Scrapping the status quo in Global Aviation Regulation

1. Scrapping the status quo in Global Aviation Regulation Aviation in Transition: Challenges & Opportunities of Liberalization Richard Janda Institute of Air & Space Law Faculty of Law McGill University March 23, 2003

2. A useful definition Status quo… you know, that is Latin for “the mess we’re in.” Mother Theresa, 1981 Ronald Reagan, 1981

3. An Agenda for Sanity in a Basket Case Sector • First scrapownership and control restrictions – substitute principal place of business & regulatory control of AOCs • Then scrap bilateralism – substitute multilateralism and migrate hard rights to the GATS • Then scrap sectoral domestic competition rules – substitute general, eventually WTO-based, competition disciplines

4. According to Mr. Bisignani STAGNATION Ownership & Control Competition rules Bilateralism

5. Absurdity #1 Ownership and control restrictions

6. Scrapping the status 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

7. 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

8. Absurdity #2 Bilateralism

9. Scrapping the status quo • Even if ownership and control restrictions were scrapped, the patchwork of bilateralism would distort investment

10. How to effect change • EU-US bilateral becomes basis for multilateral agreement • Critical mass achieved for shift to GATS • MFN • Market access • National treatment • Special and differential treatment for developing countries (long phase-in if they want it)

11. Absurdity #3 Sectoral competition rules

12. Scrapping the status 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

13. How 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; and • f) 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

14. How 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 dominance • MOUs between Competition Authorities are reasonable stopgap measures • The WTO now has a working group on trade and competition policy

15. Conclusion • 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

16. A final thought Bureaucracy defends the status quo long after the quo has lost its status. Laurence Peter Author of The Peter Principle