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Newsletter – Flying into the Unknown: The UK’s Air Transport Relations with the European Union and Third Countries Following “Brexit” ( Part 2 )

Flying into the Unknown: The UK’s Air Transport Relations with the European Union and Third Countries Following “Brexit” ( Part 2 )

 

3. EXTERNAL AVIATION RELATIONS

3.1. Aviation relations with the United States.

Aviation relations between the UK and the United States have a long history.

The Bermuda Agreement 1946 (hereinafter the ‘Bermuda I Agreement’) exchanged transit rights, as well as the third, fourth and fifth freedoms of the air on routes and to airports specifically named in the Route Schedule. It is therefore nog surprising that the most important provisions are found in the Annex to the Agreement and not in the main text. The Bermuda I agreement required government approval of rates and subjected capacity and frequency to certain agreed principles, although it is questionable whether these were in fact agreed. Declining traffic flows, exacerbated by the 1970s oil crisis and general economic recession, led to overcapacity, damaging the industry on both sides of the Atlantic.

As a result, the UK and the United States terminated the Bermuda I Agreement and entered into a new agreement in 1977.

In the areas of capacity, frequency and tariffs the ‘Bermuda II’ Agreement made few substantial changes to the regime established by Bermuda I; it is in the field of designation that Britain obtained an advantage over the United States. Whilst there is in principle a system of multiple designation, on most North Atlantic routes there is single designation per route (Art. 3(2) of the Bermuda I agreement), and services to London Heathrow are restricted to two United States and two UK designated carriers. Given the number of carriers of each party capable of and interested in operating transatlantic services, from a practical point of view, this limit was much more restrictive for the United States than the UK.

At present, aviation relations between the United States and the UK (and all the other EU Member States) are governed by a comprehensive air transport agreement concluded between the United States and the EU and its Member States in 2007 (hereinafter the ‘EU-US Air Transport Agreement’, often referred to as the ‘open skies agreement’).

The Agreement was amended I 2009 principally to enhance cooperation on environment and security matters that would improve consistency and avoid the duplication of regulatory measures, to grant a degree of access to EU airlines to carry US government officials, to provide for the mutual recognition of regulatory determinations with regard to airline fitness and nationality, to formalize the recognition of high labour standards, and to strengthen the role of the Joint Committee and its powers to review the implementation of the agreement. (Protocol to amend the Air Transport Agreement between the European Community and its Member States, of the one part, and the United States of America, of the other part, 24 June 2010, OJ L 223, 25 Aug. 2010, 3. Art. 6 of the Protocol envisages further liberalization of market access and the exchange of additional seventh freedom rights, but this is tied to the relaxation of ownership and control restrictions which requires legislative changes).

The EU-US Air Transport Agreement has not yet formally entered into force, but has been applied provisionally from 30 March 2008, most likely due to the long ratification process in some EU Member States. During the period of provisional application, the Bermuda II Agreement is suspended; following the entry into force of the open skies agreement, it will be ‘superseded; by the latter for the matters which are covered by the EU-US Air Transport Agreement. The use of the term ‘supersede’ is somewhat unfortunate, as although it clearly identifies which agreement prevails, it is less clear as to the status of that which is superseded. If the agreement formally does come into force, the issue will become important, as it would be of benefit both for air carriers and the legal certainty in the industry generally to know whether the Bermuda II Agreement has been terminated, or is in fact dormant and may be ‘revived’ following the UK’s exit from the EU. Arguable the former is the likely outcome, as Black’s Law Dictionary defines ‘supersede’ as ‘(t)o annul, make void, or repeal by taking the place of. Article 22 of the EU-US Air Transport Agreement expressly identifies two different effects on prior agreements, i.e. suspension and supersession, which further supports the contention that the latter term here is intended to mean ‘termination’.

The EU-US Air Transport Agreement grants the first five freedoms with few restrictions, and limited seventh freedom rights, but no cabotage rights; routes permit inclusion of any points in parties’ territories, behind, intermediate and beyond points with few limitations, no formal designation of airlines is required. The agreement also addresses a range of other matters including ownership and control, competition and pricing, safety and security, as well as charter services. One of the most significant practical effects of the agreement (and one of the main negotiating requirements on the US side) was free access for US airlines to Heathrow, which previously had been limited under the applicable US-UK bilateral to just two US airlines. This opportunity was quickly taken up, and since 2008 a number of US airlines have been operating at Heathrow.

The EU-US Air Transport Agreement does not contemplate the possibility of a Member state leaving the EU, and its provision on termination envisages termination by either party, party being defined as either the US or ‘the European Community and its Member States. Upon the UK’s ceasing to be a Member State the agreement will no longer apply to the territory of the UK, and aviation services between the UK and the United States will either have to continue on an informal basis or, more probably, an alternative arrangement will need to be agreed – either by way of continued inclusion of the UK in the EU-US Air Transport Agreement (as Norway and Iceland currently are, having acceded in 2011) or by way of a separate bilateral arrangement between the UK and the United States. The question of access for US airlines to Heathrow could become a negotiating point once again.

3.2. Aviation relations with other countries

The only other agreement like the EU-US Air Transport Agreement currently in effect is the similar agreement with Canada signed in 2009, although in that case access to Heathrow was less of an issue. Continuation or replacement arrangements with Canada will therefore also need to be negotiated. The UK currently also benefits from access to the air services market of a number of South-East European countries forming with the EU the ECAA. The UK’s bilateral agreements with these countries no longer apply. Hence, following exit from the EU, other arrangements will have to be made either on the bilateral or on the multilateral level, which may depend on the form of cooperation established between the UK and the EU, discussed further below.

The European Commission has been negotiating for some time with other countries – Brazil, Australia and New Zeeland – and was just recently given a significant mandate by the Council to open negotiations with several additional countries – Turkey, Qatar, the United Arab Emirates (UAE) and the Association of Southeast Asian Nations (ASEAN) countries (Comprehensive EU air transport agreements: Council adopts mandates. Council Press Release

One important consequence in EU law of the Commission’s being given a negotiating made is that thereupon the competence for relations with the other countries concerned shifts from the Member States to the EU. In other words, the Commission has the sole right to conduct such negotiations and the EU has the sole right to conclude agreements and Member States are no longer entitled to do so. Therefore, once the UK ceases to be a Member State it will not be included in the EU negotiations, but will become entitled again to negotiate and conclude agreements with such other countries.

Where the Commission has not received a mandate from the Council, the question of EU/Member State competence is more complex. It becomes particularly important following the UK’s withdrawal from the EU, as it will be necessary to know with which party the UK should negotiate with – the EU or individual Member States. To provide a brief summary of a very complex matter that warrants a separate study, in the European Road Transport Agreement (ERTA) case, the CJEU recognized that the external competence of the EU exists not only where expressly conferred by the treaties, but also where measures are adopted by supranational institutions within the framework of the treaties.

The Court of Justice noted that ‘each time the Community… adopts provisions laying down common rules… the Member States no longer have the right, acting individually or even collectively, to undertake obligations with third countries which affect those rules’. The key word here is ‘affect’, which is rather vague and has not been interpreted in any depth.

An alternative basis of external Community competence was progressively developed in CJEU Opinions 1/76, 1/94 and 2/92. It was held in those cases that the Community has exclusive competence to conclude an international agreement, even in the absence of Community legislation in an area, where the conclusion of such an agreement is necessary in order to attain the objectives of the Treaty in that area which cannot be attained by the adoption of autonomous rules In the Commission’s view, air transport is a prime example of such an area, given its international nature and the impossibility of separating the internal and external markets both economically and legally.

The Commission used both of these bases to challenge the right of several EU Member States to negotiate ‘open skies’ agreements with the United States, arguing that such action infringed EU competence. The Commission broadly interpreted the principle from the ERTA case and argued that since Community air transport legislation had established an internal air transport market, Member States no longer had the competence to conclude bilateral agreements determining access to such market. The CJEU adopted a much narrower construction of the principle and looked at competence over specific matters ‘affecting’ the common rules on a case-by-case basis, rather than on an industry-sector basis.

The CEJU has held that in the field of air services agreements, the EU’s exclusive competence applied only to three areas: (1) the establishment of fares and rates on intra-Community routes, (2) slot allocation, and (3) computerized reservation systems.

In the two later cases, external competence was established on the basis that the relevant regulations apply to non-EU entities engaging in the relevant activities within the EU. The first case is more interesting as it gives some insight into how the CJEU approaches the question of whether common rules are ‘affected’. Regulation 1008/2008’s predecessor in the field of air fares, Regulation 2409/92 only allowed EU carriers to price-lead, thus limiting the freedom of non-EU carriers to set fares where they operate on intra-Community routes by virtue of fifth freedom rights. The court therefore found that Germany’s entry into international commitments with the United States on issues including fares affected the common rules. More generally, common rules will be affected where the agreement conflicts in some respect (therewith) or if it could otherwise in any way impinge on their correct application or alter their scope’, however, as noted above, the interpretation will be on a case by case basis. Since 2002, the amount of EU legislation in the field of air transport has increased significantly, which is why today there are likely to be somewhat more than three areas in which competence has shifted on the EU.

Nevertheless, exclusive Community competence in specific areas of air transport has not comprehensively displaced Member States’ negotiating authority, and although there is an argument that services within the EU by non-EU carriers may affect access to the internal aviation market governed by Regulation 1008, it is unlikely that such indirect effect on common rules is sufficient, for the purposes of the EFTA principle, to establish external competence of the EU. Nonetheless, where EU Member States intend to enter into negotiations with third countries, they are required to abide by certain rules set out in Regulation 847/2004. They must notify the Commission of their intentions in writing and include any relevant standard clauses, developed jointly between Member States and the Commission, in such negotiations where the subject matter of the arrangement falls partly within the competence of the EU.

The principal restriction under Regulation 847/2004 is that Member States are not allowed to enter into arrangements which reduce the number of EU air carriers which may be designated. This appears to have an overall positive goal of stimulating the conclusion of liberal agreements, but at the same time an adverse effect for negotiations if the UK wished to use a restriction of access on certain routes as a negotiating tool (to secure, for instance, unlimited market access)

For further information and comment, please contact Arthur Flieger (flieger@fliegerlaw.com, +32 3 238 77 66)

© 2018 A. Flieger – This publication is defined to provide accurate and authoritative information in regard to the subject matter covered. It is transmitted with the understanding that the publisher is not engaged in rendering legal, or any other professional services. If legal advice or other expert assistance is required, professional services should be sought. You can always contact A. Flieger at flieger@fliegerlaw.com.