Scrapping the Scrapping the status quostatus quo in in Global Aviation RegulationGlobal Aviation Regulation

Aviation in Transition: Challenges & Aviation in Transition: Challenges & Opportunities of LiberalizationOpportunities of Liberalization

Richard JandaRichard JandaInstitute of Air & Space LawInstitute of Air & Space Law

Faculty of LawFaculty of LawMcGill UniversityMcGill UniversityMarch 23, 2003March 23, 2003

A useful definitionA useful definition

Status quo…

you know, that is Latin for “the mess we’re in.”

Mother Theresa, 1981

Ronald Reagan, 1981

An Agenda for Sanity in a An Agenda for Sanity in a Basket Case SectorBasket Case Sector

First scrapscrap ownership and control restrictions – substitute principal place of business & regulatory control of AOCs Then scrapscrap bilateralism – substitute multilateralism and migrate hard rights to the GATSThen scrap scrap sectoral domestic competition rules – substitute general, eventually WTO-based, competition disciplines

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According to Mr. BisignaniAccording to Mr. Bisignani

Absurdity #1Absurdity #1

Ownership and control restrictionsOwnership and control restrictions

Scrapping the Scrapping the status quostatus quo

The status quo is a significant impediment to airline restructuring and sound management of global networks

Implications:Wave goodbye to the flag carrier

Can still control flags of convenience

US carriers need an end to restrictions even more than others

For the CRAF – or foreign crews – to be invoked as deal breakers is for the tail to wag the dog

How to effect change How to effect change

Countries should implement the ICAO Secretariat proposal in bilaterals

The European Commission should secure a clear negotiation mandate

EU-US negotiations should conclude in an agreement that scraps ownership and control restrictions and is open for signature by others

Absurdity #2Absurdity #2

BilateralismBilateralism

Scrapping the Scrapping the status quostatus quo

Even if ownership and control restrictions were scrapped, the patchwork of bilateralism would distort investment

How to effect changeHow to effect change

EU-US bilateral becomes basis for multilateral agreementCritical mass achieved for shift to GATS

MFNMarket accessNational treatment

Special and differential treatment for developing countries (long phase-in if they want it)

Absurdity #3Absurdity #3

Sectoral competition rulesSectoral competition rules

Scrapping the Scrapping the status quostatus quo

The U.S. discretionary antitrust immunity regime could be abandoned if foreign ownership and control were allowed

Canada’s special “avoidable cost” pricing test and proposed Transport Ministry merger review become unnecessary if foreign competition is allowed

How not to effect changeHow not to effect change

The Parties agree that the following airline practices may be regarded as possible unfair competitive practices which may merit closer examination:a) charging fares and rates on routes at levels which are, in the aggregate, insufficient to cover the costs of providing the services to which they relate;b) the addition of excessive capacity or frequency of service;c) the practices in question are sustained rather than temporary;d) the practices in question have a serious negative economic effect on, or cause significant damage to, another airline;e) the practices in question reflect an apparent intent or have the probable effect, of crippling, excluding or driving another airline from the market; andf) behaviour indicating an abuse of dominant position on the route.

What’s wrong? Most are sinners!Measured how?

A practice?

A practice? Protection!

A practice? Protection!Fine

How to effect changeHow to effect change

Given opening of markets for foreign competition, current general framework competition regimes would be largely adequate to address mergers and abuse of dominanceMOUs between Competition Authorities are reasonable stopgap measuresThe WTO now has a working group on trade and competition policy

ConclusionConclusion

The three absurdities can be scrapped sequentially – 1st ownership and control, 2nd bilateralism, 3rd special competition rules

Competition safeguards should not be seen as a condition precedent to reforming ownership and control

A final thoughtA final thought

Bureaucracy defends the status quo long after the quo has lost its status.

Laurence PeterAuthor of The Peter Principle