The Commission's search for competence April 2002

Ever since the European Commission started to be involved in air transport in the eighties, it has wanted to increase its area of responsibility beyond the borders of the internal market. The three packages of aviation legislation adopted in 1987, 1988 and 1992 covered fares, capacity, competition rules, licensing and market access on intra–EEC routes only.

When the second package was adopted, the commission believed that it was time to claim external competence. It was clear however that the existing web of bilateral air services agreements between Member States of the Community and third countries would have to be left in place. What the Commission was hoping for was that it should be allowed to monitor the on–going negotiations, a fact of life in aviation bilaterals. The nationality clause, a fixture of bilaterals, was targeted by the Commission. It was recognised that the change from bilaterals between individual countries to a Community regime would raise important and complex questions. The allocation of traffic rights (this was before open skies), and capacity provisions would eventually need to be allocated on a Community basis. Not surprisingly, Member States were not prepared to abandon their prerogatives at this time.

The first, big step towards Community competence was taken by the Commission in 1990, when it claimed that it had exclusive competence under Article 113 of the Treaty, which gives the Community exclusive competence in matters of foreign trade.

The Commission thus proposed a draft Council decision on "consultation and authorisation procedures for agreements concerning commercial aviation relations between Member States and third countries". Still treading carefully however, the Commission had written in the proposal that while the Community had competence, implementation remained with the Member States, subject to monitoring.

There were no takers. This attempt to establish Article 113 as the legal basis for Community competence was simply ignored by the Council of Ministers and rejected by the European Parliament.

Two years later, when the Council of Ministers adopted the final package of legislation, which created an internal market in civil aviation, the Commission published a Communication on Air Transport Relations With Third Countries. It provided for the Community to have full competence for external aviation relations but would allow a transitional period of five years. During that period, bilateral negotiations would be subjected to internal consultation machinery and subjected also to compliance with Community law and policy.

An internal Community machinery involving a committee to be chaired by the Commission was proposed for the allocation to Community carriers of any rights obtained as a result of a Community negotiation.

Rights obtained by a Member State had to be available on a non–discriminatory basis to all Community carriers established in that country and competition rules were to be applied to third country routes.

It was proposed that negotiations should be made at the Community level when the strength of the negotiating partner and the size of the market would justify it. The US was naturally given as the prime example of such a third country to be handled at the Community level.

Already then, the Commission identified issues where the bilaterals of the Member States were in breach of Community law. Of particular interest were the clauses on substantial ownership and effective control which conflict with articles of the Treaty forbidding discrimination on grounds of nationality and place of residence (in the Community), the inclusion of pricing, market sharing and pooling agreements were all in breach of EC competition rules and the acceptance by Member States of bilateral obligations in areas where Community legislation exists, as for CRS.

So there again, the Council rejected the Commission’s claim of exclusive competence. It rejected Article 113 as the legal basis. Facing this, the Commission asked the European Court of Justice for a formal opinion on the scope of Article 113. It also asked the Court whether Article 84(2) was the appropriate basis for aviation bilaterals. Two years on, the Court said Article 84(2) allows the Council to rule what Community provisions are applicable to air transport. This episode marked the end of the Article 113 experiment.

The year before, in 1993, the Council had set up a Council Aviation Group that would work according to the rules of procedure of the Council. The Aviation Group was to provide for the exchange of information, look at potential conflict between bilateral agreements and Community law and identify areas of common interest that could lead to Community negotiations.

The Council had taken over the field.

Meanwhile, the US was busy negotiating open sky agreements with individual Member States. In 1995, the Commission asked the Council for a mandate to negotiate with the US.

A year later, it was granted a mandate limited to areas where the Community legislation was affected, such as CRS and slots. The mandate however specifically excluded market access, the prize in any negotiation. In any case, the US rejected this and so in 1998, the Commission launched its complaint to the European Court of Justice in Luxembourg.

The TCAA concept

In the late 90s the AEA proposed its concept of the Trans Atlantic Common Aviation Area (TCAA). The Commission has welcomed the general concept even if it would probably quibble with the details.

The TCAA aims at replacing the current global regulatory regime born in Chicago in 1944, by a unified system. This implies that the European Community should be given a central role in future negotiations. While the idea is to start with the US, the concept is open to other regions of the world and could over time replace the Chicago regime.

Throughout that time the Member States continued to refuse any mandate to the Commission unless the complaint was withdrawn. The Commission stood its ground and everyone had to wait for the European Court of Justice to decide on the complaint.

European Court of Justice’s Advocate General Tizzano published his opinion at the end of January 2002. His opinion clearly said that the open skies agreements (with the US) were in breach of Community law on the issues of fares of US–carriers on intra–Community routes, CRS and nationality clause, but it did not preclude the individual Member States to enter into bilateral agreements and to grant non–Community carriers access to fifth freedom rights between Member States.

So there was victory for all. The Commission claimed that it had won while some Member States said they only had to make minor adjustments to their bilaterals. If the Court follows the Advocate General’s opinion (which it may or may not do), his findings on CRS rules and fares on intra- Community routes will have limited impact.

What is more important is that the Advocate General rejected the Commission’s claim that the Community had exclusive competence on relations with third countries in aviation. The Member States will probably have to somehow put a Community halo to the traditional nationality clause.

While waiting for the European Court of Justice’s decision, the Commission has opened another track toward extending its competence. It has taken the mantle to protect EU airlines against subsidisation of third country of third country airlines and their (potentially) unfair pricing practices.

It is believed that the Commission is reacting to recent developments in third countries triggered by the September 11 tragedy. This said, eyebrows were raised in those parts of the world, considering the past record of the EU in approving substantial state aid to Community flag carriers. Regardless of its merits, the Commission proposal is perceived as no more than Trojan horse towards increased competence and is likely to meet the fate of previous similar initiatives when it grinds its way through the Council machinery.This month the Commission again asked the Council to authorise negotiations for the European community’s accession to ICAO. The Commission says that the expansion of EU competence in aviation makes it necessary for the European Community to become a member. It is far from certain that the Member States will oblige

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