Scrapping the status quo in Global Aviation Regulation

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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

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A useful definition

• Status quo
• you know, that is Latin for the mess were in.
• Mother Theresa, 1981
• Ronald Reagan, 1981

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An Agenda for Sanity in a Basket Case Sector

• First scrap ownership 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

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According to Mr. Bisignani
STAGNATION
Ownership Control
Competition rules
Bilateralism
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Absurdity 1

• Ownership and control restrictions

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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

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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

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Absurdity 2

• Bilateralism

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Scrapping the status quo

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

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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)

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Absurdity 3

• Sectoral competition rules

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Scrapping the status quo

• The U.S. discretionary antitrust immunity regime
  could be abandoned if foreign ownership and
  control were allowed
• Canadas special avoidable cost pricing test
  and proposed Transport Ministry merger review
  become unnecessary if foreign competition is
  allowed

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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.

Whats wrong? Most are sinners!
Measured how?
A practice?
A practice? Protection!
A practice? Protection!
Fine
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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

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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

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A final thought

• Bureaucracy defends the status quo long after the
  quo has lost its status.
• Laurence Peter
• Author of The Peter Principle