Communication from the Commission on the consequences of the Court judgements of 5 November 2002 for European air transport policy
Date: 2002-11-19
Institutions: European Commission
Subjects: EU Member State, EU policy, air transport, bilateral agreement, infringement of EU law, judgment of the Court (EU), third country

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 19.11.2002
COM(2002) 649 final

COMMUNICATION FROM THE COMMISSION

on the consequences of the Court judgements of 5 November 2002 for European air
transport policy

COMMUNICATION FROM THE COMMISSION

on the consequences of the Court judgements of 5 November 2002 for European air
transport policy

1. 

THE CURRENT SITUATION AND ITS PROBLEMS

1.1. 

Introduction

1. 

2. 

3. 

During the past decade, the European Union has progressively developed its position
on the World stage. Reflecting an increased sense of a common Community interest
in  a  wide  range  of  issues,  Community  positions  have  been  adopted  in  many
international  and  multilateral  discussions.  A  Community  approach  has  worked
particularly  well  in  international  trade  negotiations  and  has  secured  valuable  new
opportunities for companies and consumers and helped drive the creation of a more
open trading environment for all countries.

However,  the  European  Union  still  lacks  a  coherent  policy  for  international  air
transport. Since 1992, when the European Single Market was created and proposals
were last made for a European approach to international relations in this industry, the
Commission  has  consistently  argued  that  the  fifteen  Member  States  should  work
through  the  Community  institutions  to  manage  international  air  services.  The
Commission  has  long  believed  that  air  transport  would  benefit  from  a  coherent
Community  approach,  grounded  in  the  principles  and  procedures  of  the  founding
Treaty and based on common objectives. With Community initiatives today covering
most aspects of air transport, from safety and security to passenger protection, it has
become increasingly inappropriate for international relations  to  be  handled  by  each
Member State individually.

In  its  White  Paper  on  European  Transport  Policy1  for  2010  "Time  to  Decide",  the
Commission identified the development of a coherent external policy for aviation as
being  an  urgent  priority  given  the  effects  of  a  fragmented  approach  on  the
development of our airline industry.

1.2. 

The integration process

4. 

5. 

In the past fifteen  years, the European Union has undertaken a massive programme
of air transport liberalisation and integration. The Community has merged a series of
individual  markets  to  create  one  "domestic"  aviation  marketplace.  Globally,  this
marketplace  is  second  only  to  the  United  States  in  size  and  its  creation  has
demonstrated the means and the benefits to industry  and  consumers  of  overcoming
the traditional barriers to trade in air transport services.

A decade has now passed since the adoption of the aviation measures known as the
"Third  Package",  which  applied  the  principles  of  the  Single  Market  programme  to
the  aviation  industry.  The  "Third  Package"  finally  did  away  with  decades  of

1 COM (2001) 0370

2

                                                
6. 

7. 

8. 

restrictions  that  had  limited  access  to  air  transport  markets  in  Europe,  prevented
cross-border investment by European airlines and regulated in detail the operation of
the market itself.

The  "Third  Package"  turned  all  Community-owned  airlines,  regardless  in  which
Member  State  they  were  legally  established,  into  "Community  air  carriers"  with
equal  rights  of  access  to  the  entire  internal  market  and  with  equal  responsibilities
under  the  law.  It  allowed  existing  airlines  to  enter  previously  closed  markets  and
allowed  the  establishment  of  new  airlines  on  the  basis  of  common  principles  and
rules.  In  short,  air  services  could  be  provided  in  line  with  what  passengers  wanted
and  needed  instead  of  in  line  with  protectionist  rules  and  government  intervention.
Only international flights to and from the EU remained subject to traditional bilateral
aviation agreements.

The  Community's  activities  in  the  sector  are  not  limited,  however,  to  questions  of
market access. Integration has also meant the establishment of a framework of rules
establishing  common  levels  of  safety,  environmental  and  passenger  protection  and
air  traffic  management.  Thus  Community  carriers  operate  not  only  on  the  basis  of
common market access rights, but more generally on the basis of common standards.

In  1999,  the  Commission  presented  an  analysis  on  the  functioning  of  the  internal
market2. The events of 11 September 2001 created serious problems for the industry
and depressed the aviation market generally, but European airlines appear to be in a
period  of  recovery  and  the  broad  trends  remain  valid  today.  The  key  conclusions
were as follows:

–  As in the rest of the World, the EC market had seen strong growth in the 1990's,
with  the  fastest  growth  of  all  being  on  the  newly  opened  routes  in  between
individual Member States.

–  The productivity of Community carriers had increased.

–  The overall number of airlines operating scheduled flights in the Community had

almost doubled to 140 airlines.

–  There  had  been  serious  problems  at  some  of  the  established  carriers  that  have
resulted  in  job  losses  and  difficult  times  for  some  people,  however,  considered
overall,  employment in the sector had  grown,  with  increases  at  new  airlines  and
considerable expansion at some of the flag carriers.

–  Competition had increased, with many major routes being flown by three or more
airlines.  Fares  on  these  routes  were  on  average  between  10%  and  25%  cheaper
than on monopoly routes. Since the Communication, low fares have become even
more widespread.

–  The overall number of routes flown had increased.

9. 

These changes and trends notwithstanding, the European domestic aviation market is
also remarkable for what has not happened. Contrary to expectations and in contrast

2  Commission  Communication  entitled  "The  European  Airlines  Industry:  From  Single  Market  to  Worldwide

challenges"2 (COM(1999)182)

3

                                                
with  the  situation  in  many  other  service  industries  like  telecommunications,
insurance  or  banking,  the  ranks  of  the  major  players  has  changed  very  little.  Most
major  airlines  in  the  Community  remain  fragmented  along  national  lines  and  have
tended  to  grow  by  strengthening  their  position  in  their  home  markets  rather  than
looking  to  new  opportunities  for  investment  in  other  Member  States  or  seeking
growth through merger and acquisition.

10. 

The Community aviation market is a lively and innovative place, but while it remains
divided  along  national  lines  from  the  point  of  view  of  external  relations,  the  most
successful  companies  will  find  it  difficult  to  realise  their  true  potential  and
consumers will miss out on the benefits of additional competition.

Existing relations between Member States and third countries

11. 

12. 

13. 

14. 

Within the framework of the Chicago Convention of 1944, the worldwide regulatory
framework  has  developed  on  the  basis  of  bilateral  air  services  agreements  (ASAs).
These agreements regulate the market conditions under which air carriers are able to
operate air services. Since the internal market was implemented in the Community,
Member States have continued to conclude bilateral  air transport  agreements in the
traditional mould. Most have a considerable number of ASAs with foreign countries
- on average there are 60-70 per Member State.

These agreements do not differ greatly in form. Their main body contains the general
principles, while annexes set out more detailed provisions, including the routes to be
operated,  the  capacity  and  frequencies  which  can  be  provided  and  any  additional
traffic rights that can be exercised - for example "fifth freedom" rights, under which
airlines can extend their routes beyond destinations in the two parties to destinations
in  other  countries.  Often,  there  are  also  confidential  memoranda  of  understanding
that  deal  with  such  matters  as  commercial  arrangements  between  air  carriers  and
other financial questions. The main text of most ASAs remains unchanged for years,
but  changes  in  the  annexes  and  Memoranda  of  Understanding  (MOUs)  are  more
frequent to take account of market developments.

ASAs come in variety of forms, ranging from the very liberal to the very restrictive.
Some allow open competition between multiple carriers from the two parties, while
others virtually eliminate competition between operators.

The  "Open  Skies"  agreements  commonly  negotiated  by  the  United  States,  are
traditional  bilateral  agreements  in  that  they  reserve  traffic  rights  strictly  to  the
airlines  from  the  two  parties  to  the  agreement.  However,  they  do  provide  for  the
removal  of  quantitative  restrictions  on  the  frequency  of  flights,  the  capacity  to  be
provided and the number of air carriers permitted. Significantly for the EU, they also
permit  airlines  of  both  parties  to  extend  routes  between  them,  offering  unrestricted
fifth freedom services to other countries. These fifth freedoms are of relatively little
value on the American side of the Atlantic, given that there are relatively few viable
onward  destinations.  However,  in  parts  of  the  World  where  there  are  many
international  markets  in  close  proximity,  such  as  the  EU,  they  are  more  useful.  In
effect, they give American carriers access to Europe's domestic market, while the US
domestic  market  remains  firmly  closed  to  foreign  operators.  These  rights  are
currently used in particular by American cargo companies to provide intra-EU parcel
services.

4

15. 

Overall,  the  web  of  bilateral  ASAs  is  highly  complex  and,  on  the  whole,  very
restrictive  compared  with  the  international  trade  rules  that  govern  other  service
industries such as maritime transport, telecommunications or banking.

1.3. 

Existing relations between the Community and third countries

(a)  Creating a regional aviation area

16. 

17. 

18. 

19. 

20. 

The EU's recent focus in air transport external relations has been the expansion of the
internal  market  into  a  fully-fledged  regional  aviation  area.  The  Commission  has
obtained the backing of Member States for this and pursued negotiations in this area
on the basis of mandates granted by the Council.

The  vision  is  a  large  market,  comprising  around  thirty  countries,  which  will  all
operate  on  the  basis  of  Community  legislation.  Within  this  area,  all  airlines  will
enjoy the same freedoms currently enjoyed by Community carriers.

Significant steps have been taken towards this goal. Norway and Iceland are already
part of the market by virtue of the European Economic Area (EEA). This means that
all  Community  legislation  applies  to  these  countries  and  their  airlines  enjoy  full
rights as Community air carriers.

An agreement between the EC and Switzerland substantially liberalises air transport
on  the  basis  of  Community  legislation.  As  with  Norway  and  Iceland,  Community
legislation  in  the  air  transport  field  applies  to  Swiss  air  carriers  and  Switzerland  is
effectively part of the internal air transport market. The key exception to this is that
cabotage  within  individual  Member  States  and  within  Switzerland  itself  is  not
included.

Finally,  negotiations  are  now  largely  complete  between  the  Community  and  the
current  accession  candidates  on  their  full  incorporation  into  the  internal  market.  A
new agreement creating a European Common Aviation Area will offer the possibility
for all the candidate countries to become part of the internal aviation market, which
offers particular advantages to those countries whose accession is not yet imminent.

(b) General relations with third countries and dealing with trade barriers

21. 

22. 

Action has been taken at Community level to develop a more unified and concerted
approach  towards  a  number  of  specific  issues.  Differences  of  opinion  over  the
treatment  of  Community  carriers  in  foreign  markets  and  by  foreign  governments
necessitate  from  time  to  time  interventions  by  the  Commission  on  behalf  of  the
Community  interest  as  a  whole.  These  interventions  have  been  made  in  an  ad-hoc
manner as problems arise.

The Commission has also developed general aviation discussions with a number of
countries. This includes the United States, where a regular aviation dialogue enables
the two sides to identify and discuss issues of  common interest. This  dialogue  also
provides  a  forum  for  the  discussion  of  potential  barriers  to  trade  in  air  transport
services. Discussion on aviation with the Community's various other trading partners
takes place from time to time in the various joint committees established by the trade
and co-operation agreements that have been concluded.

5

(c)  Multilateral Activity

23. 

24. 

The  Community  has  no  formal  status  in  the  most  important  global  air  transport
organisation, the International Civil Aviation Organisation (ICAO). However, many
issues now under discussion in that forum are covered by Community legislation. A
certain degree of co-ordination has proved valuable in such cases.

In  the  review  of  the  air  transport  annex  of  the  General  Agreement  on  Trade  in
Services in the WTO, the Community has pressed for extended coverage of services
related to aviation. It is established practice in the WTO that the Community speaks
with  one  voice  on  the  basis  of  an  agreed  line  and  it  proved  possible  to  handle
aviation  within  this  framework.  Further  negotiations  will  take  place  within  this
framework as the next round of trade negotiations develops.

(d) Technical Assistance

25. 

Through  its  technical  assistance  programmes  in  Central  Europe  and  safety-related
projects in Asia and Latin America, the Commission has sought to help raise safety
standards  throughout  the  aviation  industry.  Assistance  is  mainly  targeted  at
government institutions, helping them improve their  ability  and capacity to oversee
the  implementation  and  enforcement  of  ever  higher  safety  standards.  The
Commission  set  out  its  approach  in  its  2001  Communication  "A  European
Community contribution to World aviation safety improvement"3 framework.

(e)  Competition policy in international aviation

26. 

2. 

27. 

The  number  of  international  alliances  and  other  forms  of  co-operation  agreements
involving  Community  air  carriers  and  carriers  from  third  countries  has  increased
significantly in recent years and seems likely to accelerate as a result of the Court's
ruling. An effective and efficient enforcement of the Community competition rules is
therefore an  essential part of  a coordinated international air  transport  policy. While
the  Community  competition  rules  fully  apply  to  the  transport  sector  the  current
regime does not provide sufficient legal certainty either to the industry or to Member
States,  since  the  Commission  does  not  have  the  same  effective  competition
enforcement powers in the field of international traffic to and from the EU as it has
for internal EU airtransport.4.

THE "OPEN SKIES" COURT JUDGEMENTS

Against  the  background  described  above,  international  aviation  has  continued  to
develop mostly within a framework of bilateral ASAs. But the nature of the system
and  the  individual  manner  in  which  it  has  been  pursued  by  Member  States  creates
conflicts  with  the  unified  system  of  regulation  that  has  been  developed  inside  the
Community.  Having  become  increasingly  concerned  about  these  conflicts,  the
Commission  instigated  legal  action  against  eight  Member  States  that  had  signed
bilateral  agreements  with  the  United  States  -  seven  of  them  (Belgium,  Denmark,
Germany, Luxembourg, Austria Finland and Sweden have signed "open skies" type

3 COM (2001)390 final of 19.07.2001
4  It should be noted however that the EU regime for merger control fully applies to international aviation.

6

                                                
agreements  as  described  above  and  one  of  them  (the  United  Kingdom)  a  more
restrictive bilateral.

28. 

On 5 November 2002, the European Court of Justice ruled in the cases against these
eight Member States5.

2.1. 

Areas of Community competence

29. 

30. 

31. 

The  Court's  judgements  firmly  establish  the  application  of  the  so-called  "AETR"
principle  in  aviation  by  which  the  Community  acquires  an  external  competence  by
reason  of  the  exercise  of  its  internal  competence,  "where  the  international
commitments fall within the scope of the common rules", or "in any event within an
area that is already covered by such rules". The Court specifies in this instance that
"whenever  the  Community  had  included  in  its  internal  legislative  acts  provisions
relating  to  the  treatment  of  nationals  of  non-member  countries,  it  acquires  an
exclusive  external  competence  in  the  spheres  covered  by  those  acts."  The  Court
identified  three  specific  areas  of  Community  exclusive  competence:  airport  slots,
computer reservation systems and intra-Community fares and rates.

In this context it should be noted that, even in instances where Member States sought
to  take  action  to  reflect  Community  law  directly  in  the  text  of  their  bilateral
agreements,  the  Court  found  that  they  nonetheless  had  failed  in  their  obligations,
because Member States no longer have competence to make undertakings of any sort
on these issues.

It should also be stressed that there are further issues typically addressed in bilateral
air  services  agreements,  in  addition  to  the  areas  identified  by  the  Court,  where  the
Community has exclusive external competence. Moreover, the acquis has expanded
considerably  in  the  years  since  the  agreements  in  question  were  negotiated.  These
additional areas include:

– 

– 

– 

Safety  issues  (covered  by  Regulation  EC  No  1593/2002  of  15  July  2002  on
common  rules  in  the  field  of  civil  aviation  and  establishing  a  European
Aviation Safety Agency6)

Commercial  Opportunities  (including  groundhandling,  covered  by  Directive
96/67  of  15  October  1996  on  access  to  the  groundhandling  market  at
Community  airports7  and  combined  transport,  which  gives  access  to  the
internal land transport market.)

Customs duties, taxes and (user) Charges ( the  application  of  customs  duties,
covered by Council Directive 92/12/EEC of 25  February 1992 on the  general
arrangements  for  products  subject  to  excise  duty  and  the  holding,  movement
and  monitoring  of  such  products8  and  the  exemption  of  aviation  fuel  from

5  cases  C-466/98,  C-467/98,  C-468/98,  C-469/98,  C-471/98,  C-472/98,  C-475/98  and  C-476/98  against  the
United Kingdom, Denmark, Sweden, Finland, Belgium, Luxembourg, Austria, Germany
6 OJ L240/1of 7.9.2002
7 OJ L 272 of 25.10.1996
8 OJ L 076 of 23.03.1992

7

                                                
excise duties covered by Council Directive 92/81/EEC of 19 October 1992 on
the harmonisation of the structures of excise duties on mineral oils9)

– 

Restrictions  on  aircraft  for  environmental  reasons,  which  is  often  included
under  the  fair  competition  section  (subject  to  Council  Directive  92/14  of  2
March 1992 on the limitation of the operation of aeroplanes covered by Part II,
Chapter  ",  Volume  1  of  Annex  16  to  the  Convention  of  International  Civil
Aviation10  and  Directive  2002/30/EC  of  the  European  Parliament  and  of  the
Council of 26 March 2002  on  the  establishment of rules and procedures with
regard to the introduction of noise-related operating restrictions at Community
airports)

32. 

In  addition,  further  issues,  while  not  always  directly  addressed  in  international
agreements, are still covered by Community legislation which applies to foreign air
carriers.  These  matters  inevitably  shape  the  trading  environment  in  which
international  air  transport  takes  place  and  are  certainly  the  subject  of  international
discussions and arrangements. Legislation covers inter alia:

– 

– 

– 

– 

Denied Boarding compensation (Council Regulation No 295/91 of 4 February
1991 establishing common rules for a denied boarding compensation system in
air transport;11

Air Carrier liability (Council Regulation No 2027/97 of 9 October 1997 on air
carrier liability in the event of accidents as amended12.

Council  Directive  No  90/314  of  13  June  1990  on  package  travel,  package
holidays and package tours13;

Data  protection  (Directive  95/46/EC  of  the  European  Parliament  and  of  the
Council of 24 October 1995 on the protection of individuals with regard to the
processing of personal data and on the free movement of such data14

33. 

Therefore, in subjects where Member States have agreed that it makes sense to adopt
common  rules  within  the  Community,  they  must  draw  the  consequences  and  work
through its institutions when discussing such matters with foreign countries.

2.2. 

Ownership and Control

34. 

The  Court  found  that  the  eight  agreements  in  question  contain  elements  which
deprive  Community  air  carriers  of  their  rights  under  the  Treaty,  the  nationality
clauses  in  the  agreements  being  a  clear  violation  of  the  right  of  establishment
enshrined in Article 43. Therefore, although the Court could not have invalidated the
agreements  under  international  law,  they  constitute  an  infringement  of  Community
law for which Member States are responsible towards the beneficiaries of the right of
establishment.

9 OJ L 316 of 31.10.1992
10 OJ L 76 of 23.3.1992
11 OJ L 36 of 8.2.1991
12 OJ L 285 of 17.10.1997
13 OJ L 158 of 23.6.1990
14 OJ L 281 of 23.11.1995

8

                                                
35. 

36. 

37. 

Like most traditional ASAs, the agreements that were challenged have strict clauses
covering ownership and control which  ensure that only  airlines  that  are owned  and
controlled  by  nationals  of  the  two  parties  to  the  agreement  can  benefit  from  the
traffic  rights  granted.  This  means  that  Community  carriers  majority-owned  by
interests from outside their home Member State are shut-out of international routes to
and  from  that  country.  Moreover,  Community  carriers  based  in  one  Member  State,
but with an establishment in another, cannot take advantage of their rights under the
Treaty  to  fly  international  routes  from  both.  These  clauses  therefore  prevent  any
merger  and  acquisition  activity  involving  Community  carriers  with  international
networks.  They  also  prevent  the  development  of  Community  carriers  with  multiple
hub systems, similar to those operated by American carriers.

Under Community law, such discrimination must now  be  considered  illegal  and all
Community carriers, as long as they have an establishment in a Member State, must
be able to fly international routes from there, regardless of where in the Community
their  principle  place  of  business  is,  or  of  where  in  the  Community  their  owners
originate.

The beneficiaries of an international air transport agreement at Community level are
"Community carriers".  This  is  the  sole  definition  of  airlines  within  the  Community
and it is laid down in Regulation EC No 2407/92 of 23 July 1992 on the licensing of
air carriers15 and EC No 2408/92 of 23 July 1992 on access for Community carriers
to intra-Community air routes.

2.3. 

Implications for other agreements and general policy

38. 

In so far as other bilateral air services agreements cover the same issues as the "open
skies"  agreements  in  question,  they  too  will  not  be  in  conformity  with  Community
law. This not only applies to other agreements with the United States, which have not
yet been the subject of Court proceedings, but for all bilateral air services agreements
that  contain  a  similar  nationality  clause  or  which  have  infringed  Community
exclusive external competence.

39. 

The legal clarity provided by the Court of Justice's judgements confirms the need to
devise a comprehensive international policy for the aviation sector that will allow the
Community to address these problems.

15 OJ L 240 of 24.8.1992

9

                                                
3. 

40. 

41. 

42. 

43. 

44. 

DEVELOPING COMMUNITY POLICY

Beyond  the  legal  situation,  a  co-ordinated  approach  would  benefit  the  Community,
its airlines and its consumers a great deal from an economic and political standpoint.
The  Community  is  one  of  the  most  important  players  in  international  aviation.  Its
market  is  one  of  the  largest  and  its  industry  one  of  the  most  successful.  It  brings
together  a  group  of  the  most  influential  and  experienced  aviation  states  that  exist.
With  many  issues  handled  through  Member  States'  individual  bilateral  agreements,
the Community finds itself unable to promote effectively the interests of its carriers
and  consumers  and  is  deprived  of  the  ability  to  defend  their  cause,  eg  to  tackle
discriminatory  or  unfair  practices  faced  by  Community  carriers  in  some  third
countries in a coordinated and effective manner.

Through a new, unified approach, the Community will be able to defend its interests,
argue its case and promote its vision for global aviation in a far more effective way
than ever before. By providing a more flexible regulatory environment for European
airlines,  the  development  of  a  common  external  policy  will  not  only  facilitate
consolidation  and  the  constitution  of  stronger  companies,  but  will  also  facilitate  a
more efficient use of airport capacity.

As a result of the Court's judgements, neither the Community nor the Member States
have  a  free  rein  to  conclude  air  transport  agreements.  It  is  important,  when
agreements  deal  with  the  question  of  traffic  rights,  that  they  should  also  offer
guarantees on matters such as safety, competition and the environment. Competence
for this wide range of issues is divided between Member States and the Community.
In addition, it is vital to ensure that ownership and control clauses are renegotiated in
a coherent manner to ensure that Community carriers can enjoy their full rights. The
only way to proceed is in a coordinated manner, using the Community institutions.

As  stated  above,  the  Community  has  already  pursued  action  across  a  number  of
fronts,  including  some  international  air  services  negotiations  on  the  basis  of
mandates  from  the  Council.  The  White  Paper  on  European  Transport  Policy16  for
2010 "Time to Decide", identified the development of a coherent external policy for
aviation as being an urgent priority given the effects of a fragmented approach on the
development of our airline industry. Now confronted by the need to address a much
wider range of partners  and issues, the  Community must  identify  its  key  principles
and the initial priorities for action.

These key principles arise from necessity - what the Community must do as a matter
of urgency to rectify existing legal problems - and by a need to define a vision for air
transport that will strengthen  our industry's position  in  the  global  market  and  bring
benefits for European consumers.

3.1. 

Key Principles

45. 

The  main  objective  of  the  Community  is  to  promote  safe,  secure  and  efficient  air
transport for the benefit of European citizens. This objective can be subdivided into
four key aims:

16 COM (2001) 0370

10

                                                
a) 

b) 

c) 

d) 

To  bring  agreements  into  line  with  Community  law,  maximising  the
potential of the Single Market;

To  take  forward  an  agenda  for  reform  internationally,  aimed  at
stimulating  air  services  and  increasing  international  investment  in  the
industry;

To ensure that effective competition is preserved and promoted in order
to spread the economic benefits to consumers;

To  guarantee  high  standards  of  safety,  security,  environmental
protection  and  passenger  protection  in  the  EC  and  promoting  them
worldwide.

46. 

47. 

48. 

(a)  Bringing  agreements  into  line  with  Community  law,  maximising  the  potential  of

the Single Market

The  key  objective  must  be  to  bring  existing  bilateral  agreements  into  line  with  the
law  -  notably  in  the  area  of  ownership  and  control,  where  the  Court's  judgements
now make action imperative. The aim should be to work towards a new generation of
agreements concluded at Community level to replace those negotiated by individual
Member  States.  This  will  enable  the  simultaneous  modernisation  of  relations  with
trading partners and assurance of complete compatibility with the Community's legal
framework.

As mentioned above, the bilateral system has prevented Community air carriers from
gaining the full benefits of the EU Single Market and the Treaty provisions relating
to the right of establishment. It will be an aim of the Community to give them these
full  benefits  by  concluding  agreements  that  recognise  their  right 
to  non-
discriminatory treatment throughout the EU, for international traffic rights just as for
internal routes.

Many Community carriers have withstood the economic difficulties of the past year
rather well - at least better than their American counterparts - but they still lack the
freedom they need to expand and restructure their businesses. The larger Community
carriers  compare  well  with  their  global  competitors  in  terms  of  their  financial
situation  and  their  substantial  long  haul  businesses.  But  in  the  global  market,  the
absolute  size  of  an  airline's  network  can  be  important  and  the  big  US  airlines  are
much bigger than their EU counterparts in terms of passenger numbers (40.000.000
for  EU  number  1  -  Lufthansa  -  and  110.000.000  for  US  number  1  -  American
Airlines), the number of hubs they operate, and their aircraft fleets (800+ aircraft for
American  Airlines  against  280  for  British  Airways  -  the  EU's  largest  fleet).The
Community  will  need  to  conclude  a  new  generation  of  agreements  that  gives  them
that freedom.

(b) Taking forward an agenda for reform at an international level

49. 

The  Community  should  continue  to  favour  international  reform,  with  a  view  to
providing  a  more  flexible  economic  regime  for  the  airline  industry  that  would  give
airlines,  both  in  the  EU  and  abroad,  more  opportunities  to  regroup  and  develop  a
stable financial position, drawing on international capital and expertise as necessary.

11

50. 

51. 

52. 

53. 

54. 

55. 

As  a  further  broad  principle,  the  Community  should  aim  to  simplify  the  current
system  of  Member States'  bilaterals both in terms  of  the  number  of  parties  and  the
number  of  restrictions  on  operations.  For  practical  reasons,  when  there  are  the
interests of fifteen Member States to take into account, it will make sense to conclude
agreements with no limits on the number of routes flown or carriers designated. The
aim should be to avoid agreements that will be difficult to implement or which leave
scope for dispute between Member States.

As regards allocation of traffic rights between Community carriers, "open skies" type
agreements and other liberal accords, where there is no restriction on the number of
carriers  or  on  the  number  of  flights  that  can  be  operated,  pose  few  problems.
However, in more restrictive agreements, where traffic rights are limited and must be
allocated on the basis of a reciprocal division between the airlines of the parties, it is
clear that a non-discriminatory mechanism at EU-level for allocating the traffic rights
among Community carriers will be necessary.

Ultimately,  given  its  economic  priorities  and  preference  for  broad  agreements  at
regional and global level, the Community should work over the long term towards a
multilateral  solution  to  the  regulation  of  air  transport.  While  there  is  no  immediate
prospect  of  progress,  the  inclusion  of  the  sector  within  the  WTO  or  another
equivalent arrangement at global level should be considered to be an objective.

(c)  Ensuring that effective competition is preserved and promoted

The  effective  enforcement  of  competition  rules  is  an  essential  element  of  a  co-
ordinated international EU aviation policy. To that end the EU should have the same
effective  competition  enforcement  tools  for  international  aviation  as  it  has  for  air
transport within the EU. In the past the Commission has submitted several proposals,
most  recently  in  1997,  to  the  Council  to  provide  it  with  such  powers.17  It  follows
from  the  logic  of  the  Court's  judgement,  that  there  is  an  urgent  need  to  re-launch
consideration of these proposals. Only by overcoming the limitations of the existing
investigation  and  enforcement  regime  could  a  fully  effective  co-ordinated  air
transport policy be achieved.

(d) Guaranteeing high standards of safety, security and environmental protection

The  integrated  Community  market  is  underpinned  by  high  standards  of  safety,
security  and  environmental  protection.  The  EC  and  its  Member  States  have  a  long
record  of  introducing  and  maintaining  high  standards  or  safety,  security  and
environmental protection. The EU has pressed for the best provisions on these issues
at  an  international  level  and,  where  necessary,  has  sought  to  assist  other  countries,
including future member states and developing countries, to improve their systems in
order to be able to comply with them.

These  high  standards  must  not  be  compromised  at  international  level  and  the  EU
must  redouble  its  efforts  to  raise  standards  globally.  The  increased  competitive
pressures  and  greater  freedom  to  invest  internationally  that  might  result  from
agreements  should  never  lead  to  compromise  on  these  standards.  The  Community
will  want  to  continue  this  work  through  its  new  agreements,  building  on  existing

17 Ea to extend the scope of Regulations No (EEC) No 3975/87 and No (EEC) No 3976/87 to transport between
the Community and third countries

12

                                                
rules in order both to maximise the effect of its resources and making full use of its
influence in international fora.

3.2. 

Negotiating priorities

56. 

In terms of opening negotiations, the four priorities for the EC must be

(a)  To enter into negotiations with key bilateral partners;

(b)  To continue to build-up relations with neighbouring countries;

(c)  To build-up relations with developing countries.

(d)  To assert the position of the Community in multilateral  fora  and  work

for reform internationally;

(a)  Negotiations with key bilateral partners

The  relationship  with  the  United  States  is  central  to  the  European  Union’s  air
transport  relations.  It  is  of  the  utmost  importance  to  open  Community  negotiations
that will offer the opportunity of correcting problems in the bilaterals that were the
subject  of  the  Court's  judgements  and  creating  a  better  balance  within  the
Transatlantic  relationship.  The  two  sides  must  take  steps  towards  an  open
environment  for  the  provision  of  services  and  investment,  complemented  by  a
framework  of  high  standards.  The  Commission  considers  that  the  Council  should
approve  a  mandate  for  negotiations  as  soon  as  possible  on  the  basis  of  the
preparations  already  undertaken  addressing  not  only  market  access  conditions  but
also the regulatory environment.

Negotiations  with  Russia  are  also  a  high  priority.  The  EU  and  Russia  are  in  the
process of deepening their co-operation in all areas and removing trade barriers with
the aim of creating a joint economic area.  As with the US, the EU and its Member
States  have  frequent  contacts  with  Russia  on  a  variety  of  air  transport  issues,  but
resolution of these is difficult without entering into broader negotiations that address
all aspects of the relationship in a coordinated manner

Japan is one of the EU's key trading partners and an important international market
for aviation. It is important to allow air services to expand, ensuring that both sides
have  good  access  to  infrastructure.  The  Court's  confirmation  of  Community
competence on slot allocation should allow a clearer dialogue to develop between the
two parties.

(b) Building-up relations with neighbouring countries

As  these  negotiations  progress,  the  EU  must  also  continue  to  work  with  its  near
neighbours.  The  accession  in  2004  of  new  member  states  to  the  EU  will  further
enlarge  the  internal  market.  The  planned  European  Common  Aviation  Area  has
allowed the Community to complete negotiations with the candidate countries on air
transport and will enable the market to be  extended in  the  short  term  even  to  those
candidate countries whose EU membership is further away. This European Common
Aviation Area will also provide a basis for developing closer ties with our other close
trading partners around the Mediterranean and to the East.

57. 

58. 

59. 

60. 

13

(c)  Building-up relations with developing countries

61. 

62. 

The EU must work with developing  countries  to  ensure  that  air  transport  is  free  to
develop  between  Europe  and  these  countries  in  a  positive  manner,  expanding
opportunities  for  both  sides,  but  without  compromising  on  standards.  The  EU  will
continue  with  the  assistance  programmes  it  has  sponsored  to  assist  with  the
application of safety standards.

(d) Asserting the position of the Community in multilateral fora and work for reform

internationally

Finally,  in  order  to  ensure  that  the  European  interest  is  presented  and  pursued  in  a
coherent  manner,  the  EU  and  its  Member  States  must  also  present  a  more  co-
ordinated position in international organisations. European Community membership
of ICAO must be a priority and the Commission has made a proposal to this effect.
The Community must also develop firm positions in other global organisations on air
transport issues.

14

CONCLUSIONS: IMPLICATIONS OF THE COURT'S JUDGEMENTS

63. 

64. 

65. 

66. 

67. 

68. 

69. 

70. 

The judgements of the Court of Justice of 5 November 2002 on the so-called "open
skies"  cases  against  eight  Member  States,  not  only  have  implications  for  the  eight
specific  agreements  with  the  United  States  but  also  for  existing  bilateral  aviation
agreements  between  Member  States  and  other  third  countries  and  for  any  future
negotiation of bilateral air services issues.

According  to  Article  10  of  the  Treaty  Member  States  shall  take  all  appropriate
measures,  whether  general  or  particular,  to  ensure  fulfilment  of  the  obligations
arising  out  of  the  Treaty  or  resulting  from  action  taken  by  the  institutions  of  the
Community.

Moreover, as the Court found in the judgements of 5 November 2002, in the case of
an  infringement  stemming  from  an  international  agreement,  Member  States  are
prevented  not  only  from  contracting  new  international  commitments  but  also  from
maintaining such commitments in force.

This argues strongly in favour of  the urgent development of  a Community external
relations  policy  for  air  transport,  which  would,  in  any  case,  have  considerable
economic  and  political  advantages.  The  Commission  will  come  forward  with  any
proposals that are necessary to ensure an appropriate follow-up.

In the light of the foregoing considerations, the Commission has requested the eight
governments  directly  concerned  by  the  judgements  to  activate  the  provisions  for
denunciation contained in their agreements with the United States in order to ensure
at the earliest possible date compliance with the judgements of the Court of Justice.

The Commission has also requested the remaining seven Member States to activate
the provisions for denunciation contained in their agreements with the United States
in order to ensure compliance of their agreements with Community law and to avoid
the necessity to pursue further infringement procedures.

More generally, the Commission has asked all Member States to refrain from taking
international commitments of any kind in the field of aviation before having clarified
their compatibility with Community law

Finally, in order to take the first step forward in this area, the Commission has urged
the  Council  of  the  European  Union  to  agree  a  mandate  as  soon  as  possible  for
negotiations  to  replace  the  existing  bilaterals  with  the  United  States  with  an
agreement at Community level.

15