RESTRICTED  WORLD TRADE  
ORGANIZATION  S/C/W/280 
28 February 2007 
 
 (07-0874) 
Council for Trade in Services Original:   English 
  
 
COMMUNICATION FROM THE EUROPEAN COMMUNITIES 
AND ITS MEMBER STATES 
  
Review of the GATS Annex on Air Transport Services
 
 
 
 The following communication, dated 28 February  2007, from the delegation of the European 
Communities and its Member States is being circulated to the Members of the Council for Trade in Services.  
 
_______________ 
 
  
I. INTRODUCTION 
1. The Council for Trade in Services is currently  engaged in its second periodic review of 
developments in the air transport sector and the operation of the Annex of the GATS concerning Air Transport Services.  The Annex provides an indicati on of the scope of air transport services that is 
permissible for discussion on a multilateral basis (but  does not per se require WTO members to make 
necessarily specific commitments in  those services).  The EC welcomes the opportunity to examine 
the recent market developments in the aviation sector  and to consider the present and future operation 
of the Annex.  
2. Air transport is a significant driver of econo mic and social prosperity.  In 2005, the air 
transport sector worldwide carried over 2 billion p assengers on scheduled air services alone and over 
80 million tonnes of freight and mail.  The sector al so employs around 13.5 million people directly or 
indirectly to generate an estimated US$ 330 b illion a year, equivalent to 2.4% of world Gross 
Domestic Product. The world's air transport system is made up of around 900 airlines operating nearly 
22,000 aircraft, through 1,670 airports and 160 ai r navigation service providers.  With current 
projections putting air passenger traffic at a 4% annual growth rate for the next decade or so, a total of 
over 3.5 billion passengers will be flying by 2020
1. 
3. The first periodic review of the Annex was c oncluded in October 2003 at which time it was 
decided to formally begin the second review at the last regular meeting in 2005 of the Council for 
Trade in Services.  The first review provided the opportunity for a wide ranging analysis and 
discussion on developments in the air transport sect or.  Whilst the Annex specifies that the GATS 
shall not apply to measures affecting services directly related to the exercise of traffic rights, it only explicitly lists three activities (aircraft repair and maintenance services; the selling and marketing of 
air transport services; and computer reservation system  services) in providing an indication of what 
constitutes services covered by the GATS.  However, developments in the air transport sector over the 
                                                     
 
1 Statistics in this paragraph are from the Airpor ts Council International, the Air Transport Action 
Group, the Civil Air Navigation Services Organisation and the International Civil Aviation Organisation. S/C/W/280 
Page 2  
 
 years since the Agreement came into force have re vealed that other activities in the aviation market 
have grown in importance and are economi cally independent in their own right. 
4. During that first review, the EC submitted Communications (S/C/W/168 of 26 September 
2000 and S/C/W/186 of 4 December 2000) which re flected upon the coverage of the GATS and the 
need to clarify its scope of application.  The EC took the position that the coverage of the Annex 
should aim to facilitate the good functioning of th e air transport system.  In this regard, 
groundhandling services and airpor t management services, clearly essential for ensuring smooth 
airport and airline operations, were identified fo r possible explicit reference in the Annex on Air 
Transport Services. 
5. The EC wishes the second review of the Annex to be an in-depth and constructive process 
that assesses whether the current multilateral framework for trade in air transport services is well 
suited to today's business realities.  The second revi ew must be comprehensive and forward-looking 
to appreciate fully the dynamism and innovation of a ll the elements that make up the aviation sector.  
The last five years, characterised by significant challenges posed by external geopolitical shocks, the 
threat of worldwide epidemics, and the genera l economic downturn, have underlined the sector's 
global dimensions and have reinforced its driv e to be a competitive and convenient means of 
transportation. 
6. The EC welcomes the substantial work being unde rtaken by the WTO secretariat in order to 
facilitate a detailed discussion and analysis of the air transport sect or; documents S/C/W/270 of 18 
July 2006 and S/C/W/270/Add.1 of 30 November 2006.  The first provides an analysis of the various sub-sectors that make up the air transport industr y and a useful reflection on the operation of the 
Annex with reference to these sub-sectors.  The se cond develops a tool, the Quantitative Air Services 
Agreement Review (QUASAR), for evaluating the de gree of liberalisation and traffic coverage of 
existing air services agreements and compares and contrasts the contents of these agreements. 
II. DEVELOPMENTS IN THE EUROPEAN MARKET 
7. Since 2000, the development of the European air transport market has been heavily affected 
by a number of major external events.  The most si gnificant were the terrorist events of 11 September 
2001, which had a major impact on air transport worl dwide.  However, even prior to that, the air 
transport industry was already experiencing a dow nturn in its financial performance due to a 
slowdown in the growth of key economies with a con sequent effect on market demand.  In Europe, 
the growth of low-cost air carrier operators has intensified competition in intra-European markets 
creating strong downward pressure on average fares and yields.  At the same time costs were 
increasing due to rising fuel prices.  Many airlines were suffering from poor financial results before 
the events of 11 September 2001.  National air carrier s, Swissair and Sabena filed for bankruptcy in 
January and November 2001, and many charter airlin e companies also left th e market in the same 
way.  Most of Europe’s scheduled airlines posted la rge losses or severely diminished profits for 2001.  
Only the large low-cost carriers, Ryanair and easy Jet, bucked the trend by yielding increased profits. 
8. Subsequent events exacerbated the situation, with  the threat of a SARS epidemic and the war 
in Iraq depressing demand for air transport, particular ly on routes to the Middle East and Asia.  As air 
traffic growth started to accelerate again in 2004, ne w challenges, the further ra pid rise in fuel prices 
and the outbreak of avian influenza, began to underm ine airline profitability once more.  Against this 
turbulent and unstable market environment since 2000,  the financial performance of Europe’s airlines 
has been varied. 
9. Most scheduled network carriers made a loss in 2001, with the Association of European 
Airlines (AEA) estimating the total loss to its memb ership (around 30 airlines) at US$3.02 billion.  
Since then results have been mixed.  Some ca rriers, such as British Airways, Austrian and Aer S/C/W/280 
Page 3 
 
 
 Lingus, were quick to respond to the deepening crisis  and were able to gene rate profits in 2002 and 
2003.  Others, such as Alitalia, Olympic, SAS a nd Swiss, have found it difficult to return to 
profitability.  Only a few, like Air France, Iberia, and Lufthansa have contin ued to operate profitably 
throughout the period.  As a group, the European network carriers have performed much better than 
their counterparts in the United States, few of whom ha ve been able to return to profit.  The European 
air carriers’ results as a whole have been impr oving despite continued losses among many of them.  
The AEA estimates that its members collectively made a profit of €900 million in 2004 despite the 
high price of fuel.  As a percentage of revenues th is represents only a small margin but it indicates an 
improving trend. 
10. Low cost carriers have grown very rapidly since 2000 despite the economic downturn and the 
various adverse external factors which have impact ed on the network carriers’ growth.  Within this 
sector, the oldest and largest low-cost carriers, Ryan air and easyJet, have generated large profits every 
year since 2001.  They have benefited from econom ies of scale and first mover advantage.  But 
among the large number of more recent low cost ai rlines and other start-ups, financial performances 
have generally been very poor , and several have collapsed. 
11. Charter airlines have suffered both from the econo mic downturn, which reduced the growth in 
inclusive tour package holidays, and from compe tition with the rapidly expanding low cost sector.  
For some, whose accounts are consolid ated with larger parent travel companies, it is difficult to 
disentangle their true financial results.  This is al so the case for those who operate both scheduled and 
charter flights.  Nevertheless, where data is availa ble, the picture which emerges is one of a sector 
which is undergoing serious difficulties.  For many char ter airlines, profits in recent years have either 
been non-existent or very marginal.  Only a few charter airlines have managed to operate profitably 
throughout the period.  It is precisely because the ch arter industry has felt under threat that several 
charter airlines have launched their own low cost subsidiaries in recent years. 
12. Regional airlines have shown contradictory resu lts.  Their traffic growth has outperformed 
that of the network carriers yet their financial result s have been poor.  Most of the regional airlines 
have posted losses or only very marginal pr ofits in each of the last four years. 
13. In recent years there has been a tremendous in crease in the number of alliances, partnerships, 
and consolidation amongst airlines, and there have  also now been two major cross-border mergers 
within Europe.  In September 2003, the European Commission approved the merger between Air France and KLM.  This was the world's first true cros s-border merger of two major air carriers.  In the 
same year, the Commission approved for six years an alliance between Iberia and British Airways, 
covering network co-ordination, sales and marketing,  distribution, profit shar ing and cargo operations.  
In July 2005 the European Commission approved the acquisition by Lufthansa of Swiss.  These 
transactions demonstrate the growing pressure for consolidation in the European air transport 
industry.  The low cost carrier sector has seen m oves to consolidation with Ryanair acquiring Buzz in 
2003 and easyJet acquiring Go in 2002. 
A. T
RAFFIC RIGHTS  
14. The basic regulatory framework governing licen sing, market access and air fares in the 
internal European air transport market has remained unchanged since 2000.  The liberalised 
framework that characterises today's aviation mark et in the EU was concluded in 1997 after the 
adoption of three successive packag es of measures.  The first package, adopted in 1987, relaxed the 
previously established rules, for example, by limiting the right of governments to object to the 
introduction of new fares, and by affording some flexibility to airlines flying between any two 
Member States to share seating capacity.  The second package, adopted in 1990, further opened the 
market by allowing greater flexibility in setting fares and in sharing capacity, and by establishing 
'third, fourth, and fifth freedom rights' to all Community carriers.  With the entry into force of the S/C/W/280 
Page 4  
 
 third package, air carriers established in the EU are granted unimpeded access to provide services 
within the territory of the EU, including cabotage (i.e . the right for an airline of one Member State to 
operate a route within another Member State) and ca n set fares and rates freely, without the need for 
approval by national authorities.  Last year, discussion began amongst the European Union institutions on proposals to revise and modernise the aforementioned legislation that establishes the 
single market for aviation. 
15. Besides this general framework establishing a si ngle market for the EU, important legislation 
at European Community level has been adopted in the fields of aviation safety, security and air traffic 
management.  In particular, the establishment of the European Aviation Safety Agency (EASA) in 
2002 marked a step-change in safety regulation in Europe.  The regulatory framework for the Single 
European Sky established in 2004 aims to reform th e architecture of European air traffic control to 
meet future capacity and safety n eeds.  Furthermore, the EC took  on competence for civil aviation 
security with the adoption of a framework Regula tion, directly applicable to Member States, 
following the terrorist attacks of 11 September 2001. 
16. The years since 2000 have seen more dramatic developments in relation to the external 
dimension on the EU's aviation market.  In Nove mber 2002, the European Court of Justice (ECJ) 
issued judgements addressing the legality of certain  aspects of the bilateral air services agreements 
established between eight Member States and the USA.   In particular, the traditional nationality-based 
restrictions on designation were found to be incompa tible with the fundamental right of establishment 
granted by the Treaty establishing the European Community.   
17. A key outcome of the 2002 ECJ ruling was that all existing bilateral agreements between 
Member States and third countries that contain pr ovisions contrary to Community law should be 
amended or replaced by new agreements.  Two av enues are available to bring existing bilateral 
agreements into line with Community law.  The first comprises bilateral negotiation at Community 
level by the European Commission in the framework of a horizontal mandate granted by the Council in June 2003.  Such horizontal agreements are then  submitted to the EU Council for approval.  This 
permits the insertion of the standard clauses, as drawn up jointly by the Commission and the Member 
States, into the whole range of agreements reached  between the Member States and third countries.  
The second avenue is bilateral negotiation by indi vidual Member States, which again relies on the 
insertion of the standard clauses.  Good progress is  being made.  At the latest count, nearly 500 
agreements with over 65 countries have been amende d, meaning that around one quarter of the total 
number of bilateral agreements has been am ended in a period of just over two years. 
18. The EC embarked on negotiations with the United States in 2003 aimed at establishing an 
EU-US Open Aviation Area.  In November 2005 th e text of a comprehensive draft first-stage 
agreement was finalised.  This agreement would re present a major step toward s the full liberalisation 
of the transatlantic market, and comprises not onl y market opening but also  strengthened regulatory 
co-operation between the two parties.  Conclusion of this agreement at present remains subject to 
further developments in US policy towards partic ipation of foreign investors in the US airline 
industry. 
19. The EC has also proposed to open negotiations  with other key partners, such as Canada, 
China, India, Australia, New Zealand and Chile, with the aim of concluding comprehensive air 
transport agreements that would remove rest rictions on market access and establish strong co-
operation and convergence in regulatory matters. 
20. The EC has pursued an external aviation polic y in Europe that seeks to expand a European 
Common Aviation Area.  Countries engaged in pan- European cooperation in the field of aviation 
and/or viewed in a pre-EU accession context have been targeted in this case.  The aim is to conclude fully liberalised air transport agreements in orde r to establish by 2010 a wider internal market for S/C/W/280 
Page 5 
 
 
 aviation in Europe, and promoting, prior to EU  accession, the necessary economic and administrative 
reforms.  In June 2006, the agreement to cr eate a European Common Aviation Area (ECAA) was 
signed with Albania, Bosnia and Herzegovina, Bu lgaria, Croatia, the Former Yugoslav Republic of 
Macedonia, Romania, Serbia, Montenegro, the United Nations Mission in Kosovo, Iceland and 
Norway.  Bulgaria and Romania have since become  Member States of the EU on 1 January 2007.  As 
part of its neighbourhood policy, the EC also si gned in December 2006 a comprehensive air transport 
agreement with Morocco.  Negotiations with Ukrain e on a comprehensive air transport agreement will 
commence in 2007. 
B. AIRCRAFT MAINTENANCE AND REPAIR  
21. The aircraft maintenance and repa ir sector is a significant revenue generator in the European 
Union.  Indeed, some of the top companies in th is field are from EU Member States, with services 
offered by both airlines and manufacturers generating many billions of euros in revenue a year.  The 
importance of the sector in Europe has grown si gnificantly since 2000 with many of the European 
players increasing their revenue by between 50% and 100%. 
22. The dawn of new large aircraft, such as the Airbus A380, will further stimulate the market 
which shows encouraging prospects of strong future  growth.  For example, at Frankfurt Airport, 
Lufthansa Technik is investing ar ound €150 million up until the year  2015 in what will become 
Europe’s largest aircraft maintenance hangar.  
C. COMPUTER RESERVATION SYSTEMS & MARKETING AND SELLING  
23. Since the beginning of this decade, the CRS  market has been dominated by two major 
developments.  First, CRS have lost their natu ral monopoly over the airline distribution market.  
Under the pressure of increasing fuel prices and competition from low-cost carriers, airlines have 
strived to reduce their distribution costs.  This has led to the rapid development of direct distribution, 
especially via airlines' websites.  Direct bookings (a irlines' websites, call centres and airline offices) 
now account for 40% of all bookings.  This increase s the airlines' bargaining power vis-à-vis the CRS 
providers.  Second, airlines have divested from CRS.  
24. As these developments reduce the risks of abuse of CRS by airlines, the EC is considering 
giving more room to market mechanisms in the CRS  market.  A revision of the Code of Conduct for 
CRS (Council Regulation 2299/89) by the European  Commission will determine to what degree 
particular safeguards against possible abuse are still required in order to take account of the 
specificities of the European market. 
25. The moves towards liberalising the CRS mark et in the USA in 2004 are also having a 
considerable effect on the European market.  This  is because the traditional CRS market model, where 
high incentive payments by the CRS providers to travel  agents are charged through to the airlines in 
the form of high booking fees, is being challenged, a nd this change in the US market also affects the 
European distribution market as European airlines ha ve to compete with US airlines that now benefit 
from lower distribution costs.  
D. FRANCHISING  
26. In Europe, franchising can be an important t ool in an airline's commercial strategy, as it 
provides a means of expanding and securing the franchi sor airline's position in the marketplace.  In 
Europe, franchising has tended to be limited to th at of regional air carrier  franchisees operating under 
the brand name of a flag carrier. S/C/W/280 
Page 6  
 
 27. Franchising can provide benefits in terms of  providing new and more frequent services and 
exerting upward pressure on quality of service, as the franchisee air carrier is required to satisfy the 
franchisor air carrier's performance criteria.  In terms of competition, especially on domestic routes, 
though franchising would tend to strengthen the positi on in the market of the franchisor airline, the 
impressive growth of low cost carriers on competi ng routes within any given Member State exerts 
downward pressure on prices and pr ovides consumers with choice. 
28. The operation of franchising could be considered in the multilateral context with a view to 
providing airlines with a greater variety of opportu nities to enter into franchising arrangements with 
WTO members.  However, due consideration would ha ve to be paid to whether the legal framework 
in some countries do not bring into question the control of franchisee air services provided in one 
country, if the franchisor airline is from another country. 
E. R
ENTAL AND LEASING SERVICES  
29. Rental and leasing services are also important parts of airlines' commercial strategies.  The 
markets for dry leasing (without flight crew) and wet leasing (with flight crew) are often characterised 
by different rules and regulations.  In the EU, legisl ation determines the ability of EU airlines to lease 
aircraft from third countries by establishing economic criteria and conditions relating to safety.  Other 
countries have restrictive approaches, such as the US where rules on leasing prevent any wet lease of 
non-US registered aircraft by US carriers. 
F. GROUNDHANDLING  
30. On 15 October 1996 the Council adopted Directive 96/67/EC, which has been transposed into 
the national law of all Member States, on access to th e groundhandling market at Community airports.  
The Directive was a first step towards the gra dual opening up of access to the groundhandling market 
so as to help reduce the operating costs of air carri ers and improve the quality of service to airport 
users. 
31. A study on the impact of the Directive was carried out in 2002.  Its main findings were that 
the Directive has led to the introduction of competiti on at many airports which had previously closed 
or static markets, better value for money spent on groundhandling services due to greater pressure on 
the prices for groundhandling services, and a modest shake-up in the market shares in groundhandling 
at the economically most important EU airports. 
G. AIRPORT MANAGEMENT  
32. Since 2000, the tendency that started in the late  1980s in certain individual EU Member States 
to privatise their larger international airports has continued.  A distinction is generally made between 
partial privatisation i.e. the minority of shares being sold to private investors and 'full' privatisation 
meaning that the majority of the shares, or even 100% of them, are being offered and subsequently 
transferred to private investors. 
33. From 1987 to 2000, some 17 EU airports were subjected to privatisation, and from 2001 till 
the present day a further 14 airports have been priva tised or the decision to that end has been taken 
and approved by the national authorities. 
34. Reasons for this privatisation differ from one Member State to another.  They range from 
improving possibilities for the financing of an airport' s refurbishment or expansion with private equity 
to allowing an airport operator more leeway to  engage in cross border co-operation for which 
additional (private) funding is said to be necessary.   A combination of these underlying drivers is also 
possible. S/C/W/280 
Page 7 
 
 
 III. OPERATION OF THE ANNEX 
35. The Annex explicitly excludes measures directly  affecting traffic rights from its scope.  
Today, the International Civil Aviation Organisa tion addresses issues concerning air traffic rights.  
The impact of air transport services liberalisation is  considerable, as witnessed by the establishment of 
the EU's internal air transport market, completed in 1997, which has brought significant social and 
economic benefits as a result of eliminating impediments to market access.  Between 1992 and 2004, 
the number of flight routes operated within th e EU almost doubled, whilst increased competition 
among airlines has offered consumers a greater choi ce of routes and significantly lower air fares, 
especially with regard to the emergence of the low cost carrier model.  
36. Liberalisation of air services beyond the EU is ch aracterised by a web of bilateral air service 
agreements that strive to provide better market ac cess for EU airlines abroad and to stimulate its own 
market by granting access to third country airline op erators.  The benefits are reaped by both the EU 
and its trading partners.  For example, an air services agreement between the EU and the United 
States, which represent around two thirds of the world' s air traffic, has the potential to deliver an 
estimated € 8 billion or more a year in income generation. 
37. The EC considers that the constantly evolving  environment that shapes the market for air 
transport services merits consideration of how trade agreements for such services could be progressively, at a later stage, be addressed in a WTO multilateral context.  Given the increasingly 
globalised structure of the air transport industry and the benefits that can arise from allowing airlines 
freer access to capital markets, discussion on facilit ating foreign investment could be particularly 
useful.  The second review of the Annex should no t preclude the possibility of exploring, in the 
future, whether air transport services might be addressed in a multilateral context.  One recent 
estimate
2 suggests that liberalisation of one-sixth of the approximately 2,000 existing bilateral air 
service agreements could stimulate the world economy to the tune of 24.1 million new full-time jobs and US$ 490 billion in additional Gross Domestic Pr oduct.  Air transport is, without doubt, a truly 
global and essential service that is one of the pillars  supporting the social and economic prosperity of 
all countries. 
38. The quest for sustainable competitiveness by air lines, underlined by the drive for greater 
efficiency in the use of resources and for lower operating costs, has had knock-on effects down the 
supply chain.  Increasing pressure is exerted by airlines on airport operators and the suppliers of 
ancillary services to provide efficient services at a ttractive prices.  Being competitive, efficient, and 
cost-effective are characteristics which now more than ever are essential traits for all operators 
involved in the provision of air transport services.  Opening up markets is therefore important for 
encouraging healthy competition and thus greater efficiency in the provision of operational support 
services at the airport. 
39. Many WTO Members, including the EC, have taken commitments in the three activities 
explicitly listed in the Annex as not directly relating to the exercise of traffi c rights.  These activities, 
ancillary to the provision of air services, are essen tial for ensuring the safe and continuous operation 
of aircraft and for ensuring that airline operato rs have ample commercial opportunities for accessing a 
wide customer-base for the purpose of providing air tran sport services.  It is clear that the explicit 
coverage of these sub-sectors has fostered a stab le environment in which service providers can do 
business on the basis of commitments taken by WTO Members. 
40. There are other sub-sectors of the aviation sector that are also necessary for the smooth 
functioning of the air transport system that are not directly related to the exercise of traffic rights.  
Efficient airport infrastructure management and efficient provision of ancillary services are very 
                                                     
 
2 The Economic Impact of Air Service Liberalization (2006), InterVISTAS-ga2 Consulting, Inc. S/C/W/280 
Page 8  
 
 important.  In this regard, some WTO Members have already offered specific commitments in 
groundhandling services and airport management. 
41. Groundhandling services are an essential part of the ai r travel product and the efficiency with 
which they are provided is vital for delivering cust omer satisfaction and maki ng effective use of often 
constrained airport infrastructure capacity.  Th e benefits of opening up the groundhandling market 
have been observed in the European Union with the progressive liberalisation of the sector since 
1996. 
42. The EC holds the firm conviction that the groundhandling sector should be liberalised on a 
multilateral basis, with due consideration to social  issues.  WTO Members should be encouraged to 
offer specific commitments, as the EC has done, in these important ancillary services.  Clarifying the 
fact that groundhandling services are covered by  the GATS by modifying the Annex accordingly 
would provide more certainty for WTO Members to undertake commitments in this field.  Entitlements to purchase and provide groundhandling servi ces at an airport are not inherently granted 
through the distribution of traffic rights.  Groundhandl ing is a separate activity  which is economically 
established in its own right, as demonstrated by th e evolution of the market in the EU where the 
number of independent third party groundhandlers presen t at airports - with no legal association to the 
airport at which they operate or the airline ser ved – has increased since the liberalisation of the 
market. 
43. It is acknowledged that some bilateral air service agreements today do contain clauses on 
groundhandling.  These clauses pertain to the rights gr anted to airlines to perform self-handling or to 
choose between suppliers of  groundhandling services at the airport; or, where restrictions exist with 
regard to self-handling or choice of service supplier,  airlines must be treated on a non-discriminatory 
basis.  The motivation behind granting such rights is as a means of ensuring choice and non-discriminatory practices.  Whilst it is evident, that  self-handling by any given airline in any given 
airport is only going to be feasible for those air carri ers who have been granted traffic rights to serve 
that country, granting the right to independent ha ndlers to provide groundhandling services at any 
given airport need not be conditional on those handl ers having been granted traffic rights as those 
groundhandling services are provided in a fully independent manner from the rest of the air transport 
product. 
44. Airport management is another example of an important service fostering the efficient use of 
the imperative ground infrastructure component of the air transport system.  The significance of efficient airport management in Europe is unde rlined by the ever-increasing demand on airport 
facilities, as demonstrated by forecasts previously mentioned, as well as the drive towards improved 
cost-effectiveness which is bolstered by pressure in  the industry from the fall out of bearing the 
increased costs associated with heightened levels  of security, internalisation of environmental 
impacts, and hikes in the price of fuel.  Experi ence and expertise accumulated by European airport 
operators in airport capacity management, which requi res particular attention in the EU due to its 
constrained nature, constitutes an  important pool of knowledge th at can serve the international 
marketplace. 
45. Expenditure on runway and terminal facilities runs into billions of euros.  For example, 
London-Heathrow Airport's Terminal 5 is being constructed at an esti mated cost of £4.2 billion (more 
than €6 billion) over an almost 6 year timeframe to open in April 2008; Amsterdam-Schiphol's fifth runway was constructed with an investment of €3 40 million over a two and half year time period 
finishing in February 2003.  In other regions of the world, the recently opened Bangkok International 
Airport in Thailand represents an investment of  almost €4 billion, and in Canada, Toronto 
International Airport's new Terminal 1 represented a cost of around €2.5 billion.  These examples of 
substantial business commitment demonstrate the necess ity for airport management to be able to 
operate in a predictable and stable investment environment. S/C/W/280 
Page 9 
 
 
 46. A similar clarification, to that detailed above  concerning groundhandling, of the Annex would 
serve to provide the clarity and certainty in the te rms for the provision of airport management services 
on a multilateral basis.  In the case of airport manageme nt, there is no question that this activity is not 
related to the exercise of traffic rights.  Airpor t management traditionally constitutes the running and 
maintenance of physical infrastructure such as runw ays, aprons, terminal facilities etc.  Though this 
role has changed over the last twenty years with  airport management tending to diversify their 
activities to bring non-aeronautical revenue stream s into their portfolios, (from business activities 
such as retailing or car parking), the business of ai rport management is a service in its own right. 
47. Transport infrastructure and services play an essen tial strategic role in ensuring a country's 
economic and social prosperity and in providing ga teways to and from the international community.  
As such, terrorist acts that have characterised th e geopolitical climate in recent years have focussed 
particularly on the transport system.  Ensuring saf e and secure transport services and infrastructure is 
paramount and it should be noted that WTO me mbers are not prevented from taking measures 
necessary to protect their essen tial security interests. 
IV. POSSIBLE NEXT STEPS 
48. The EC is fully committed to holding a comprehensive dialogue on the present review of the 
GATS Annex on Air Transport Services.  Focus should be trained on the identification of services that 
could benefit from a clarification and even extension of the scope of the Annex.  This exercise would 
serve to provide the foundations for WTO Memb ers to establish a sound business environment for 
such service providers. 
49. The business environment in which air transport services are provided has changed 
significantly since the GATS Annex was drawn up.  The sector has become increasingly deregulated 
affording service providers greater economic freedom and has become further integrated and inter-dependent as the different actors in the air transpor t system forge partnerships (e.g. airline alliances; 
airport-airline joint ventures; service level agre ements) aimed at providing efficient services at 
competitive prices to consumers. 
50. Diverging views exist amongst WTO members on how the Annex should be applied in the 
future and how the Annex is applied today.  The Annex could certainly benefit from an amendment to 
clarify its scope of application which may be achie ved, not by distinguishing between which services 
are directly related or not directly related to the exercise of traffic rights, but rather by identifying 
services of common economic significance to WTO me mbers.  This way, the foundations for making 
commitments can be more clearly established in the Annex through an amendment.  
51. The EC does already acknowledge that ground handling services and airport management 
constitute two vital elements of the air transport syst em and that liberalising the market in which they 
are provided is desirable.  Whilst such a process is  already becoming a reality on a multilateral basis, 
with some WTO Members already offering commitments in these fields, clarification of their coverage by WTO rules would serve to build great er confidence in the system by WTO Members in 
making their commitments and by service providers in making their services available on the 
international market. 
52. The current review should not limit itself to a discussion only on these specific services.  It is 
important to consider how the provision of all ai r transport services relates to the multilateral context 
now and in the future.  It is therefore prudent th at any proposed amendments to the Annex, whether 
restrictive or expansive, are studied thoroughly in order to ensure that the Annex may continue to 
accommodate the dynamics of the world's air transport system. 
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