Communication from the Commission Developing a Community civil aviation policy towards Canada
Date: 2007-01-09
Institutions: European Commission
Subjects: Canada, EU policy, air transport, civil aviation, international transport, liberalisation of the market

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 9.1.2007 
COM(2006) 871 final 

COMMUNICATION FROM THE COMMISSION 

Developing a Community civil aviation policy towards Canada 

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1.2 

1.3 

INTRODUCTION 

Traditionally, international air transport is governed by bilateral agreements between 
individual  states.  However,  the  so-called  “open  skies”  judgements  of  5  November 
2002 of the European Court of Justice marked the start of an external aviation policy 
at Community level. 

As  outlined  in  the  Communication  of  the  European  Commission  “Developing  the 
agenda for the Community’s external aviation policy”1, targeted agreements between 
the European Community and certain third countries will have the substantial added 
value of creating new economic opportunities by opening up markets and promoting 
investment  opportunities.  Furthermore,  such  agreements  will  be  the  best  way  to 
ensure  fair  competition  and  high  standards  of  safety,  security  and  environmental 
protection by promoting regulatory co-operation and convergence. 

Therefore,  the  European  Commission  has  proposed  to  launch  targeted  negotiations 
seeking  to  achieve  comprehensive  aviation  agreements  in  the  major  regions  of  the 
world, with the aim of strengthening the prospects for promoting European industry 
and ensuring fair competition, while at the same time seeking to reform international 
civil aviation. 

With  its  market-oriented  economic  and  transport  policy  and  high  regulatory 
standards,  Canada  is  a  strong  candidate  for  a  new-generation  of  air  transport 
agreement  with  the  European  Community.  Air  traffic  between  the  EU  and  Canada 
has doubled between 2000 and 2005 and Canada is a leading aviation partner of the 
EU. In 2005, 8.5 million passengers travelled between the EU and Canada.2 

The  new  Canadian  government  has  declared its  readiness  to  enter  into  negotiations 
with  the  European  Union  with  a  view  to  liberalising  aviation  relations  that  are 
currently  based  on  bilateral  air  services  agreements  between  Member  States  and 
Canada. 

An  agreement  on  the  liberalisation  of  air  transport  with  Canada  would  bring 
economic benefits to air carriers, airports, passengers, shippers, the tourism industry 
and the wider economy both within the European Union and in Canada. According to 
an  economic  study  launched  by  the  Commission,  over  nine  million  additional 
passengers  may  be  expected  to  travel  following  an  opening  of  the  markets. 
Furthermore,  an  open  aviation  area  is  likely  to  generate  at  least  72  Million  Euro 
benefits  for  consumers.  The  agreement  would  further  strengthen  transatlantic 
economic  links  and  complement  the  aviation  agreement  between  the  US  and  the 
European  Union.  In  addition  and  equally  importantly,  it  will  be  a  milestone  on  the 
path towards an international reform of the regulatory framework governing the air 
transport sector. 

1.4 

With  this  Communication,  the  Commission  therefore  recommends  that  the  Council 
authorise  the  Commission  to  negotiate,  on  behalf  of  the  European  Community,  a 

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COM (2005) 79 final, dated 11.3.2005 
Eurostat figures 

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comprehensive  agreement  on  an  Open  Aviation  Area  with  Canada.  This  would 
combine  market  opening  with  a  parallel  process  of  regulatory  co-operation  and 
convergence notably in priority areas such as aviation safety, security, environmental 
protection, protection of passengers and application of competition rules ensuring a 
level playing field and fair and equal conditions for competition. 

2. 

THE  EXISTING  REGULATORY  FRAMEWORK  FOR  AIR  SERVICES  BETWEEN  THE 
EUROPEAN COMMUNITY AND CANADA 

Bilateral air services agreements between EU Member States and Canada 

2.1 

Currently, air transport between Canada and the  EU is governed  by  17 bilateral air 
services agreements. There are at present no air services agreements between Canada 
and the other 8 EU Member States.3 

The existing air services agreements between the EU Member States and Canada do 
not allow  airlines,  passengers and shippers to take full advantage of the benefits of 
open  markets.  Moreover,  there  is  considerable  variation  across  these  agreements, 
which  establish  an  unbalanced  framework  for  air  services  between  the  EU  and 
Canada  as  not  all  agreements  are  equally  liberal  with  regard  to  freedoms  and 
capacities  available.  Some  agreements  still  provide  for  capacity  determination  for 
direct  connections  between  Canada  and  the  EU.  A  number  of  bilateral  agreements 
still  restrict  the  number  of  airlines  that  may  be  designated  and  include  restrictive 
tariff  provisions.  These  differences  in  the  Member  States’  bilateral  air  services 
agreements  with  Canada  lead  to  inequalities  in  the  opportunities  available  to 
Community air carriers. The tariff articles in agreements with Canada are among the 
most detailed and complex in the world. Canada is one of the relatively few countries 
that  still  maintains  a  tight  control  on  air  fares,  resulting  in  higher  costs  for  airlines 
and consumers. 

Like  most  bilateral  air  services  agreements,  the  existing  bilateral  air  services 
agreements  between  EU Member States and Canada  contain nationality restrictions 
that  have  been  found  illegal  by  the  European  Court  of  Justice.  Any  agreement 
between the EU and Canada must allow any EU airline to operate flights to Canada 
from  any  EU  Member  State  in  which  it  is  established.  The  first  step  in  the 
negotiations should aim at restoring legal certainty for air services between Canada 
and the EU. 

The framework for air transport in Canada 

Canada has, for some time, been considering the liberalisation of its aviation policy. 
In recent months, Canada has shifted towards a more open aviation policy in order to 
promote  travel,  trade  and  tourism.  Liberal  air  services  agreements  have  been 
concluded with the two most important international markets, the US and the United 
Kingdom.  The  new  agreement  negotiated  with  the  United  Kingdom  in  April  2006 
removed  existing  tariff  restrictions  to  better  respond  to  market  demand  and  opened 
up  fifth  freedom  operations  to  third  countries.  Recent  statements  by  the  airline 

2.2 

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3 

Cyprus,  Estonia,  Latvia,  Lithuania,  Luxembourg,  Malta,  the  Slovak  Republic  and  Slovenia  have  not 
concluded bilateral air services agreements with Canada.  

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2.4. 

2.5 

2.6. 

2.7. 

2.8 

2.9 

industry  show  that  it  views  liberalisation  much  more  favourably  than  a  few  years 
ago. There is a widespread feeling that a Transatlantic Open Aviation Area without 
the participation of Canada would not serve the interests of Canadian carriers.4 

Canada’s most important international aviation partner is not surprisingly the United 
States of America. According to Canadian figures, 18.6 million people travelled last 
year between the two countries. In 2005, Canada and the US broadened their existing 
air services agreement and further opened up the market. The agreement however did 
not grant rights for cabotage (carriage of traffic between two points within the other 
country) nor for 7th freedom operations (stand-alone services between two countries 
outside the home country). 

The airline market in Canada is dominated by Air Canada as the former national flag 
carrier.  Following  the  merger  with  Canadian  Airlines  in  1999,  Air  Canada  in  2004 
was the 17th largest airline in the world by passengers carried. Air Canada is member 
of  the  Star  Alliance,  and  is  owned  by  the  Air  Canada  Group,  a  holding  company 
which  also  owns  other  Air  Canada  subsidiaries  such  as  Air  Canada  Jazz  and  Air 
Canada  Ground  Handling.  Air  Canada  envisages  a  substantial  fleet  modernisation. 
The second largest carrier in Canada is the low cost company WestJet which holds 
33% of Canada’s domestic market and is also active on the transborder market. On 
the international market, the charter carrier Air Transat has started scheduled flights 
to  the  EU  and  is  offering  48  weekly  flights  to  Europe  from  different  Canadian 
airports. 

According to the  Canada Transportation Act,  at  least 75% of the voting  rights of a 
aviation  company  have  to  be  owned  and  controlled  by  Canadians.  A  lesser 
percentage can be specified by a governmental regulation. Moreover a company has 
to be “in fact” controlled by Canadians. However, discussions in Canada are ongoing 
on easing restrictions on foreign ownership and control. 

The hub of Air Canada, Toronto airport, handles more than 28.6 million passengers 
per  year.  Airport  charges  in  Toronto  are  very  high  and  make  it  one  of  the  most 
expensive  airports  in  the  world.  Other  important  airports  are  Ottawa,  Montreal, 
Calgary  and  Vancouver.  Canada’s  airports  are  managed  under  long  term  lease 
agreements by airport authorities and have to pay rents to the Federal Government in 
exchange for the right to collect revenues. 

Canada’s  aerospace  industry  has  a  long  tradition  and  in  2002  employed  79,000 
people. Canada’s best known aircraft producer is Bombardier, including the former 
LearJet  Corporation,  which  has  become  one  of  the  two  principal  manufacturers  of 
regional jet aircraft worldwide.  

Canada’s aviation regulator is the Transport Ministry (Transport Canada), supported 
by  Canada’s  national  transportation  agency  (CTA)  which  is  responsible  for  issuing 
licences. Transport Canada is responsible for international relations, safety, security 
and transport-related environmental regulation. Air Traffic Services are provided by 
Nav  Canada,  a  privately  owned  service  provider.  In  the  field  of  competition,  the 
Canadian Competition Bureau acts under the supervision of the Industry Ministry. 

4 

The McGill/Concordia Report on International Aviation Policy for Canada. Montreal 2005, p.298 

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3.2 

3.3 

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4.1 

4.2 

FURTHER  STRENGTHENING  RELATIONS  BETWEEN  THE  EUROPEAN  UNION  AND 
CANADA 

Canada has a close and longstanding political partnership with the European Union. 
The  relationship  between  the  European  Union  and  Canada  is  characterised  by 
common values and convergent global objectives.  

In  1976  the  European  Economic  Community  and  Canada  signed  a  Framework 
Agreement on Economic Cooperation, the first formal agreement of its kind between 
the  EC  and  an  industrialised  partner  country.  The  EU  and  Canada  are  both 
committed to reinvigorating global economic growth and embarked on a new type of 
trade  agreement,  a  Trade  and  Investment  Enhancement  Agreement,  to  eliminate 
regulatory obstacles and to improve investments in each other’s markets. In a Joint 
Political Declaration and Action Plan adopted in 1996, both sides agreed to increase 
co-operation in the fields of air safety and air traffic management.  

In  2005,  the  European  Community  and  Canada  initialled  an  Agreement  on  Civil 
Aviation  Safety  providing  for  reciprocal  acceptance  of  approvals  and  testing  with 
regard to airworthiness, environmental protection, aircraft maintenance facilities and 
continuing airworthiness.  

ECONOMIC  BENEFITS  OF  A  COMPREHENSIVE  AIR  TRANSPORT  AGREEMENT 
BETWEEN THE EUROPEAN COMMUNITY AND CANADA 

Around  8.5  million  passengers  were  carried  in  2005  between  the  European  Union 
and  Canada,  9  %  more  than  in  2004.  This  makes  Canada  one  of  the  largest  long-
distance  air  transport  markets  for  the  European  Union.  In  terms  of  offered  seat 
capacity, Canada is the fifth largest aviation market for EC carriers following the US, 
Switzerland, Turkey and Norway. For Canada, the EU is the second most important 
international aviation market after the US. While US transborder traffic accounts for 
nearly half of all air travel to and from Canada, European countries account for some 
27%  of  total  Canadian  international  travel.  This  includes  European  traffic  via  the 
United  States.  Other  important  partners  include  Australia,  Japan,  South  Korea  and 
China. International (non-US) traffic has been growing since 1991 at a rate of 5% a 
year,  and  has  higher  growth  rates  than  transborder  (traffic  to  US)  and  domestic 
traffic.  Major  market  drivers  are  tourism  (inbound  and  outbound)  as  well  as  strong 
business and trade links between both sides. Around 47% of international travellers 
to and from Canada are tourists; EU-Canada traffic comprises significant volumes of 
charter passengers during the summer period. 

The  United  Kingdom  (3.6  million  passengers  in  2005),  Germany  and  France  (1.5 
million  passengers  each)  and  the  Netherlands  (750,000  passengers)  are  the  most 
important  EU  national  markets  for  Canada.  These  four  markets  account  for  around 
74%  of  total  EU-Canada  traffic.  Between  2000  and  2005,  frequencies  between 
Canada  and  the  EU  almost  doubled.  New  services  particularly  focused  on  the  new 
Member States and on Central Europe, and services to the previously strong markets 
in  the  UK,  Germany  and  France  nearly  doubled.  The  London  Heathrow-Toronto 
route  is  the  ninth  busiest  in  the  world.  Additional  connections  have  been  added 
between secondary airports in Canada and the EU to the benefit of these airports and 
consumers.  

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4.3 

4.4 

4.5 

Benefits and added value of a Community approach  

With  its  modern  regulatory  framework  and  its  market  oriented  economic  and 
transport policy, Canada is an obvious candidate for deepening of aviation relations 
with the Community in an Open Aviation Area – both in terms of market access and 
in  terms  of  regulatory  co-operation  and  convergence.  Enhanced  regulatory  co-
operation between the EU and  Canada  would facilitate further air services between 
the  EU  and  Canada.  Canada,  like  the  EU,  has  very  high  standards  for  safety  and 
security. There are many similarities in the regulatory approach which – if brought 
together  in  a  comprehensive  agreement  -  should  lead  to  efficiency  gains  for  the 
industry.  In  the  field  of  ATM  organisation  and  regulation,  the  Canadian  system  is 
close  to  the  European  one.  On  aviation  safety  and  security,  high  standards  on  both 
sides  should  allow  for  an  effective  co-operation.  The  envisaged  bilateral  safety 
Agreement between the Community and Canada underlines the readiness of the two 
sides  to  mutually  recognise  their  procedures  and  standards.  In  the  field  of  aviation 
security, co-operation with the Canadian Air Transport Security Authority should be 
stimulated through the agreement. 

Liberalisation  of  air  traffic  between  Canada  and  the  EU  would  create  particular 
benefits  for  markets  which  are  still  governed  by  restrictive  air  services  agreements 
between Member  States  and  Canada. It could remove existing capacity and pricing 
restrictions  and  therefore  open  opportunities  for  the  industry  and  consumers. 
Removing existing geographic restrictions (limited number of points) could increase 
further the number of services between the EU and Canada. In particular, limitations 
to the Western Coast (Vancouver) and to several EU Member States should be lifted. 
Finally,  new  markets  in  particular  in  Central  East  Europe  will  emerge  between 
Canada and those Member States that do not yet have an air services agreement. 

The clear potential benefits of an Open Aviation Area Agreement with Canada have 
been  confirmed in a recent economic study carried  out by  independent  consultants. 
The results of this study show that over five years after opening the market more than 
9  million  additional  passengers  could  be  expected.  In  the  first  year,  passenger 
numbers are likely to increase by 500,000. In addition, an Open Aviation Area may 
generate consumer benefits of at least 72 Million Euro through lower fares and could 
create  3,700  jobs  already  in  the  first  year.  The  study  has  confirmed  that  the 
regulatory  and  policy  framework  for  air  transport  in  Canada  would  allow  the 
Community to achieve a model agreement with Canada which would result in greater 
levels  of  regulatory  convergence  and  new  opportunities  for  EU  industry  and  users. 
An  OAA  with  Canada  would  increase  the  competitiveness  of  EU  airlines  on  the 
North-Atlantic market. It would lead to an increase in direct flights between the EU 
and  Canada  and  to  a  better  distribution  of  air  traffic.  Furthermore,  the  study 
underlined that an OAA would enable airlines to establish closer relationships with 
carriers of the other side and, through the removal of investment constraints, to make 
strategic  investments.  Such  investments  would  provide  the  opportunity  for  new 
economies  of  scale  and  scope  which  would  enable  EC  carriers  to  address  markets 
which would not otherwise be commercially viable.  

4.6 

Due  to  the  economic  benefits  of  air  transport  liberalisation  in  general,  various 
stakeholders have frequently underlined the importance of a reform of the regulatory 

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4.7 

4.8 

5. 

5.1 

framework  for  international  air  transport,  including  the  International  Air  Transport 
Association  (IATA),5  representing  the  interests  of  international  airlines,  and  the 
International  Chamber  of  Commerce  (ICC),6  representing  the  interests  of  the 
business community. 

Quite  apart  from  the  legal  problems  that  would  remain  unsolved,  maintaining  the 
status quo would deny the EU-Canada market the growth opportunity seen in other 
examples  of  opened  air  transport  markets.  Continued  negative  effects  of  more 
the 
restrictive  bilateral  agreements, 
development  of  a  certain  number  of  carriers  and  therefore  create  distortions  in  the 
internal  EU  market.  The  EU-Canada  market  could  even  also  suffer  real  losses  as 
other  markets  press  ahead  with  liberalisation  to  exploit  the  network  structure  of 
international aviation. 

including  on  pricing,  would  constrain 

In  particular,  EU  airlines  could  be  disadvantaged  relative  to  US  and  Canadian 
carriers if the EU-Canada market is not opened to the same extent as the US-Canada 
and EU-US markets. Following the recent open skies agreement between Canada and 
the US, US carriers will enjoy significant access to the EU-Canada market via both 
fifth  and  sixth  freedom  rights.  The  competitive  position  of  EU  carriers  would  be 
strengthened considerably if they were able to enjoy not only unlimited access to the 
EU-Canada market, but also access to the US-Canada market. The envisaged EU-US 
air transport agreement would grant EU airlines fifth freedom rights between the US 
and Canada, but these rights need also to be obtained from Canada if EU airlines are 
to be able to take advantage of these opportunities. Given the developing integration 
between the EU and US aviation markets on the one hand, and the Canadian and US 
markets  on  the  other,  it  would  make  sense  to  extend  this  integration  to  the  EU-
Canada market too. 

CONCLUSIONS:  SUBSTANTIAL  ADDED  VALUE  OF  A  FUTURE  EU-CANADA  AIR 
TRANSPORT AGREEMENT 

Canada  has  recently  shown  interest  in  starting  negotiations  on  a  comprehensive 
agreement  on  air  transport  with  the  European  Community.  The  EU  should  respond 
favourably and seek to capitalise on Canada’s interest. In order to remove the legal 
problems  in  bilateral  air  services  agreements,  a  horizontal  agreement  should  be 
negotiated as a priority. 

A  modernised  framework  for  air  transport  between  the  EU  and  Canada  offers 
significant  new  opportunities  for  strengthening  air  transport  on  the  basis  of  a 
competitive  and  level  playing  field.  In  addition,  it  would  further  strengthen  the 
already excellent commercial and political relations between the EU and Canada.  

The model of an air transport partnership between the European Union and Canada is 
inspired  by  the  ambition  to  take  forward  an  agenda  for  reform  at  the  international 
level.  The  resulting  agreement  on  the  liberalisation  of  air  transport  between  the 

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IATA  Global  Press  Briefing  14  December  2004:  “Carriers  need  the  freedom  to  do  business  where 
markets exist.” 
See ICC Recommendations on negotiations between the United States and the European Union to open 
aviation markets 

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5.2 

European  Community  and  Canada  would  replace  the  existing  bilateral  air  services 
agreements  between  Canada  and  EU  Member  States  and  establish  a  modern 
framework for air services between the EU and Canada, with market access as open 
as  possible  and  regulatory  standards  as  high  as  possible.  It  could  thereby  be  the 
model for an extended air transport partnership with other third countries. In view of 
the  envisaged  creation  of  an  Open  Aviation  Area  between  the  US  and  the  EU, 
aviation  relations  between  Canada  and  the  EU  should  also  be  modernised  so  as  to 
replace the existing patchwork of partly restrictive bilateral agreements with a fully 
integrated approach. 

The negotiation of an Open Aviation Area agreement with Canada would aim at an 
opening of both market access and investment opportunities. The reciprocal opening 
of  market  access  with  Canada  has  already  been  implemented  by  some  Member 
States.  However,  several  agreements  are  still  fairly  restrictive.  This  imbalanced 
framework  has  led  to  inequalities  in  the  opportunities  of  Community  air  carriers 
which are not consistent with the equal opportunities for all Community air carriers 
in  the  Single  Market.  The  expected  economic  benefits  of  such  an  agreement  have 
been  shown  in  a  recent  study.  A  comprehensive  air  transport  agreement  on  a 
Community  level  would  make  the  Community’s  aviation  relations  with  Canada 
coherent  and  would  grant  equal  rights  and  opportunities  for  all  Community  air 
carriers for air services to Canada.  

Furthermore,  it  would  create  new  market  opportunities  for  air  carriers  in  those 
Member  States  that  currently  do  not  have  any  rights  concerning  air  transport  from 
and to Canada.  

5.3 

An agreement between the European Union and Canada would need to maintain and 
reinforce  high  standards  of  safety,  security  and  environmental  protection  for  air 
services.  In  the  field  of  aviation  safety,  a  specific  agreement  has  already  been 
negotiated. 

With  respect  to  environmental  issues,  the  agreement  must  be  consistent  with  the 
EU’s  commitment  to  sustainable  development.  Apart  from  the  economic  benefits 
highlighted above, the expected growth in air traffic also has unwanted side-effects, 
notably on air quality and noise levels around airports and through its contribution to 
global climate change. It is important that the agreement does not restrict the EU’s 
ability to apply regulatory or economic instruments to mitigate these adverse effects. 

Safeguarding  fair  competition  is  another  key  issue  in  open  aviation  markets.  By 
achieving  greater  levels  of  regulatory  convergence,  a  comprehensive  air  transport 
agreement  between  the  Community  and  Canada  would  ensure  a  competitive  level 
playing field to avoid distortions of competition. 

Regulatory convergence can only be achieved at Community level. Canada and the 
Community  have  already  taken  the  first  steps  towards  a  high  level  of  regulatory 
convergence  and  this  partnership  can  be  progressively  developed  towards  an  Open 
Aviation  Area  between  the  European  Community  and  Canada.  The  result  of  the 
proposed  new  partnership  would  send  a  clear  signal  to  other  third  countries  to  join 
the trend towards a more flexible international framework for air transport. 

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5.4 

5.5 

In  light  of  the  above,  the  European  Commission  therefore  recommends  that  the 
Council authorises the Commission to open negotiations with Canada with a view to 
concluding a comprehensive air transport agreement. 

The  Commission  will  work  closely  together  with  Member  States  and  all  relevant 
stakeholders  in  further  developing  and  achieving  the  objectives  set  out  in  the 
negotiating directives. 

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