Brussels Files Suit over Bilateral Aviation Deals

By Michael Smith in Brussels

The European Commission is tak­ing eight European countries to the European Court of Justice over their bilateral aviation deals with the US. The EU's executive said yesterday that the deals distorted the EU air market to the detriment of European carriers.

Disclosure of the move coincided with confirmation by British Airways (BA) that it was scaling back plans for a full alliance with American Airlines because of regulatory difficulties. BA is also pressing the British government to reach an agreement with the US for a gradual liberalisation of the US air market. Talks between Brussels and Washington on a full open skies policy broke down last month.

The European Commission's decision to file suit against the UK, Austria, Belgium, Denmark, Finland, Germany, Luxembourg and Sweden follows a long campaign to win the approval of EU member states for seeking an EU-wide deal with the US. 'There need be no roll-back,' the Commission said. 'These individual agree­ments can be written into a wider deal.'

The European Transport Commissioner said member states created serious competition distor­tions by unilaterally granting US carriers rights while ensuring exclusivity for their own carriers. EU rules were rendered ineffective² by the deals, he said. The Commission warned member states four years ago that bilateral deals with the US would be illegal and would jeopardise³ the creation of an EU-wide deal with Washington. Most of the bilateral agreements have been signed since then. However, the Commission held off taking legal action after winning approval from member states for starting 'open sky' talks. It reactivated legal proceedings after EU countries last spring rejected its request for widening the scope of the talks to include market access and traffic rights -the rights to fly to and inside another country's territory - and will not negotiate a deal unless the terms are widened.

In London, BA said it was still committed to getting a full deal with American Airlines in the long run. 'We want an alliance with American because the customer now thinks and travels globally,' it said. 'But the terms put forward by the European Competition Commissioner are not acceptable to us commercially.

The Competition Commissioner has demanded that BA and American should give up 267 weekly slots free of charge at London's Heathrow and Gatwick airports. In the transition period towards full liberalisation, BA plans to conclude a code-sharing agreement with American. This would allow them to sell seats on each other's flights, but they would not set fares jointly.

1 disadvantage

2 made useless

3 put at risk

Legal brief

The purpose of the EU is to form a common market between members that is unrestricted by tariff barriers. In 1986, a Single Market Act proposed the removal of all trade barriers and tariffs by 1992. The European Commission works on behalf of the EU to make routine decisions and to propose new laws that will apply to all members. The Commissioner responsible for transport policy has disciplined eight EU member states for trying to make private deals with the US, rather than cooperating in the Common Aviation Policy.

Over to you

1 Are there any protected industries in your country? Why do you think these industries are protected? Are there any advantages in keeping out competitors? Make a list of points for and against the regulation of competition.

2 You have decided to start a sports shoe retail business. Are you going to sell locally-made shoes or import them from other countries at a lower price? Think of some legal factors you should consider when entering the market: for example, are there import taxes on foreign goods? What government protection for local industry is there?