Implications of the ECJ Case on Designation

The European Court of Justice ruling of 5 November 2002 in the so-called "Open Skies" cases has had a significant impact on the way in which air service agreements between Member States and third countries are negotiated and implemented. In the case of the UK, the Court found that the "nationality clause" in Bermuda 2, which allows the US to refuse to accept the UK's designation of any airline in which substantial ownership and effective control is not vested in UK nationals, was in breach of Article 43 of the EC Treaty. Article 43 allows nationals of a Member State to operate a business in another Member State under the same conditions as its own nationals. A number of other Member States are in a similar position with regard to their bilateral agreements with the US.

In the light of the ruling, the European Commission presented a draft Regulation on the negotiation and implementation of air service agreements between Member States and third countries. Following extensive negotiations, the June 2003 Transport Council reached political agreement on a text which would allow Member States to continue to negotiate bilaterally with third countries, provided they attempt to bring any subsequent agreement within EU law, and subject to certain procedural requirements.

The package agreed by EU Transport Ministers on 6 June includes the following elements:

• a Council Decision authorising the European Commission to open negotiations with the United States, with the aim of establishing an open aviation area;
• a Council Decision authorising the European Commission to open negotiations with third countries on the replacement of certain provisions in bilateral agreements, in particular to bring designation provisions into line with Community law by providing for the designation of "Community carriers";
• a draft Regulation on the negotiation and implementation of air service agreements between Member States and third countries.

It is the third of these elements that has the greatest relevance to bilateral relations. Although the Regulation has not yet completed all its formal stages, the Council, Member States and the Commission agreed that it was their firm intention to act fully in accordance with its principles, pending its final adoption.

The draft Regulation makes clear that Member States, including the UK, may continue to conduct bilateral negotiations, provided that an internal EU notification procedure is followed and that standard clauses are included in the negotiation.

The Council has agreed a standard clause on designation, which is to be used in future negotiations. It provides for the designation of any Community carrier established in the UK. In order to protect safety standards, the carrier would have to be under the effective regulatory control of the Member State responsible for issuing its Air Operator's Certificate and that Member State would be identified in the designation. To reassure third countries that these standards will be maintained, Member States have made a unanimous declaration that they will respond fully and expeditiously to any concerns raised by third countries.

The draft Regulation also established an internal EU notification procedure. Where a Member State concludes arrangements that do not allow for the designation of Community airlines, an advisory committee (of the Commission and Member States) will consider whether the agreement would harm Community common transport policy.