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Regulation (EU) 2019/712 on safeguarding competition in air transport: an efficient tool to ensure a level playing field with third country airlines or much ado about nothing?

17/05/2019

Why a new Regulation on safeguarding competition in air transport?

For many years, the issue of fair competition by third country airlines has been raised by European airlines. While the European Commission has been very strict about public funding granted to European airlines under state aid rules, third country airlines may have benefited from more favourable tax schemes or/and even subsidies.

Regulation (EC) N° 868/2004 of the European Parliament and of the Council of 21 April 2004 concerning protection against subsidisation and unfair pricing practices in the air transport sector allowed the European Commission to investigate, and if necessary impose redressive measures, in the event of unfair practices that favoured third country airlines to the detriment of European airlines. As there were no formal complaints, the Regulation was never applied.

However, the various EU institutions have for some time recognised this issue as key to the future of European aviation as there is currently no international framework under the World Trade Organization (WTO) or the International Civil Aviation Organization (ICAO) governing competition among air carriers.

In its 2015 Communication on aviation strategy, the European Commission underlined the importance of a level playing field in EU external aviation policy and defended the legitimacy of EU action to deal with possible unfair commercial practices in international aviation. Therefore, it announced it was revising Regulation (EC) N° 868/2004.

In June 2017, the Commission adopted a legislative proposal for a regulation on safeguarding competition in air transport in order “to maintain conditions conducive to a high level of Union connectivity and to ensure fair competition with third countries’ air carriers”. Following political negotiations, the final text was formally adopted by Parliament on 14 March 2019 and by Council on 9 April 2019.

Regulation (EU) 2019/712 of the European Parliament and of the Council of 17 April was published on 10 May 2019 in the Official Journal of the EU and will enter into force 20 days after its publication.

Who can file a complaint?

Regulation (EU) 2019/712 on safeguarding competition in air transport allows the European Commission to launch an investigation into a complaint by a Member State, an air carrier or a group of carriers or on its own initiative. Therefore, there will be greater scope for filing a complaint with the Commission than under Regulation (EC) N° 868/2004.

When can the European Commission launch an investigation?

The European Commission can launch an investigation when there is a clear threat of damage to the European air transport sector. Therefore, the complaint must have sufficient evidence of a practice distorting competition, the damage (or threat of damage) and the causal link between the two.

Furthermore, the facts must raise a systemic issue or have a significant impact on one or more EU air carriers for the European Commission to initiate an investigation on its own initiative.

What can be investigated by the European Commission?

An investigation may be initiated if there is prima facie evidence of:

  • the violation of applicable international obligations; or
  • the existence of a practice affecting competition, adopted by a third country or a third country entity.

The scope of the investigation can therefore be much broader than under Regulation (EC) N° 868/2004, which focused on subsidies and unfair pricing.

Which measures can be imposed?

At the end of the investigation, compensatory financial or operational measures (such as suspension of a concession) may be imposed to offset damage caused by unfair practices from a third country or a third country airline (such as dumping and abuses of dominant position). So, although the European Commission can launch an investigation when there is a clear threat of damage to the European air transport sector, compensatory measures can only be decided if the damage has materialised.

Following a debate between the European Parliament and the Council, which wanted a clearer distinction between financial and operational measures, any redressive measures involving financial duties will be adopted by a Commission Act, while operational measures will require a Council decision. Traffic rights are explicitly excluded as a possible redressive measure.

The redressive measures will not expire automatically after a fixed period of time, as is the case in anti-dumping proceedings. Therefore, there will need to be a review process.

The aim of a redressive measure is to restore fair competition, not to sanction the third country airline.

Is there a judicial review?

EU decisions may be challenged before the General Court of the EU by the entity that is directly and individually affected.

What can be expected?

If Regulation (EU) 2019/712 is wider in scope and provides for more adequate means to make it effective, it is the result of a political compromise and its main objective seems to be deterrence.

Indeed, this general approach providing for a single procedure that would apply regardless of the type of aviation agreement (comprehensive EU agreement or bilateral air transport agreement) may be welcomed but it raises the question of if and how it will be applied in practice, given that recent EU agreements (such as the one concluded with Qatar or the one negotiated with ASEAN) provide for a control mechanism to ensure that provisions on fair competition are effective. The “violation of applicable international obligations” track may be problematic due to the interplay between Regulation (EU) 2019/712 and existing air service agreements.

There are already discussions taking place between the EU institutions on how to implement Regulation (EU) 2019/712 in practice.

Now that the European Commission is able to intervene more efficiently in aviation market dynamics, time will tell if this translates into action.

Authors

Picture of Annabelle Lepièce
Annabelle Lepièce
Partner
Brussels