Select Committee on European Communities Minutes of Evidence

Examination of Witnesses (Questions 380 - 401)




  380.  Can I follow that up? In the press release issued yesterday on the proposed BA/AA alliance—and I may say it is some relief to this Committee that we can at last talk about that, because we had an embargo on that subject until yesterday—at the end of that release the Commission has said the United Kingdom authorities "shall permit all EEA carriers to enter air transport markets between the US and the United Kingdom under conditions of tariff freedom". It may be that we do not understand these things but that seemed to me to be a huge opening. Would you like to comment on that?
  (Glenda Jackson)  As you are aware, the competition analysis is for the DTI but, in essence, the Commission have made it clear that their approval of the alliance is subject to conditions and one of those is that the new liberalised bilateral arrangements should be concluded. This is also the position of the United States' Government. However, I have to say that it should be remembered that negotiations with the US are a two-way process which is why there is the requirement on both sides of the Atlantic for these liberalised agreements.

  381.  Let me come back to something that has really puzzled us. On the evidence received yesterday it was very clear that it was the DTI that, in our opinion very logically, was leading the negotiations or were the negotiating department with DG IV. Yet when we came to discussion of those regulations within the United Kingdom, we got very strong advice from your Department and the DTI that it is the Department of the Environment, Transport and the Regions (DETR) that is leading and it is the DTI supporting the DETR. To put it bluntly, we are confused.
  (Glenda Jackson)  So am I! My Department is not the lead department in any competition issue—that is the DTI. Clearly DETR, which does have aviation as part of its transport remit, is interested but the actual power rests with the United Kingdom's competition authority and the lead department there is the DTI.

  382.  Maybe this is a very unfair question, and if it is I apologise but, as I understand it, when our Clerk very rightly approached the two respective departments as to who was actually the one going to speak on this subject, both departments said the DETR. The DTI referred to your Department and your Department picked up the ball. So I am now even more surprised.
  (Glenda Jackson)  I presume it is because what is being proposed in these regulations requires a decision from the Transport Council of the European Union and that is most certainly the responsibility of my Department.

Lord Skelmersdale

  383.  As the discussion this morning has continued, I have been getting more and more confused on the competence issue. As I understand the position, the power to conclude bilaterals by individual Member States exists at the moment but it is subject to Articles 87 and 88 of the Treaty which, in effect, give an overlooking power to the Commission to hold a watching brief, as it were, of what the individual Member States are up to and, if they then want to, to interfere. Is that right?
  (Glenda Jackson)  My understanding is it is Articles 85 and 86 which give the powers to the individual Member States to act, not independently, but to conduct bilateral negotiations—but I do have Dr Letemendia with me who is our legal expert and perhaps it would be more appropriate if she filled in on this particular issue.
  (Dr Letemendia)  The first part of your question concerned the power of Member States at the moment to conclude bilateral agreements and that is a matter of external competence in the air transport sector. It is separate from the question of competition law and the application of competition rules.

  384.  But there is no doubt about it, so I was right as far as that part goes, was I?
  (Dr Letemendia)  Yes. In relation to the application of the competition rules to air services between the Community and third countries, the Community has not yet (or the Council has not yet) granted the Commission full implementing powers so, at the moment, it does not have the legislative authority to take full decisions and grant exemptions in respect of air services between the Community and third countries. So that is what we are discussing at the moment.

  385.  Nonetheless, are Member States not bound by the Treaty to support the position that the Council takes at any particular moment and not seek to jeopardise it—as long as it is within the rules which have been given to the Council?
  (Dr Letemendia)  I think that is probably a rather wide interpretation of an obligation contained in Article 5 of the Treaty. I do not think Member States would accept they have a duty to grant these powers.

  386.  Would you like to redefine, from your own point of view, what I have just said?
  (Dr Letemendia)  I think we indicated in our written supplementary evidence that Member States are bound to respect the principles of competition law, Articles 85 and 86, but that does not necessarily mean that they have an obligation to grant the Commission the powers that it is seeking.

Chairman]  I think we had better hold it there. We are in danger of getting extremely technical. We do, of course, have our own legal adviser who is quite learned on this subject. I think we will pursue this internally. I am conscious of the clock and the importance of your time.

Lord Thomas of Macclesfield

  387.  I am really concerned for you and the Government inasmuch as do you feel comfortable with the facts we are being given at the moment - bearing in mind when we do our report it can only reflect what we have been told—and the facts we have been given at the moment are that the only people who have come here and who have categorically said that this is a competitive industry is British Airways and yourselves. I find that very strange. Other airlines do not say that - in fact, they say the opposite. The Commissioner does not think that. The German cartel office do not think that. Indeed, the evidence we have had is that it is a complex monopoly situation. It is not only slots and equality of slots but also ownership, ground handling, business travel, frequent flyers, travel agents, computer reservation system (CRS) displays and large corporate agreements. We are talking here of multiple monopolies, not just one, acting against the interest of the consumer. Clearly these are agreements not developed in the interest of the consumer. That is one issue which I feel uncomfortable about. Secondly, in terms of what I understood from the Commissioner yesterday, there are block exemptions by which I understand to mean that there is the ability for every sovereign country and carriers to enter into an agreement which, if they fall within the definition of the block exemptions, are OK and they would only be called in if the Commission thought they were outwith the flavour of those block exemptions, so I am really puzzled as to why the Government wants to hold the view that this is a nice clean industry, when everybody else tells us it is not.
  (Glenda Jackson)  I must admit I am not quite clear where you are seeing the lack of competition. We have within the European Union the single aviation market. What we are being asked to consider are proposals that would actually impact on competition between the European Union and a third country and we would argue that, for the Commission to take exclusive powers in this area excluding individual Member States, is not in the best interests of either the Member State or, in effect, to take your argument, the consumer. Our other concern is, as I have said, by this means we believe that the Commission would actually take upon itself the powers to participate in bilateral negotiations which is a power which the Member States of the European Union have consistently failed to cede to them but I am not clear why you think this is an industry where there is no competition.

  388.  If you take the evidence, as we have done, in terms of the small carriers trying to enter the market place, the view of the Government is "Hands off" and the status quo is actually showing preference to the main airline in any one country at any one time. It is not treating airline carriers equally. It is not promoting competition or new entrants to come in and establish a market share.
  (Glenda Jackson)  But within the European Union, if that was deemed to be the case, then clearly that would be an infringement of the existing competition rules and success or failure of a small airline attempting to enter that market place is precisely on competition grounds - whether they can or cannot manage to attract customers away from the existing airlines. I cannot agree with you that competition does not exist because we have seen within the European Union itself a growth in airlines that strip their services down to the very bone so that what you buy is, in many instances, an infinitely cheaper ticket than that available on existing airlines because that is the kind of service they are providing. It is easy to get on to them; they take you directly where you want to go from where you happen to be, and we have seen an increase in the competition in the presence of those kind of services within the European Union. The issue we are considering today, however, is the issue of competition outside the single European market where individual Member States wish to enter into bilateral agreements with third countries and I would have thought it could be argued that this is in the interests of the consumer because increasingly what we are seeing is that the consumers wish to be able to make single journeys. They wish to be able to get on in a particular airport and be carried to their destination in a single journey—setting aside obvious requirements of aeroplanes having to re-fuel and so on. What we are concerned about is that this is a way for the Commission itself, without being given the valid mandate from the Member States, to enter into those bilateral negotiations.

  389.  Are you saying that the different sovereign states would then be prevented from entering into new bilateral agreements because, as I understand it, they still have the freedom to do that?
  (Glenda Jackson)  Their power, in a sense, would have been superseded by the Commission because the Commission would then be central to those actual, direct, bilateral negotiations between one sovereign state and another and, as I have said, the Council has consistently refused to give this mandate to the Commission. I have said, however, that if such a mandate was ceded to the Commission on the part of the European Union, for example, to enter into US/EU negotiations and a successful negotiation was concluded, then we think that is the time when these kinds of Regulations could most appropriately be introduced. I have to say though, again, the Council has not ceded these powers to the Commission; there is no agreement yet on the type or model that such a mandate could take; there is disagreement within the fifteen Member States on what form that model should be and we do believe that these Regulations are a way of the Commission taking to itself powers which the Council has significantly failed to cede to it.

Lord Methuen

  390.  We have heard a lot about slots and the methods of allocation and trading between various companies of slots, which is strictly illegal and hotly denied by many people. Would you care to comment on that? What is your Department's view on the matter?
  (Glenda Jackson)  We believe the current regulations are not sufficiently clear to make it absolute that slot trading is illegal and any such definitions of illegality in this area are for the interpretation of the courts but we are waiting for the Commission to put forward its proposals which we hope will be sometime this summer on the whole issue of slots and slot allocations. We have been at the forefront of urging the Commission to consider the regional requirements as far as slot allocation is concerned and when we see their proposals then we will examine them closely and present our views on them. We hope that will be this summer.


  391.  Does the Department have any view on who owns the slots?
  (Glenda Jackson)  Setting aside the existing situation whereby there are grandfather rights when slots are moved around, we are very clear the Government does not own them. As you know, the present situation is that the allocation is within the remit of the Commission which is why we are awaiting with some interest their proposals on how the whole issue of slot allocation is going to be viewed in the future because there have been concerns expressed which we share, certainly as far as regions are concerned and the peripheral nature of some of our regions, which find it impossible to obtain slots in some of our airports—particularly in the south east of the country.

Chairman]  You said quite clearly the Government do not own them. The airlines have told us equally clearly they do not. Who does?

Lord Berkeley

  392.  Maybe it is the airport operators who own them. I was interested, Minister, in your statement just then that the allocation responsibilities were the EC's.
  (Glenda Jackson)  No. The actual allocator of slots for airports is the airport co-ordinator but, as I say, we do wish to see the whole issue of slot allocation reviewed which is why we are waiting, with some anxiety, I think, the proposals that are going to emanate from the Commission.

  393.  I personally would certainly support you looking into the needs of regional airlines because I think that is important.
  (Glenda Jackson)  We have certainly been at the forefront in urging the Commission to look at that.

  394.  So the allocation and implementation of Mr Van Miert's instruction to reduce the AA/BA slots by 267 would be in the hands of this co-ordinating body in the United Kingdom, would it?
  (Glenda Jackson)  The actual dissemination of them throughout the other airlines in particular airports, yes.

  395.  This is Heathrow and Gatwick, is it not, specifically?
  (Glenda Jackson)  Yes.


  396.  Could we finish on two general notes. My first question is almost philosophical. What do you think the Commission is trying to achieve by promulgating these Regulations? Is there any significance in the timing of bringing those forward?
  (Glenda Jackson)  I really cannot answer. I believe only the Commission could answer those questions. As I have said, Lord Chairman, it is our perception that this is a means by which the Commission would wish to take to itself powers to enter into bilateral negotiations with third countries. It could well be, because they have not in the past received the political mandate from the Member States, as I have said, this is a way of attempting to achieve that. Why they have chosen this particular time, again I am in no position to be able to answer in any informed way. It could just be that they are wishing to make a particular attempt in this area at this time.

  397.  Thank you. That was, if I may say so, a very good answer. It has also led me straight into the second question and that is the one of political mandate. Can you give us any steer as to how you think other Member States of the EU are reacting to this politically? Put it another way, what chance do you think it has of getting through?
  (Glenda Jackson)  It has not so far.

  398.  I am aware of that, Minister!
  (Glenda Jackson)  Actually, I misinterpreted your question. You were referring to these particular Regulations. I was referring to the powers of the Commission to participate in bilateral negotiations with third countries. That is something, as I have said, that the Member States have denied. It is my understanding that there is widespread opposition to these particular Regulations throughout the whole of the European Union. I do not believe that there is a major grouping within the 15 Member States that will look with approval on these proposals.

  399.  Would it be fair to interpret that, that you do not think they are going to get through?
  (Glenda Jackson)  I would hesitate to speak on behalf of my colleagues within the Council. I can only speak from the perspective of Her Majesty's Government. Our approach to these proposals: as you know we do not favour them, and it is our understanding that there is no broad support for these Regulations within the European Union.

  400.  On that note, Minister, thank you very much indeed. I think, by definition, the fact that we have been going for an hour absolutely underlines the quality of the replies that you have given to us, and we are very grateful both to you and your colleagues.
  (Glenda Jackson)  I am very grateful to you. However, I would argue that it is the quality of the questions.

  401.  I love the mutual self-congratulation society. It is one of the best I have ever been in.
  (Glenda Jackson)  Thank you very much.

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