RESTRICTED  WORLD TRADE  
ORGANIZATION  S/C/M/87 
10 April 2007 
 
 (07-1437) 
Council for Trade in Services  
  
 
 
REPORT OF THE SECOND SESSION OF THE REVIEW MANDATED 
UNDER PARAGRAPH 5 OF THE ANNEX ON AIR TRANSPORT SERVICES 
HELD ON 1 MARCH 2007 
 
Note by the Secretariat
1 
  
1. On 1 March 2007, the Council for Trade in Serv ices held the second meeting devoted to the 
second Review of air transport services pursuant to paragraph 5 of the GATS Annex on Air Transport 
Services.  The agenda was contained in document WTO/AIR/2965.   
2. The Chairman
, Ambassador Trevor Clarke of Barba dos, drew Members' attention to the 
communication circulated by the European Comm unities contained in document S/C/W/280, dated 
28 February 2007; given that it addressed both devel opments in the sector and the operation of the 
Annex, he invited the representative of the Eur opean Communities to introduce the paper at that 
juncture.  
3. The representative of th e European Communities  said that the communication presented an 
overview of the main developments in the air tran sport sector in the European Union since the first 
review of the GATS Annex was conducted.  It also  considered the way, as the EC understood it, in 
which the Annex applied to the air transport sector t oday.  Finally, and perh aps most importantly, it 
exposed how air transport services could be be tter covered by GATS disciplines in the future. 
4. Air transport was a fundamental part of ever y country's economic and social well-being, 
whether it was felt directly by consumers for travel and by businesses for trading goods and services, or indirectly by the communities served by air transport links, in which growth, employment and investment in the local economy were stimulated.   
5. The EC saw the second Review of the Annex as an  exercise consisting of two main parts.  
First, the current situation and business environment of  the air transport industry had to be studied in 
some detail, to identify the way in which this servi ces sector was moving or, perhaps more pertinently 
put, the way in which it was being prevented from m oving.  It was well known that the sector was a 
multi-billion dollar industry with growth in air traffic at around 6-7 per cent a year globally.  However, he wondered what were the prospects for providing further opportunities for businesses and 
consumers to reap the benefits of air transport and what further opportunities existed for spreading 
these benefits across the countries of the world.   
6. Second, support had to be garnered for ma king change where change was required.  A 
dynamic sector such as the air transport one merite d a regulatory approach that was equally dynamic.  
With regard to market access of air transport ser vices, the current system was constructed of a 
multitude of bilateral air services agreements that provided limited openings for air carriers to provide 
                                                     
 
1 This document has been prepared under the Secret ariat's own responsibility and without prejudice to 
the positions of Members and to their rights and obligations under the WTO. S/C/M/87 
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  essential services between any two countries.  Carefu l consideration had to be given as to whether 
there was a need to redesign and simplify the current system, with a view to facilitating a greater and more harmonised degree of liberalization in the market for air transport services.  
7. The EC's own experience of liberalization had been very positive.  1997 had seen the creation 
of a single market for air transport:  all EC air ca rriers had the right to provide air transport services 
between any two points in the territory of the Euro pean Union, i.e. 27 countries, without hindrance.  
The results had been phenomenal:  a doubling of ai r transport services since 1992, bringing greater 
choice to consumers and businesses, and each extra flight route furnishing more communities with increased economic and social prosperity.  
8. Benefits accruing from the creation of a single market for aviation had also led to increased 
activities of EC carriers investing in each other.  The benefits forthcoming from consolidation in the 
industry had thus been possible to achieve.  Trad itional approaches, such as alliances and code-
sharing practices, which had been concluded in the past  in an effort to make the best of the bilateral 
framework, could now be replaced by fully-fledged mergers without air carriers fearing the loss of air traffic rights.  These changes had brought greater efficiency to the respective airline's networks, 
through economies of scale, exchange of know-how and improved competitiveness.   
9. Competition concerns, which might arise as a result of the merging of airlines into mega-
carriers, remained unfounded in the European aviation climate.  This was because the market was 
characterised by an abundance of choice of service pr oviders and the prominence of low-cost carriers, 
which competed not only on similar routes, but increasingly on the same routes as the full service and network carriers, traditionally known as the flag carriers. 
10. Turning to the EC's external policy in air tran sport, a landmark judgement by the European 
Court of Justice in November 2002 had changed th e way in which air services agreements might be 
concluded between EC Member States and their exte rnal trading partners.  As a result, the EC had 
embarked on a dual process.  Firstly, it was corr ecting existing bilateral agreements concluded by 
individual EC Member States.  This involved repl acing the restrictive "nationality" clause – which 
reserved access to the market for the air carrier or  carriers of the signatory Member State – with a 
"Community carrier" clause, which required that ma rket access be granted to the airlines of all EC 
Member States that departed from the EC airport or  airports concerned.  The agreements concluded 
by the EC in this regard were termed "horizontal",  as they made this correction to the bilateral air 
service agreements of all Member States with any given country in one single motion. 
11. Secondly, the EC had initiated negotiations a nd dialogue for wide-ranging comprehensive air 
service agreements with its major trading partners, such as the United States, China, and India.  These 
agreements aimed to address not only the issue of  market access, but also safety, security, and 
environmental considerations.  One significant initiativ e in this regard was the agreement to create a 
European Civil Aviation Area with those countri es bordering the European Union.  Under the 
agreement, the signatory States would implem ent EU legislation in aviation, marking an 
unprecedented degree of regulatory harmonisation. 
12. Turning to the operation of the Annex, the EC was interested in understanding how air 
transport services could be more fully dealt with in  a multilateral context.  These remarks pertained 
both to the issue of air traffic rights and to auxiliary services. 
13. Significant reflection would be needed in or der to determine whether a bilateral or 
multilateral approach to the issue of air services, ex ecuted through the exercise of air traffic rights, 
would extract the maximum benefit for the world's economy and trade.  The current Review provided 
an opportunity to undertake such an investigation.  S/C/M/87 
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  14. Concerning auxiliary services, the EC was alread y of the opinion that ground handling and 
airport management were two areas of economic importance in their own right.  Whilst the EC 
undertook to make binding commitments in these secto rs in the DDA, it was conscious that clarifying 
the coverage of those sectors that fell under the GATS Annex would assist WTO Members in making commitments.  Again, the Review provided a means to studying how that might be achieved. 
15. His delegation looked forward to the discussion with WTO Members on these issues and 
others.  The representative stressed the EC desire  for a wide-ranging discussion in the Council and, 
where found necessary, for solutions to be investigat ed to address any shortcomings identified in the 
way the Annex currently applied. 
16. The representative of New Zealand
 said that there had been some really significant 
developments over the previous five years in the ai r transport industry.  He quoted the International 
Air Transport Association (IATA) chairman's stat ement in 2006 that the industry was "in crisis", 
"sick" and that "after sixty years it [was] time to give a nice retirement party to the bilateral system".  While he recognised that not everyone might ag ree with the latter suggestion, it was at least 
incumbent upon Members, in the context of the Review, to consider possible options and ways 
forward, as well as to examine the developments that  had taken place as brought up by the work of the 
Secretariat. 
17. Over the previous five years, several shocks had hit the industry:  the tragedy of 9/11, the 
SARS epidemic in East Asia, the oil price rises and indeed the adjustments that many network carriers 
were having to make in response to competition fro m low-cost carriers.  In the view of some 
academics, the air transport industry might be inherently  unstable.  Looking at the previous five years, 
the accumulated loss of the global airline industry was US$13 billion in 2001, US$11.3 billion in 
2002, US$7.6 billion in 2003, US$5.6  billion in 2004, US$3.2 billion in  2005 and another half billion 
was forecast for 2006.  Any industry that accumula ted such losses clearly had serious problems.   
18. According to the chairman of IATA, there were three "pillars of stagnation" in the industry:  
first, the bilateral system of exchanging traffic rights, which imposed considerable restrictions on 
what the industry could do;  second, ownership rest rictions in terms of foreign investment in 
international, and domestic, airlines;  and, thir d, problems with competition regulation for a trans-
national industry.  As for potential solutions, as ra ised in the EC communication, the possibility of 
using fora like the WTO to make progress needed to be discussed.  At a recent conference in Chicago, 
which Mr Mamdouh had also addressed, the Chairman of United Airlines had called for an examination of the role of the WTO in solvi ng some of the problems facing the industry and 
wondered if the WTO might not indeed be an appropri ate forum for liberalization.  Similarly, Daniel 
Calleja from the European Commission had also ra ised this possibility, while noting, very 
realistically, that progress in the near future was most unlikely. 
19. Turning to the importance of air transport, bot h generally and for international trade, air 
transport had a vital function to perform in movi ng goods around the world and contributing to a 
services industry like tourism.  For New Zealand, although annually only ab out a hundred thousand 
tonnes of goods were moved in and out of New Zeal and by air, in terms of value that represented 
about 21.5 per cent of its imports and 15.7 per cen t of its exports.  New Ze aland had been at the 
forefront of using the bilateral a nd the plurilateral possibilities to remove restrictions on air services.  
In the cargo business, by having open arrangements w ith Australia, separately with China, separately 
with Germany, and under the Multilateral Agreemen t on the Liberalization of International Air 
Transportation (MALIAT) with the United States and others, Air New Zealand had been able to offer 
around-the-world air freighter service.  Serving those countries through a string of liberal agreements, Air New Zealand could use fifth freedom rights to create a viable service that brought Europe and New Zealand closer, and indeed the US and China.  Notably, this service used wet-leased aircraft, 
something that some countries under the bilateral system had a problem with, but that New Zealand's S/C/M/87 
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  bilateral partners in that combina tion had been able to agree with. 
20. He thanked the EC for its contribution and looked  forward to receiving more in the course of 
the Review.  Major developments in civil aviation were  taking place, for instance, in India and China.  
While some Members had a significant knowledge of what was occurring in th e Asia-Pacific region, 
it was not always easy for the Secretariat to identify developments from publicly available 
information, and contributions were, therefore, welcome.   
21. Picking up on a couple of points in the EC pape r, he noted that one significant development 
was in the area of competition regulation.  When  the bilateral system was launched in the 1940s, 
another pillar of the aviation industry at the time was the system of tariff regulation by IATA, which 
allowed for the interlining of passengers on many  airlines.  Although over the years concerns had 
been expressed that the IATA system was becomi ng a cartel and that perhaps global alliances were 
replacing what IATA was achieving, there were exceptions.  This was particularly the case in developing countries whose flag carriers were not memb ers of a particular global alliance, and notably 
of the three main ones (Star, Oneworld and Skyt eam), and yet expected the opportunity to fully 
participate in the international civil aviation indust ry.  Over the previous 5 years, there had been a 
considerable examination of this system by the EC competition regulators, also joined by the US 
Department of Transportation and the Australian competition authority.  This was leading to a 
significant change in the way IATA operated th rough its tariff conferences.  He sought other 
Members' thoughts about the impact that this might have on their airlines.   
22. Finally, picking up on the EC comments about the horizontal and vertical agreements that it 
was negotiating and looking to negotiate, he noted  in paragraph 19 of the EC document that New 
Zealand was mentioned as one of the countries that  the EC had been contemplating negotiating a 
vertical agreement with.  While New Zealand had al ready signed a horizontal agreement, it very much 
welcomed the EC's interest in conducting such a negotiation, which would hopefully provide an open 
arrangement with all of the EC Member States.  However, New Zealand also appreciated that it 
seemed to be in the queue behind the negotiatio ns between the EC and the US, and wished the 
negotiators of these two Members, who were in Brus sels at that moment, all the best for a successful 
outcome. 
23. Commenting on the EC submission, the representative of the United States
 said that she 
would revert to some specific issues in the cour se of the Review.  Nevertheless, she stressed that, 
while appreciating that there was an interest on the part of a number of Members to schedule commitments in sectors such as ground handling and airport management and airport operation 
services, caution should be exercised in inviting Me mbers, as the EC was doing in paragraphs 40, 42 
and 51 of its communication, to schedule commitments in these areas.  Members had to be careful not to schedule outside the scope of the GATS.  The EC submission did note that there were different views on how to interpret the air transport Annex,  and all Members appeared to acknowledge that 
there was an issue of clarity.  The US would revert  to the issue under the specific agenda item, but 
nevertheless urged Members to be careful not to schedule ultra vires  in the course of the DDA 
negotiations.  She then gave the fl oor to her capital-based colleague. 
24. At the outset, he reminded Members why, in hi s delegation's view, air transportation services 
had for the most part been excluded from the GATS at the conclusion of the Uruguay Round.  First, it seemed that Members were keen not to distur b the familiar system of negotiating rights and 
obligations in international air transport that ha d evolved from the post-war period and that had two 
main components:  the multilateral system for govern ing air navigation and air transport safety and 
security through the International Civil Aviation Organization (ICAO);  and the reciprocity-based 
system of exchanging air transport economic rights.  He recalled that during the Chicago Conference, at the close of the World War II time period, the US had proposed a multilateral agreement that would 
cover traffic rights among all nations, which, unfortunately, was not to be at that time.  At the present  S/C/M/87 
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  juncture, the US remained focused on what was the best way forward for the international civil air 
transport regime.   
25. The second reason for excluding air transport from the GATS at the close of the Uruguay 
Round was to promote the development and liberalizati on of the air transport sector.  At the time, the 
US and most other WTO Members believed that the existing international air transport regime, which 
was very detailed and pervasive, perhaps more so th an for any other traded service sector, would best 
accomplish that important objective and that is wh y a broad exclusion had been agreed upon.   
26. His delegation did not begrudge other Member for asking questions such as how to move 
forward on a multilateral basis.  He noted that the EC paper stated that "the constantly evolving 
environment that shapes the market for air transport services merits consideration of how trade 
agreements for such services could progressively, at a later stage, be addressed in the WTO 
multilateral context".  He appreciated this balan ced and progressive EC view, but his delegation's 
view was broader:  it was not a question of if, but a question of when, and in what venue, to move to 
plurilateral and multilateral schemes fo r negotiating air services rights.   
27. The US already had one very important plurila teral agreement, the Multilateral Agreement on 
the Liberalization of Internationa l Air Transportation (MALIAT) and, as had been also noted earlier, 
teams from the US and the EC and its Member States were at that moment negotiating in Brussels the Draft US-EU First Phase Aviation Agreement.  Such  an agreement would not only bring an entirely 
new level of liberalization to transatlantic air services, but would facilitate the most important reinvention of international aviation for quite some time.  It could be expected to enhance the quality 
of competition across the Atlantic in a dramatic way, bringing nearly 750 million people on many of 
the world's great airlines together under a single liber al regime.  It would take liberalization to the 
next level, linking two huge markets and allo wing airlines from both sides of the Atlantic 
unprecedented flexibility in how they build, manage and expand their operations.  It would give the 
US the momentum to do even more and follow on US-EU accords, and would instantly become a new 
multilateral template for aviation liberalisation elsewhe re in the world.  The US view was that there 
were different venues that could be explored for wh at was a common goal and that, to the extent that 
the US sometimes differed on the appropriate venue with its friends, neverthe less it believed that all 
shared similar objectives. 
28. The representative of Australia
 concurred that the aviation sector had been through many 
shocks in the recent times, and that there were many  airlines globally that were struggling.  However, 
he stressed the importance of looking also at instances of success.  Liberalization, globally, was 
working, particularly in those countries that were taking leading steps.  Australia's own region, the 
Asia-Pacific, was home to some of the world's most successful, competitive and innovative airlines, 
many of whom had sustained profitability during one most of the most challenging times that had 
faced the global aviation industry.  Nonetheless, lib eralization was patchy and difficult to do on a 
bilateral basis at times, particularly in the exercise of issues such as fifth freedom traffic rights, which 
effectively required the agreement of three or more partners, and even more so in the application of 
rights such as seventh freedom.   
29. He welcomed the EC paper as a particularly im portant contribution to the Review, and noted 
that it addressed consolidation in the aviation sector .  He stressed, however, that while consolidation 
was talked about broadly for the industry, in many  cases as a necessity or even  an inevitability, there 
was much more talk than there was action in ma ny parts of the world as cross-border mergers and 
closer alliances were still often prevented by nationa lity clauses in bilateral agreements.  Indeed the 
examples in the EC paper, Air France-KLM and Lu fthansa-Swiss, even though important, proved the 
point, as they were working within a single aviatio n market that was not constrained by the same 
bilateral restrictions as other aviation markets.  Nonetheless, airlines globally were working around 
these restrictions through the growth of alliances, code-share agreements, cross-equity arrangements S/C/M/87 
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  and franchising arrangements.  Australia had a po licy position of seeking liberalization in multilateral 
fora, to move away from the restrictions of the b ilateral system.  It was seeking to do this through 
ICAO, and also the WTO and the GATS were an option.  These were important issues for the Review to consider.   
30. Turning developments in the Australian aviation sector and policy, he indicated that his oral 
comments were a shorter version of the ones he woul d provide to the Secretariat for inclusion in the 
minutes (which are reproduced as follows) and that he  would reply to any questions or comments at 
the following meeting.   
31. Since 2000, Australian aviation had been characterised by two major themes.  Firstly, a 
challenging operating environment, characterised by  a series of market shocks and continuing 
industry change.  Australia's second largest airline,  Ansett, had collapsed in 2001 and the Australian 
Government chose not to prop up the airline.  This caused short-term pain, not  least for the many who 
lost their jobs, but also through the disruption of ser vices.  Secondly, on aggregate, sustained growth.  
International passenger numbers had grown by 4. 7 per cent per annum on average over the period 
2001-06, greater than the ten year average of 4.4 pe r cent.  Domestically, the growth had been even 
stronger, with growth of 8 per cent per annum from 1 989-90 to 2005-06.  It was likely that challenges, 
change and growth change woul d all continue.  However, a ke y lesson to be drawn was that 
liberalisation of air services had helped create a r obust industry in Australia, capable of withstanding 
market shocks.  Australia’s liberal market acc ess provisions had put in place conditions that had 
allowed the development of a far more competitiv e domestic and international aviation market.   
32. As mentioned, there had been significant chang es to the Australian market.  In common with 
other parts of the world, Australia had seen the grow th and evolution of low-cost carriers.  Virgin 
Blue had grown from an airline with 2 leased ai rcraft in August 2000 to take 32 per cent of the 
domestic market with over 14 million passengers in the year ending June 2006.   It had evolved its 
model from a classic low-cost carrier to that of a ‘n ew world carrier’, with a greater focus on business 
travel, as well as operating international services to New Zealand and the South Pacific, and 
considering longer-haul operations to the United St ates.  The Qantas offshoot Jetstar had also been 
successful, defying perceptions that network carriers could not have successful low-cost offshoots.  It 
was now diversifying its offering onto medium and long haul international services with a two-class 
service.  These developments notwithstanding, Qantas continued to grow and was the major 
Australian international airline, and also the largest domestic airline. 
33. There had also been a continuing shift in interna tional air service offerings, with a decrease in 
services from European-based airlines and the growth of  airlines at intermediate points in Asia and the 
Middle East carrying traffic to markets in Europe, the Middle East and West Asia.   
34. The airport sector had also seen considerable ch ange.  The completion of the privatisation of 
Australian Government airports in 2003 had offe red considerable benefits , and challenges.  The 
privatised airports had invested heavily, leadi ng to improved product offerings and the rapid upgrade 
of infrastructure, for example to cater for the Airbus A380.   
35. Turning to developments in Australian aviation policy, in February 2006 the government had 
announced an updated policy for Australia’s intern ational air services, building on the previous 2000 
policy statement.  Australia was seeking the estab lishment of truly open aviation markets consistent 
with the national interest.  The then Minister fo r Transport and Regional Services, the Hon. Warren 
Truss MP, announced that Australia would:  recognise 'open skies' as an aspirational goal to be sought 
on a case-by-case basis, where it was in the national in terest;  negotiate capacity for air services ahead 
of demand, to allow airlines to make decisions a nd provide for competition and growth;  maintain and 
expand access to a range of aviation hubs;  recogni se the contribution an Australian-based airline 
industry made to the economy;  encourage major fore ign carriers to commit to a long-term presence in  S/C/M/87 
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  Australia;  address Australia's trade and economic inter ests;  continue to attract more services to the 
regions and smaller states by offe ring unlimited access for airlines to all airports other than the four 
gateways of Sydney, Melbourne, Brisbane and Pe rth;  grow the air freight market by seeking 
unlimited access for freight aircraft from Australian markets to and beyond the markets (i.e. open third, fourth and fifth freedom rights); and contin ue to reform the bilateral air services system by 
seeking to designate airlines through their principal place of business, rather than through ownership 
criteria and continuing to seek liberalisation th rough multilateral fora such as ICAO and the WTO. 
36. The policy clearly set out Australia's approach to the liberalisation of aviation, and the need to 
balance a strong domestically based aviation sector, with its important contribution to employment 
and access to services, against the competition and add itional access offered by foreign carriers.  This 
approach had been successful and Australia had some of the world's most efficient and innovative 
airlines.  They provided jobs for more than 40,0 00 Australians directly, and were among Australia's 
largest trainers and employers of highly-skilled airl ine trades and other skilled positions.  Similarly, 
foreign airlines played an important role in serv ing and growing trade, t ourism and overall economic 
development, as well as providing opportunities fo r those airlines to grow.  Negotiating capacity in 
advance of demand enabled airlines to make comme rcial decisions about the routes they served. 
37. He submitted that these policies had confirmed Au stralia’s role as a leader in air services 
liberalisation.  This had been implemented in Au stralia’s air services negotiations, taking account of 
the national interest.  This progress was not full y picked up in the QUASAR model, which, he 
stressed, was not to be blamed on the model, but on the absence of up-to-date data.  He would return to this issue under the relevant agenda item. 
38. In addition, Australia had continued two othe r important policy developments.  Firstly, it 
continued to seek to remove tariff control provisions from all of its bilateral air services agreements, as Australia considered price control of air services to  be a relic of a bygone age.  Secondly, it had 
removed barriers to establishment in its domestic ma rket.  Australia allowed domestic airlines to be 
established or acquired with up to 100 per cent fore ign ownership;  it had gone further than most 
countries in doing so, and had reaped considerab le rewards through increased service offerings and 
diversity, and increased competition and decreased real fares.   
39. This policy had also added to the robustness of its domestic market.  Virgin Blue, established 
by UK-based interests, had been able to quickly  capitalise on the opportunities offered by the demise 
of Ansett.  Similarly, at the regional aviation level two major carriers, Regional Express and Sky 
West, controlled by separate Singapore-based interest s, had identified opportunities in the challenging 
regional aviation market.  Finally, and more recen tly, Singapore-based Tiger Airways had indicated it 
intended to establish a domestic offshoot in Aust ralia.  These domestic developments had also 
benefits for international aviation, with a now ma jority Australian-owned and controlled Virgin Blue 
offering international services and with Tiger potentially able to feed into its international services to 
Australia.  Investment from new sources had been able  to readily identify oppo rtunities in the market 
and provide innovative product offering s or management approaches, wh ich had lead to benefits to 
consumers and the overall economy.  These are deve lopments other Members may find of relevance 
to their own particular national situations. 
40. Replying to the introductory remarks by the United States regarding commitments on specific 
services sectors currently negotiated in the DDA, the representative of Switzerland
 drew Members' 
attention to paragraph 2 of the Ai r Transport Annex, which stated th at the GATS, including its dispute 
settlement procedures, did not apply to measures affe cting traffic rights and services directly related to 
the exercise of traffic rights.  There was hence a carve-out under the GATS for measures affecting 
specific issues.  The GATS defined clearly in Article XXVIII(a) what a measure constituted.  
Therefore, the terms of what the carve-out represented in air transport services was defined in the GATS and concerned measures, not services.  Article  I(3)(b) contained a broa d understanding of what S/C/M/87 
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  a service was under the GATS, i.e. any service in a ny sector, except services supplied in the exercise 
of governmental authority.  He drew Members' attention to the fact that the carve-out for governmental services was not a carve-out on measures, but a carve-out on services.  There were other instances in the GATS of carve-outs, such as pa ragraph 2(a) of the Annex on Financial Services, 
which contained a carve-out for measures for prudentia l reasons, i.e. not an exclusion of a service, but 
rather of a measure as defined by the GATS.  It w as therefore obvious that financial services were not 
excluded from the GATS;  however, specific services  and specific measures in the financial services 
sector were not under the scope of the GATS.  That meant that there was no sectoral carve-out in the 
Air Transport Annex.  It also followed that, in air transport services, Members were free to undertake 
commitments, which would fall within the scope of  the GATS.  However, specific measures within 
those services were not affected by a Member's commitments.   
41. Responding to the comments by the Swiss delega tion, the representative of the United States
 
recalled that Article I(1) of the GATS stated that  the Agreement applied to measures by Members 
affecting trade in services.  Paragraph 3 of Article I, which defined what were measures by Members, was ancillary to the scope of the GATS as set out in the first paragraph of Article I.  The GATS itself 
did not expressly refer, except in the context of th e carve-out for services supplied in the exercise of 
governmental authority, to what exactly were ser vices.  The Council was currently in the process of 
carrying out the air transport Review, in view of the sector's express exclusion from the GATS.  Her delegation did not wish to enter into such a debate at that juncture, but would revert to the issue and 
was open to hearing ideas on how to address Members'  concerns.  However, she did not think that 
Members needed to get into a debate over inte rpretation.  Her delegation was looking for fresh 
discussions, and hoped that other Members sharing si milar commercial goals would also consider any 
creative ideas that the US might have and which might  not be restricted to that particular forum.  
42. The representative of Canada
 stressed that not all delegations shared Switzerland's view and 
associated his delegation with the remarks of th e United States regarding the GATS applying to 
measures affecting trade in services.  He had had the particular advantage of having participated in the 
negotiations in 1993, at the time that a consen sus was being sought on the wording of the Air 
Transport Annex, and what sectors, as opposed to measu res, would be covered.  It was agreed that the 
three sectors in paragraph 3 of the Annex would be th e exceptions to the rule set out in paragraph 2.  
While paragraph 2 was perhaps poorly drafted, at the time it was important to get an agreement before 
the conclusion of the Uruguay R ound.  Canada had opera ted on the basis that only three sectors were 
covered since 1993.  While Canada was not opposed the eventual expansion of the GATS coverage, it 
felt that this had to be done on a proper basis, an issu e to which he would revert.  He just thought that 
Members had moved beyond the legal interpretation debate.  He not ed that, when introducing the 
communication from Australia, the EC, New Zealand, Norway and Switzerland in September 2006, the representative of Australia was quoted, in para graph 8 of the minutes, as saying that the co-
sponsors did not intend to return to the definitio nal issue of whether or not ground handling was 
addressed in the GATS, but would rather look at opti ons that provided certainty for Members rather 
than legal debate.  That provided some encouragem ent to his delegation, so he hoped that Members 
would move beyond the legal debate and discuss cons tructively about how best to add sectors to the 
GATS if that was the wish of Membership.  
43. The representative of Switzerland
 indicated that the reason and the basis for his intervention 
was not to specifically address the question of ground handling.  It was a recurrent general matter, and 
not specific to air transport services.  In the inter est of clarity, he wished to complete his earlier 
statement, when he had omitted the reading of Article  I(1) of the GATS.  This clarification was for the 
purpose of any commitments Members might wish to undertake, whether in air transport or 
elsewhere.  The GATS applied to "measures by Members affecting trade in services".  This sentence reduced the scope of the GATS in four ways.  It reduced it to "measures", "Members", "trade" and 
"services".  One might easily agree on the issue of Members.  As for measures, these were defined in 
Article XXVIII, and trade was defined through the four  modes in Article I.  However, the scope of the  S/C/M/87 
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  GATS was further reduced by the fact that it applied only to measures affecting trade in services.  The 
delimitation of the scope could work  independently for each of the four elements;  at times Members 
focused on the measures, sometimes on the service.  
44. Responding to some of the comments made on the communication, the representative of the 
European Communities  said that, with regard to competiti on rules and the IATA tariff conferences, 
practices such as those permissible under EU law provi ded substantial benefits to consumers.  They 
were able to offer a wider range of air transport pr oducts through practices such as interlining;  the 
effects of such systems were being currently st udied.  Concerning the comme nts by the US on the 
communication and its relation to the DDA as well as the intervention by Switzerland about the application of the GATS, he said that the EC ha d tabled an offer with commitments based on the 
GATS and on the air transport Annex.  The EC offe r included the three sectors which were explicitly 
covered, despite the fact that the Annex suggested th at they were directly related to the exercise of 
traffic rights.  However, the offer also addressed sect ors that were indirectly related to the exercise of 
traffic rights, namely ground handling and airport services.  The EC did not feel that that GATS could prevent any Member from looking at the possibilit y of making commitments in those areas.   
45. The Chairman
 said that the Council would take note of the statements made. 
ITEM A DEVELOPMENTS IN THE SECTOR 
46. The Chairman  recalled that, at the dedicated meeting in September 2006, Members had 
agreed that a point covering the eleven sub-sectors discussed at that meeting would be added to the 
agenda of the following dedicated meeting, to allo w delegations to revert to them.  Accordingly, 
agenda item A, dealing with developments in the sect or, had been split into two parts:  part I covered 
the hard rights up for discussion that day, while pa rt II took up the eleven auxiliary services addressed 
in September. 
47. Starting with part I, he indicated that, in orde r to assist Members with the examination of hard 
rights, the Secretariat had produced a hefty background note, circulated in two volumes and distributed as document S/C/W/270/Add.1, dated 30 November 2006.  To complement the note, the 
Secretariat had also produced a CD-Rom, the Air Services Agreements Projector (ASAP), which had 
been distributed just recently.  He offered the floor to the Secretariat to intr oduce the note and the CD-
Rom. 
48. A representative of the Secretariat
 said that the document was quite innovative and daring.  Its 
aim was to provide Members with in-depth analysis and to stimulate an active exchange of views.  
The document was a quantitative analysis and, as al ways in the world of services, any quantitative 
analysis was difficult and open to criticism.  Ther e were serious information gaps, and there might 
also be some errors, given the large amount of information that the Secretariat had processed and 
analysed.  He encouraged Members to communicate an y corrections or gaps that might need to be 
filled.  This would enable the Secretariat to pr oduce an improved final version of the document which 
Members could use as a useful reference.   
49. In terms of methodology, the Secretariat had tr ied to provide an aggregate picture of the 
degree of openness of about 2000 bilateral air servi ces agreements.  The analysis was based on the 
information about bilateral agreements containe d in the ICAO World Air Services Agreements 
database.  About twenty characteristics of bilatera ls had been selected, extracted and given weights 
according to the degree of openness implied.  On th is basis, an Air Liberalization Index (ALI) had 
been computed, to give an indication of the degree of openness of each bilateral agreement.  The ALIs 
of all the bilaterals concluded by  any given Signatory were then aggregated, to provide an aggregate 
measure of liberalization.  On this basis, a nu mber of conclusions had been drawn, which were 
obviously open to discussion.  Alongside the documen t, a software, the Air Services Agreements S/C/M/87 
Page 10  
 
  Projector, had also been produced, of which th e Secretariat then offered a demonstration. 
50. The representative of the United States
 expressed appreciation for the enormous effort the 
Secretariat staff went to in developing the QU ASAR study and the ASAP software to facilitate 
discussions under the Review.  With hindsight, the idea sounded simple:  to codify the universe of 
bilateral air services agreements and place them in context with associated traffic flows to allow 
comparisons.  There had of course been numerous st udies, often with a more narrow scope and with 
an array of methodologies employed, to assess the imp act that air services liberalization could have on 
traffic growth and more broadly on economic growth, job creation , etc.   
51. However, there was no universal compendium of air services agreements and furthermore no 
product such as QUASAR where the methodology was completely revealed and disseminated as an 
open source product that lent itself to ongoing impr ovement.  He hoped that this new tool could 
facilitate greater liberalization by focusing on the su bstantial percentage of worldwide traffic that was 
not currently covered by liberal provisions in air services agreements.  It was an impressive achievement.  
52. In the assessment of the results of the study, his delegation could not help but notice that 
intrinsic limitations, both in the codification of the agreements and the availability of associated traffic 
data, posed a major impediment to gleaning meaningful results from the study.  
53. The most obvious limitation of course was that the ICAO WASA database was not complete, 
as not all agreements and/or subsequent amendments  were registered with ICAO.  His delegation was 
looking into the US policies and procedures in regard  to notification of agreem ents and he encouraged 
other Members to do the same.  His delegation was open to discussion with other Members about how 
to bridge the gaps in this area.   
54. At the same time, a more fundamental concern was the fact that the WASA coding employed 
in QUASAR did not account for important variations in  provisions of the agr eements scrutinized.  For 
instance, it did not account for restrictions that might be present in the grants of third, fourth, fifth and seventh freedom rights, nor did it account for whet her the full range of code-sharing rights (i.e. 
bilateral, same country and third-country) were present in provisions on commercial opportunities.  In 
scoring for multi-designation clauses, it did not code  for whether those clauses provided for unlimited 
designation.  Perhaps more significantly, as discussed  in part D of QUASAR, it was very difficult to 
quantify the coded information on routes exchanged, wh ich were at the heart of the exchange of rights 
in air services agreements.   
55. All of these limitations made it much more difficult to derive meaningful results from the 
study.  At the same time, the S ecretariat staff had been very tran sparent about those limitations and 
had developed fairly clear ideas as to how the study could be further refined.  Ultimately, as stated on 
page 11 at paragraph 13, the goal would be to be ab le to isolate and control for various variables, 
calibrate for the determinants of traffic flows a nd obtain quantitative results for the unique impact of 
air services liberalization on traffic growth.  That  was a very tall undertaking.  His delegation had 
some doubts as to its feasibility, but looked fo rward to discussing future uses and possibly 
improvements of QUASAR with Members.   
56. Turning to the actual results reported in the study, his delegation felt that, despite the 
limitations, the results reported we re consistent with the US experiences when negotiating air services 
agreements.  It was no surprise that traffic was hi ghly concentrated under a relatively small number of 
agreements.  This reflected various factors in the demand for air services, and was not necessarily a 
function of the associated agreements (which, in term s of liberalization, might or might not keep pace 
with such demand).    S/C/M/87 
 Page 11 
 
 
  57. The main findings also confirmed a common wi sdom that liberalization of high-traffic 
relationships was at least as, if not more, difficu lt than liberalization of relationships where the 
demand for air services was low.  The fact that many of the US largest traffic markets were governed 
by bilateral agreements that retained restrictions  on routes, designations, capacity, etc. was illustrative 
in this regard.  These might also be the markets where liberalization could have the most immediate 
impact on traffic.  In the US view, it was clear th at the factors driving growth in air traffic were 
complex.  Liberalization as such did not necessarily impact on the underlying demand for air services.  However, where there was high demand for traffic and opportunities for multiple carriers to compete, 
competition on prices and service could have the impact of increasing the underlying demand for air services and it certainly had positive impacts on the quality of air services.  Conversely, restrictive 
arrangements could without questi on have the effect of suppressing demand, reducing the quality of 
air services and/or diverting it into other modes of travel.  
58. His delegation had some differences to register concerning the main findings.  First, he did 
not think that the bilateral agreements coded in the WASA database were as similar as was reported 
(i.e. seven types covering 72 percent of traffic.)  The problem was that the commonality of types of 
agreements, cited as emerging from QUASAR, were not necessarily "classical open-skies", much less 
"full liberalization".  It followed that these provi sions would contain variations (limitations that 
undercut the full rights possible in a given type of pr ovision) that were not coded for in the study and, 
hence, the underlying reality was that these agreemen ts might not converge on such a small number of 
types.   
59. Secondly, even if such a typology were true, hi s delegation did not think that it would follow 
that the provisions in those 1424 ag reements could be readily, almost  automatically, replaced by just 
seven sets of provisions in a plurilateral arrangement .  The fundamental premise in this deduction was 
that States would feel the same incentives for exte nding such provisions, granted on a bilateral basis, 
to a plurilateral/multilateral framework.  Those provisi ons, more so when they were not fully liberal, 
were usually arrived at through a complex and uni que negotiating process between countries.  Grants 
of rights, as well as underlying demand for air services and resulting traffic flows, were dependant on 
a host of social and economic criteria.  So, moving from a bilateral to a plurilateral or multilateral 
scenario radically altered the incentives for each pa rty and even, in a sense, changed the substance 
being negotiated 
60. Another factor might reduce the meaning deri ved from these convergent patterns observed in 
the QUASAR results.  While there were a large num ber of mathematical combinations that could 
result from random combinations of all the provisions  that were coded, in actuality agreements were 
not arrived at randomly.  Liberally-minded parties would tend to negotiate liberal provisions and the 
opposite also applied, so a certain non-random conve rgence was inherent in the negotiating process. 
61. For all of the above reasons, his delegation thoug ht that the real lesson was that plurilateral 
arrangements might be much more difficult to enter into than bilateral arra ngements, even when the 
same provisions were the outcome.  Where a party might be willing to cede a right to another party 
based on the benefits perceived in a reciprocal exchange, that might not be the case at all in a plurilateral setting where the same right was ceded to  multiple parties and the balance of the exchange 
was either more difficult to calculate or was pe rceived to be less advant ageous given competitive 
concerns. 
62. It went without saying that the US did not think in those terms, and that was why they had 
entered into a plurilateral open-skies arrangement (the MALIAT) and actively sought both expansion 
of that agreement and other opportunities, like the US-EC agreement, to enter into 
plurilateral/multilateral arrangements.  But the ve ry existence and continuation of the bilateral 
framework suggested that this transposition of bilate ral into multilateral rights was more difficult than 
his delegation thought the analysis suggested.  S/C/M/87 
Page 12  
 
  63. The representative of New Zealand
 found the work undertaken by the Secretariat awesome.  
He congratulated the Secretariat team, but al so acknowledged the cooperation from ICAO and from 
IATA, which had provided the underlying traffic statis tics.  When he had spok en to the Secretariat 
about the exercise a year earlier, he did not believe that it would be possible to undertake it.  What had 
impressed his delegation was that the limitations of  the exercise had been completely acknowledged 
and that questions they had along the way had been  worked through the methodology and answered in 
the documentation.   
64. His delegation appreciated the opportunity it had, early on, to make a small contribution on 
methodology.  For its own internal use, New Zeal and had developed its own scoring system (from 1 
to 100) of the liberality of air services relations hips.  Of course, New Zealand had access to the 
Memoranda of Understanding that included some of the detailed restrictions on the air services 
relationships that were not available to the Secretar iat, or indeed to ICAO.  Individual countries would 
therefore be able to take the methodology and adapt it, so as to see the spectrum of relationships they 
had in place.  He also wished to acknowledge the f act that the Secretariat had noted that not all open-
skies agreements were created equal, and had made  the distinction between what it had described as a 
"classical open-skies", i.e. the US model, and the fact that some Members had gone beyond that 
model by adding additional rights to their open-skies agreements.   
65. He had a methodological question about the underlyi ng weighting of the agreements based on 
traffic.  Using an example of carriage between New Zealand and Australia, his reading of the methodology was that, using the IATA traffic figures, all third and fourth freedom traffic carried across the Tasman, i.e. by New Zealand and Australian carriers, as well as fifth freedom carriage 
between New Zealand and Australia would be attributed to the New Zealand-Australia air services 
agreement.  Indeed, there were around 28 flights per week operated by Emirates on the Tasman as 
well as by some other Asian carriers.  Clearly, in the case of Emirates the relevant bilateral relationships were those between the United Arab Emirates and Australia and separately between the 
United Arab Emirates and New Zealand.  He sought some clarification on the issue from the 
Secretariat.   
66. The other commendable aspect of the methodology was the fact that different weighting 
systems had been developed, as indeed countries such as Australia and New Zealand might place 
more emphasis on fifth freedom traffic rights.  It was simply impossible to fly non-stop between Europe and New Zealand yet Europe was an import ant market for New Zealand, so obtaining fifth 
freedom rights to make such services economically vi able had always been important to New Zealand 
over the years, also in order to create openings to balance the sixth freedom opportunities that some 
carriers based between New Zealand and Europe exploited.   
67. Another aspect that he felt would be useful to develop further was the information about 
plurilateral agreements.  If there was a trend in air services that was clearly coming through in the work that ICAO was doing and that the Secretaria t had illustrated in its note was the increasing 
amount of traffic covered by plurilateral agreemen ts.  He sought additional clarification about the 
exclusion of traffic within the EC, which seemed to be of significance.  He would also appreciate more detail about what precisely some of the more  important plurilateral ag reements contained and 
whether they could be models for others to fo llow.  His delegation was obviously aware of the 
MALIAT and of the Pacific Islands Air Servi ces Agreement that was being negotiated.   
68. One of the valuable features of the exercise unde rtaken by the Secretariat was that it brought 
some transparency to air services arrangements.  For many years at ICAO meetings, the ICAO 
Secretariat had made a plea for the filing of air services arrangements reached between countries.  It 
was great to see some practical use being put to that process.  It was also pointed out clearly that many 
Members were not filing all of their agreements.  He noted that countries were increasingly using the internet to make details of their arrangements ava ilable.  For instance, India, as well as Australia, the  S/C/M/87 
 Page 13 
 
 
  UK and the US, were making the full details of thei r air services arrangements available on the net, 
which was a positive development.  In the case of New Zealand, there were 10 air services relationships missing from QUASAR.  In addition,  although New Zealand had filed the MALIAT 
with ICAO some 2-3 years previously, it was only as part of the WTO Secretariat's enquiries that they 
had discovered that it had not been registered by  ICAO.  This had since been corrected, but the 
analysis in the WTO Secretariat's work did not reflect that.  In particular, it was important that 
Members update the Secretariat with the 67 key agre ements, so that table B1 could more accurately 
reflect the major arrangements affecting air travel in the world.   
69. Focusing on some of the specific freedoms covered, he indicated that one of the important 
distinctions when it came to seventh freedom was th at, as part of the US classical open skies model, 
only seventh freedom rights for cargo were exch anged.  QUASAR, however, did not make the 
distinction between cargo and passenger rights.  It  was a quite significant development that many 
countries were prepared to be more liberal with r espect to cargo services than they were with respect 
to passenger services.  The OECD some years a go had raised the idea of having a multilateral 
agreement for cargo services only.  He noted that New Zealand had liberalized  with China on freight 
services to a greater extent than on passenger services.   
70. The Secretariat note suggested that  cabotage was a particularly rare form of traffic exchange.  
This was unfortunately one of the cases where the registration of agreements with ICAO was behind what was New Zealand's current practice.  Unde r a protocol of the MALIAT, New Zealand had 
exchanged cabotage rights with Chile, Singapore a nd Brunei.  Under its Single Aviation Market 
arrangements, in 1996 it had exchanged cabotage rights  with Australia;  that initial exchange had not 
been done as part of a treaty, and therefore not file d with ICAO at the time.  New Zealand had also 
exchanged cabotage rights with Ireland and the UK a nd, in fact, under its open skies agreement with 
the UK, it had exchanged all nine freedoms.  Fina lly on the cabotage issue, under the Single Aviation 
Market arrangements New Zealand and Australia ha d exchanged eight freedom s, but had separately, 
as a matter of foreign direct investment policy, placed no limits on investment in domestic airlines.  
Ansett New Zealand had been operating as a 100% foreign-owned domestic carrier within New 
Zealand, and Qantas was currently operating domestic  flights within the country.  This was not 
entirely an academic point as in the past:  without  cabotage rights, airlines such as Korean, British 
Airways and Singapore Airlines had operated between  Christchurch and Auckland without being able 
to carry traffic.   
71. Turning to ownership, this was a particularly troubling issue for countries with small equity 
markets.  Even in the US, which had one of the bi ggest equity markets in the world, one would have 
thought that, given the current state of the US air line industry, looking for additional financing might 
be in the interest of US airlines.  Under the b ilateral system, however, one party might have, as 
New Zealand had, removed the criteria of substan tial ownership and effectiv e control with a number 
of partners, but if the entire network of coun tries served did not have these bilateral potential 
restrictions removed, there could be no certainty th at greater levels of foreign investment would be 
permitted.  This was a practical issue that New Ze aland had faced when looking at the financing of 
Air New Zealand some years back.   
72. He then noted a couple of minor issues in the report.  First, he wondered what the source for 
the information about the number of international airports was.  New Zealand was shown as having 
four, whereas in fact it had seven.  Second, there seemed  to be an issue with regard to territories.  For 
example, New Zealand had two airlines from French Pacific territories (Air Calin and Air Tahiti Nui) 
operating to New Zealand under the France-New Zealand arrangement.  The Secretariat documentation, however, suggested that those servi ces were not covered by agreements filed with 
ICAO.   
73. In terms of the results of the QUASAR analysis , he had noted the points raised by the US S/C/M/87 
Page 14  
 
  delegation.  Even though at a detailed level there might have been data problems, the overall results 
were painting a good global picture of the air ser vices arrangements that the international airline 
industry was operating under.  Clearly, there we re some key arrangements, and if the US-EC 
negotiations succeeded, they would impact a very large proportion of international air traffic.  The other result that emerged clearly was the fact th at, increasingly, air services arrangements were of a 
plurilateral, sometimes regional, nature.  As he ha d mentioned, there was some lack of detail with 
regard to plurilaterals and he would appreciate s eeing the Secretariat do some further work in that 
area.   
74. There was scope for further refi nements to be brought to the QU ASAR exercise.  Part D of 
the Secretariat note focused on some possible enhancem ents that he thought would be desirable, also 
in light of fulfilling the Annex mandate to review developments in the air transport sector every 5 
years.  Such work, enhanced by additional in formation from Members, would provide a useful 
benchmark for progress in that particular area.  Fi nally, as to whether the documentation and the CD-
Rom should be made available to the public, his dele gation had no problem with that suggestion.  The 
kind of information used by the Secretariat was in the public arena and any confidential Memoranda 
of Understanding had not been available to the Secretariat for analysis.   
75. The representative of Brazil
 thanked the Secretariat for its work on the documentation and the 
CD.  He nevertheless had lingering doubts as to the usefulness of such an ex ercise within the context 
of the review.  Judging by the debates, the gulf between air traffic rights and GATS remained as wide as ever.  The first comment he had on the study was the partial availability of data.  In spite of the 
willingness of ICAO to give access to its data, there remained a problem of notification to ICAO and 
in that respect Brazil joined the mea culpa  presented by previous speaker s.  For instance, in QUASAR 
Brazil appeared to have 36 agreements, while the tr ue figure for agreements already initialed was 60.  
The explanation of this gap was that Brazil notifie d an agreement to ICAO only after its ratification, 
whereas it entered into provisional application as s oon as it was initialed.  In addition, many of the 
detailed stipulations of these agreements, such as code-share provisions, were left to Memoranda of 
Understanding which were not notified.  That e xplained why Brazil had a zero for code-share in 
QUASAR, which introduced a kind of distortion.   
76. Brazil considered it was an impossible exercise to assign weights to the various features of the 
bilateral agreements.  At any rate, this coul d only be a subjective judgment with underlying 
assumptions on what was more liberal and, hence, good and what was more restrictive and, hence, bad.  What was missing clearly was an assessment of  the specific conditions of the air transport sector 
in each country, i.e. the objectives that each nego tiator was trying to achieve by pushing for or 
negotiating a specific type of agreement, and how these agreements fitted into the country's overall 
strategy for the development of its own air transpor t sector.  A tailoring to the needs and conditions of 
the different countries was still lacking.  Brazil was extremely uncomfortable with attempts to classify 
Members' policies as more or less liberal for several reasons.  In the DDA services negotiations, 
Brazil was hostile to the idea of quantifying commitme nts by Members.  Discussions had proven that 
this was not a viable option.  Similarly, applying the ALI approach to agricu lture, for instance, would 
not probably please most of the Members. 
77. The representative of China
 appreciated the detailed analysis of bilateral agreements produced 
by the Secretariat at worldwide scale, as it facilita ted the understanding of the liberalization process.  
Although the ICAO database used by the WTO Secretar iat did not include all air services agreements, 
this was the first comprehensive and quantitative an alysis of such agreements.  As noted by the 
Secretariat, this analysis did not encompass recen t updates, confidential Memoranda and amendments 
not notified to ICAO.  The collection of these elements – save the confidential Memoranda – by the WTO Secretariat would be a resource and time-consuming task.  The indexes created by the Secretariat were constructive and creative, but other elements such as mutual recognition of 
certification (including airworthiness certificates, pers onal certificates, etc.) could have been used too,  S/C/M/87 
 Page 15 
 
 
  as these remained an obstacle even when more traditional characteristics such as capacity, tariff, 
withholding and designation had been liberalized.  China wanted more information on the rationale 
and the method followed by the Secretariat to assi gn weights to each of the elements.  China also 
noted that the QUASAR results were organized on a si gnatory by signatory basis and, therefore, failed 
to give a fully global picture, an omissi on it wished to see corrected in the future. 
78. The representative of Japan  thanked the Secretariat for its work which might constitute an 
interesting basis for the analysis of the status quo of air services agreement concluded by a number of 
countries.  In this context, Japan pointed out sever al elements that were highly relevant to further 
improvements of the analysis undertaken in this docume nt.  First, it was important to pay attention to 
the situation of individual countries, such as geogr aphical location and the competitiveness of their 
airline industry.  Secondly, Japan felt that such  factors as dual approval of  tariffs and substantial 
ownership and effective control coul d not automatically be characteri zed as restrictive.  The possible 
direction of air transport liberalization would not  be adequately captured by referring only to 
amendments of such factors. This would be misl eading in discussing conceivable and desirable ways 
of liberalizing air transport.   
79. The representative of th e European Communities  considered that the documentation produced 
by the Secretariat was a very substantial piece of work, giving a very good indication of the degree of 
liberalization of the various bilateral agreements and of the market access opportunities provided by the bilateral system.  The QUASAR study had not ta ken into account the intra-EC situation where a 
single market had been established, which implied unimpeded access for EC airlines to other Member 
States, including cabotage and free fares and rates setting.  These conditions also applied to the 
European Economic Area countries (Norway, Liechtenste in and Iceland) and to Switzerland.  It might 
therefore prove interesting for QUASAR to reflect more fully this state of liberalization.  With regard 
to the EC external air transport relations, the EC noted that the horizontal agreements negotiated to 
bring Member States' agreements in conformity with EC law, as described by the Secretariat, were not 
only covering the issue of ownership but also the setti ng of tariffs and the taxation of on aviation fuel.  
The EC also noted that its external policy was mo re ambitious, and included negotiations of full air 
services agreements with partners such as Cana da or Morocco, and the initiative to establish a 
European Civil Aviation Area with the EC neighbouring States up to the year 2010.  The EC welcomed QUASAR being refined to ensure its accu racy and usefulness.  It would be interesting, 
although difficult, to look at the cargo situation in some more detail.  The EC was very conscious that operators in sectors such as express and courier serv ices, which had slightly different interests in 
terms of the freedoms of the air, sought to ensu re better coverage and a better service provision to 
customers.  That would prove very interesting indeed. 
80. The representative of Switzerland
 complimented the Secretariat for its seminal work and 
noted that the extensive analysis of bilateral agreem ents made these, for the first time, comparable and 
therefore enhanced transparency.  Delegations were  given a truly global view of the air transport 
sector.  Switzerland was still considering how to im prove the data of QUASAR regarding its own 
agreements and encouraged each Member to do the same, so as to build a database as complete as 
possible.  He wished that a deadline be set for providing those data to the Secretariat. 
81. The representative of Australia  considered that the QUASAR methodology provided a solid 
basis for analyzing and discussing traffic rights, how ever granted, which was at the heart of greater 
liberalization efforts.  The model was broadly so und and had strengths outstripping its limitations.  
The latter included data problems and information gaps, as indicated by the Secretariat in its 
introduction.  The modular approach suggested by th e Secretariat for the future meant that the model 
could be improved over time and some of the issues th at the US delegate had mentioned be addressed.  
Further work might be possible on issues such as ca pacity, code-share, fifth freedom and cargo.  One 
possibility to promote work in this regard was the ci rculation, in due course, of this model through the 
Internet.  This would allow for an informal peer review and could perhaps over time encourage PhD S/C/M/87 
Page 16  
 
  students to add to and refine the model.  It had the potential to be a very useful tool, not only to 
inform the current and future Reviews, but also  for air services practitioners as they prepared for 
negotiations. 
82. He then turned to minor methodological issues .  Firstly, on capacity, Australia was not 
convinced that predetermination of capacity was n ecessarily less liberal than "Bermuda I" type 
clauses, but this was a difficult issue to address in the absence of data on the actual capacity limits in 
individual air services arrangements.  Secondly, on the inclusion of statistics clauses in air services arrangements, while having been assigned only a very minor part of the weighting, Australia still did 
not consider that statistics were necessarily a factor  related to the liberality of agreements.  Rather, 
they could be about information exchange which help ed to make investment decisions in the sector.   
83. Noting the comment by the US delegation that the model demonstrated that high-traffic 
agreements could be more difficult to liberalize, Aust ralia considered that this could be true in many 
instances, there were perhaps regional differences.  Certainly in the Australian experience, the most 
heavily trafficked agreements were the ones with  the most liberal arrangements, e.g. with New 
Zealand and also with Singapore, the UK and others.   
84. Turning to data, Australia, like others, offered a mea culpa  in terms of registration with 
ICAO.  QUASAR picked up 42 air services arrangement s, whereas Australia had in excess of 60 and 
many of the air services arrangements that were  picked up in QUASAR had been substantially 
amended since they were registered with ICAO or completely replaced in several cases.   
85. Building on a comment that Brazil had made on code-share, he noted that it was the 
Australian practice to include in actual agreements c ode-share arrangements, be they fully open code-
share or more limited ones.  However, if not possible, these were included in the Memoranda of 
Understanding, which were not picked up in the QUASAR model.   
86. Finally, data transparency throughout the world wa s one of the great assets of this model.  It 
painted a clear picture of air services arrangements and encouraged further transparency by Members, both through registration and th rough providing additi onal data through the QUASAR model or 
unilaterally through their own websites or other m eans of dissemination.  It was important that 
Members seized the opportunity to update the QUAS AR with the most recent information about their 
air services arrangements, and Australia would certainly  be doing so in the very near future.  Australia 
also noted that registration with ICAO, while impor tant and something that it was certainly working 
towards, could take considerable time.  Air servi ces arrangements, like any treaty arrangement, had to 
go through lengthy ratifica tion processes, and it was important that arrangements of less than treaty 
status, or arrangements with provisional effect could be included in the QUASAR.  
87. Answering to questions raised by delega tions, a representative of the Secretariat
 confirmed 
that New Zealand's understanding of the data was correct , and that data for traffic between any pair of 
Signatories included third-party carriers' traffic, if a ny.  The Secretariat also indicated that it had some 
ideas on how to single out fifth freedom traffic, some thing that had apparently never been attempted 
on a global scale.  However, such an attempt would imply the need to buy relatively costly data sets 
from the Official Airline Guide (OAG) or from IATA , which were the only data sets that would allow 
such computations.  
88. Answering a question by the EC and New Zeal and about more inform ation on plurilateral 
agreements, he recalled that the Secretariat had unde rtaken, in paragraph 41, to describe plurilateral 
agreements in greater detail in the documentation to be prepared for the following meeting.  However, 
this presented specific difficulties because the provisions  of plurilateral agreemen ts had not been "pre 
-coded" by ICAO.  The WTO Secretariat would th erefore have to code these provisions itself and 
would make the coding process transparent, so that interested parties could challenge or complement  S/C/M/87 
 Page 17 
 
 
  it if they so wished.  In addition, the Secretariat would compute all intra-plurilateral traffic relations, 
which in some instances could require a co mplex and lengthy process (the Yamoussoukro II 
Ministerial Decision, for instance, implied 50x49, i. e. 2450 potential bilateral relations of traffic). 
89. He confirmed that the Secretariat had not take n into account intra–EC traffic because of the 
existence of the Single Aviation Market and because it would have given an AL I index value of fifty 
(out of fifty) to about one-third of the total sample .  The Secretariat would, of course, correct this and 
incorporate intra-EC traffic in fu ture since the EC so wished.   
90. With regard to the absence of cargo traffic in th e study, and in particular of seventh freedom 
cargo traffic, he explained that an extension was me thodologically feasible.  However, in view of the 
lacunae of the ICAO WASA database regarding car go, such an undertaking implied access to another 
database of ICAO, the DAGMAR application, whic h contained the texts of all 1842 agreements 
registered with ICAO.  It would also imply the coding of the individual provisions of these 
agreements, the adaptation of the QUASAR weigh ting methodology to the specificities of the cargo 
industry, including the presence of three types of carriers (combi-carriers, all cargo and express) and the obtention of traffic data from professional sources.  This could clearly be done, but in a medium to 
long-term perspective.   
91. As noted by Brazil, code-share clauses were  imperfectly taken into consideration by 
QUASAR because they were not always mentioned in the agreements themselves.  However, he 
indicated that it was feasible to add to QUASAR a "reality check" functionality.  Regulatory data 
would be compared to the exhaustive or quasi ex haustive list of code share agreements published 
annually by the specialized press.   
92. Regarding the attribution of weights and the methodology followed to that effect, a point 
raised by China and Brazil, he indicated that the Secretariat had tried to avoid making value 
judgements by consulting academics, ne gotiators and industry practitioners .  To the extent it had done 
so, judgments were made as transpar ent as possible.  The Secretariat hoped to be able to provide in 
the future a software that would allow each Member to give its own weights to each of the factors and 
to discard some (e.g. substantial ownership and e ffective control), so as to tailor QUASAR to its 
needs and policy, while retaining full comparability  among the totality of the 2000 agreements of the 
sample.  Only IT constraints had prevented that goal from being achieved, but this could be worked 
out in the future. 
93. Regarding the assessment of aeronautical nationa l conditions, be they geographical, historical 
or strategic, as mentioned by Brazil and Japan, he not ed that in the first chart of every profile the 
Secretariat had tried to gather all elements that c ould have an impact on traffic such as size, density, 
trade, GDP per capita etc.  The rationale was to a llow the computation of regressions that, in the long 
term, might explain the factors affecting traffic, w ith liberalization being only one of them and having 
complex relations of correlation and causality with other parameters.   
94. Regarding the availability of da ta, he reminded Members that the document contained, in its 
last page, a simplified template to provide compleme ntary information to the Secretariat if a Member 
so wished.  This was at any rate much simpler th an a full notification procedure to ICAO.  As to a 
possible deadline to provide these data, the S ecretariat suggested the end of September. 
95. The representative of the United States
 considered that the existing methodology with the 
standard weighting was the best that could be hoped for.  Internal consultations were still needed on 
how to prioritize some of those areas and whether or not the United States saw fit to task further 
improvements.  One strength of the study was its open-source architecture and there had been 
suggestions, including from Australia, that considera tion might be given to putting it on the web – in 
the public domain-and letting it become a tool for fu rther improvements.  A mix of those approaches S/C/M/87 
Page 18  
 
  might be appropriate.  At that stage, the United St ates needed to further consider how to task the 
Secretariat with any further work during the Review.  One comment was about registration of agreements: there were reasons why the United Stat es had had difficulties registering agreements with 
ICAO and it had to do with perceptions of some of its treaty lawyers that a certain process had to be followed before an agreement could be registered.  There had been some bureaucratic hold-ups in that 
process.  Those difficulties might also impact the US ability to fill in the sheet that had been provided 
in QUASAR.  The United States saw the need for greater registration, to help fill in the gaps and that 
was one of the easy things that could be done to improve the product, but it was not something that 
could be accomplished automatically – the Department of Transport would have to consult with other 
agencies and find a way to do that.  The United States  had no problem coming back to this item at the 
following meeting.   
96. The representative of New Zealand
 proposed that the Secretariat produce a summary of its 
suggestions (mostly contained in part D) that would be designed to help Members assess their 
priorities.  The first priority was clearly to make sure that the data set was as complete as possible, as 
Members had all recognized it.  Some relatively si mple improvements could also be made that the 
Secretariat, under time and resource pressure, had not been able to incorporate this time round.  
Others implied so much work that they could not be  reasonably expected before the next review.  That 
might be the case of cargo, which was a very important question.  
97. The representative of Australia  supported the proposal made by New Zealand of a 
consolidation of suggestions for fu rther work.  However, there was one piece of work that could be 
usefully undertaken in the interim, before the ne xt meeting:  the updating of the database through the 
provision of information by Members to the Secretariat, be they agreements of a formal treaty status 
or of less than treaty status.  The representative of China  also echoed the proposal by New Zealand.   
98. The representative of the United States  agreed with the suggestion on condition that the 
consolidation of suggestions for further work w ould not be something on which Members should be 
required to take decision.  A list of suggestions s hould simply be put forward to Members that they 
would evaluate and then discuss thoroughly at the next meeting.  
99. The Chairman  suggested that Members agree on th e proposal of a consolidation of 
suggestions for further work by the Secretariat wh ich would serve as a basis for discussion at the next 
meeting.  It was so agreed .   
100. The Chairman  then turned to the second point of this  agenda item:  auxiliary services.  He 
first recalled that a discussion on eleven auxiliary services had taken place at the last dedicated 
meeting, on the basis of document S/C/W/270 and its Corrigenda.  He indicated also that these 
documents, amended to correct any factual errors  communicated by delegations, had been published 
in the form of a purple booklet distributed to delega tions.  He finally noted that, in order to fulfil a 
request by Canada and Costa Rica, the Secretariat had produced a document on the use of electronic means to provide cross-border aircraft maintena nce and repair services, circulated as document 
S/C/W/279 dated 7 February 2007. 
101. The representative of Canada
 thanked the Secretariat for th is document, which had been 
requested in light of the numerous mentions of "tech nical unfeasibility" for mode 1 in this sector.  The 
document showed that it was now indeed technical ly possible to provide such services on a cross-
border basis, electronically. 
102. The representative of New Zealand  noted that one of the examples given, that of the provision 
of weight and balance load sheet software by Luft hansa Technik, did not really belong to the universe 
of aircraft repair and maintenance, but  to the normal operation of an airline.  S/C/M/87 
 Page 19 
 
 
  103. The representative of th e European Communities  found the paper useful as it would help 
Members in the future to understand what they  were doing when committing in this field. 
104. The representative of China  made comments on two auxiliary service.  Regarding first 
Computer Reservation Systems, China considered  that only Business-to-Business systems, or 
"classical CRS" as termed by the Secretariat, shoul d fall into that legal category.  It should not, 
therefore, include virtual travel agencies and inte rnet distribution by airlines as these new sales 
activities belonged to the Business-to-Consumer mode.  Regarding freight forwarding and warehousing, he noted that operations  in those two sectors might involve  various transport modes.  In 
China's view, the commitments on freight forw arding and warehousing by WTO Members did not 
apply to air transport automatically. 
105. The Chairman
 said that the Council would take note of the statements made. 
ITEM B OPERATION OF THE ANNEX 
106. The Chairman  recalled that Members had agreed previously that the documentation by the 
Secretariat would not touch upon the question of th e operation of the Annex and that the debate on 
this question would take place only on the basis of Members' contributions and comments.  He then 
turned to Australia to present the submission jointly sponsored by Australia, the European 
Communities, New Zealand, Norway and Switzerland,  titled "Review of the Annex on Air Transport 
Services – Ground Handling and Airport Operations Services" and circulated as Job (06)/237 dated 
13 September 2006. 
107. The representative of Australia  indicated that the objective of the proposal was to ensure that 
the second Review led to concrete  outcomes and opportunities for Members, including, if they so 
desired, to make commitments on auxiliary air transport services through the GATS.  Hence this 
proposal was about clarifying the Annex for Members.   He noted and shared the Canadian comments 
that Members were moving on beyond the lega l debate.  Opinions differed on whether ground 
handling and airport operation services were already open for Members to make offers on.  Indeed, Australia had already done so.  This proposal was about moving beyond that point to get legal 
certainty.  Australia maintained its existing positi on that these services were already open to those 
wanting to make offers, but equally Australia did not  want to reopen the detaile d legal debate at this 
time.   
108. Australia wanted to make it clear that clarification of this matter alone would not end the need 
for further work on developments in the sector  through the Review, and potentially for further 
expansions of the Annex in the future.  The Secretariat's background paper on auxiliary services 
supported his delegation's view that there had been considerable changes sinc e the time of the last 
Review in ground handling a nd airport operation services.  These developments presented 
opportunities and challenges for service providers.  Au stralia was particularly interested in the 
emergence of independent ground handling companies and the continuing search for economies in the 
management of airport services and the implications fo r this Review in consideration of its proposal.  
For example, available markets open to competition in this sector had doubled over the last five years, 
to represent 40 percent of the global market in 2005,  up sharply from 24 percent in 2000.  Further, 
liberalization of ground handling and airport operations  could, should Members make offers, play an 
important role in facilitating trade.  It was an impor tant part of the supply chain and its liberalization 
could only improve global logistics with si gnificant knock-on benefits to trade.   
109. Notwithstanding Australia's view that ground handling and airport operation services were 
already covered in the GATS, Australia and its co -sponsors were seeking agreement from Members to 
amend the Air Transport Services Annex to refer to ground handling and ai rport operation services.  
This was the only outcome that would provide certa inty for Members and would reflect the important S/C/M/87 
Page 20  
 
  liberalization that had taken place in recent years.  Australia would continue to work closely with 
others - the co-sponsors, but also other Members, to  clarify the issues raised in this paper and looked 
forward to Members' initial views on the paper. 
110. The representative of China
 welcomed the proposal presented by Australia and noted that 
supporting and auxiliary services for air transport, including ground handling a nd airport operations 
services, played a positive role in promoting the efficiency of the air transport industry both in terms 
of quality and cost.  For China, the liberalization of air transport in the WTO sh ould be focused on the 
supporting and auxiliary services for air transport in general, and not only on ground handling and 
airport operation services.  Although the positions of Members somewhat differed, it might be much 
easier to handle this issue without involving hard rights.  
111. On specific points, China disagr eed with the inclusion of firefighting within ground handling 
as in some Members' economy firefighting was a service provided by the government and not a commercial service.  China noted, furthermore, that  the classification of ground handling activities by 
the IATA International Ground Handling Council (IGHC ) also excluded firefighting.  China preferred 
the adoption of the IATA IGHC classification, rather  than the CPC one suggested by the sponsors of 
the proposal, because it was widely used by the industr y.  As to airport services, China suggested to 
distinguish the notion of "airport management se rvices", which only included the expertise of 
managing an airport company, from the notion of "airport operation services", which meant the 
provision of practical and direct operations such as operations of runways and terminal building at the 
airport.  "Airport services" was encompassing both ca tegories since it covered all services provided at 
airports.  As an example, China quoted British Airport Authorities (BAA), which provided airport 
management services globally, but no airport operati on services.  Finally, China considered that it was 
not yet the proper time to discuss the amendments of  the Annex as the substantive review had just 
started and as such a discussion should take place onl y after a full review of the developments in the 
sector and the operation on the Annex had been conducted. 
112. The representative of the European Communities
 supported the position expressed by 
Australia.  The liberalization of auxiliary services to air transport was clearly a means of improving 
the cost efficiency and the operational efficiency of airlines, by ensuring that the capacity which 
airlines used was managed in an efficient way via the introduction of a sufficient degree of 
competition.  This was critical in an industry that  was so sensitive to external shocks such as 
worldwide pandemics, threat of terrorism, or fuel hikes.  The EC communication also touched on those issues and tried to explain the need for the inclusion of those sectors in a way that everyone 
could understand and make commitments with a lega l basis that was clearly accepted by all.  The 
proposal from September was just aimed at bringing the debate forward, which might address the comment by China that this discussion might be premat ure.  The EC was ready to investigate if there 
was a possibility of perhaps presenting this issue in a way that could be more clearly understood.  What mattered was to identify the auxiliary services as sectors of economic importance in their own 
right and to find out how to bring these services more fully into the GATS. 
113. The representative of Chile
 supported the proposal presented by Australia in view of the 
importance and growth of ground handling and air port operation services in recent years.  It was 
therefore necessary to modify the Annex on air trans port to include explicitly these two activities.  He 
indicated that, for these reasons, Chile had deci ded to become a co-sponsor of the proposal. 
114. The representative of the United States  reiterated that, as described in an earlier submission, 
co-sponsored with Japan and Canada, this forum wa s the appropriate venue to discuss the scope of 
GATS coverage of the air transport sector rath er than the Special Session and request/offer 
negotiations.  The United States saw the proposal  presented by Australia as constituting an 
amendment to expand the current scope of the GATS.   Whether it would also serve to clarify the 
scope of the exclusions of the air sector from GATS obligations and the WTO dispute settlement  S/C/M/87 
 Page 21 
 
 
  embodied in the Annex, was a question worth consider ing.  One of the major concerns that the United 
States had with this proposal was the lack of ev idence that the industry itself on a global level was 
involved in this debate.  It was important, if this  initiative was to pass, that the potentially affected 
industry be a willing participant in such an initiative.   This said, the United States saw the value that 
could be obtained in greater clarity and legal certainty  with respect to the Annex exclusions.  To that 
extent, the United States appreciated the spirit in wh ich the co-sponsors were looking at ways to move 
beyond the legal debate and achieve  some measure of clarity.   
115. Turning to the specifics of the proposal, the Un ited States was interested in the views of co-
sponsors and other Members as to how certain thr eshold issues would be dealt with in such an 
initiative.  How would MFN obligations be addressed in sectors that were newly explicitly listed for 
coverage in paragraph 3?  What about technical corrections to Members' schedules?  Finally, the 
United States did have issues, like other Members, with the proposed definitions in this initiative and 
was not certain that they matched the commercial reality in which they were provided. Nor did it 
appear that the two sectors as defined were mutual ly exclusive of each other.  US constituents had 
raised issues with those definitions and there ha d been discussions on the margins about that.  So 
withholding any final judgement on this proposal , the United States was interested in more 
clarifications and technical details about how that would be handled.   
116. In addition, there were serious unresolved issues with the possible application of GATS 
obligations to these sectors.  The United States had c oncerns with respect to the possible implications 
of extending GATS coverage to airport operation ser vices, which were provided in the US and in 
many other Members by public authorities.  Libera l provisions on ground handling remained a core 
element in the US model open skies text.  Severing soft rights such as ground handling rights from the 
traffic rights that were negotiated in conjunction, a ppeared neither simple to handle nor desirable.  
Finally, it was not clear  how the regime that th e United States had built up through bilateral and 
plurilateral exchanges of ground ha ndling rights would co-exist with  GATS coverage of this sector.  
At any rate, the proposal was not about a clarification of the existing scope of the GATS. 
117. Reacting to the US comments on the role of stake-holders in this debate, the representative of 
the European Communities  assured the delegates that the EC communication had been prepared in 
full consultation with the stakeholders in the EC na mely the ground-handling association, the airlines 
and the airports and that they had all subscr ibed to the content of that communication. 
118. The representative of Colombia  welcomed the proposal, which contained a number of very 
valuable elements to nurture the discussion on air tr ansport.  In line with the historical position of 
Colombia, regarding flexibility, free access and equal opportunities for ground handling services, the 
Colombian authorities had decided to support the add ition of ground handling services to the Annex.  
Regarding airport operations services, they ha d difficulties understanding the rationale for the 
inclusion of airport services as suggested in the prop osal.  Airports were a component of aero-nautical 
infrastructure, which required a lot of investment a nd fixed capital, and that usually belonged to state 
authorities, be it the central government or local or regional governments.  Colombia was promoting 
the participation of private entities in airport operatio ns, so as to imrpove infrastructure development.  
There had been a number of competitive bids/tenders and this required long-term contracts with the 
State.  Hence, Colombia wished that more clarity be brought to the ramifications of an inclusion of 
airport services in the GATS.   
119. The representative of Canada  found the proposal very constructiv e and welcomed the fact that 
the debate was moving away from legal interpretati ons and was aiming at legal certainty, which was a 
key objective.  Although Canada did not have specifi c export interests in these sectors at the present 
time it considered the proposal as an acceptable basi s on which to begin consideration of inclusion of 
ground handling and airpor t operation services under paragraph 3 of the Annex. S/C/M/87 
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  120. The representative of Japan
 recalled several points linked to the fundamental position of 
Japan regarding the review of the Annex.  Bo th ground handling services and airport operations 
services were directly linked to the exercise of tra ffic rights, because they we re indispensable for the 
operation of aircraft.  Japan could not accept the idea that these services were not linked to traffic rights.  Attention should be paid to the substantia l differences between those two sectors and the three 
services explicitly listed in paragraph 3 of the Anne x.  Because of these differences they could not be 
given the same status.  In addition, neither the de finition of those services nor their demarcation was 
clear, which cast a doubt on the feasibility of the proposal.  Attention should rather be devoted to the improvement of commitments in the three listed services and to the reduction of the number of MFN exemptions concerning those three services.  Japan  also seized this opportunity to reiterate the 
importance of the existing bilateral regime regarding the exchange of hard rights. 
121. The representative of Cuba
 called for the Spanish version of the second volume of the 
publication to be made available soon, thanked the Secretariat for the QUASAR/ASAP presentation 
which it found helpful and wished that Members comp lement the information already contained in the 
Secretariat database.  Cuba took note of the proposal made by Australia and of the communication of 
the European Communities.   
122. Air transport was a key component of the economy as well as a vector for tourism and 
cultural exchanges.  In an incr easingly globalized world, the expansion of privatization and 
liberalization was evident for various sectors of the world economy.  In the case of air transport, the 
35th session of the ICAO Assembly held in 2004 had established the ICAO priorities for the 
triennium 2005-2007.  The fifth Worldwide Air Transport Conference held in 2003 had reached a 
consensus on progressive liberalization while reaffi rming the leadership of ICAO on civil aviation 
matters.  This conference dealt with the aspiration of a progressive, continued liberalization in a safe, 
protected and economically sustainable form.  In  that context, Cuba was in favour of equal 
opportunities and of a gradual and slow phasing-in of liberalization.  Flexibility was essential there, as 
well as the availability of safeguards measures.  Cuba considered that the embargo by the United 
States had been the main impediment to the expansio n of its national transport sector, in particular in 
terms of access to technologies for the renewal of th e fleet and the maintenance of airports and air 
navigation infrastructures, but also of access to computer reservation services, a sector in which Cuba, unlike the United States, had no MFN exemptions.   
123. Cuba for its part had market access and national treatment commitments for the three sectors 
covered by the Annex.  In reality, the largest part  of air transport was controlled by alliances from 
developed countries.  However, trade continued to be regulated by bilateral agreements in which 
rights of the parties could be protected and abided by.  Trade under pure market laws did not recognize the peculiarities of air transport, notably the principle of full and exclusive sovereignty on 
the air space as spelled out in Article 1 of the Chi cago Convention, nor did it take into account the 
economic, infrastructural and geographical li mitations of developing countries.   
124. The representative stressed that ground handlin g and airport operation services must remain 
subject to the sovereign decision of States in their bilateral relations.  Hence, the scope of the Annex 
must remain limited to the three sectors presently co vered.  Efforts should rather be devoted to the 
elimination of existing MFN exemptions and to the negotiation of commitments in those three sectors.  
ICAO should remain the only forum regulating internati onal air transport.  It was clear that the air 
transport sector was undergoing a phase of liberaliza tion;  that process had to be conducted under the 
principles defined by ICAO of a balance of benefits between consumers, airlines and public interests.  
125. The representative of Switzerland
 agreed with prior interventions stating that this forum was 
not meant to discuss commitments on ground handling and airport operation services, but the possible amendments of the Annex.  First, regarding ai rport operation services one had to address the fears 
expressed so far.  Indeed, airports were a very impor tant type of infrastructure, very capital intensive  S/C/M/87 
 Page 23 
 
 
  and submitted to a very specific regulation.  Some ai rports were publicly owne d and some others were 
not.  This coexistence of a public and a private segme nt within the same service was not an exclusive 
feature, it existed too in education and environment, for instance.  It was addressed in other sectors by 
crafting commitments in a way that clarified the areas subject to commitments, and Members had been very creative in that respect.  So the questio n was:  did the Membership collectively want to 
deter individual Members from making commitments  or not?  Should Members be prevented from 
making multilateral commitments on liberal policies th at benefited the entire Membership?  The MFN 
question was not specifically related to commitment s, but rather to the terms of any solution or 
approach that the Members would decide to take when amending the Annex.  Regarding definitions, 
Members were, of course, free to adopt any kind of  definition that was within the framework of the 
GATS.  The co-sponsors had chosen the CPC as the b asis of this proposal because, while not perfect, 
it had very clear advantages, being exhaustive and mu tually exclusive.  That avoided the problem of 
overlap.  In addition to exhaustiveness and mutual exclusiveness, the CPC contained a very clear and 
detailed mechanism on how to attri bute a particular service to a specific CPC number.  There was 
indeed a problem of communication between the langua ge of aviation officials and authorities, and 
the language of the trade and GATS negotiations.  These languages were different and they were not 
directly compatible with each other.  Still, the CPC language was preferable in a trade context as it 
avoided overlaps in the same way as a parking lot demarcation sought to prevent a driver from 
stepping on another parking space.  Further, a certa in flexibility could be exercised.  For instance, 
paragraph 14(f) of the proposal gave a slightly more precise definition than the CPC definition.  It did 
not expand the CPC as such, but made things clearer  and more transparent.  Switzerland hoped that, 
with a constructive approach and hard work, a mutually acceptable definition could be found. 
126. The representative of the United States
 noted that the implications of such an initiative 
extended beyond any Members' specific commitments th ey might elect to take.  This would be of 
lesser concern to the United States if the only imp lication related to commitments taken by other 
Members on a voluntary basis, as long as those commi tments were within the proper scope of the 
GATS.  The fears that had been articulated were about the general obligations of the GATS and the 
potential application of WTO dispute settlement to sectors that had their existence defined without 
being under the provisions of that regime.  That is why definitions were important: in this case 
definitions were not about commitments only, but al so about the GATS itself and its scope.  To that 
extent, the United States was concerned about the definitions – again without prejudice to its final position on whether it would endorse this proposal.  In  their daily business, operators in these sectors 
did not use reference to CPC codes, and this had to  be borne in mind when engaging in a process of 
consultation with the industry.  The industry woul d need to check whether these definitions were 
comprehensive and conformed with the commercia l reality, and whether they were mutually 
exclusive.  The United States was looking forward to further discussion. 
127. The representative of Switzerland
 recalled that the mandate of the Review was, according to 
paragraph 5 of the Annex, to "review the operatio n of the Annex with a view to considering the 
possible further application of the agreement in this sector".  The question before Members was 
therefore:  how did the Annex operate regarding tra ffic rights or, rather, what were the consequences 
of its non-application for the air transport industry, since paragraph 2 of the Annex stipulated that the 
agreement "shall not apply to trad e measures affecting traffic rights"?  The air transport industry was 
operating under the regime of the Chicago Conven tion, operationalized through a large web of air 
services agreements.  Thus, Members needed to assess whether this web of agreements had truly 
liberalized and opened the industry.  
128. The documentation provided by the Secretariat gave a clear picture in that regard: most 
agreements did constrain routes, number of comp etitors, capacity and rates.  For instance, dual 
approval still prevailed in 84 percent of the agr eement representing 72 percent of the traffic.  
However, it was difficult to qualify as "liberalized" an activity whose prices were controlled by two 
governments.  Seventh freedom rights, i.e. the right to carry freight and passenger by an airline of a S/C/M/87 
Page 24  
 
  third country without connection to its home country , was a marginal feature, while cabotage rights 
was a quasi inexistent one.  With regard to ow nership, the traditional "substantial ownership and 
effective control" rule defined si xty years ago at a time where there was a close identification between 
an airline and a nation State, was still quasi-unive rsal, as 90.5 percent of the agreements representing 
90 percent of the traffic were still subject to those restrictions.  The most liberal ownership criterion, 
the principal place of business, was used in only 7. 6 percent of the cases.  As a consequence, the 
"substantial ownership and effective control" criteri on perpetuated a fragmented and often inefficient 
industry structure, because an airline seeking foreign capital or a foreign merger partner could lose the 
ability to operate foreign flights.  While a symbol of globalization, airlines could not evolve, paradoxically, into genuine multinati onals.  Safety and security remained paramount objectives for all 
aeronautical authorities; however, how restrictive ow nership provisions and protectionist traffic rights 
could enhance safety and security still remained a my stery.  The state of international air transport 
regulation and the slow pace of its liberalization, including at regional level, could drive negotiators 
into despair.  
129. In that context, a catalyst was needed and no options should be left aside.  The multilateral 
framework of the GATS did provide legal certain ty and stability, and was open and accessible to 
practically every country.  It was framed in a wa y that could cover all fr eedoms and could address 
ownership issues as well.  It was a flexible system where Members could make tailor-made commitments in the light of their domestic sensi tivities.  Finally, it offered additional flexibility 
through exemptions from its central Most-Favour ed-Nation obligation.  As a consequence, 
Switzerland considered that Members should not excl ude the prospect of abolishing the Annex on Air 
Transport and, thus, having the sector covered by the GATS.  Indeed, air transport services deserved 
greater freedom.  
130. The representative of Australia
 welcomed what he termed a thought-provoking presentation 
by Switzerland.  Australia did not take a position as yet on the proposal or s uggestion that Switzerland 
was making.  However, it did support the ends that Switzerland was proposing, which were about 
greater liberalization and normalization of air tran sport services.  The abolition of the Annex was a 
proposal that could help to meet those ends.  Au stralia's policy was to seek liberalization through 
multilateral arrangements, such as under the WTO,  and this suggestion was worthy of some 
consideration.  Australia looked forward to hearing the views of Members at the next meeting of the 
Review, at which time it would also respond to the Swiss proposal. 
131. The representative of the United States  underscored the difficulties faced by the air services 
industry over the last few years, including the imp act of the horrible attacks on September 11 2001 or 
the SARS crisis, and rising fuel costs.  Still, alarmi st rhetoric invoking the structural crisis of the 
industry and its "pillar of stagnation" was exaggerate d.  Air transport was facing a state of transition 
and was on the verge of a major regulatory breakthro ugh on its single biggest market:  the negotiation 
of the first phase of a draft agreement between th e United States and the European Union and its 
Member States.  Changes should not be made to this important sector solely in an effort to create an 
impression of positive change for its own sake.  Rather , change had to be driven by fundamentals in 
the industry and largely at the initiative of the i ndustry.  The United States did not think that any 
initiative should be undertaken that would produce more harm than good.  In its view, the Swiss 
proposal was falling into that category.   
132. The representative of th e European Communities  referred to the Swiss proposal of abolishing 
the Annex.  The mandate of the Members was to inve stigate the different avenues of how to make the 
Annex better reflect the realities of the air transpor t industry.  Hence, any kind of proposal, including 
the Swiss one, would have to be scrutinized in-dep th before the European Communities could take a 
position on that. 
133. The representative of Korea  considered that the proposed extension of the Annex to ground  S/C/M/87 
 Page 25 
 
 
  handling necessitated first in depth discussions with the proponents.  With regard to airport services, 
this question deserved careful and cautious considera tion since these were a key infrastructure, often 
owned and/or supporte d by governments. 
134. The representative of New Zealand  welcomed the contribution from Switzerland, which he 
too considered to be thought-provoking.  Although the possibility of the WTO playing a greater role 
in hard rights had been around for some years, it clearly required in-depth consideration before 
Members could reach conclusions.  In the l ast review, New Zealand had submitted a paper 
(S/C/W/185, dated 1 December 2000), drawing para llels between the standard provisions of air 
services agreements and the GATS.  The resulting differences were not as wide as some perceived.  However, conceptually some thinking would have to  be done in terms of how hard rights could be 
addressed.  Clearly, Switzerland had started that pro cess of contemplating what the future offered.  
New Zealand was surprised by the comment fro m the United States about alarmist rhetoric, 
particularly in view of the state of the US air line industry.  The losses were truly massive for an 
industry that struggled to maintain stability.  Changes could not only be industry-driven.  There were wider considerations, such as the impact on the overall economy as well as on transport users.   
ITEM C FURTHER STEPS FOR THE REVIEW 
135. The Chairman
 gave the floor to the Secretariat to indicate the possible timelines of the 
production of the next set of documentation. 
136. A representative of the Secretariat  indicated that the extent and depth of the work to be 
produced were in the hands of Members and a function of the timeline they set.  With respect to QUASAR, the Secretariat would produce a list of possible improvements for Members to consider.  
The remaining items that the Secretariat should be  producing for the purpose of the Review concerned 
aspects of scheduled air passenger transport that were not linked to air service agreements nor directly 
quantifiable in market access terms:  low-cost carrier s, charters, regional, general aviation and slots.  
The Secretariat apologized for not having covered them  yet.  It had taken the initiative and the liberty 
to invest more resources and time to produce the QUASAR/ASAP products.  From a management 
point of view, because of the large amount of resources involved, further work on QUASAR-type 
products should be based on keen demand from the Me mbership.  The relevant concern was timing;  
the Secretariat could produce documentation on the subjects mentioned, with the same depth of 
analysis, by early October. 
137. The representative of New Zealand
 indicated she had thought of an earlier date for the next 
meeting in September, which should be set so as not to overlap with the ICAO meetings.  Australia  
concurred and called for an early decision on the date, so as to be able to organize a seminar in the 
margins of the meeting. 
138. The Chairman  concluded that he woul d hold consultations on the subject and adjourned the 
meeting. 
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