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

A 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 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

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

Ownership and control restrictions Absurdity #1 Ownership and control restrictions

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

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 #2 Bilateralism

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

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)

Sectoral competition rules Absurdity #3 Sectoral competition rules

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

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

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

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

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