Tables 50 and 51. 
Table 50 
Agreements required to exercise fifth freedom traffic rights 
 
 Segment 
involved Agreements required Agreement not 
required 
Carrier from party A A - B – > C AB (5th with B as intermediary point) 
AC (5th with C as beyond point) BC 
 
Source : WTO Secretariat. 
 
Table 51 
Agreements required to exercise seventh freedom traffic rights 
 
 Segment 
involved Agreement required Agreement not 
required 
Carrier from party A B – > C AB (with carrier from A designated by A for 
 the segment BC) 
AC (with carrier from A designated by A for  the segment BC) BC 
 
Source : WTO Secretariat. 
  S/C/W/270/Add.2 
 Page 401 
 
 
  656. As explained in the compilation (pages 225-2 27, paragraphs 28-36), there is no universal 
agreement on the need to have the underlying traffic rights in order to exercise a TCCS agreement.  
ICAO notes that "it has now become a general practice  [emphasis added ] that [....] underlying traffic 
rights are required for international code-sharing services".361 
(b) Commercial aspects 
657. ICAO no longer collects information on the c onclusion of code-shari ng agreements, thereby 
rendering impossible the updating of tables A4(a) and A4(b) on pages 240 to 243 of the compilation.  
A comprehensive and consistent set of data on code-sharing covering the period under review 
nevertheless exists:  it is the annual special repor t on alliances contained in Airline Business.   
658. Subject to Members' agreement, the Secretariat is planning to fully integrate code-sharing 
agreements in a revised future version of QUASAR .  For each bilateral ASA, it would indicate the 
existence or absence of bilateral and TCCS agreemen ts, as well as the city-pairs concerned, and hence 
the type of freedom "virtually" exercised.  This would complete the mapping of the physical exercise 
of fifth, seventh, eighth and ninth freedoms that th e Secretariat is also planning to undertake. 
 
 
                                                      
361 ICAO Secretariat, "Regulatory and Industry Overvi ew", Information Paper presented at the Global 
Symposium on Air Transport Liberalization, 18-19 September 2006.  Available online at: 
http://www.icao.int/icao/en/atb/ecp/dubai 2006/RegulatoryIndustryOverview.pdf