ahmed farahat, sipd, un-escwa 1 liberalization of air transport services a regional perspective...

Ahmed Farahat, SIPD, UN-ESCWA1

Liberalization of air transport services

A Regional Perspective

Ahmed FarahatDirector

Sectoral Issues and Policies Division

United Nations- Economic and Social Commission for Western Asia


Contents• Introduction• The regulatory regimes

– Chicago Convention– ICAO– Regional attempts to liberalize air transport– Classification of Air Transport services

• Air Transport services and WTO• Current round of negotiations on trade in air transport services• Commitments of some Arab countries in air transport services• Conclusion and recommendations


Introduction

• Importance of air transport in international trade (tourism/ cargo transport)

• Uruguay round showed interest in trade in services and included an Annex on air transport Services


The Regulatory Regime

1- Chicago convention (4 April 1947)

• Stated that every State has complete and exclusive sovereignty over the airspace above its territory.


The Regulatory Regime• Bermuda I: Bilateral agreement between the United States

and United Kingdom (1946)

• Routes: governments agree on routes on which traffic will be carried

• Tariffs: to be established by the airlines through IATA

• Capacity: subject to ex post facto review

– It was the most influential bilateral development, and became a model for the decades to come.

– Its expected liberal effect was diminished by airline pooling agreements and other capacity sharing arrangements.



• 1987 – US policy of deregulation of international routes.

• 1992 - US policy of open skies.



• 1994 - ICAO “4Th World Wide air transport conference”

– The conference was convened to discuss the regulatory change in air transport due to liberalization, commercialization, privatization, regionalization and globalization

– In that regard recommendations on the following issues were formulated as guidance to be used by States in their bilateral, regional and multilateral air transport relationships:

• Market access

• Air carriers ownership and control

• Structural impediments

• Safeguards

• The broader regulator environment



• 1994 - ICAO “4Th World Wide air transport conference” – Developed countries adopted the principal of international

air transport liberalization within a competitive environment.

– Third world countries, namely African countries, showed reservation in that regard, and pointed out the bad consequences competition will have on developing countries.

– The conference adjourned without reaching a consensus on the new regulatory regime.

– ICAO secretariat was to prepare a study on preferential measures for developing countries who’s focus was on increasing participation rather than providing protection.



3- Regional attempts to liberalize air transport

Technical terms

• Scheduled and non-scheduled passenger service

• Freedoms of the air


The Regulatory Regime3- Regional attempts to liberalize air transport

European Union attempts

• Member States have a period of 10 years and in three different phases established a regulatory regime aimed at the creation of a single market for intra-Europe air services

• EU regulation extended to areas such as licensing, market access, pricing, capacity, and competition, computer reservation systems and airport access.



European Union attempts

• Of these regulation we mention: – Any EU national company or individual could create an air

carrier anywhere within the unified market, and operate wherever market opportunity arose without government permission to do so.

– Airlines could decide for themselves according to market opportunities the type of service they were willing to supply

– Price setting was left to airlines to decide along with the capacity they wanted to offer in the market.



Arab States attempts

• A phased progressive liberalization programme among member states of the Arab Civil Aviation Commission was developed in 1998. – 1999 :Liberalization of cargo and non scheduled passenger

transport– 2001: Application of Freedoms 3& 4 with restriction on

scheduled traffic capacity.– 2003: Application of freedoms 3& 4 without restrictions– 2005: Application of Freedom 5


The Regulatory Regime4- Classification of air transport services

• Air transport services are classified into two groups:– Aviation services

• Scheduled passenger services• Non scheduled passenger services• Cargo services• Landing slots

– Ground services• Operational activities (air traffic control, security,

maintenance)• Traffic handling (freight, baggage, customs..)• Commercial activities (Duty free, parking, catering..)


Air transport services and WTO

• Hard rights

• Soft rights



• GATS Annex on Air Transport Services– Specifically carves out traffic rights and services directly related to the

exercise of traffic rights (hard rights) but applies to three minor services (soft rights):

• aircraft repair and maintenance, • selling and marketing and • CRS.

– Gives preference to bilateral dispute settlement procedures over the WTO mechanism.

– Obliges the Council for Trade in Services to periodically review, at least every 5 years:

• The developments in the air transport sector, • The operation of the Annex • The possible further application of the GATS in the air transport

sector.



Scope of the Annex– Aircraft repair and maintenance services

• The services involved are activities undertaken on an aircraft or a part thereof while it is withdrawn from service and does not include so-called line maintenance.

– Selling and marketing of Air Transport• These are opportunities foe the air carrier concerned to sell and

market freely its air transport services including all aspects of marketing such as market research, advertising and distribution. These activities do not include pricing of air transport services nor the applicable conditions.

– Computer reservation system services (CRS):• Services provided by computerized systems that contain

information about carriers schedules, availability, fares and fare rules, for which reservations can be made or tickets may be issued.



Analysis of commitments– Aircraft repair and maintenance services

• 45 States made commitments on aircraft repair and maintenance. (34%) (1998)

• Two of the 45 used their own definitions of the scope of the activity, 14 referred to CPC and 8 made explicit reference to the definitions in the annex, and the remainder did not directly refer to it.

• As for national treatment, 15 members committed in Mode 1 without limitations. In mode 2, 42 members members offered it with no limitations. Under mode 3, 34 members offered the sector without limitations and eight have done so with limitations.

• Two members only have taken the MFN exemptions.



Analysis of commitments– Selling and marketing of Air Transport

• 34 members have made commitments in this sector

• Two of the 34 used their own definitions of the scope of the activity, 3 referred to CPC and 6 made explicit reference to the definitions in the annex, 2 members limited the scope of their commitments by either excluding the selling and marketing for a series of raw and processed agricultural products or to advertising and the creation of regional offices.



Analysis of commitments– Computer reservation system services (CRS)

• 39 members undertook commitments on CRS• One of the 39 used their own definitions of the scope of

the activity, some other states referred to CPC, 8 have included CRS under marketing services, and 8 made explicit reference to the definitions in the annex.

• 42 MFN exemptions were registered in 1998, they were classified into 4 categories:

– Maintenance and repair of aircraft– Selling / marketing– CRS– Other services


Arab countries commitments in air transport services

Commitments of Sultanate of Oman• Aircraft repair and maintenance services

• Selling and marketing of air transport

• CRS

• foreign capital contribution was limited to 51%

• As for the supporting services the Sultanate committed itself to, these are:

– Freight transport agency services

– Cargo handling

– Storage and warehousing services

– Other services



Commitments of Morocco• Aircraft repair and maintenance services

• Repair and maintenance services of air in general

• Selling, marketing , market research, advertising and distribution

• CRS or electronic reservation system



Commitments of Jordan• Aircraft repair and maintenance services

• Selling and marketing of line transport

• CRS

• Maintenance and repair

• Freight transport agencies services

• Loading and unloading

• Cargo control services



Further work on the Annex• Clarification of of the services directly related to the exercise of traffic

rights, hence work on a the definition and clear understanding of what is included in services not directly related to traffic rights should be done.

• Reach an understanding on the treatment of many auxiliary services which can be offered either in conjunction with air transport service or multimodal combinations. (catering, refueling)

• Reach a clear understanding on the coverage by the GATS of aviation activities other than air transport (recreational flight, crop spraying, flight survey, aerial photography..)

• Therefore if members decide to pursue classification issues further, there are a number of activities which seem to merit study, these include:– Auxiliary services– Supporting services– Catering services– Fueling services


Current round of negotiations on trade in

air transport services• The Council for Trade in services shall review

periodically, and at least every five years, developments in the air transport sector and the operation of this Annex with a view to considering the possible further application of the agreement in this sector


ESCWA Meeting

• ESCWA organized an EGM on the maritime and air transport services in 1999, and came out with several recommendations for air transport


Conclusion and recommendations

– Delay negotiations on hard rights so that developing countries and affiliated airlines have time to fix their status before entering the new phase

– Further study on the following topics:

• All cargo operations

• Charter flights in airports found in tourist areas to preserve the interest of scheduled cie

• General aviation



– Development of a air transport programmes in Arab States for national air carriers or civil aviation authorities in view of international economic changes and the WTO agreement.

– Coordination with ACAC and AACO to implement procedures adopted by these organizations and review transport rights among Arab states to form a unified Arab group .

– Stress on the importance of the Arab League in attending official and preliminary meetings at WTO, and the presence of air transport specialist in the Arab States delegations in the negotiation rounds for GATS.

– Role of ICAO as a reference for any future development in the regulatory infrastructure in international civil aviation.



• Arab states must make extra efforts in the development and improvement of its air transport industry in order to face the fierce competition in the international market.

• Make use of international agreement in that matter to find a place in the international market.

ahmed farahat, sipd, un-escwa 1 liberalization of air transport services a regional perspective...

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