African aviation lawyers' seminar : summary

UNITED NATIONS

Economic Commission for Africa

AFRICAN AVIATION LAWYERS' SEMINAR

Cairo, Egypt

31 January - 2 February 1994 ECAC

338.47 UNTACDA2

(1994) TRANSCOM/SKM/A/94/2

Financed by Egyptian fund for technical coopradon with Africa

and hosted by ncato

SUMMARY

CONCLUSION OF THE SEMINAR

INTRODUCTION

The seminar provided a forum to discuss regulatory, privatization and restructuring issues. The debate which took

place can be summarized as follows:

A- REGULATORY ISSUES

1 The challenge for African civil aviation is to make the choice between traditional air policies and to accept the competition ot foreign air-carrier operating under "liberal" bilateral air agreements or a multilateral air agreement which is under discussion and can come into force in the near future. Therefore the main issue was how to ensure African continent's participation

(by small African Air carriers) in the international air traffic market, which will become a global market and in which only mega- carriers can survive. Such continent's participation cannot be quaranted by only a protectionist air policy. It will need on a regional basis a cross-border co-operation between African Air

carriers.

2 The form of such cross-border co-operation should be by

"multi-nationalizing" the national African air carriers, and agreeing multilaterally between the African Governments involved, to designate such "multi-national" air carrier under their

bilateral air agreements.

3 A "multi-national" airline was defined as an airline which no lonqer qualifies under the standard "substantial ownerships &

effective control" clause of bilateral air agreements. It is an airline, which is the common designated airline of a group of African States. The countries concerned will conduct negotiations toqether as one entity, and they will be able to offer more

"reciprocity" and to obtain "concessions" from the countries of the

air carriers wishing to operate scheduled air services in the

market. It is only under these circumstances that the African

countries can request the concession that can support the sustained

presence of African air carriers in the global market place. In

order to successfully multinationaliase the current national

qovernment owned air carrier, there must be a common interest, a

certain affinity between the States and the air carriers concerned.

Page 2

4. Concerning the application of GATT/S principles to international air transport, it was found that the GATT/S

principles may give to African air carriers the full access to

foreign air traffic markets. But it will expose them to free

competition. However, safeguards can be established, if foreign

competition affects "essential" industries.

5. It was indicated that the system of GATT/S is freedom, unless a restriction applies, while the present regulation of air transport starts from closed skies, unless a permission is granted (art 6 of the Chicago Convention). Also traditional regulation of international air transport, isolates States from the air transport system while the GATT/S system integrates States into the Global system.

6. The message of the Seminar under the regulatory issues was:

African States should formulate a common policy and get their house in order by joining forces regionally, enabling them externally to obtain valuable reciprocity. The policy for future regulation should be the balance of the interests of the air carriers and the business & tourist travellers. The latest interests were undermined in the past regulation.

PRIVATIZATION AND RESTRUCTURING

7. Since the airline industry has achieved maturity, States feel that they should manage on their own, hence "privatization". But privatization only works, if air carriers are profitable, and the question was: are African air carriers in their present form

(small airlines belonging to individual States) profitable?.

Privatization of the actual African air carriers will reduce the government-ownership, which normally maintains 51% of the

"ownership and effective control" of a "national" air carrier. It also means the lost of the support from the government. The participants indicated that Government ownership is not an obstacle to "mttltinationalization" of the African air carriers and they should no longer insist on national ownership and the effective commercial control of "their" national air carriers, nor of the aircraft used by their air carriers.

9. It was clear from the seminar that the African experts know what to do. They agreed that co-ordination of activities in the

field of economic regulation, inter alia of air transportation, is

urgently needed. In this regard the Mauritius Conference which will be organized by ECA and AFCAC in September 1994 should concentrate on the "procedures to implement the new air policies.

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FOLLOW-UP

10 The participants indicated that the issues raised during the

seminar were very important and an African position should be

prepared to be honoured by the World Community during the next ICAO

air transport conference. In this regard, it was proposed to set

up in coordination with AFCAC, a working group to prepare and

disseminate the African position on the regulatory issues which

will be discussed during the Mauritius meetings. The Tunisian

Civil Aviation offered to host the meeting of the working group.

TRANS/SEM/A/94-02

SESSION I

Bl LATERAUSIS A CASK OF TOTAL U

HIIA1TJL\IJSM lHIAIERAlJS\f

by

J.N. KAHUKI, Aviation Consultnt

BILATERALISM VERSUS MULTILATERALISM

BILTERALISM-LIMITATIONS ND MERITS

Mr. Chairman,

Ladies and Gentlemen,

is a great honour for me to be invited to this

Nations tconomTc Comiss/on for Africa and the African Axrlxnes

Association.

2 When the topic "Bilateralism - Limitations and Merit" was to me I had a dilemma as to whether to make any mention

f^ j ltrnative to bilateralism.

to me I had a dilemma as to whether to make any mention

ifn^ralifflii the major alternative to bilateralism.

^^^^^^ ^{lifflii the major} alternative to t ke liJ^lv^^^^^ri^Bton that it is necessary to make

re?erence to multilateralism as well. Forgive me for taking that

liberty.

3. MIMILATERAI. AND BIT^TERAL AGREEMENTS 3.1. Multilateral Agreements - Global

3 11. Over the years, attempts have been made to reach multilateral agreements starting with the Chicago Convention. There are three notable attempts to this end:

a) The Chicago Convention

b) The International Air Transport

Agreement; and

c) The International Air Services Transit

Agreement.

3 12 The above three have not been very

successful in bringing about

multilateralism, particularly in the commercial aspect. For example if you take the International Air Transport Agreement which attempted to give a total package of traffic right, the reality is that it never

took off.

TRANS/SEM/A/94-02 Page 2

3.2. Multilateral Agreements - Regional

3.2.1. At the regional level, various attempts have been made to reach multilateral arrangements. Good example of this area:

a) By ECAC member States on 3 0.4.56:

b) Association of South East Asian Nations (non-scheduled) in 1971;

c) Establishment of tariffs for intra- European flights by some ECAC States in

1971;

d) Sharing capacity by some ECAC States in 1987;

e) Yamoussoukro Declaration by African States in 1988; and

f) Decision 297 of the Commission on the Cartagena Accord to implement the Act of Caracas by Andean Pact Countries (Bolivia, Colombia, Equador, Peru and Venezuela) in 1991.

3.2.2. At the non-governmental level, airlines have on their part developed very successful and useful multilateral coordination mechanisms under such institutions as IATA and AFRATC.

3.3. Bilateralism

3.3.1. The fundamental principle of sovereignty enshrined in the Chicago Convention is the basis of bilateralism. At the Chicago Conference of 1944 agreement was reached that every country has complete and exclusive sovereignty over its airspace.

3.3.2. The bilateral regime provides for the regulation of issues relating to routes, capacity and tariffs. In this process the

principle of equality of opportunity is

facilitated. Over the last fifty years, successful bilateral agreements have been concluded. Besides bilateral agreements have been amended from time to time so that they are in line with new circumstances.

Page 3

4. BTT.ATERALT«M VERSUS MTTT-TTIATERALISM"

ill It is my view that there is no simple choice 4 between bilateralism and ^ltilateralism as the only globally acceptable regime. At different fora arguments have been advanced for and against either of the systems and theoretically the arguments advanced appear logical. However, we have to be practical and recognise that we live

in a world where conditions are not homogeneous.

They vary from region to region and indeed from

country to country.

4 12 The needs in different States may of necessity differ. Some States may see air transport as an instrument to promote international trade, tourism, foreign currency earnings or some other needs of the particular State. For some States it could be a combination of these needs or al±

of them but at different levels of priority.

413 m selecting between bilateralism and

multilateralism another factor which comes into play is the level of competitiveness of airlines

from different States.

4 14 we also have to recognise that there are ' ' * differences from country to country as regards the available traffic as well as the potential traffic that can be generated;

4 15 The above factors, and others, I may not have enumerated will influence the choice of the preferred regime by a State. It is no wonder then that different countries will of necessity have different views as regard economic regulation of air transport and the extent to which they will accept the concept of a free

market.

5. ADVANTAGES AND DISADVANTAGES

5 l. Without attempting to be exhaustive I shall just touch on some of the advantages and disadvantages which have been frequently advanced in respect of each of the

systems.

Page 4

5.2. Bilateralism

5.2.1. Bilateralism has been seen by some as a system which is restrictive and which stifles growth. In Africa it has been blamed by some as one of the causes of poor connections between cities. Indeed you have heard of the perennial cry that you need to fly to Europe in order to connect some African airports.

5.2.2. The regime has also been branded cumbersome, time-consuming and costly due to the numerous negotiations which Governments have to undertake.

5.2.3. Arguments have also bee advanced that it tends to promote inefficiency due to the protectionism inherent in it.

5.2.4. However, notwithstanding the limitations I

have j ust ment ioned, bi latera 1 ism has got its strengths. The system guarantees equal opportunity and hence it is a great instrument for protection, particularly of the weaker airlines. This is very important for regions such as Africa.

5.2.5. Under a bilateral regime, it is possible to be liberal in exchange of traffic rights between two like-minded parties. This would not be possible in a global multilateral arrangement due to existing diversity.

5.2.6. Due to the protection mentioned earlier the small airlines would continue existing and hence oligopoly would be avoided.

5.3. Multilateralism

5.3.1. With regard to multilateralism at the global level, it has been argued that it is at this time an academic notion considering the

different conditions prevailing in different

countries.

5.3.2. Besides, it has been argued that due to its

inherent liberalisation (on deregulation if you want to call so) multilateralism would not benefit small countries (particularly

the third world counties) and their

airlines. The system is not likely to

• provide for equitable competition.

Page 5

-i 3 The proponents of multilateralism, however, see it as a regime which promotes air transport growth and international trade.

6. THE FUTURE

6.1. &+• qinbal level

6 11. Having analyzed the two systems what does the future have in store for us? I do not foresee drastic changes to the present system which is primarily bilateral.

6 12 A global multilateral system would be too complex and for many years it will be

impossible for the regime to receive universal acceptance.

6 13 The small countries and their airlines would

* ' ' face a disaster if multilateralism with its inherent global liberalisation was adopted.

6.2. At Regional level

6 2 1 in my view multilateralism would succeed at regional level particularly where like- minded countries join together. A good

example is the EEC effort.

6 2 2 I also strongly believe that third world countries should make more concerted efforts towards evolving multilteralism at regional level in order to facilitate the improvement

of air connections.

6 2.3. In the African Region, although their exists the Yamoussoukro Declaration, more ought to be done as regards the implementation of the intentions of the Declaration. We may need to review the approach towards achieving the

goals.

Page 6

7. CONCLUSION 7.1.1.

7.1.2.

7.1.3.

7.1.4

It is my view that bilateralism will be with

us for many years to come. I believe the world community should accept only a gradual evolvement of multilateralism, mainly starting from regional level.

In the meantime, there should be no attempt from any region of the world to force others to adopt whatever new regime the region has adopted. In particular all should avoid adopting regulations which have adverse extra-territorial implications.

Finally, it is my view that evolvement of global multilateralism should be co ordinated at the ICAO level. However, at the airline level multilateral co-ordination of such areas as tariffs should continue as no better arrangements is foreseeable in the near future.

Thank you Mr. Chairman, Ladies and Gentlemen for listening to my address.

SESSION I

BILATERALISM AND MULTILATERALISM

A CASE OF TOTAL REPLACEMENT OF SUPPLEMENT

"MULTILATERALISM IN

INTERNATIONAL AIR TRANSPORT THE CONCEPT AND THE QUEST".

by

Mr. JOHN GUNTHER,

Chief, Economic Policy Section, Air Transport Bureau International Civil Aviation Organization (ICAO).

"MTTT.TTLATEFAT.TSM IN INTERNATIONAL AIR TRANSPORT THE CONCEPT AND THE QUEST",

Multilateralism in the economic regulation of international

air transport" back in vogue. These days the word is being

tossed about freely, sometimes as a panacea or a regulatory

L for the woes of the airline industry, as an objective,

Srs££S=52s.5f^ meanings and motives. All this attention obligates us to

understand* what and where it might take us in^^^^

to^uset^^-»-- ^^ £*£

v statements, haphazardly and confusingly. We should

heed^he Lrnfng of the French essayist de Montaigne: "nothing

is so firmly believed as that which is least known".

Today I want to take you on a journey through some of the known and less known aspects of multilateralism, to attempt to explain it by looking at its background and usages the key factors in its attractiveness and then to put it in the context

o? that ICAO is presently doing. The subject has a somewhat

theoretical tone so in discussing this particular issue of the international aviation debate we might also be well advised to keep our feet firmly on the ground. The realities of the

aeropoTitical world will always give this kind of subject its

defining parameters.

While our primary interest is in multilateralism in the economic regulation of air transport I suggest we begin by

identifying some of the varied usages of the word in this sector.

A perusal of the trade or business press will reveal one especially prominent and topical type of multilateralism. This is the recently concluded multilateral trade negotiations under the Uruguay Round. The relevance of this for us is of course the fact that air transport services have been brought into the 5ew framework of rules and principles for trade in services the General Agreement on Trade in Services (GATS). An interesting

fnntnote to the Round is that until the eleventh hour the

o?faU planned to call the new institution to replace GATT

the Multilateral Trade organization. No doubt to the chagrin of the World Tourism Organization, the WTO, the new body was at the very last moment redesignated the World Trade Organization also the WTO. Fortunately, the confusion will not exist in the French

or Spanish acronyms.

Page 2

Going now from the broader regulatory environment to the air transport sector.

The Convention on International Civil Aviation or Chicago Convention as it is generally called, the charter for international air transport which will be 50 years old on 7 December 1994 is a multilateral instrument. It codifies principles of public international air law, sets our procedures and practices for the conduct of international civil aviation and serves as the constitution for the International Civil Aviation Organization. ICAO therefore is a multilateral agency - in fact it could almost be termed universal in view of its membership, currently 182 States., And to confuse you further with these multiple uses of multilateral, ICAO drafts multilateral legal instruments, conventions and protocols to conventions. Over the past 2 5 years, for example, a comprehensive array of such instruments designed to combat terrorism, hijacking etc. have been added by ICAO to codified international law.

By dint of the broad mandate given to it by the Chicago Convention, ICAO is, in fact, the forum where if its Member States so agree, a multilateral instrument on any aspect of civil aviation could be drafted and negotiated.

Multilateralism could also be viewed as a process within ICAO. Since the 1970s ICAO has developed a large amount of policy and guidance material (including definitions and codes of conduct) for its member States on such air transport regulatory topics as capacity regulation, tariffs, competition laws, computer reservation systems - all this is a kind of multilateralism -m broad consensus on possible approaches to specific problems and policy issues within the existing regulatory framework.

The airline world has its own version: IATA is a multilateral forum for tariff coordination aimed at facilitating the interline system.

There is also multilateralism in a more limited geographic context. Regional and subregional arrangements are often spoken of as being multilateral. On this continent we have for example the continental agency AFCAC which coordinates policies, develops common positions and guidance and has even drafted a model multilateral agreement for its member states. Then at sub- regional level we have the Southern African Development Commission with its current negotiations on an organizational framework and procedures for air service negotiations with outside countries or groupings. While these are both legitimately multilateral in the sense of more than bilateral I suggest that they would be better defined as regionalism, so as to distinguish them from the multilateralism which is global in reach and cuts across geographical and political boundaries.

Page 3

derivative

To complete the picture we should perhaps acknowledge a ative of multilateralism which has been around now, as a

2s f^^^rs :2ss^Ksr£ stf

could begin with a bilateral but would include fdi^onal parties over time like-minded States with similar regulatory objectives.

Sn!Le a multilateral agreement it would not retire a minimum number of signatories or adherents to come into effect but would have an "entrance fee", that is acceptance of the regulatory arrangements and the degree of liberalization which are built

into the plurilateral.

There has been considerable discussion and speculation in air transport circles in recent times about the development of

an agreement limited to States that wish to liberalize air transport markets (the presumption is usually that they would be

mainly developed States). Although sometimes termed a

Multilateral, with its expanding nature and liberalization raison d"etre it would appear to be more like the plurilateral I have

just described.

After that brief sketch of the different forms of multilateralism - legal, institutional and as a process - let us now focus on multilateralism as an approach to the economic

regulation of international air transport and start by going

backwards nearly 50 years to the only real attempts to devise

such a system.

One of the ambitious tasks facing the 52 States that came

to Chicago in November 1944 was the resolution of post war

economic regulatory arrangements and the extent of the role which

miaht be qiven to the international aeronautical body which, the

conference hoped to establish. Even before the Chicago

conference a diversity of opinion already existing on this issue

among the leading aviation nations and wartime allies.

Page 4

Nevertheless, a valiant attempt was made at the Conference to bridge the ideological divide and to draft multilateral rules, formulae and organizational arrangements to govern basic market access (that is route, operational and traffic rights), capacity and tariffs. Such efforts preoccupied and prolonged the conference deliberations while a compromise was sought between the desire for a non interventionist approach, minimal controls, and the desire for detailed international regulation which was thought necessary to assure countries of a meaningful participation in post war civil aviation. The philosophical differences were narrowed considerably but in the end could not be bridged. So the multilateral approach was set aside for another day and, instead, two provisions inserted in the draft Chicago Convention which retained national authority over market access for scheduled services (Article 6 of the Convention) and similar de facto control in Article 5 over non-scheduled market

access.

Two separate additional instruments, namely the "two freedoms" or Transit Agreement provisional organizational predecessor, PICAO, in 1946 and 1947 to draft a multilateral framework on market access, capacity and pricing. These multilateral rules came to be known as the "missing chapters" of Chicago. But elusive and missing they remained. Different formulae, some of them mathematically complex and confusing, were advanced to find a consensus. The central concern, and through all these efforts the principle cause of breakdown, was a formula that would permit and facilitate the development of long haul multi-stop international operations, while protecting the local carriers' access to their of long haul multi-stop international operations, while protecting the local carriers1 access to their contiguous markets. No solution could be found, and for this certain factors can be cited. The first was that the debate revolved around the freedoms of the air (only five of them back then); yet these were new and abstract concepts, the limitations on which were difficult to draft into legal language, as were the kinds of powers to be given by States to a multilateral authority. Furthermore, after Chicago, PICAO in 1946 and then ICAO in 1947 were fully preoccupied with institution building - developing the administrative arrangements, priorities and practices, allocating resources and putting the final touches on the technical annexes to the Convention, efforts which unavoidably diverted attention from the pursuit of the "missing chapters".

Page 5

Nonetheless, multilateralism for se7"\Jf ^f?

its qrip as an ideal or an objective. In the first of those failid attempts to agree on a multilateral regime the PICAO issemblv in 946 declared that "a multilateral agreement on commercial rights constitutes the only solutioncompatible with

the character of the Organization". Subsequently, this

an historical footnote and a tribute to those earlier attempts

lo devise a^multilateral regime, but also a guiding, if sometimes

forgotten, beacon for the future.

After one last attempt at Geneva in November 1947, momentum for developing a multilateral formula dissipated and for all intents and purposes the quest for the "missing chapters" was

Sgulatiln. If the world ever gets around to another such

attempt it may do well to dust off the history books and note

what went wrong.

The regulatory scene in the 1940's did not mark time while these multilateral efforts were going on. Bilateralism shadowed this work and quickly asserted its credentials and became entrenched as the preferred mode for government international services It proved to be the most pragmatic vehicle for protecting national air transport interests in these formative

years? And to compound this trend, early in 1946, the two main

protagonists in the freedom-protectionist debate at Chicago, the United State and the United Kingdom, the leading aviation powers of the day, found common ground and settled their main differences with the Bermuda agreement, thereby overshadowing and influencing subsequent discussion in ICAO on multilateralism.

It made attainment of a multilateral agreement increasingly remote and unnecessary since it gave the world a b^fteral prototype, with formulae on capacity and tariff regulation as well as other provisions.

Bilateralism in the late 1940s and the 1950s provided State with a comfortable, viable well understood mechanism during that busy period of route development and expansion. The inherent inefficiencies and limitations in its practical application, which are a target of criticism today, were not at that time apparent since there was enormous potential for network and market development. The occasional frustrations with the bilateral process in those years were confined and localized;

seen as simply regulatory constraints and differences rather than

shortcomings in the process itself.

Page 6

Having described the various manifestations of and historical attempts at, multilateralism let me now focus on it as a device used by a substantial number of States to regulate the market access, capacity and pricing aspects of international air transport. In this respect, as it was in the 1940s, it is process, a tool or mechanism and an objective.

What attracts commentators, and some regulators, to advocate a multilateral agreement? Some even call, misleadingly, for a new Chicago Convention - which are really code words for a multilateral agreement on regulation. No serious observer is contemplating the wholesale rewriting of the Chicago Convention.

We saw the effort that went into developing one in the 1940s back when the world was smaller, the international airline industry a mere infant and the opportunity to construct a new regulatory edifice perhaps at its most generous. Yet the effort failed unequivocally, breaking down over the means and degree of protection needed outside the bilateral markets. So why, in a world now more complex, and with even greater disparities in aviation resources and capability should there be a fascination today with the concept?

To a large extent it reflects frustrations with the pace of liberalization through the bilateral process, frustration which primarily hinges on bilateralism's perceived shortcomings and its inability to bring about results that respond to the new economic and business forces abroad in the global economy. In fact, the various shortcomings and complaints about bilateralism, as well as premature announcements of its impending death, are a well worn subject. Whole conferences have been devoted to it. So let me simply identify a few of the criticisms which are not, ipso facto, reasons to embrace multilateralism but do give it a certain conceptual attractiveness. They revolve around:

the subjectivity of bilateralism, which is to say that its results are not necessarily rational or objective as regards market access and route structures and development.

that it is essentially a power rather than a rule- oriented approach to reaching agreement;

that is a resource-draining process for national authorities;

and, that it fails to meet the aspirations not only of those airlines willing to undertake risk and pursue profit in expanding and developing new markets (a normal business instinct) but often fails to meet the needs of the interests of others directly affected by the air. transport system, such as airports, communities, tourist industries and regional development needs.

Page 7

Without going into a discussion on the merits of bilateralism, we should also acknowledge, for balance the

counterpoint arguments that make bilateralism attractive

?°cluKng bilateralism's ability to serve or the counterpoint arguments that make bilateralism attractive inc^n?

bilateralism's ability to serve or at least protect the national irt£erlst and to control the pace and direction of international

air transport links; and its flexibility in adapting to market

and commercial needs (it can be a vehicle *« lilyraa^ation

even thought its success has not over the past 15 years been dramatic or sustained). And bilateralism can hardly be labelled a failure - it has facilitated a remarkably orderly growth and development in this service sector over nearly five decades.

If you take the obverse of the criticisms of bilateralism you can construct a case for multilateralism. Firstly the subiectivity/objectivity aspect. A multilateral framework, built on top of the existing bilateral structure or designed to displace it will, it is argued,permit much greater access for airlines than could have been obtained bilaterally. It should, theoretically at least and depending on its actual terms, allow a more rational and economically driven approach to air service and route development. Furthermore, multilateralism has the merit of being a rule rather than a power-oriented approach to international agreement. If a multilateral agreement is essentially a self-implementing framework it would presumably incorporate rules to control not only airline access but also airline behaviour-this will make it a relatively resource- efficient process for national authorities, compared with bilateralism. Finally, and this would also depend on its actual content, it should be a more conductive framework than bilateralism for meeting the entrepreneurial needs of airlines and the service needs of other community and vested interests.

But iust as I acknowledged a moment ago some of the counterpoints to criticisms of bilateralism so I should also note some of the negatives about multilateralism such as that a multilateral agreement could tend towards the lowest common denominator; and if its objective is to meet the needs of a more open competitive air transport environment, such lowest common denominator result could reduce its scope and effectiveness.

Multilateralism's relative inflexibility - in terms of amendment, since it is an agreement with many parties - and its transfer of control over the pace and direction of air service development from the national authority to an outside institutional and/or legal framework are a few other counterbalancing arguments.

From this brief comparative sketch we can see that the differences between the attributes or the relative merits of

bilateralism and multilateralism, as a market access process, can

be stark, and, depending on your individual or national

perspective, may well be persuasive one way or the other.

TRANS/SEM/A/94-02 Page 8

Notwithstanding the failed experience in the 1940s, multilateralism is obviously not a discredited approach to regulation even though it is one fraught with daunting uncertainties, pitfalls and obstacles. Yet the comprehensive Uruguay Round negotiations proved to many sceptics that new ground for multilateralism can be broken (admittedly more easily if it is filling a regulatory vacuum, as it was there to some extent) but it is not totally beyond the realms of possibility.

That would undoubtedly be the idealist's or the optimist's approach. The realist, or the sceptics among us, would want to know the prerequisites, or conditions precedent, for even resurrecting this quest. Let us oblige the realists.

Bilateralism as a regulatory framework for air transport may well as sui generis, one of its kind, among service sector regulatory regimes. It has spawned its own language (nothing odd about that in this day of self-contained jargon) , its own content, practices, protocols and methodology, its own industry of regulators, airline-leadership and observers, all governed by a layer of sacrosanct legal norms, concepts and objectives such as sovereignty, equality or opportunity or benefits, and reciprocity (which makes everything negotiable, but at a price).

The overriding and overwhelming feature of air transport in the regulatory scene is the nationality factor, a direct consequence of the sovereignty principle in the Chicago Convention. From the outsider's viewpoint it is a unique way to run the business of a service sector, and yet it stems in large part from the legitimate and understandable desire of practically all countries to participate in international air transport and to have that participation serve their national trade, communication and development interests. So if air transport in general and bilateralism in particular have their peculiarities or idiosyncrasies this is part and parcel of the desire to participate.

These very characteristics, these mindsets and approaches, could be seen as impediments to any new approaches, such as multilateralism, to regulating air transport in future. Our challenge, in this technologically advanced and innovative industry, is to adapt a regulatory framework developed for an era vastly different from that which existed when these approaches and practices were devised. This somewhat lengthy background leads to my first suggested condition precedent for any serious contemplation of a broad multilateral approach: the need for the aviation community to address whether this sector's habits, practices and mindsets, even its language, can take air transport out if its regulatory insularity. Any departure from the existing mould will be difficult, but perhaps a willingness to contemplate new language, concepts and ideas, some even from other regulatory environments such as trade, as wel 1 as a definition of new broader objectives for the role air transport can play in trade, communications and economic development might help the quest.

Page 9

second condition precedent for contemplating

ksjsjk i^ssssJS s=

be agreed goals and the expectation that its benefits materialize and be widely dispersed.

Neither of these conditions precedent - a change i£ habits, practices and approaches, and a clear consensus on the objective, wi?h the assurance of improvement over what already exists - are yet evident, they are still below the horizon.

But there is hope. Given the frustration in some quarters

with toe Siting, some would say protectionist nature of

bilateralism (although it should be noted «»* ^^"irrt

multilateralism. The United States and the European Union will,

over the next few months start exploratory discussions of a oroDosal for what is reported to be a multilateral agreement for clrao services. It would appear to be more in the nature of a

^lateral agreement. The World Travel and ™*« 2™1* *£

also proposed such an effort as an initial step. Whether it be

plurilateral, multilateral or even a bilateral (1^ US-EU)

initiative, it is a modest start; one which will bear close monitoring by all countries.

However, this proposal does not mean we have come a full historical circle from Chicago, but we have perhaps at least the genesis of a renewal of the multilateral quest. Another signpost will be the ICAO world-wide air transport conference on

"international Air Transport Regulation; Present and Future"

scheduled to take place in Montreal from 23 November to 6 December 1994. Let me recap some of the pertinent background to this initiative, which also has long term multilateral

implications.

The GATS agreement under the Uruguay Round is probably one of its more profound achievements since it is a ground breaking framework, one which seeks to bring all services within its trade

liberalizing framework.

TRANS/SEM/A/94-02 Page 10

From the early days of discussions on a services agreement there was little enthusiasm for applying the trade rules to market access in international air transport, what is now broadly termed the "hard rights". And yet, throughout the development and drafting of the GATS neither was much serious thought given (although a few participants tried) to totally exempt air transport, j ust because of the existence of the Chicago Convention, an institutional framework, ICAO, and an already established regulatory regime of a few thousand bilateral air service agreements that already deal with market access and other operational and administrative arrangements. In the end air transport was included but the trade principles of most favoured nation treatment, national treatment and transparency, as well as provisions on market access and progressive liberalization have been applied tp only three so-called "doing business"

aspects of air transport: aircraft repair and maintenance, selling and marketing, and computer reservation systems.

But the sting in the tail of this limited multilateralism is not the present limited scope of its application to air transport; it is the fact that exemptions, which can be filed by participants to exclude the agreement's application to any or all of these three subjects, are time limited (i. e five years renewable to ten). Furthermore, future negotiations, beginning in not less than five years, will undoubtedly seek to expand the degree of liberalization (achieved by the filing of national commitments to reduce barriers) as well as the scope of applicability in this sector. This is the trade way to regulate and expand trade - to ratchet up the level of liberalization through continuous or frequent negotiation.

These potential long-term implications of a GATS for air transport were recognized at an early stage in ICAO and were partly responsible for putting in train the events that led up to the impending Conference. One might well deduce that GATS threw down the gauntlet to the aeronautical community. The fact is that GATT and trade regulators have their own agenda including a non-exclusionary approach to services. The same forces that underlay the launching and the impetus for the exclusionary approach to services. The same forces that underlay the launching and the impetus for the Uruguay Round, i.e. a global economy with globalization of markets, transnationalization and internationalization of businesses, privatization and the retreat by governments from ownership and participation in the market place, together with attitudinal changes and the radical restructuring of economics,industries and service sectors - all these have also been at work in the air transport sector. So even if the Round had not been completed, those trends were so pervasive that the aeronautical community would most probably have decided in any event to contemplate the future and evaluate the need for changes in regulatory approach.

Page 11

These days passionate defenders of the status quo in many areas of international political and economic relations usually have to hope that history will pass them by. Unfortunately it tends not to do so and the competitive and globalization forces at work call for constant adjustment and adaptation. This point came out loud and clear in the world-wide air transport colloquium convened by ICAO in Montreal in April 1992. It was a unique brainstorming session - if 500 delegates in the one meeting-hall can be called that - on the future of regulation.

No one at the Colloquium questioned the changing world or its inevitable impact on air transport. And may there acknowledged that the airlines were today out in front of the national regulators in understanding the need for nw thinking and regulatory change. But when it came to regulatory approaches there was no consensus, merely the conclusion that the regulatory scene was heading into a transition phase where multilateralism, in possibly various guises, plurilateralism and/or regionalism miqht be grafted on to the primarily bilateral framework. We would have to live with such a hybrid for some time.

Unfortunately no one had a crystal ball to hand to tell us what

kind of multilateralism or when.

When reviewing the outcome of the Colloquium the ICAO Council felt the event had generated a momentum for regulatory evaluation, one which could be built on. With one eye on the trade in services developments, the Council decided to work towards a broader air transport conference, one to discuss future regulatory arrangements. And that is our present preoccupation.

The Conference is being given an opportunity to break new ground to address future needs, rather than as at previous ICAO air transport conferences to respond to current regulatory issues and problems. The focus will be on the content of possible new concepts and arrangements which might be used, optionally, by State in their bilateral, or in any multilateral relations that

they may manage to achieve.

To undertake the preparatory work for the Conference, the development of new concepts and arrangements, the council agreed to the establishment of a group of experts, called in ICAO parlance the Group of Experts on Future Regulatory Arrangements for international air transport (or GEFRA). Working with the ICAO Secretariat this group of 12 eminent experts from the governmental, airline and airport fields spent just over a year developing some ideas which they then refined at meetings in

Montreal a few months ago.

We are fortunate to have at this seminar as speakers tomorrow two of the GEFRA members from this region, Mr. Daoudi from Morocco and Mr. Poonoosamy from Mauritius. Since they will be presenting papers on the future regulatory regime I will not preempt their efforts by talking in detail about the Group's

work.

TRANS/SEM/A/94-02 Page 12

However I would like to mention just one aspect because of

its relevance to my own topic. That is the objectives that

States might have for using any of the new regulatory arrangements which have been developed and will be presented to the Conference in November. The group identified a number of objectives, but felt that two stood out.

One was the continuing desire of States to participate on a sustained basis in the air transport system. That is certainly a preoccupation on this continent - how to maintain participation in air transport and to ensure it supplies the trade and communication lifelines needed. Air transport is not the economists' neoclassical market in the sense that only those that are efficient or have comparative or competitive advantage will or should compete in the international market place.

The second overriding objective States would presumably have to entertain new approaches is that of adaptation to the changing global commercial and operating environment that we have mentioned several times. The pressures for adaptation are external and internal and the market place in air transport is increasingly open, competitive and dynamic. The issues for regulators to address are many as airlines respond to commercial imperatives with code-sharing, equity and marketing alliances and tie ups, frequent flyer plans and CRS as marketing and product distribution tools, all with important market access and other regulatory implications.

The group of experts took a broad-brushed approach to this global palate and came up with alternative arrangements for the core issues of market access, progressive liberalization, safeguards to prevent competitive abuses, a safety net to ensure continued participation, and alternatives to the traditional concept of national ownership and control of airlines. The Conference is expected to examine and refine these new regulatory ideas some of which, you will note, contain terminology that has not normally been used by this sector. We in ICAO think it is a realistic goal for the Organization to the Organization's mandate, reflects the maturity of the issue and, hopefully, the readiness of the aeronautical community to give it consideration.

Page 13

I should however emphasize what the Conference is NOT exnected to do. It will not be considering the amendment of provisions of the Chicago Convention - in fact to do so is

s x

we

sees. "JT^MLSS,^=a?s should recall that even a pragmatic ees. JT^, hould recall that even a pragmatic provision for

to constitutional modification even more especially when applied to contentious aeropolitical areas. Besides steering clear of constitutional amendment the ICAO Conference in November will NOT

seek to draft an agreement, multilateral or otherwise. That is a future endeavour, but only if sufficient interest and consensus

emerges from this first step.

The conference, hopefully, will be not only a constructive auide on how to move forward on issues perplexing the present

?egu?atory system but also be a catalyst for long term regulatory

change and adjustment. Multilateralism is certainly one option.

As a vehicle for regulating international air transport it is

topLal tempting and interesting. But it is not the panacea it

is sometimes characterized as. And only if we understand its background, its relative merits and limitations, only if the circumstances and attitudes are ripe and the preparations

?horoSgh can we hope to harness it for an even better, more

efficient and responsive aviation sector for users and for national growth and development; a legacy I am sure we would all

like to leave to future generations.

SESSION I

s,-, 'A. ^' ' -- *Cv»* ^x^ *$££*' s^k-^ V^h>

. 's ""^ . -S- ^^±^^mtom*^^^^^rtMMmit

by

HENRI WASSENBERG

The International Institute of Air & Space Law

Laiden University, The Netherlands

1994

Assembly, held at Geneva of November 1947,

ld

I

aircraft".

ICAO studied the competition between scheduled and

programed charger services; and ICAO ^J***J»™*™1$ conference to seek new ways for services; and ICAO in 1992 held a world conference to seek new ways for the economic regulation

on a multilateral basis of international air transportation service.2)

ICAO will hold a second world conference on this challenge,

at the end of 1994.

ICAO will then have to consider the GATT./GATS as an alternative approach to the international exchanges of air transport rights and furthermore will have available the recommendations of the Clinton Commission. ICAO also wil have the benefit of the opinions of the 12 Wise Men of the EU. )

The conclusions of the Uruguay round of the GATT (the eighth and last round), which started in September 1986 and ended in December 1993, shall become valid as from the first of January

1995.

The GATT will become the WTO (MTO), the World Multilateral

Trade Organization.

The Uruguay round produced a GATS, an agreement on trade in services, with inter alia a special Annex for air transport services! This Annex however, does not apply the provisions of the GATS to traffic rights and activities directly related to the exercise of traffic rights, except (1) aircraft repair and maintenance, (2) selling and marketing, and (3) CRS.

'See ICAO Circular 136-AT/42 of 1977 and second edition Doc.

7278/2 of 1985.

2See Michel de Juglarty, "Traite de Droit Aerien", Paris,

1989, Tome 1, 2251.

3See Aviation Week & Space Technology,1 December 13/20,

1993, p.31.

Page 2

The GATS is based on a concept different from the GATT and determines its scope by defining "trade in services". It adopted the widest possible range for selling services in foreign markets, including delivery without the services actually crossing borders, for instance, delivery through a commercial presence in a foreign country.

The GATT-mfn-principle (non-discrimination) must be applied", but as for as air transport is concerned, only to the three activities mentioned above, unless an exemption is listed.4)

As far as the Eu is concerned, the submission of France to the Wise Men in November 1993 is of interest to understand the conservative approach, which cannot be ignored, if we want to achieve a new regulatory system on a global level. France's Minister Bosson told the Wise Men that air transport cannot do totally without the regulatory intervention of the public authorities. Safeguard clauses on rates and capacity should be included in final arrangements, while the authorities should help air carriers wishing to co-operate or even merge.

The EU should help the airlines to reduce their costs, while technical and social harmonization should be promoted to avoid

the relocation of activities outside the EU.5)

However, pleading that governments should limit air carrier capacity, should reduce taxes, fees and charges on air transport, should adopt a flexible competition policy and arrange for public financial support for the airline,s in my opinion, is wishing to turn the clock back and place the airline industry under government guardianship again.6)

4See also Mario Marconin, "GATS and the liberalization of

Air Transport Services", ICC, Paris, 18 June, 1993.

5See Agence Europe of 30 November 1993.

6See Also the recommendations of the "US national commission

to ensure a strong competitive airline industry1; Aviation Daily of July 20, August 30 and 31 and November 3, 1993; Aviation Week

& Space Technoloigy, Novbember 15, 1993, p.20;

TRANSCOM/SEM/A/94-02 Page 3

At the non-governmental level, the ICC in Paris formulated and submitted its views to the "Comit/ des Sages on September 2,

?Q« statins that the EC (EU) should seek to implement a liberal and open a"/ transport regime, the Commission gradually taking

over the air transport negotiating process from individual EC

countries, the Commission to negotiate only within a policy

framework endorsed by a mandate from the Council of Ministers.

Andfurther^The Commission should commit itself to a minimum of government regulation, consistent with safety and essential consumer protection.7) .

The ICC in Paris, its Air Transport Commission, has been active over the years to arrive at such more liberal international regime in the interest of international business

1980-s', emphasizing the need for economic

in my opinion, too much emphasis on multilateralism in economic regulation is wrong, as the promotion of "standardized

liberal bilateralism' is far more realistic and can be equally

effective.

The commission, for many years, has advocated GATT- crinciples to be applied to air transport. International air

transporfcan be seen as a ■ trade in services • and Uruguay round

of tne GATT of 1986 confirmed this and extended its free trade negotiations to include also "trade in Services" (finance,

telecommunications, transport).

And indeed, why not apply "free trade principles: to international air transport, if a liberalized regulatory environment for its is wanted?

The ICC Working Group recommended to the Air Transport Commission's meeting of 10 December 1993:

a multilateral "free trade" regime of "National Treatment" with respect to doing-business right

(trading rights and conditions); and

7See ICC Doc. No. 310/412 of 14-10-1993.

8See ICC Docs. No. 310/413 REV.BIS of 22-11-1993 and

Addendum to Doc. 310/413 REV. of 3-12-1993.

TRANSCOM/SEM/A/94-02 Page 4

a multilateral "free(r) trade" regime for access to the market, giving air carriers a greater flexibility with respect to operating and traffic rights and conditions, enabling the air carriers to more freely choose their product and conduct their business as they see fit; and finally.

a standardization of definitions and the administrative clauses of bilateral air agreements

should be effected by multilaterally granting each

other "Most Favoured Nation treatment".

The ICC Working Group, and in my opinion rightly so, was hesitant to support free entry into the market for new coiners:

New entry should be subject to:

"financial health".

- "responsible management"; and

- tailored to market requirements", to avoid adverse economic consequences for efficient existing air carriers".

IATA tariff coordination was supported only, if it leaves room for individual unilateral pricing.

The bad financial situation of the international air carriers during recent years, while many had been operating under more liberal conditions than before, worried and worries the governments, let alone the carriers themselves. To avoid financial commitments, governments promoted privatisation of the airline industry. Still such privatisation remained limited to a minority share for foreign investors, in order for the air carrier not to lose its "nationality" and therewith its government support. This aspect, the nationality of the air carrier operating international air services, deserves close attention for the future, as was also concluded during the 1992 ICAO World Conference.

A question is whether and if so how to regulate international air transport without the nationality reference/criterion, but still ensuring adequate supply for the growing demand in the world on a profitable basis.

Where to go from here? Where is this to be decided?

ICAO as the multilateral or even universal forum successfully deals with the operational and technical (safety) aspects of international air transport. Efforts to achieve world-wide results in the economic field have been limited so far, however.

Page 5

The GATT/S will treat air transport as a purely economic activity i.eas a business. It is a cental place to first of negatively co-ordinate States' actions by telling them what not to do in order to create an international economic order.

Thus the prohibition of quantitative restrictions and

discrimination.

In other words, GATT presupposes, starts from a situation of free access for foreign products (and services?) to the markets of an Member States. On this basis «non-discrimination»

only applies with respect to tariffs, customs duties and charges.

Therewith it can positively strive after a reciprocal reduction of tariffs on the basis of mutual advantage: a commitment to liberalize tariff-barriers to trade, agreed upon

wSany other country, must be granted in all its •most-favoured

nation' terms, to all parties to the GATT-agreement. (the MFN- principle) .9)

Bilateralism is made into multilateralism by application of the MFN-principle: all GATT States may benefit from any improvement, agreed by a Member State with an other State, of the

access to its market.

If not a "balance of advantages"results or is maintained, .there is the 'nullification and impairment1 procedures. )

It may be feared, however, that the GATT, the World (Multilateral) Trade Organization, as a forum for international air transport exchanges, will undervalue the special defense aspects and public service (utility) character which civil aviation represents for many States.

"Article I of the GATT. See Edmond McGovern, "International Trade REgulation", Exeter Globefield Press, 1986, pp. 254 ff; and Mario Marconini, op. cit. p.5.

10Art. XXIII>I, GATT. State-dliability results from a Party•s action that nullifies and impairs any advantage from GATT to which any other Party is entitled. Then the panel procedure is open The dispute settlement in GATT can be compared to voluntary arbitration. The IMFG creates the framework that facilitates, as the complement of GATT-liberalization, the exchange of goods, services and capital among countries.

Development countries want both from GATT and the IMF a

preferential treatment, without interference in their domestic

afairs. This creates asymmetrical situaitons.

Page 6

GATS may turn these States' air policies into strategic security and economic/commercial domination (economic power) policies, when they have to apply free access to foreign producers of air transport services, as supposed to be granted under the GATT-system, with only the (non-discriminatory) application of customs duties and charges as a means of control.

In fact this has happened in practice under the standard Bermuda-1 capacity clauses which favour States with big air

transport markets.11)

To shape a new air transport policy for the 1990fs, we feel that a liberal multilateral agreement on substantive international air transport issues will be very hard to achieve and even then will not give a satisfactory answer to present problems.

Multilateralism gives the same liberal regime for all States-Parties in the territories of the Parties, while no national and bilateral circumstances of any two States are the

same.

Thus a multilateral agreement cannot represent more than the least common multiple, or the greatest common divisor of the Parties * opinions.

llTo successfully apply the most-favoured nation principle

to air transport services it will be necessary to define what is meant by the term "favour" Non-discrimination permits "favours"

on the basis of special relationships (cf. the EEC (EU) customs Union). Relating a favour to a special circumstance is not possible under the mfn-clause, and for air transport services the application by States of a formula based on such special circumstance for (the extent or ease of) access by a foreign air transport services "rroducer" to a their market', may take away any discrimination, if equally applied to all States, byt may lead to factual ediscrimination, as was the case with the Bermuda-1 agreement, which victimized small countries. Such formula will become a "favour only, if it recognizes the competitiveness of the producer in the market and for instance allows access on the basis of a certain minimum loadfactor, to be realized over certain periods. The "loadfactor requirement"

would then act as a ' tariff-barrier, a customs duty on the accdess of the foreign producer, in casu of air transport services. Afrticle 6 of the Chicago Convention of 1944 would no longer apply, as no permission would be needed beforehand to operate scheduled air services, only the proff of a sufficient

loadfactor to/from and via the home territory of the carrier over

agreed periods would suffice.

Page .7

It is a widely-spread misunderstanding that bilateralism cannot adequately regulate international air transport, as, after

a?l? international air transport is a multi-lateral activity by

nature It is overlooked that bilateral agreements can be -multi-lateralized" by adopting bilaterally standard clauses, as was the case in the Bermuda-1 agreement.

For formulae and clauses to become standard clauses, however, express or silent multilateral understanding on

government level is necessary, of course.

Bilateral air agreements can also be made more workable, creating more liberal conditions, by abolishing the nationality criterion for "designated air carriers".

This -de-nationalization' (the nationality of the air

carrier having become irrelevant) or P^V^nr^Jhit

nationalization1 of the airline industry means, in essence, that

"national' air carriers would be free to attract foreign equity

capital without a limit and even can merge with a foreign air carrier if the (group of) States involved in such cross-border co-operation or merger, and the foreign States confronted with it accept the result of such cross-border investment or cooperation as the (common) "designated air carrier" of the

(group of) States concerned.

The new air carrier, even if owned and controlled by foreign nationals, but still having a main place of business in the country, or having merged with a foreign air carrier into one new entity having a main place of business in the country, is to be considered and treated by the States concerned as their

"national" air political "instrument".

The EC (EU) recognizes the right of a State to "stabilize capacity" (for a limited period) to/from its territory if foreign competition leads to serious financial damage for the scheduled air carriers licensed by it.

Such license can only be issued to undertakings having its principal place of business and, if any, its registered office

in that state.12)

Thus States have the right to protect the operation of scheduled services to/from the State by such "own" air carriers.

12 ) See for the "safeguards" ■gainst overcapacity/predatory pricing/dominant politico:

article 10 of Regulation 2408/92 of July 23. 1992 and for the licensing of undertaking*

article 4 (1) of the Regulation No.2407/92 of 23 July, 1992.

See also "Europe". Monday/Tuesday 6/7 December 1993 about the conclusions of the Belgian Presidency with respect to civil

TRANSCOM/SEM/A/94-02 Page 8

There are, of course, many forms of international inter-air carrier participation.

We may mention:

(a) the symbolic and the minority equity participation in a foreign air carrier;

(b) such participation mutually effected (e.g. between Swissair, Delta and Singapore Airways);

(c) minority participation by different nationalities, either air carriers or others, in a same foreign air carrier, amounting to a majority ownership of that air carrier being in foreign hands;

(d) a majority participation by (sa) foreign investor(s) or the complete acquisition of an air carrier by (a) foreign investor(s), e.g. (an) air carrier(s); and (e) a merger by two or more air carriers of different

nationality.

Cross-border investments by governments are also possible, though will be less usual in the airline industry.

We use the term "multi-nationalization of an air carrier1, i.e. of the carrier in which foreigners invest or the newly created, merged air carrier, only for the "participation1 mentioned under (c), (d) and (e).

Note that (d) can be considered to be a multinationalized air carrier only, if the air carrier which is acquired by a foreign investor remains in its own country, or at least is not based in the country of the majority investor(s).

Multi-nationalization of an air carrier creates an air carrier having a "multi-nationality", i.e. the nationalities of the participating investors, as well as the nationality of the country where the air carrier has its main operational basis.

Alternatively, it simply has an international identity, is an international air carrier without any particular nationality, that is the carrier is "denationalized" (no nationality) , or

"internationalized".

Page 9

Multi-nationalism in practice

Within the EU, no longer the requirement of national

"subsftntitl ownership and effective control- is appliedtat

only an EEC (EU) ownership and control. Acceptance of such "de

nationalized" 'or "internationalized" "e~xty (*£-£

carriers" by non-EU countries, so far, is still to be negotiated.)f3

"Alcazar", the effort by KLM, SAS, Swissair and Air Austria to form a merged multi-national air carrier, could have been

sSccfe°s?fuai,mifgfirst a multilateral understanding would_have been

reached between the six governments involved to the •"•f1 *hat

they would undertake to support the co"^«^ i-h«fr-MtiSil^ States and would designate Aolcazar as such as their "national instrument to implement their bilateral air agreements. The

carriers intended* to fly "in symphony" with^ each other and by

doing so, would not only reduce their cost-level and thereby increased their competitiveness, but also increase their market coverage while eliminating each other as competitors.

Thus ALCAZAR would have been an example of

multi-nationalization of the air carriers concerned, that is of the States involved; and

multilateralism between the States directly involved;

and

bilateralism maintained by the individual States of the air carriers involved; with third States; or

alternatively

new bilateralism created by the States of the carriers concerned, acting as one entity vis-a-vis the third

States concerned.

"Alcazar" then politically would have had the "nationality"

of all the States involved, but legally either the nationality of each of the States concerned, or the "multinationality" of the group of States involved, to avoid the risk, under the prevailing legal regime governing international air services, of Alcazar

having no "nationality" at all.

13 The criteria of ownership and control of a carrier to determine its -nationality is being replaced by the criterion of the state under whose jurisdiction, viz. licensing legislation a carrier has received its operating license and economic certificate, that is the State of its place of actual establishment.

Beijing-China announced that they will allow foreign investments and management of Chinese air carriers and airports operating in joint venture, in 1994. (Financial Times, 8 Dec. 1993).

TRANSCOM/SEM/A/94-02 Page 10

One of the recommendations of President Clinton's "National Commission to ensure a strong competitive airline industry1 advocates the creation of a multi-national operating environment for airlines free of discrimination and restriction, and the negotiation of liberal multi-national agreements, inter alia to encompass comparable traffic rights, fair market access and doing-business opportunities. Such multi-national agreements would still be bilateral deals for the US, but with a higher, for multi-national, other Party, based on cross-border cooperation of "national" airlines.*)

ICAO could try and obtain the general agreement of the coming world Conference on November/December 1994, on the fact that the air carrier industry finally is able to stand on its own feet and should be treated, therefore, as a normal economic activity.

The first consequence of the recognition of this truth will be that no longer air carriers are treated according to their

"nationality" under bilateral air agreements, which would make it feasible for national ir carriers to enter into cross-border, multi-national cooperation.

Governments when concluding bilateral air agreements should concentrate on (the creation and control of) as many air connections to/from and via the State as possible, not on whether the carrier, that will implement the rights exchanged, is owned and controlled by the other Party or its nationals, nor on how the rights exchanged will be implemented, as long as safety and

security and adequate protection of the travelling and shipping

public and the environment are ensured.

To governments it is most important to stimulate the economy

of the State and its regions.**14)

In order to offer the best possible service, it may be necessary for air carriers to co-operate, to acquire other carriers, to merge with other carriers, also cross-border, to attract foreign capital and know-how, to trans-nationalize the company, to relocate certain activities, and all these economic and commercial considerations should be left to the air carrier managements.

In other words, governments should support the multi- nationalization, by cross-border concentration, of the airline industry.

l4*) See Aviation Daily of August 31, 1993. page 339.

**The Dutch government, on 17 December 1993, approved the plan to give Schiphol airport a fifth runway to ensure that it would remain a "mainport", notwithstanding strong protests from

environmental organizations and safety risks for the population.