RESTRICTEDWORLD TRADE
ORGANIZATIONS/C/W/167
18 September 2000
(00-3713)
Council for Trade in Services Original:  English
COMMUNICATION FROM AUSTRALIA
The Mandated Review of The GATS Annex on Air Transport Services
The attached communication has been received from the delegation of Australia with the
request that it be circulated to Members of the Council for Trade in Services.
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Proposal
1. That Members extend the GATS Annex on Air Transport Services to cover dedicated air
freight services, non-scheduled services, and ownership and control.
Background
The global market for international aviation is rapidly integrating…
2. Australia’s experience in aviation over the past decade has been marked by accelerating
integration into a global market. Passengers and shippers are demanding improved services to more
destinations at a lower cost. Airlines are demanding greater freedom and flexibility in offering new
services and innovative products.
… and the bilateral system is not a guaranteed part of aviation’s future.
3. Australia’s position has been to manage that integration in a way that maximises our national
interest. As we look forward over the next five years, however, we no longer feel certain that the
bilateral system can continue to deliver the growth in travel, trade and tourism that Australia has
expected from it in the past. We are also concerne d that regulators are not keeping up with industry
innovations, including the formation of alliance s as a method of avoiding constraints on market
access. We consider that the bilateral system is hindering our attempts to deal with innovations.
4. Australia's approach to international aviation reform is set out in the June 2000 policy
statement on international aviation. The policy statement is available at the following website:
http://www.dotrs.gov.au/aviation/intairservices.pdf  , and focuses strongly on liberalisation and the
development of a healthy, competitive international aviation market. Australia has moved to a liberal
negotiating model for bilateral agreements. We understand that we could not return to a restrictivebilateral regime without damaging the Australian  economy. We also know that a substantial number
of WTO Members share our view that even 'open skies' bilaterals impose market access and inward
investment restrictions that inhibit the flow of national benefits.S/C/W/167
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Regionalism is a growing trend in regulation…
5. While many WTO Members have legitimate concerns about the timing and direction of
moving market access beyond the bilateral system, S/C/W129 notes that at least eleven regional
arrangements for regulating international air services are being developed. In our own region,
plurilateral reform is being openly canvassed at APEC, and several member economies are drafting aplurilateral 'open skies' text. We are also aware of discussions among economies within the region on
plurilateral reform outside the APEC umbrella.
6. Australia has publicly supported plurilateral and regional reform since the ICAO World Wide
Aviation Conference on International Air Transport Regulation in December 1994. Provided the new
arrangements are more liberal than the ones they replace, it is clearly an advantage to develop
regulation on a regional basis.
…but regionalism and plurilateralism can restrict participation in reform.
7. The bilateral system has three characteristics that should be a part of the fundamental
discussion of any option that aims to eventually replace it:
(a) it is universal;
(b) its principles are well understood;  and
(c) individual governments can tailor it to meet their national interest.
8. These characteristics are likely to be lost as regional agreements develop and members of
those regional agreements dictate the terms on which other countries can enter their plurilateral
'clubs'.
The mandated review may be the last chance for universal reform.
9. The mandated review offers all WTO Members, large and small, the opportunity to
participate equally in discussing and determining re forms to the way in which international aviation is
conducted. No other forum offers this opportunity on a multilateral basis.
10. Australia is firmly committed to promoting multilateral reform of international aviation
through the WTO. Regulating international air services in a liberal multilateral framework offersgreater potential benefits than those that might be achieved through other approaches. The extension
of GATS coverage to a broader range of aviation services would free operators of those services from
bilateral constraints and allow them to make business decisions in the global market based
increasingly on their commercial judgement.
11. It is therefore important that the mandated review of the GATS Annex on Air Transport
Services be a substantive one, aimed at expanding the coverage of Paragraph 3. If this is not taken up
now, we shall have missed an opportunity to build a more efficient international aviation system with
universal benefits and, in five years time, it is likely that the debate on reforming international
aviation will have moved to forums where universal participation is not guaranteed.
Subject Matter for the Review
Australia supports a substantial review of the Annex on Air Transport Services and would oppose any
move to exclude a priori  any subject from the review. While Australia is happy to participate in any
discussion leading to an extension of the Annex, we intend to focus our efforts on three main subjects:S/C/W/167
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(a) dedicated freight services: scheduled air services performed by  aircraft configured for the
carriage of freight only;
(b) non-scheduled services: passenger and freight services performed as other than a scheduled
air service; and
(c) the removal of substantive ownership and effective control restrictions on international
airlines.
Hard rights for dedicated freight have proved to be easier to liberalise…
12. Air freight is an integral part of the interna tional logistics chain servicing trade and industry.
The OECD has recently estimated that international air cargo transportation is now worth more than
US$200 billion, of which 20% accrues to actual air transportation. The extension of GATS coverage
to dedicated air freight services is therefore likely to result in significant economic benefits.
13. Australia’s experience in liberalising international dedicated air freight services supports the
conclusion made by the WTO Secretariat in its S/C/W/59 of 5 November 1998 that, in general, the
regime accorded to cargo flights may be more liberal than that for passenger flights. Australia has
found that its bilateral partners are generally willing to agree to liberal freight arrangements. From a
negligible base in 1996, freight capacity is now unrestricted between Australia and 22 of our 57
bilateral partners. Australia has also negotiated an additional 129 B747-equivalent units of dedicatedfreight capacity per week in agreements where ‘open freight’ was not an option.
14. Discussion on hard rights associated with dedicated freight services would therefore appear,
from our experience, more likely to yield consensus than discussion on passenger services.
…and there may also be grounds for consensus on non-scheduled services.
15. Like dedicated freight services, discussion on non-scheduled services may offer more
likelihood of a consensus than hard rights for passenger services, while still bringing under the GATS
a substantial proportion of international aviation activity.
16. Non-scheduled services are uniquely able to exploit market niches, develop new markets and
provide capacity where scheduled services are unable to meet demand. Non-scheduled services are,
however, subject to a wide range of unilateral regulatory constraints which hinder them in providing astimulus for travel, trade and tourism. This creates a strong case for bringing these services into the
multilateral trading system.
Ownership and control provisions are anti-competitive…
17. Ownership and control provisions remain the tool for restricting the benefits generated by
bilateral agreements to the partners to that agreemen t. Ownership and control restrictions also create a
clear advantage for airlines designated by countries with strong domestic capital markets.
18. Airlines from economies with less developed capital markets are often forced by the bilateral
system to rely on high levels of debt to fund their operations and equipment. They often cannot find
local equity investors other than the government, and their high debt exposure decreases their
attractiveness to foreign investors.
…and raise safety issues with universal implications.S/C/W/167
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19. These restrictive provisions are anti-competitive. They also have the potential to put at risk
the important multilateral safety initiatives that are being pursued by ICAO and other regulatory
agencies. It is not credible to demand higher safety standards for undercapitalised airlines when
bilateral agreements simultaneously deny them th e foreign investment they need to meet these
standards.
20. Given the universal nature of ownership and control provisions, the solution to these
problems must be multilateral.
Conduct of the Review of the Annex
21. Australia believes that the review should focus on areas where there is support for extending
the Annex. We agree that Job No. 2451, “Issues for Possible Consideration in the Review of Air
Transport”, could be a good starting point for such work.
22. We suggest that Members consider each issue separately for scheduled dedicated freight
services, scheduled passenger services, and non-scheduled services. This would allow market access
and related issues to be considered for any one of the above, without creating implications for the
other two.
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