Communication from the Commission to the European Parliament pursuant to the second subparagraph of Article 251(2) of the EC Treaty concerning the common position of the Council on the adoption of a Regulation of the European Parliament and of the Council concerning protection against subsidisation and unfair pricing practices in the supply of airline services from countries not members of the European Community
Date: 2004-01-09
Institutions: European Commission
Subjects: State aid, air transport, provision of services, restriction on competition, third country

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 9.1.2004
COM(2004) 7 final

2002/0067 (COD)

COMMUNICATION FROM THE COMMISSION
TO THE EUROPEAN PARLIAMENT

pursuant to the second subparagraph of Article 251(2) of the EC Treaty

concerning the

common position of the Council on the adoption of a Regulation of the European
Parliament and of the Council concerning protection against subsidisation and unfair
pricing practices in the supply of airline services from countries not members of the
European Community

EN

  EN

   
2002/0067 (COD)

COMMUNICATION FROM THE COMMISSION
TO THE EUROPEAN PARLIAMENT

pursuant to the second subparagraph of Article 251(2) of the EC Treaty

concerning the

common position of the Council on the adoption of a Regulation of the European
Parliament and of the Council concerning protection against subsidisation and unfair
pricing practices in the supply of airline services from countries not members of the
European Community

1-

BACKGROUND

Date of transmission of the proposal to the EP and the Council
(document COM(2002) 110 final –2002/0067 (COD)):

13 March 2002

Date of the opinion of the European Economic and Social Committee:

18 September 2002

Date of the opinion of the European Parliament, first reading:

14 January 2003

Date of transmission of the amended proposal:

Date of adoption of the common position:

7 May 2003

17 December 2003

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OBJECTIVE OF THE COMMISSION PROPOSAL

The  airline  industry  in  the  Community  is  faced  with  the  critical  challenge  of  needing  to
compete with third-country airlines that benefit from generous subsidies while being subject
itself to strict rules on government aid.1

The recent crisis in some parts of the industry has led third-country governments to subsidise
their  airlines  in  a  manner  that  is  likely  to  distort  competition.2  Community  airlines  have
provided information about the pressure these airlines exert on ticket prices, to which they are
unable to respond.

1

2

Communication  from  the  Commission  of  20  May  1999  on  the  single  market  in  the  air  industry
(COM(1999)182 final) and 1994 guidelines on State aid to the air industry (OJ C 350, 10.12.1994, p.5).
Communication from the Commission of 10 October 2001 on the repercussions of the terrorist attacks
in the United States on the air transport industry (COM(2001) 574 final).

2

 
                                                
Some  third  countries  have  introduced  instruments  to  deal  with  such  situations.3  Also,  the
Community  has  provided  for  redress  in  the  maritime  sector  in  cases  of  unfair  pricing
practices.4 However, for the airline sector, no such possibility exists at Community level. The
only  currently  available  means  are  bilateral  agreements,  which  often  lack  the  potential,  in
terms of both coverage and remedies, to provide swift and comprehensive protection against
subsidisation and unfair pricing practices.5 Indeed, even if one of the Member States had been
able to take any action under its bilateral agreements, this would have just widened the gulf
even further between the ways in which different Community airlines are treated.

The proposed instrument is designed to address this problem. It will allow Community action
against  unfair  competition  from  non-Community  carriers  on  routes  to  and  from  the
Community  due  to  trade-distorting  third-country  subsidies.  Additionally,  it  will  provide  a
remedy  against  unfair  pricing  practices  by  third-country  carriers  benefiting  from  non-
commercial  advantages.  Cases  will  be  examined  on  the  basis  of  industry  complaints  which
show that such subsidies or unfair pricing practices are causing injury to Community carriers
on certain routes. The investigation and decision-making processes are based predominantly
on existing practices in the area of trade in goods,6 but they allow sufficient flexibility to deal
with the specific problems of the airline sector, and take into account the procedures set out in
Council Decision 1999/468/EC.

3-

COMMENTS ON THE COMMON POSITION

The  Council  made  a  number  of  general  changes  to  the  Commission's  proposal  which  are
acceptable because they would ensure its aims were met.

First,  the  Council  described  the  relationship  that  will  prevail  between  the  Regulation  and
existing  air  services  agreements  concluded  by  Member  States  and  third  countries.  In
particular, the Regulation will not preclude the prior application of any special provisions in
air services agreements between Member States and third countries (Article 1(2)). However,
the provisions  of  Article 7(2)  provide that such  a  possibility  open  to  Member  States  should
not unreasonably delay proceedings at Community level in application of the Regulation.7

Second, in the initial Commission proposal, unfair pricing practices (Article 5) were deemed
to exist where State-controlled non-Community air carriers benefiting from a non-commercial
advantage  continuously  charged  air  fares  on  a  particular  route  to  or  from  the  Community
which were lower than the normal rate. The Council broadened the scope of unfair practices
to include all third-country carriers rather than just State-controlled third-country carriers, on
the  grounds  that  not  only  State-controlled  carriers  could  benefit  from  non-commercial
advantages. The Council also replaced the reference to “normal fare rates” by a reference to

3

4

5

6

7

In  the  United  States,  for  example,  the  Secretary  of  Transportation  can  take  action  to  eliminate  "an
activity of a government of a foreign country or another foreign entity, including a foreign air carrier"
when this is considered an "anticompetitive practice against an air carrier" (USC Section 41310).
Council  Regulation  (EEC)  No  4057/86 of  22  December  1986  on  unfair  pricing  practices  in  maritime
transport (OJ L 378, 31.12.1986).
For the time being, under the World Trade Organisation and more particularly the General Agreement
on  Trade  in  Services  there  are  no  agreed  rules  to  redress  trade-distorting  effects  on  subsidies  to  the
international air transport industry.
Council Regulation (EEC) No 2026/97 of 6 October 1997 on protection against subsidised imports from
countries not members of the European Community (OJ L 288, 21.10.1997).
However,  the  Commission  notes  that  the  text  of  recital  5  is  not  consistent  with  the  provisions  of
Articles 1(2) and 7(2). See attached declaration of the Commission.

3

 
                                                
“normal competitive practices”. Eventually, the Council followed the European Parliament’s
suggested  amendment  as  to  the  criteria  that  must  be  used  when  comparing  air  fares,  and
mandated the Commission to develop a detailed methodology for determining the existence of
unfair pricing practices.

Third,  the  Council  endorsed  the  European  Parliament's  suggestion  that  redressive  measures
should preferably take the form of duties.

Finally, the Council submitted the imposition of definitive measures and the review of  such
measures  to  a  regulatory  procedure  in  accordance  with  Council  Decision  1999/468/EC,
instead of the initially proposed advisory procedure.

The  Commission  accepted  wholly,  in  part  or  in  principle  forty-six  out  of  the  sixty
amendments proposed by the European Parliament at its first reading. Of these, the Council
has included 29, either literally, partly or in principle, in its common position.

4-

COMMISSION DETAILED COMMENTS

4.1          Amendments  accepted  by  the  Commission  and  incorporated  in  full,  in  part  or  in

principle in the common position

The references below are to recitals and articles of the common position.

Amendment 1: Amendment of the title.

Amendment 2 provides for a more cautious wording of recital 1.

Amendment 3 enhances the scope and clarity of recital 2.

Amendment 4. The added recital 3 increases the clarity of the text.

Amendment 5 enhances the clarity of recital 4.

Amendment 10 part. The introduction of the words “via a transfer of funds” and “debts of any
kind representing” enhances the clarity of recital 8.

Amendment 11 part. The added recital 10 increases the clarity of the text.

Amendment 12 enhances the scope and clarity of recital 11.

Amendment 13 and 14 improve the respective wording of recitals 12 and 13.

Amendment 15. The suggested amendment is inserted in recital 13. It increases the clarity of
the text.

Amendments  16  and  49  provide  for  flexible  and  indicative  time  constraints  concerning  the
duration of the investigation (Recital 14 and Article 8(1)).

Amendment 17 provides for the transparency of procedures referred to in recital 15.

Amendment 20 reiterates in recital 18 the double safety mechanism embodied in the articles.

4

 
Amendment 21 introduces in the added recital 20 that, where redressive duties prove not to be
appropriate, other redressive measures may be considered.

Amendment  24  refers  to  the  interest  of  consumers  and  industry  for  the  purpose  of  the
Community interest test in the added recital 25.

Amendment  25  introduces  an  introductory  article  about  “objectives”.  Further  to  the  text
suggested by Parliament, that article has been complemented with provisions setting out the
relationship  between  the  Regulation  and  agreements  concluded  between  third  countries  and
Member States, on the one hand, and the Community, on the other.

Amendments  27  and  54  part  are  incorporated  in  the  new  Article  9,  which  establishes  a
preference for the imposition of redressive duties.

Amendments  28,  29,  30  and  31  enhance  the  scope  and  clarity  of  the  provisions  of
Article 4(1).

Amendment  34  provides  for  objective  criteria  to  distinguish  normal  competitive  practices
from unfair pricing practices. These criteria are set out in Article 5(2).

Amendment 44 enhances the clarity of the provisions of Article 7(1).

4.2          Amendments rejected by the Commission and incorporated in the common position

Amendments  23,  60,  61  and  62  were  designed  to  ensure  that  Member  States  would  be
appropriately  consulted  through the “safeguard”  comitology  procedure.8 The introduction in
the common position of the regulatory procedure for the purpose of imposing and reviewing
definitive measures results in the Member States being given a greater role. Hence, although
the Council chose a different procedure, these amendments and their underlying rationale may
be considered as incorporated in principle in the common position.

4.3          Amendments  accepted  by  the  Commission  and  not  incorporated  in  the  common

position

Amendments  6  and  7  refer  to  the  World  Trade  Organisation  as  an  appropriate  forum  to
discuss and regulate international civil aviation.

Amendments 18 and 50 provide that provisional measures cannot under normal circumstances
be imposed more than six months after the initiation of proceedings.

Amendments  33,  36  and  37  provide  for  drafting  suggestions  and/or  certain  changes  of
substance  in  relation  to  Article  5.  These  amendments  are  not  compatible  with  the  newly
drafted provisions of Article 5 and its enhanced scope.

Amendment  45  imposes  on  Member  States  that  have  sufficient  evidence  regarding  the
granting  of  subsidies  and  the  injuries  resulting  therefrom  to  the  Community  industry  to
forward such evidence to the Commission.

8

See European Parliament Report on the proposal for a European Parliament and Council Regulation on
protection  against  subsidisation  and  unfair  pricing  practices  in  the  supply  of  airline  services  from
countries  not  members  of 
justification  for
amendment 60, page 32.

the  European  Community  (Ref  A5-0439/2002), 

5

 
                                                
Amendment 46 stipulates in the provisions of Article 7(2) that a complaint must be rejected if
injury has not been sufficiently demonstrated in the complaint. However, a similar idea is set
out in recital 13 of the text agreed in the common position.

Amendment  64  called  on  the  Commission  to  submit  an  evaluation  report  to  the  European
Parliament and to the Council.

Amendments 40, 41, 42, 43, 47, 48, 51, 52, 53, 56, 57 and 59 provide for drafting suggestions
to  enhance  the  scope  and/or  clarity  of  the  draft  regulation  in  Articles  6(1),  6(3),  6(4),  7(3),
7(5), 12(2), 12(3), 12(4), 13(1) and 14(1).

4.4          Amendments  rejected  by  the  Commission  and  not  incorporated  in  the  common

position

Amendment 8 makes the link between the proposed regulation and the broader powers of the
Community in external relations in the aviation transport sector.

Amendments 9 and 32 require countervailable subsidies to be specific, discriminatory, trade-
distorting and to cause significant material injury to one or more Community carriers.

Amendment  19  suggests  an  amended  wording  in  recital  17  that  would  have  led  to  some
inconsistencies with the provisions of Article 12(2).

Amendments 22 and 55 set out procedures providing for the reimbursement of third-country
carriers where excessive redressive duties would have been imposed.

Amendment  35  consists  of  an  amended  wording  of  Article  5(2)  which  has  the  effect  of
excluding marketing carriers under  code share agreements from the scope  of  the  regulation.
This  amendment  is  not  compatible  with  the  newly  drafted  provisions  of  Article  5  and  its
enhanced scope.

Amendment  26  and  38  suggest  the  insertion  of  the  word  “significant”  before  the  word
“injury” in the provisions of Articles 2 and 3(a), which would have affected the legal certainty
of the text.

Amendment  39  excludes  from  the  definition  of  Community  industry  in  Article  3(b)
Community carriers which are related, for example, by means of an alliance agreement, to an
allegedly subsidised third-country carrier.

Amendment  58  requires  the  Commission,  in  addition  to  its  obligations  pursuant  to  the
relevant comitology procedure, to submit a report to the Council together with a proposal for
closure of the investigation.

Amendment  63  reverses  the  presumption  whereby  the  imposition  of  redressive  measures  is
deemed to be in the interest of the Community where actual injurious subsidisation has been
established in the course of the investigation.

6

 
5-

CONCLUSION

Although  noting  some  inconsistency  between  the  provisions  of  recital  3a  and  those  of
Articles 1(2)  and  7(2),  the  Commission  considers  that  the  common  position  unanimously
adopted on 17 December 2003 does not alter the aims and approach of its proposal and can
therefore support it.

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STATEMENT BY THE COMMISSION

The  Commission  notes  that  the  provisions  of  Articles  1(2)  and  7(2)  lay  down  rules  for  the
application  of  national  and  Community  instruments  over  time.  It  observes  that  the  text  of
recital 5 is not consistent with those provisions.

8