Examination of Witnesses (Questions 320
WEDNESDAY 8 JULY 1998
and MR HUMBERT
320. In the circumstances of the Commission
negotiating with third party countries for traffic rights, if
that country then imposes limited route availability, how would
you see those limited number of routes distributed among those
countries in the Union which might wish to use them and for which
there could be conflict?
(Mr van Houtte) That is a very difficult question.
321. Thank you.
(Mr van Houtte) The Commission made a proposal
for exactly this areahow to enter into Community-wide agreementsback
in 1992 and it was not taken up by the Council at the time. One
of the reasons was that the Council and Member States felt that
it did not provide sufficient indications of how the Commission
practically wanted to deal with difficulties like this. It is
true that it is a very hard area and it is difficult to lay down
in law and say that X number of traffic rights have to go to Dutch
airlines and Y to British airlines because you cannot really practically
What will happen in practice is that when the negotiations have
been concluded, if there has been a set of traffic rights negotiated
on behalf of Community airlines, then the Commission, together
with the Member States, sit down and discuss the most sensible
allocation of those traffic rights and see it in terms of where
the traffic originates and which airports need to be served especially.
So the traffic rights, and this is probably an important detail,
would have to be allocated within the Community, not on the basis
of the nationality of the airline, but on the basis of the airport
which is going to be served, regardless of which airlines accept
those traffic rights.
322. You are really talking then about a
bilateral agreement between the European Union as one body and,
keeping the United States out of this example, a third countrya
bilateral between a third country and the European Union en
blocare you not, really?
(Mr van Houtte) That would be the idea, yes, exactly.
323. One of our witnesses suggested, to
quote, "It would, in principle, be possible to allocate traffic
rights by auction. Community airlines would bid for the traffic
rights and these would be allocated to the highest bidder".
(Mr van Houtte) That is a possibility. It sounds
a little bit academic but it could be done that way, that is correct,
324. I believe the Commission is taking
court action against certain Member States who have agreed open-skies
deals with the United States on their own. Is this correct?
(Mr van Houtte) That is right.
325. How does this fit in with your present
(Mr van Houtte) Well, there are now eight Member
States which are the subject of a court procedure. It is not quite
at the court stage yet and we have sent out what we call a "reasoned
opinion", but it would eventually lead to a case before the
Court of Justice. The argument basically has two elements. One
is that we feel that since the entering into force of the internal
market in 1993, the Commission now has exclusive competence to
develop the external policy vis-à-vis third countries
and there is a legal theory saying that if the Community deals
with the internal aspect of a certain policy, then the necessary
implication is that the Community is also best placed to develop
that policy vis-à-vis countries outside the European
Community, so that is the first line of argument. The second line
of argument is that the bilateral agreements in question contain
some provisions which are not compatible with Community law, and
that is essentially the nationality clauses, so the fact that
traffic rights are only given to airlines which are substantially
owned and controlled by nationals of the Member State in question,
we feel that that is contrary to the freedom of establishment
within the European Community. It would not be possible for Air
France, for instance, to establish a subsidiary in Germany and
to claim traffic rights from Germany because the German bilaterals
do not allow that, and that is contrary to Community law.
326. One could argue, starting from a clean
sheet of paper, why do we even have to go for the 49 per cent
ownership figure and why not 100 per cent? Does it matter who
owns airlines within the Community?
(Mr van Houtte) Probably not, I think. We have
made a proposal for negotiating with the United States for specific
air transport agreements and one of the objectives which we are
pursuing is to get rid of ownership restrictions so that it would
be possible for Community airlines
327. Completely, you mean?
(Mr van Houtte) completely in the
long run, but that would have to happen in a balanced way and
agreed by both sides.
328. It would still be subject to competition
(Mr van Houtte) Absolutely.
329. But this could apply to other countries
outside the European Union and the United States of course too.
(Mr van Houtte) Yes.
330. If there was a wish from Eastern or
Far Eastern airlines, for example, it is probably more difficult
(Mr van Houtte) Well, the procedure is that the
Commission is authorised by the Council to enter into negotiations
and we then set the objective for those negotiations and I imagine
in most cases we would wish to see the removal of ownership restrictions.
331. You have got negotiating rights, which
I believe is the right word, with Eastern European countries already
approved for the Commission to take the lead. Is that going well
or are there any problems?
(Mr van Houtte) Well, it is a bit early to tell.
We have had a number of technical discussions with the Eastern
European countries. We are now in the process of making a formal
proposal for multi-party agreements, with the Community on one
side and ten Central and Eastern European countries on the other
side. The practical difficulty will be to put into place effective
mechanisms which make sure that the airlines in those countries
are actually subject to all the Community Regulations, that they
offer adequate guarantees in terms of safety and of all the other
things which we have achieved within the Community.
Chairman] We put this
to another witness, and I cannot remember who it was off-hand,
that if the Council of Ministers have given the Commission authority
to negotiate with Eastern European airlines, what is the problem
with doing it for the rest of the world, and the response was,
as I recall, "Well, it is because Eastern European airlines
need a kind of motherhood and support". I think "motherhood"
was not used, but it was something like that.
Lord Thomas of Macclesfield] That
they were not skilled and sophisticated.
332. It was a slightly patronising argument.
Do you accept that or do you think it is just somebody putting
the other argument?
(Mr van Houtte) The Eastern European negotiations
take place in a wider perspective. We are developing a close relationship
with those countries and that will lead to a number of policy
areas being closely aligned and air transport is just one of them,
so that is a very specific perspective which we are pursuing with
those countries. I do not think we would call it patronising.
333. I am not saying you are being patronising.
It is just that the comments of other people could be seen as
(Mr van Houtte) The long-term objective clearly
is to prepare the way for participation of those countries into
the European Community.
Lord Thomas of Macclesfield
334. So it is different in that respect?
(Mr van Houtte) It is different, yes, that is
335. If the Commission is to take further
or wider responsibility in this area, do you have the resources
to do that and, before I listen to the answer, one can say, "Well,
if the Commission decides it is going to have the resources, it
will have the resources", but I am more concerned about the
skills and the expertise, rather than the actual hard cash, to
negotiate a commercial contract? This is not a contract between
sovereign states but it is a matter which must have commercial
advantage or else whatever you negotiate will not fly, so do they
have that expertise?
(Mr van Houtte) Clearly it would be something
we have to work on. Negotiating air transport agreements requires
a lot of skill and a lot of expertise in that specific area, but
the way we would envisage doing this is together with the Member
States to develop some mechanism for making use of the expertise
which now exists in the Member States and probably develop teams
including people from different Member States, negotiating on
behalf of the Community.
336. On that particular subject, do you
have a kind of hit-list, a working order of which countries outside
the EU, so do you do them in some kind of an order or do you want
to hit the whole world at once or do you have set priorities?
(Mr van Houtte) There already is a hit-list in
the sense that we have a mandate with Switzerland, with Central
and Eastern European countries, and with the United States.
337. Of course.
(Mr van Houtte) So I think they come on top. Below
that, I think it is a bit early to tell which one we will address
next. We will have to wait and see how the negotiations under
the existing mandates go, whether we are successful with the United
States, and then we will see whether the most effective use of
resources is to take on another developed country, like Japan,
or whether it is more effective to look at maybe Latin America
which is also developing multilateral structures on its own, so
there are a number of options and I think it is too early to tell.
338. Is there any Commission policy which
links these two draft Regulations and a court action? In other
words, is there a policy saying that the Commission are going
to get this by one means or another? Is there any link between
(Mr van Houtte) The policy indeed is that we feel
that the time is right to develop an external Community policy
in the field of aviation and we are trying to achieve that objective
by the combination of legislative proposals and court action.
We would hope very much that in the long run the court action
is not necessary and we can work on the basis of legislation.
(Mr Drabbe) When you talked about the two proposals,
were you referring to the proposals under proposed changes to
Regulations 3975/87 and 3976/87?
339. We have been straying a little bit,
and it has been very useful to stray, but those are the two proposals
which the enquiry we are undertaking is concerned with.
(Mr Drabbe) I think that indeed, as Mr van Houtte
says, the motivation is the same: where there is the liberalisation
of air traffic internationally, because of more general liberalisation
in the aviation sector, first, in the United States and now also
in Europe, it creates, as it were, space for competition authorities
to intervene. In the old times when bilateral agreements fixed
everything and regulated very precisely all activities that airlines
could develop, there was no scope for the implication of the competition
rules and it is only where you create a market that the competition
rules come in, because there may be distortions of competition
by the companies concerned. Mr van Miert talked a lot about the
difficulties which we have in applying the competition rules,
that we have the competence, but we do not have the enforcement
mechanisms and the procedural rules to do our work efficiently
and effectively. That is why, I think, certainly in terms of timing,
it is only logical that these questions are raised.
There was one point which I still want to make which is when you
asked about taking on these proposals in the Council. I think
one other concern also is that the Member States fear that once
the Commission has the effective and efficient powers to scrutinise
forms of co-operation between airlines on the international scene
between the Community and third countries, that that would interfere
with their existing bilateral agreements, over the whole network
of bilateral agreements. Then, as it were, the Commission, by
pinpointing at certain competition issues which might arise in
these bilateral agreements between two countries, would sort of
upset the existing bilateral agreements. I think that is also
a real concern and I think I have an answer to that concern.
3 Note by witness: Of course, one would have
to bear in mind that the Commission would expect that such negotiations
would produce a very liberal air services agreement with open
market access, so that traffic rights become meaningless. In practice,
however, that may not always be possible. Back
Note by witness: Where scope for intervention by the competition
authorities has been created (by the liberalisation of international
aviation traffic), but adequate enforcement mechanisms are lacking,
the time is right for the Commission to table these two proposals
extending the scope of Regulations 3975/87 and 3976/87. Back