S/C/W/270/Add.2 
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SECTION IV 
 
OTHER SIGNIFICANT ECONOMIC 
AND REGULATORY 
DEVELOPMENTS S/C/W/270/Add.2 
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IV.  OTHER SIGNIFICANT ECONOMIC AND REGULATORY DEVELOPMENTS 
749. During the period under review, the only major development to report concerns overflight 
regulations. 
A. MULTILATERAL DEVELOPMENTS  
750. The fortuitous reasons that had led the drafters  of the GATT to exclude air transport from the 
disciplines of Article V of the GATT as well as the pr ovisions of its ICAO substitute, the International 
Air Services Transit Agreement (IASTA) have been d escribed in detail in the compilation, pages 184 
to 191. 
751. During the period under review, five new contr acting parties have joined the IASTA, namely, 
Serbia and Montenegro (10 July 2002), Georgia (8 October 2003), Mongolia (15 April 2004), the 
Cook Islands (18 April 2005) and the Syrian Arab Republic (25 November 2005). 
752. As at May 2006, IASTA counted 123 Members.395  However, as noted by ICAO in its 
document titled "Industry overview", produced for th e seminar on liberalization held in Dubai in 
September 2006396, "about one third of ICAO Contracting States, including several with large land 
mass, remain outside the agreement".   
753. For this reason, in its assembly resolution A 35-18, Appendix A, ICAO "urged Contracting 
States that have not yet become parties to the IASTA to give urgent consideration to so doing".  The 
Fifth ICAO Worldwide Air Transport Conference al so reaffirmed the importance of IASTA "for 
liberalization and for developing multila terally the air transport system". 
B. BILATERAL DEVELOPMENTS  
754. During the period under review, the tensions between the European Community and the 
Russian Federation over overflight fees, described in paragraph 14 on page  191 of the compilation, 
were finally settled. 
755. As explained in the compilation, the object of  the tensions were the mandatory payments 
taking the form of a "commercial agreement" betwee n Aeroflot and the carrier concerned enshrined in 
the relevant bilateral ASA.  These commercial ag reements had been, since the 1970s, a pre-condition 
to accessing routes overflying Siberia.  The system, unique in the world, was considered by the 
European Community to be in breach Article 15 of  the Chicago Convention, which provides for cost-
based air navigation fees and national treatment.397 
756. With the intensification of traffic between Eur ope and the Far East in recent years, overflight 
payments have increased significantly and are fores een to continue rising in view of the estimated 
growth of traffic(see Table 60). 
                                                      
395 The IASTA contracting parties are listed in Ta ble A.1 on pages 185-187 of the compilation. 
396 http://www.icao.int/icao/en/atb/ecp/dub ai2006/RegulatoryIndustryOverview.pdf 
397 For a detailed explanation of Article 15, see the compilation, paragraphs 93 to 98 on pages 140-141. S/C/W/270/Add.2 
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Table 60  
Forecast annual percentage change for the traffic 
from Western/Central Europe to North-East Asia
398, 2005-2009 
2005 2006 2007 2008 2009 Aggregate 2005-2009 
6.0 5.7 4.4 5.1 4.9 5.2 
 Source : IATA 
757. The European cargo industry, which faces competition from Russian air cargo carriers, 
especially on the heavy lift segment, has also co mplained that the overfli ght fees were giving an 
unfair advantage to Russian carriers on Far-Eastern destinations. 
758. It is difficult to assess with certainty the exact amount paid in overflight fees by EC carriers.  
The figures reported in the press and those provided by official sources, such as the Association of 
European Airlines (AEA) or the European Commission,  vary considerably and,  in addition, the base 
year and the US dollar-Euro exchange rate used ar e not always indicated.  Table 61 presents all the 
information that the Secretariat has managed to gather in this regard. 
Table 61 
Estimates of overflight fees paid by EC carriers  
Source Reference year Amount in US dollars 
(million) Amount in Euros 
(million) 
Les Echos 
(27 November 2006) 2005/2006 331 -- 
WTO Reporter 
(28 November 2006) 2006 -- 300 
Aviation Week & Space Technology 
(8 August 2006) -- 250 -- 
Bloomberg 
12 October 2006 -- 376 300 
Associate Press 
(12 October 2006) -- 300 239 
Wall Street Journal 
(27 November 2006) -- 430 333 
Financial Times 
(25 November 2006) -- 331 253 
Dow Jones 
(24 November 2006) 2005 388 300 
Dow Jones 
(24 November 2006) 2006 427 330 
European Commission's air transport 
webpage 2003/2004 250 -- 
European Commission's air transport 
webpage 2005/2006 331 -- 
EC Communication 
(2005)399 2003 -- 250 
EC Press Communiqué 
(24 November 2006) 2006 -- 300 
Source :  WTO Secretariat 
                                                      
398 North-East Asia is defined as comprising:  Ch ina;  Hong Kong China;   Macao China; Chinese 
Taipei; Democratic People's Republic of Korea;  Republic of Korea;  Japa n;  Mongolia and Russia (East of the 
Urals). 
399 "A Framework for Developing Relations with the Russian Federation in the Field of Air Transport", 
COM(2005)77.  S/C/W/270/Add.2 
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759. The turnover of AEA airlines for destinati ons involving Russian overflight amounted to 
US$ 7.2 billion in 2005, which implies that ove rflight fees represent somewhere between 3 and 5 
percent of turnover.  By way of comparison, profit margins in the air transport sector are negative in 
lean years, between 2 and 5 percent in good years and up to 7 percent for successful long-haul carriers
400.  
760. In 2002, the European Commission decided to link the question of overflight fees to its 
bilateral negotiations with the Russian Federation on the latter's accession to the WTO.  In May 2004, 
in a side letter to its bilateral agreement with the EC, the Russian Federation took a commitment, the 
exact terms and status of which are unknown, to abolish these fees by December 2013.401 
761. Unsatisfied because of the absen ce of transitory measures, the EC sought a mandate from the 
European Council of Transport Ministers to negotiate  with the Russian Federation, and obtained it in 
March 2006402. 
762. On 24 November 2006, the Commission reached an  agreement with the Russian Ministry of 
Transport.  The main terms of the agreement, acco rding to the European Co mmission, are as follows: 
"•   EC carriers will not have to conclude mandato ry commercial agreements with Aeroflot for the 
 use of Trans-Siberian routes;  
• New operations by EC carriers on the Trans-Siberian routes in the transition period will be 
free of payments;  
• Not later than 31 December 2013, all royalty payments will be abolished and airlines will 
have to pay only air navigation charges in line with the Chicago Convention;  
• All fees and charges in the new system  will be cost-based and transparent;  
• During the period between 2010 and 2013, exis ting payments will be gradually reduced;  
• EC airlines will be able to keep overflight fre quencies currently leased from Aeroflot in the 
new system;  
• The Russian Federation agrees to grant new frequencies in the framework of bilateral 
negotiations; 
• All principles agreed between the EU and the Russian Federation will have to be 
implemented in bilateral air services agreemen ts between Member States and Russia before 
May 2007. 
• The agreed principles of the agreement will lead to the amendment of the relevant provisions 
in the bilateral air services agreements betw een Member States and the Russian Federation 
which remain in force." 403 
763. The agreement was approved by the EU Counc il of Transport Ministers on 22 March 2007.  
The conclusions of the Council stipulate that "the Decision will be accompanied by an equalisation 
                                                      
400 See, for instance, IATA Annual Report (2007).  The comparison with some low-cost carriers such 
as Gol, AirAsia or Ryanair, whose margins are higher, is i rrelevant in this context. 
401See 
http://ec.europa.eu/trans port/air_portal/intern ational/pillars/common_aviation_area/russia_en.htm 
402 The exact text of the original mandate is available at http://ec.europa.eu/transpor t/air_portal/international/ 
pillars/common_aviation_area/doc/ru ssia/2006_03_council_conclusions_en.pdf 
403 See http://europa.eu/rapid/pressReleasesAction. do?reference=IP/06/162 6&format=HTML&aged= 
0&language=EN&guiLanguage=en S/C/W/270/Add.2 
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mechanism set up by Member States aimed at avoiding possible distortion of competition on Tran-Siberian routes between the Community air carriers during the transitional period, until 
December 2013".   
764. Signature of the agreement should take place, in  principle, during an EU-Russian Federation 
aviation summit scheduled for November 2007, but subsequent bilateral ne gotiations between EC 
Member States and the Russian Federation for the in corporation of its provisions into the various 
bilateral Air Services Agreements still have to take place.  
765. From a political standpoint, the Russian overflight fees question is a purely bilateral EU-
Russian issue.  It may, however, have a co mmercial repercussions on third parties.   
766. A more detailed examination of the traffic n ecessarily having to fly over the Russian 
Federation shows that a large part is effected by  non-Russian, non-EU carriers, as illustrated by Table 
62.  This table is based on OAG
404 figures on the capacity deployed by airlines of all nationalities 
during the IATA winter season 2006-2007.405  It provides a conservative assessment of the traffic 
relations implying an overflight of the Russian Federation, since it is based on only four major 
destinations in North-East Asia (i.e. China, Ch inese Taipei, Korea and Japan), on the one hand, and 
the totality of Europe on the other.  As such, Table 62 ignores other destinations implying an 
overflight of the Russian Federation, such as Hong Kong, China; Macao, China; Mongolia.  The data 
is also limited to one-way traffic (from Europe to North-East Asia), but this does not constitute a 
serious methodological limitation since, overall, passengers flown are directionally balanced. 
Table 62 
Capacity deployed on routes overflying Russia 
Carriers Number of seats Share 
Total non EU carriers 1,707,045 47.6% 
Japanese carriers 525,433 14.6% 
Chinese carriers 492,437 13.7% 
Korean carriers 322,404 9% 
Chinese Taipei carriers 234,448 6.6% 
Turkish carriers 101,999 2.8% 
Swiss carriers 30,324 0.9% 
EU carriers 1,887,014 52.4% 
Total non-Russian carriers 3,583,059 100% 
Russian carriers 128,289 -- 
Total capacity deployed from 
Europe to North-East Asia 3,711,348 -- 
 
Source : OAG, recompiled by the WTO Secretariat. 
 
767. In the absence of publicly available information,  it is impossible to know whether the share of 
overflight fees paid by non-EU carriers is close to  their share of total capacity deployed between 
Europe and North-East Asia, i.e. 47.6 per cent.  Moreover, overflight fees are said406 t o  v a r y  f r o m  
carrier to carrier.  The European Commissi on Communication COM(2005)77, titled "A Framework 
for Developing Relations with the Russian Federation in the Field of  Air Transport", indicates that 
                                                      
404 For more detail on the services provided by OAG to the airline industry, see document S/C/W/270, 
paragraph 181 on page 44 and document S/C/W/270/Add.1, paragraph 32 and footnote 21 on page I.18.  The 
Secretariat is hoping to use, if re sources allow it, OAG data for future versions of QUASAR.  The overflight 
example clearly shows the usefulness of OAG statistics (t he only existing set of data on capacity effectively 
deployed) for a "reality check" on the use of rights granted under Air Services Agreements. 
405 The IATA winter season 2006-2007 went from 29 October 2006 to 1 April 2007. 
406 See, for instance, Reuters, 17 Oc tober 2006, "Russia sees no need to reduce Siberia airlines fees".  S/C/W/270/Add.2 
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"these payments are applied neither in a transpar ent manner nor to all Russia's trading partners"407.  It 
is nevertheless unlikely that all of the non-EU carriers mentioned in Table 62 fly across Russian 
airspace for free.   
768. The settlement reached between th e EU and the Russian Federation is of a bilateral nature and 
clearly has no MFN implications.  It may affect thir d-party carriers, which will continue to pay the 
overflight fees (if they were not a priori  exempted) by placing them at a competitive disadvantage.  
At the same time, however, the EU-Russia bilatera l settlement is not enforceable through a dispute 
settlement mechanism. 
 
__________ 
                                                      
407 See paragraph 3.2.2.1 of Communication COM(2005)77, available at:  http://ec.europa.eu/transport/air 
_portal/international/pi llars/common_aviation_area/doc/ru ssia/2006_03_council_conclusions_en.pdf