The European Commission is slowly but steadily cracking down on the unfair competition by 3rd country carriers. A new set of rules, proposed in June 2017, aims at ending the suffering of EU airlines caused by years of fierce competition with state-owned, heavily subsidized Gulf carriers.
The newly proposed rules could empower airlines to ask for an official investigation to be opened in case of unfair competition. In addition, the investigation will not only look into possible violations of agreements by 3rd country carriers but it will also examine any injury or threat of injury to EU airlines. The investigation will be carried out on best possible evidence, which should be enough of an incentive for foreign carriers to be transparent. With these hard tools, the EU Commission is proposing a complete overhaul of Regulation 868/2004 on protection against unfair pricing practice in air transport sector. The one weak point – social and labour aspects are excluded from the list of items for triggering an investigation.
EU Commission proposing a complete overhaul of Regulation 868/2004 on protection against unfair pricing practice in air transport sector
The new proposal is still to be reviewed but if approved by the European Parliament & Council, it will give important munition to European airlines to compete fairly with foreign carriers. The real novelty is that individual airlines, association of airlines and EU Member States are permitted to lodge an official complaint against foreign carriers. Under the current Reg. 868/2004 neither Member States nor individual air carriers have this right. The Commission can also initiate an investigation (or refuse to do so – see below). This new element is particularly important given the fact that, under Art. 7 (fair competition) of the Air Transport Agreements, only Member States and the Commission have access to the dispute resolution mechanism. Commercial entities cannot directly resort to arbitration for example.
Individual airlines, association of airlines and EU Member States would be permitted to lodge an official complaint against foreign carriers
Gulf airlines have repeatedly denied any wrongdoing but at the same time have remained reluctant to more transparency. The newly proposed rules would finally make it possible for the EU Commission to conclude an investigation on the basis of the ‘best available evidence’. This new element should in principle facilitate the proceeding, especially when the investigation is significantly impeded by the lack of cooperation and unwillingness of third countries/entities to disclose relevant (financial) information.
Commission could investigate unfair practices based on ‘best available evidence’.
A ‘2-track investigation’ is another central element of the proposal. It establishes two possible purposes of an investigation: the so called ‘violation track’ and the ‘injury track’. The violation track refers to violations of fair competition-related obligations (contained in an agreement to which the concerned third country is a contracting Party). The injury track relates to practices adopted by a third country or third country entity affecting competition and causing injury or threat of injury to EU air carriers. Practices under the proposal consist of selective subsidies (definition in Art. 2 (h) of the proposal) or discrimination (definition in Art. 2 (g)).
Social-related issues are excluded from the catalogue of possible unfair practices distorting competition
Where the proposal scores low on is the social dimension. Labour standards, working conditions, work time, health and safety at work, equal treatment and social rights cannot trigger an investigation. These characteristics being intrinsic for a number of third countries, will not be challenged by the Commission and, therefore, they will not be subject of investigation and compensation. Together with geographic location of hubs, high level of investment in airport infrastructure, low airport charges and investment in aircraft fleet, poorly paid and precarious workers from third country carriers that do not comply with international conventions of workers’ rights is seen as a non-factor. In other words, social-related issues are excluded from the (non–exhaustive) catalogue of possible unfair practices seen as distorting competition to the detriment of the EU carriers.
The Commission seems to have also a hidden ‘joker’ in its sleeve. It can decide to not start an investigation or to not take any measure if the adoption of the latter would be against the European Union interest. This so called ‘Union interest’ may easily be interpreted in a different way. So with this wild card, the threat exists that the Commission neutralizes all complaints.
But for now, the draft proposal seems a positive step forward. The Commission has pledged to promote this approach at multilateral level within ICAO. And even if not all EU Member States are fully supportive of it yet, the legislative proposal has the potential – if not to end – at least to reduce unfair competition in the air.