Address by the President of the Council of the International Civil Aviation Organization (ICAO), Dr. Assad Kotaite, to the World Air Transport Summit 57th IATA Annual General Meeting (Madrid, Spain - 28 May 2001) Progressive Liberalization through ICAO How the 5th ICAO Air Transport Conference (2003) could be a major stepping stone Introduction At the outset, let me make it quite clear that ICAO actively supports the process of progressive liberalization. Further to the information I provided at your Annual General Meeting in Sydney last year, no less than 159 of ICAO’s 187 Member States are now formally committed to some form of liberalization of international air services, not only bilaterally but increasingly through sub-regional and regional agreements. ICAO does believe, however, that liberalization should be accompanied by safeguards to enable the effective and sustained participation of all States in international air transport, and to ensure fair competition as well as safety and security. Earlier this afternoon we heard from Mme. Loyola de Palacio, Vice President of the European Commission (EC). Just now we heard from Mr. Don Johnston, Secretary General of the Organization for Economic Cooperation and Development (OECD). Since I represent a global body, I would like to place their perspectives in a worldwide context. A global jigsaw puzzle If we were to compare the concept of global liberalization of air transport to a large jigsaw puzzle, then we can see the EC and OECD initiatives as providing a number of valuable pieces. Nevertheless, to complete the picture, we would need to add other essential pieces and to fit them all together in a coherent and seamless manner. Without doubt, this is a complex jigsaw puzzle. First, it has elements of geography. For example, the European Common Aviation Area (ECAA) comprises the fifteen States of the European Union plus Norway and Iceland, with the addition shortly of Switzerland and later of ten eastern European States. The EC believes a way forward is to continue to extend this geographical application using a Transatlantic Common Aviation Area as a stepping stone towards a wider multilateral, perhaps eventually global, arrangement for liberalized international air transport. Second, the puzzle has elements of scope. For example, the OECD believes that a way forward is to liberalize air cargo services multilaterally, with other services to follow. Third, and most critically, the puzzle has elements of policy. For example, at present the ECAA States and their transatlantic partners have somewhat differing regulations or policy positions on such issues as air carrier ownership and control, the application of competition law, the wet-leasing of aircraft and State aid. -2- Approaches to solution The bilateral approach to international air transport regulation has traditionally found a middle way through the scope and policy issues, on the basis of reciprocity. We should not discount the liberalization achieved through the 80 or so “open skies” agreements now in place. We should also note with interest new approaches, such as the "plurilateral" arrangement negotiated amongst five States of the Asia-Pacific Economic Cooperation (APEC) last November and agreed in Washington just this month, on 1 May 2001. And we can see increasingly the regional approach finding a substantial degree of commonality amongst States sharing broader goals beyond aviation and not too dissimilar socio-economic circumstances. Our global challenge now is to bring all these approaches together and, in particular, to see what can be achieved intercontinentally, where bilateralism is still the order of the day. In so doing, we must remain alert to the danger that the emergence of regional “blocs”, while encouraging intra-regional liberalization, may actually inhibit inter-regional liberalization as the policy positions of the blocs become increasingly entrenched. While these policy positions contain many elements of similarity, they also include some significant differences which may prove difficult to harmonize even between groupings of States with a similar level of socio-economic development. Furthermore, a State which is initially outside a bloc can generally join only at the invitation of the bloc and on terms and conditions already established by the bloc. Such potential obstacles have prompted some parties, if only a handful at present, to propose the wholesale transfer of the regulation of air transport services, including traffic rights, to the World Trade Organization (WTO). In my view, this would be like throwing the whole box of jigsaw pieces, some already joined together, up into the air out of sheer frustration without being sure of how they can be pieced together or even whether they can all be found again. I am not precluding the WTO as a potential liberalization option for some aspects of international air transport. Indeed, ICAO is committed to continue to work with the WTO, to share our expertise with the WTO, and to participate actively in WTO’s future activities in the field of international air transport. In so doing, we will be drawing attention to the need to remove uncertainty and to address certain questions. There are questions of regulatory feasibility. For example, some parties are suggesting the addition of “all cargo” services under the Air Transport Annex of the General Agreement on Trade in Services (GATS). Is it practicable to have a different regime for all cargo services when over half of international freight is carried on combination aircraft? There are questions of legal jurisdiction. For example, some parties are proposing the addition to the GATS of “airport services” including the provision of air terminal and runway capacity, and runway operations. Under Article 28 of the Chicago Convention the responsibility for the provision of such services, along with air traffic services, rests with the State, regardless of whether the actual operation has been assigned to autonomous suppliers, private or parastatal. The services concerned therefore appear under ICAO provisions to be “services supplied in the exercise of governmental authority”, which under GATS provisions have no place in the GATS. Above all, there are questions of safety. For example, another service currently raised as being suitable for the GATS is ground handling, which includes a range of elements potentially including, for example, flight operations and crew administration. ICAO has recently been addressing the outsourcing of ground handling, on the premise of private companies without previous experience of safety culture becoming involved, and has concluded that there may be a need for the development of additional international Standards. -3- In addition to regulatory feasibility, legal and safety considerations, the fate of environmental concerns should not be overlooked. States worldwide and the United Nations family continue to acknowledge the critical leadership role of ICAO as regards the responsible regulation of aircraft noise and engine emissions and to respect the steady progress made through ICAO. What would happen to the international responsibility for aviation environmental protection if air transport services were to become the responsibility of the WTO? Finally, I note that the WTO currently has 140 Members, 4 of which are not States per se, while ICAO has 187 Member States. This provides another dimension to segmentation of regulatory responsibility. Key regulatory issues Against this backdrop, let me turn to ICAO’s own activities regarding key regulatory issues and highlight just five. The number one issue is that of air carrier ownership and control. In short, air carrier ownership and control vested in a single State or its nationals is an anachronism in the global economy and liberalization of ownership and control provisions is a necessary precursor to widespread liberalization. At the same time there is a need to link liberalization with safeguards to alleviate safety and other concerns regarding the evolution of “flags of convenience”and regarding the sustainability of smaller air carriers. ICAO is in a unique position to facilitate this. We have already analysed transborder ownership and control provisions and promulgated new ideas. We have now launched a comprehensive study which will take into account the valuable report on ownership and control prepared by a think tank of IATA’s World Aviation Regulatory Monitor group and an extensive survey of provisions in, and views of, our Member States. We aim to build on our earlier work and develop provisions to enable liberalization multilaterally, and preferably globally. My second issue is a broad one, the whole matter of market access, fair competition and safeguards. In my view this deserves revisiting in the light of: changing perceptions regarding the designation of air carriers; the need for convergence in the application of competition law; the issue of what constitutes fair competition; the sustainability of air carriers and assurance of service, the latter being crucial for developing countries in particular. I must express growing concern regarding extraterritorial effects of competition law, not only in terms of regulatory overlap but as regards potential implications for such basic underpinnings of a global aviation system as interlining and carrier participation. The issue of airport access is also of particular relevance here given increasing congestion and limits of capacity. My third issue is air carrier product distribution in terms of access to networks, commercial presence, electronic commerce and computer reservation systems. Developments in individual airline Web sites and other forms of direct sales, in jointly operated Web sites, as well as in computer reservation systems themselves, suggest a need to rethink regulation in this area. ICAO, which as I am sure you know has a code of conduct for computer reservation systems, already has the matter under review. My fourth issue is that of consumer rights. Perceived declines in customer service following deregulation have recently led to proposals for pro-consumer legislation by some States, nationally or regionally, and preemptive recommended codes of practice by airline associations, including IATA at the global level. ICAO already has some guidance in this area and, in close cooperation with IATA amongst others, is giving some consideration to updating and extending this material into a worldwide code of conduct for optional use by States not only for their air carriers but also their airport and air navigation service providers, and for application on the basis of either government regulation or self regulation. -4- My fifth issue is dispute resolution. This is a perceived weakness of the present regulatory regime for air services. Furthermore, the ongoing evolution of regional and plurilateral agreements, where a dispute between two parties by definition concerns other parties to the agreement, has added a new dimension to the need for review of dispute resolution mechanisms. ICAO has already taken steps to improve the regime through development in 1997 of a new dispute resolution mechanism and in 2000 of a “first resort” mechanism for airports and air navigation services. These could provide a basis for a more effective and speedy tool. So I believe ICAO already has a handle on at least some of the key issues that need to be resolved before we move forward substantially towards further global liberalization. A mechanism for convergence ICAO is also offering the opportunity to make considerable headway in putting all the pieces of our metaphorical jigsaw together. On 28 February of this year, the Council of ICAO decided to convene a Worldwide Air Transport Conference on “Challenges and Opportunities of Liberalization” from 24 to 29 March 2003. The proposed objective of the Conference is “to develop a framework for the progressive liberalization of international air transport, with safeguards to ensure fair competition, safety and security, and including measures to ensure the effective and sustained participation of developing countries”. We are proposing three components for this Conference: The first is an examination of key regulatory issues including those I have just discussed, on the basis of studies now or shortly under way. The second is a review of a template air services agreement designed to improve harmonization worldwide, both in substance and in detail of language, which the ICAO Secretariat is developing for optional use by States wishing to liberalize, bilaterally, regionally or even globally. And the third is the adoption of a declaration of global principles for international air transport possibly including, for example, universal opportunity to participate and elements of economic regulation, linked to safety, security, liability, infrastructure and environmental requirements. I am aware that IATA is working on similar concepts and we will of course be pleased to work cooperatively with IATA on this. We are presently consulting our Member States on the structure and tentative topics for the Conference with a view to having the agenda and programme of preparatory activities finalized towards the end of this year. This Conference has the potential to be a pivotal milestone in aviation history, and this potential can only be achieved with solid preparation. Conclusion Let me conclude by returning to our metaphor. I put it to you that ICAO is already building the frame for the jigsaw puzzle and providing many of the pieces. Organizations such as those represented here by Mme. Loyola de Palacio and Mr. Johnston, and not forgetting the WTO, can supply a large number of other pieces, although they may each have to adjust some of the shapes so that they fit together. But we need many more pieces, first and foremost from ICAO’s Member States, but also from representatives of international organizations, governmental and non-governmental, service provider and service user, non-aviation as well as aviation, and not least from the airlines assembled here in this room. -5- I am very pleased at the increasing cooperation between ICAO and IATA on such issues as air carrier ownership and control, competition law and consumer rights, not only directly between our Secretariats but also through reciprocal participation in our standing committees and task forces. I am now calling on all of us to harness our activities and work towards a common goal, a liberalized framework for a safe, secure and sustainable system.