WRITTEN QUESTION P-2837/01

by Bart Staes (Verts/ALE) to the Commission

(5 October 2001)

Subject: Distortions of competition and state aid to ailing airline companies

The fifteen EU Finance Ministers decided on Saturday 22 September 2001, to stop authorising direct state aid to European airline companies. The Ministers' statement also stipulated explicitly that general government aid to unprofitable companies was out of the question, and that any proposed measures would have to be notified to the European Commission, specifying the amounts involved. In compensation for the economic impact of the horrific events in New York and Washington, EU Member States could however help their national carriers financially with meeting the rising cost of insurance premiums. Article 87 of the EU Treaty explicitly authorises support measures in the event of natural disasters or exceptional occurrences. In the short term and for up to one month, EU governments can directly cover third-party damages resulting from war or terrorism. The United States are providing state support of 15 billion US dollars, 5 billion of it in direct support, to the ailing airline industry. That direct support, at the very least, conflicts with World Trade Organisation (WTO) rules. An these extensive support operations are moreover strengthening the competitive position of the airline industry at the expense of other, other more environmentally friendly, means of transport. In civil aviation hardly any external costs are passed on: excise duty is not paid on aviation spirit, and air tickets are not subject to VAT.

Does the Commission consider American state aid of 15 billion US dollars, 5 billion of it in direct support, for the ailing airline industry, as compatible with WTO rules? If so, what arguments does it advance in its favour? If not, will the Commission bring proceedings before the WTO in response to the violation of its free-market rules? What action will the Commission take in order to establish relations of fair competition between different modes of transport in response to the further strengthening of the airline industry's competitive position by the above support measures and the adverse impact on people and the environment?

Answer given by Mr Lamy on behalf of the Commission

(12 November 2001)

Maintaing a level playing field amongst airlines on both sides of the Atlantic is an important issue which the Commission takes very seriously.

WTO rules, however, do not contain a general prohibition of subsidies. Furthermore, the General Agreement on Trade in Services (GATS) does not yet provide for any specific disciplines with respect to subsidies, even though negotiations in this area are already part of the built-in agenda and could be re-enforced in a New Round. More importantly, most air transport activities are currently carved out from the GATS by the Annex on Air Transport Services and therefore not covered by the obligations in this Agreement. In the absence of applicable WTO rules to the aid package provided by the US authorities, the issue of WTO compatibility does not arise.

Therefore, any possible trade distortions caused by direct support to airline companies in the United States must be addressed in the context of the conventional EC-US bilateral framework. Unfortunately, in this area, Member States have so far preferred to handle relations with the US on a purely bilateral basis without reference to their EU partners or the EU legal framework a situation the Commission is currently challenging in the European Court of Justice. The Commission believes the current situation makes an EU-level policy for external relations in the air transport field even more important. The Commission will therefore continue to press for an EU-US negotiating mandate for air transport and, as a first step, propose to the United States a code of conduct to avoid distortion of competition

resulting from payment of state aid. In the absence of such an agreement and pending the negotiating mandate, it is up to the Member States to proceed with a minimum of Community co-ordination in the framework of the bilateral agreements.

In respect of the environmental impact, in the short term the attacks of 11 September have compounded the already burgeoning problems of over-capacity in the industry. Measures to correct this have resulted in the removal of substantial portions of many fleets and the acceleration of retirement programmes for older, less efficient equipment. As a result, the short term environmental impact of both emissions and noise from aviation has actually been reduced. It is likely to be some time before traffic returns to its pre-11 September level, with or without state aid, and as it does, it is likely to be with somewhat less environmentally damaging fleets.

For the longer term, and further to the results of the recent 33rd Assembly of the International Civil Aviation Organisation, the Commission is working on proposals for a framework setting the conditions under which States could introduce operating restrictions at their airports with a view to tackling the noise issue. The Community is also considering how emissions related levies might be introduced to meet the objective of internalising the external costs of aviation. A Commission study is scheduled for completion later in the year.

It is of course important that there be fair competition in all respects and that aviation be treated no more, nor less, favourably than other modes. To this effect, the Commission is keen to ensure that assistance given to the airlines both in the EU and elsewhere addresses only the damages incurred as a direct result of the attacks.