WORLD TRADE RESTRICTED S/C/W/200/Add.1 28 February 2002 ORGANIZATION (02-1009) Council for Trade in Services EXECUTIVE SUMMARY OF THE DOCUMENTS PREPARED FOR THE THIRD SESSION OF THE REVIEW MANDATED UNDER PARAGRAPH 5 OF THE GATS ANNEX ON AIR TRANSPORT SERVICES Addendum This summary has been prepared at the request of the Council for Trade in Services. It gives an overview of the documents prepared by the Secretariat in the context of the review mandated by paragraph 5 of the Air Transport Annex that deals with commercial air transport services. (S/C/W/163/Add.2, paragraphs 153 to 201, S/C/W/163/Add.3, 4, 5 and 6). I. FREEDOMS OF THE AIR A. OPERATIONAL FREEDOMS 1. The International Civil Aviation Organization (ICAO) defines as operational freedoms "the right or privilege, in respect of scheduled international air services, granted by one State to another State or States to fly across its territory without landing" and "the right or privilege, in respect of scheduled international air services, granted by one State to another State or States to land in its territory for non-traffic purposes" (First and Second Freedoms). 2. These Freedoms are not generally dealt with in bilateral agreements, but in a quasi-universal multilateral agreement, namely the 1944 ICAO International Air Services Transit Agreement (IASTA). The relevant provisions are, in essence, similar to those of Article V of the GATT on transit. The IASTA has been ratified, as of 4 October 2000, by 118 States. However, the four countries with the largest airspace (Canada, Brazil, Russian Federation and China) are not members of IASTA. 3. In addition to IASTA, two provisions of the Chicago Convention, which has 185 members, also regulate First and Second Freedoms. Article 5 of the Chicago Convention grants to non- scheduled flights, inter alia First and Second Freedoms; Article 15 of the Chicago Convention which stipulates that "No fees, dues or other charges should be imposed by any Contracting State in respect solely of the right of transit or entry into or exit from its territory of any aircraft of a contracting state or persons or property thereon". 4. The question of transit through sovereign airspace has always been politically sensitive and has led to three dispute settlement cases in ICAO, all of which were solved diplomatically. Recently, the charging practices of the Russian Federation, particularly across Siberia and on routes between Western Europe and the Far East, have been the object of repeated challenges and démarches by ICAO and WTO Members, including the European Civil Aviation Conference (ECAC), European Union Member States, and airlines. 5. Members may want to discuss the non-application of GATS in this area in view of: (i) the wider membership of WTO as compared to the IASTA; (ii) an apparent discrepancy between the S/C/W/200/Add.1 Page 2 GATT rules applying to air transport of goods and the status under GATS of aircraft in transit; and (iii) the effectiveness of the dispute settlement systems of ICAO and GATT-WTO. B. TRAFFIC RIGHTS 6. ICAO considers the Third to Eighth Freedoms to constitute "traffic rights".1 (a) Third and Fourth Freedom 7. The Third Freedom is defined by ICAO as "the right or privilege, in respect of international scheduled air services, granted by one State to another State to put down in the territory of the first State, traffic coming from the home State of the carrier". The Fourth Freedom is, in turn, defined as "the right or privilege, in respect of international air scheduled services to take on, in the territory of the first State, traffic destined for the home State of the carrier". 8. Four main developments have occurred during the period under review (1993 to 2000): (i) the proliferation of new and revised routes within established markets; (ii) a movement away from the traditional single gateway format "from my major city to your major city and vice versa" towards the exchange of additional gateways; (iii) the increasing use of the "non-specific route format", i.e. of clauses allowing traffic "from points in my country to points in your country" and (iv) the multiplication of regional agreements that contain provisions granting Third and Fourth Freedom rights (Andean Pact, CARICOM, Fortaleza Agreement, Banjul Accord, CLMV Agreement, COMESA, ACAC). 2 (b) Fifth Freedom: 9. This Freedom is defined by ICAO as "the right or privilege, in respect of scheduled international air services, granted by one State to another State to put down and take on, in the territory of the first State, traffic coming from or destined to a third State". Although available information is fragmentary and difficult to interpret, nevertheless, during the period under review, the granting of Fifth Freedom rights seems to have been a relatively common feature, contained in approximately 40 per cent of the bilaterals Air Service Agreements (ASA or bilaterals) concluded in years with significant statistical data. Fifth Freedom provisions are also contained in the regional agreements referred to in paragraph 8. (c) So-called Sixth Freedom 10. Rights beyond Fifth Freedoms are traditionally referred to as "so-called" 'x'th Freedoms, since the 1944 Chicago Conference established only five Freedoms of the Air. The Sixth Freedom is defined as "the right or privilege, in respect of scheduled international air services, of transporting via the home State of the carrier, traffic moving between two other States". It is also known as "home- land bridge". 11. A carrier's ability to provide a homeland bridge largely depends on the geographical location of its State of origin, which has to be situated on a reasonably direct route. In the past, many States affected by potential or actual diversion of "their" traffic have sought to develop counter strategies, but with limited success. During the review period, observers noted that in an increasing (although not specified) number of bilateral agreements the Sixth Freedom was explicitly authorized as "points behind our country via our country to your country". Among the regional agreements, only two 1 Manual on the Regulation of International Air Transport (document 9626, page 4.1-5). 2ACAC: Arab Civil Aviation Commission; CARICOM: Caribbean Community; CLMV: Cambodia, Laos, Myanmar, and Vietnam; COMESA: Common Market for Eastern and Southern Africa. S/C/W/200/Add.1 Page 3 (Fortaleza & CLMV) reportedly deal with the Sixth Freedom rights and only one (Fortaleza) explicitly. (d) So-called "Seventh Freedom" 12. The Seventh Freedom is defined as "the right or privilege, in respect of scheduled international air services, of transporting traffic between the territory of the granting State and any third State with no requirements to include on such operation any point in the territory of the recipient State i.e. the services need not connect to or be an extension of any service to/from the home State of the carrier". 13. Among the 1,500 bilateral agreements deposited with ICAO, only one, New Zealand- Brunei 1999, contains full Seventh Freedom rights for cargo and passengers. Sixteen bilateral agreements provide Seventh Freedom rights for all-cargo. The European Union's Single Aviation Market, as well as its planned expansions, provides for the Seventh Freedom. The November 2000 extension to the Australia-New Zealand Single Aviation Market (SAM) grants Seventh Freedom rights for cargo services. Finally, the Asia Pacific Economic Cooperation (APEC) Agreement also foresees Seventh Freedom for cargo. Its extension to passengers is possible in the form of an additional protocol between interested parties. (e) So-called "Eighth Freedom" 14. The Eighth Freedom or "consecutive cabotage" is defined as "the right or privilege, in respect of scheduled international air services, of transporting cabotage traffic between two points in the territory of the granting State on a service which originates and terminates in the home territory of the foreign carrier or (in connection with the so-called Seventh Freedom) outside the territory of the granting state". 15. Among all bilateral agreements, only the 1999 New Zealand-Brunei grants this Freedom for both passenger and cargo, but this possibility has not been exercised to date. As far as regional agreements are concerned, the Australia-New Zealand SAM and the European Union also allow for the eighth freedom. (f) So-called "Ninth Freedom" 16. The Ninth Freedom or "stand alone cabotage" is defined as "the right or privilege of transporting cabotage traffic of the granting State on a service performed entirely within the territory of the granting State". No bilateral agreement registered in ICAO contains this Freedom. However, it is provided for in the European Union's Single Aviation Market (and its extensions) and the Australia- New Zealand SAM. II. MAIN FEATURES OF BILATERAL, PLURILATERAL AND MULTILATERAL AGREEMENTS A. DESIGNATION 17. Designation is the formal diplomatic notification by one State to another of the name of an air carrier chosen to exercise market access rights received by that State under its Air Services Agreement. Depending upon the terms of the agreement, a designation may cover any or all market access rights on a particular route, or a particular part of a route. Single designation is the right to designate only one carrier, dual designation up to two carriers, while multiple controlled designation is the right to designate a specified number of carriers per route, per gateway or per route sector. S/C/W/200/Add.1 Page 4 Multiple unlimited designation is the right to designate any number of carriers. In each case there is an implicit right for carrier substitution. 18. Bilateral agreements usually contain the explicit right for one State to reject the other's designation only on the grounds that the designated carrier is not substantially owned and effectively controlled by nationals of the designating State.