In Search of Open Skies: Law and Policy for a New Era in International Aviation

Transcription

1 In Search of Open Skies: Law and Policy for a New Era in International Aviation A Comparative Study of Airline Deregulation in the United States and the European Union Brian F. Havel Kluwer Law International The Hague London Boston 1997

2 TABLE OF CONTENTS FOREWORD BY THE RT. HON. NEIL KINNOCK, EU COMMISSIONER FOR TRANSPORT PREFACE ACKNOWLEDGEMENTS TABLE OF ACRONYMS xvii xix xxi xxiii 1. INTRODUCTION PREPARING FOR A NEW ERA IN INTERNATIONAL AVIATION US and EU International Aviation Policy: A New Convergence US/EU Aviation Relations in the 1990s: Grand Aerodiplomacy Begins THE "CHICAGO SYSTEM" AND A PROPOSAL FOR REFORM The World Air Transport Industry: An Overview A Synoptic View of the Chicago System Seeking Flexibility Within the Chicago System: The US Open Skies Initiative A Proposal For Reform: Principles For A New Plurilateral Treaty 23 2 THE SWAY OF SOVEREIGNTY: A CLOSED SYSTEM OF INTERNATIONAL AIR TRANSPORT THE CONCEPTUAL FRAMEWORK OF THE CHICAGO SYSTEM THE DOCTRINE OF AIRSPACE SOVEREIGNTY "THE FREEDOMS OF THE AIR" AND THE RISE OF BILATERALISM A Sovereign Irony: The Five Freedoms After Chicago: The Embrace of Bilateralism 39 vu

3 Early-Model Bilateralism: Bermuda I Late-Model Bilateralism: Bermuda II SOVEREIGNTY ASCENDANT: THE DOCTRINE OF CABOTAGE A Principle of Exclusion Cabotage in Europe and the US: Encounters With New Issues of Law and Policy Pooling Airspaces in the EU: Can Cabotage Be Traded Away? Cabotage and the Making of US International Aviation Policy The Legal Foundations of US Cabotage Abandoning US Cabotage: The Price of a New Multilateralism? SOVEREIGNTY AND CHAUVINISM: THE NATIONALITY RULE Another Principle of Exclusion Proscribing Multinational Airlines: The Nationality Rule in Domestic Law A Case Study in the Nationality Rule: The KLM/Northwest Alliance Airline Citizenship: Law and Policy in the US KLM/Northwest: The Long Shadow of Aeropolitics Lessons of KLM/Northwest: The Future of the Nationality Rule For Airlines, an Unpredictable Doctrine Leveraging Multilateralism: Should the Nationality Rule Be Repealed? FLYING THE NATIONAL FLAG: PUBLIC OWNERSHIP, PUBLIC SUBSIDY, AND FREEDOM FROM COMPETITION Sovereigns in Flight: The Era of the Flag Carriers The Retreat of the State: The Age of Deregulation New Models of Airline Regulation in the US and EU Deregulating Through Privatization: An EU Phenomenon THE PERSISTENCE OF THE REGULATORY COMPLEX: COMPUTER RESERVATIONS SYSTEMS AND AIRPORT ACCESS CRS Regulation: Impeding Abuse of an Information Marvel Regulating Access to Airports: Reducing The Threat to Competition 99 viu

4 2.8 THE CHICAGO SYSTEM IN TRANSITION: STRATEGIC ALLIANCES AND CODE-SHARING Defying the Chicago Rule: "Private" Solutions to the Nationality Rule Problem The New International Marketing Alliances Strategies for Alliance-Building State of the Art: The KLM/Northwest Alliance Code-Share Agreements: Camouflage for Cabotage? A Typology of Code-Shares Is Code-Sharing A Violation of Cabotage? A Costly Compromise for US International Aviation Policy and the Airline Industry Regulating Code-Shares: The Consumer Deception Problem MULTILATERALISM AND REGIONALISM IN THE CHICAGO SYSTEM REFORMING THE CHICAGO SYSTEM: A LOOK FORWARD TARGET JURISDICTION I THE UNITED STATES: DEREGULATION IN A SINGLE AIRSPACE SOVEREIGNTY INTRODUCTION THE LEGAL AND HISTORICAL BACKGROUND The Regulatory Era: The Kitty Hawk Irony CAB Route Authority: The "Grandfather" Syndrome CAB Rate Authority: The "Pullman" Effect CAB Antitrust Authority: Regulatory Omnipotence A Deregulatory Impulse: The Kennedy Report The Legislative Response: Bipartisanship, but no "Big Bang" CAB Route Deregulation: The Fit, the Willing, and the Able CAB Rate Deregulation: The Zonal Approach CAB Antitrust Deregulation: The Longest Sunset A Regulatory Survivor: Small Community Service Deregulation by the Regulators: The Kahn Mutiny EXPORTING DEREGULATION: PROBING THE LIMITS OF BILATERALISM The Emergence of an Open Skies International Aviation Policy The IATCA: An Ambivalent Challenge to Bilateralism The IATCA's "Soft Law" Approach to the Chicago System Protecting US Carriers: The IATCA's "Hard Law" Approach 161 IX

5 3.3.3 The IATCA and the Chicago System: Regulation Preserved International Designation: Routes for Sale International Ratemaking: Zonalism and the Power to Retaliate International Antitrust Regulation: Wielding the Wand of Immunity Avoiding the Sunset A Case Study in Antitrust Immunization: The KLM/Northwest Alliance The 1996 Immunity Proceedings: Unresolved Conflicts of Law and Policy The Conceptual Failure of Bilateral Open Skies: A Need to Reconceptualize US Aviation Strategy Open Skies and Retrenchment: US Bilateral Relations Profiles in Discontent: US/European Aeropolitics Fifth Freedom Discord: US/Asian Bilateral Air Relations The US Response: Retaliation Without Denunciation Open Skies After 1992: Time for a Reconceptualization A CRITICAL ASSESSMENT OF US FEDERAL AIRLINE DEREGULATION The Precedential Value of the US Experience The Need for Competition Policy and for its Enforcement The Structural Surprises of US Deregulation The Fortress Effect: Hub-and-Spoke Systems The CRS Phenomenon: Can Regulation Counter Bias? Loyalty Programs and Slot/Gate Scarcity: More Non- Price Entry Barriers? The Decline and Revival of A Merger Policy for the US Airline Industry Mergers in the Reagan Era: Laissez-Faire under CAB/DOT Review After 1989: Portents of Activism at the Antitrust Division Is There an Appropriate Level of Regulatory Vigilance? A Case Study Rejecting A Return to Regulation: An Industry in Transition The Lost Cause of Reregulation US Airline Deregulation: An Unfinished Experiment 229

6 4 TARGET JURISDICTION II THE EUROPEAN UNION: AN EXPERIMENT IN MULTILATERAL LIBERALIZATION INTRODUCTION THE SUPRANATIONAL FOUNDATIONS OF EU AIRLINE DEREGULATION General Principles of the EU Legal Order The EU's Supranational Minuet: The Legislative Process The Council of Ministers The European Commission The European Parliament A Taxonomy of Legislative Acts The European Court of Justice: Trustee of the Supremacy ofeulaw Leading from the Center: The EC Treaty's Code of Competition The Primary and Secondary Sources of European Competition Law Regulating Private Action: Articles 85 and 86, Regulation Applying Article 86 in the Airline Industry: A Case Study US-Style Merger Control Comes to the Common Market Regulating Public Action: The Well of Public Subsidy Industrial Policy: An Intruder in the EU Competition System? Toward Multilateralism: External Relations of the European Union Defining the External Relations Competence of the EU A Constitutional Basis for External Competence The Court of Justice GATS Ruling: A Commission Victory? Creating New Forms of External Relationships "Exporting" Airline Deregulation I: The European Economic Area Exporting Airline Deregulation II: The Norway/Sweden Agreement AIRLINE DEREGULATION COMES TO THE COMMON MARKET: A CROSS-INSTITUTIONAL PROCESS "A Sector for Urgent Action" Hermeneutics and the Transport Title Competition Enters the EU Air Transport Lexicon: An Institutional Synergy 281 XI

7 The European Commission's Designs for Air Transport: Memoranda 1 and Deus Ex Machina: The Court of Justice Meets the Airlines Commission v. French Republic: Applying the "General Rules" of the EC Treaty Parliament v. Council: Freedom of Services in the Transport Sector Nouvelles Frontieres: Applying the Competition Rules to Air Transport Nouvelles Frontieres: The Aftermath The Final Spur: The Single European Act EU AIRLINE DEREGULATION: A LEGISLATIVE TRIPTYCH The Grand Design The Triptych: Three Packages, Three Areas of Liberalization Toward Pricing Freedom: Deregulating Control of Fares 1987/ : Zonalism : Zonalism Extended : Pricing Freedom for the Airlines Opening Up the Airways: Capacity and Market Access 1987/ : Chicago-Style Solutions : Defining Market Access Principles : Approaching Cabotage New Frontiers: Applying Competition Law to the Airlines 1987/ : A One-Package Deal for Competition Law /91: A New Summary Enforcement Jurisdiction : Cabotage and the Competition Code Three Counterpoints in the EU Deregulation Experiment A CRITICAL ASSESSMENT OF EU AIRLINE DEREGULATION: SIGNPOSTS FOR A NEW PLURILATERAL REGIME The Precedential Value of the EU Experiment Building the Single Aviation Market: Banner Issues of Law and Policy Reprising the US Experience: Protecting Competition in a Deregulated Era Europe's FTC: Watchdog Role of the European Commission A Case Study in Supranational Trusteeship Has the Commission Found its Regulatory Tempo? A Commission Challenge To The New Transatlantic Alliances 346 xu

8 Merger Control by the American Method (When the Mergers Come) The 1989 Merger Regulation: An Overview EU Merger Policy: A Case Study Europe's Airline Culture: Cooperation Trumps Merger Regulatory Challenges: The CRS Phenomenon, Infrastructural Bottlenecks Regulating the CRS Effect in Europe The Facilities Crunch Beyond the US Experience: New Challenges of Multilateral Reform The External Aviation Relations of the EU: E Pluribus Unum? The Commission's Challenge: A Tournament ofbilaterals The World Beyond: Problems at the Interface of the EU and Chicago Systems Designation under Non-Member Bilaterals Applying EU Competition Law to Third Country Routes A Judicial Mandate for the Commission? The Way Ahead Ride of the Flag Carriers: Coming to Terms with State Aids Case Studies in EU State Aids Enforcement State Aids: A Transitional Phenomenon? A Work in Progress: "De-Nationalizing" Europe's Airlines Implications of the Right of Establishment An Analysis of the "Community" Licensing Regime An Incomplete Framework The EU Air Transport Industry in Transition CONCLUSION: A PROPOSAL FOR A NEW INTERNATIONAL AIR TRANSPORT REGIME IMPERATIVES OF LIBERALIZATION AND GLOBALIZATION THE FOUNDATIONS OF A NEW PLURILATERAL AIRSPACE Bilateral "Open Skies": An Undependable Strategy A Plurilateral Reconceptualization of the Open Skies Strategy A Search for the Highest Common Denominator The US and EU the Target Jurisdictions as Founding Partners Trading the "Chicago System" for a US/EU Plurilateral 413 Xlll

9 5.3 THE BLUEPRINT FOR A NEW PLURILATERAL TREATY Some Guiding Principles for the Negotiators Principle I: The End of Managed Trade Principle II: The End of Cabotage and Chicago's Contrivance of "Freedoms" Principle III: The End of the Nationality Doctrine Principle IV: An End to Tariff Approval Protocols Principle V: The Need for Competition Policy Globalizing Trends in Competition Law Enforcement A Proposal for Supranational Competition Surveillance of the Airlines Principle VI: The End of Public Subsidy Principle VII: Regulation in the New Open Skies Era Slots and CRS Principle VIII: A New Strategy for Third Countries Outside the Plurilateral ENVOI: A NEW ERA FOR INTERNATIONAL AVIATION 439 APPENDIX 1: TABLES OF AUTHORITIES Table of Multilateral Treaties and Conventions Tables of United States Authorities Table of US Cases and Proceedings US Federal Court Cases Listed Alphabetically US Administrative (CAB/DOT) Proceedings Listed Alphabetically Table of US Constitutional Provisions, Treaties, and Legislation US Constitutional Provisions US (Bilateral) Air Transport Treaties Listed Alphabetically by Country US Federal Legislation Listed by US Code Sequence US Federal Legislation Also Cited By Popular Name (Listed Alphabetically) US Code of Federal Regulations US Federal Regulatory Notices US Legislative History Listed Chronologically Proceedings of the National Commission To Ensure A Strong Competitive Airline Industry (1993): Remarks and Testimony Listed Alphabetically by Participants Tables of European Union Authorities 461 xiv

10 3.1 Table ofeu Cases and Proceedings EU Court of Justice Cases Listed Alphabetically EU Court of Justice Cases Listed Chronologically European Court of First Instance Cases European Commission Decisions Listed Alphabetically EU National Court Cases Table of EU Treaties, Conventions, and Legislation EU Treaties and Conventions Listed Chronologically EU Secondary Legislation Listed Chronologically Commission Regulations Commission Directives Commission Notices Council Regulations Council Directives Council Decisions 476 Is Decisions of the Joint Committee Established Under the Agreement Between the European Economic Community, Norway, and Sweden on Civil Aviation EU Legislative Proposals and Reports Listed Chronologically Miscellaneous 478 APPENDIX 2: BIBLIOGRAPHY OF SOURCES CONSULTED Journals Listed Alphabetically Periodicals and Newspapers Listed Alphabetically Books (and Contributed Chapters to Books) Listed Alphabetically by Author Journal Articles Listed Alphabetically by Author Speeches, Lectures, and Interviews Listed Alphabetically by Speaker Reports, Studies, Statements, and Press Releases Listed Alphabetically by Issuing Institution Miscellaneous 497 xv

11 APPENDIX 3: DOCUMENTARY SUBMISSIONS TO THE (US) NATIONAL COMMISSION TO ENSURE A STRONG COMPETITIVE AIRLINE INDUSTRY 499 APPENDIX 4: (US) MODEL OPEN SKIES AGREEMENT 505 INDEX 523 xvi