WORLD TRADE
ORGANIZATIONS/C/W/198
3 October 2001
(01-4724)
Council for Trade in Services Original:  English
COMMUNICATION FROM THE UNITED STATES
Review of the GATS Annex on Air Transport Services
The following communication has been received from the delegation of the United States
with the request that it be circulated to the Members of the Council for Trade in Services.
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I. INTRODUCTION
1. The United States presents its views on the mandated review of the Annex on Air Transport
Services (Air Annex) and submits information to as sist the Council in the further progress of the
review.
2. The context of this review has been summarized by the Secretariat in the review sessions and
by several Members in earlier papers.  WTO Members agreed to exclude most air transport services
from the GATS so as not to disturb the familiar system of negotiating rights and obligations in
international air transport.  The two main components of this system are, first, the multilateral system
for governing air navigation and air transport safety and security through the International Civil
Aviation Organization (ICAO) and, second, the reciproc ity-based system of exchanging air transport
economic rights.
3. The reason for the exclusion was deliberate: to promote development and liberalization of the
air transport sector.  WTO Members believed that the existing international air transport regime,
probably more detailed and pervasive than that for any other service sector, would best accomplish
this important objective.  Thus, WTO Members intentionally agreed to a broad exclusion.
4. Against this background, we can properly understand the mandate to review “developments in
the air transport sector and the operation of this Annex with a view to considering the possible further
application of the Agreement in this sector.”  The basis for any further application of the Agreement
should arise from circumstances disclosed by the review of developments in the sector and the
operation of the Annex.
5. Essentially, the current review is confronting again the central air transport issue that faced
the Group of Negotiations on Services (GNS) in the Uruguay Round -- whether progress in
developing and liberalizing international air transport would more likely succeed by further evolution
of the existing system of specialized air transport agreements or by bringing some or all facets of air
transport into the GATS.  As in the Uruguay Round, the central question remains which option will
best facilitate liberalization in the air transport sector.S/C/W/198
Page 2
6. As discussed below, the United States believes that the broad exclusion of most air transport
services from the GATS was appropriate and foresighted, and has produced significant liberalization
to the benefit of consumers and suppliers of these services.  The United States further sees evidence of
liberalization taking place at an accelerating pace.  Accordingly, the United States sees no evidence
that this progress would be assisted by any narrow ing of the current exclusion; to the contrary, the
United States would expect such liberalization to be slowed by changes to the current exclusion.
II. DEVELOPMENTS IN THE AIR TRANSPORT SECTOR - LIBERALIZATION
PROGRESS
7. The first aspect of the mandated review is a review of developments in the air transport
sector.  The evidence of the past five years is striking.  Extensive progress in liberalization has been
achieved through open-skies agreements, ICAO’s facilitating role, and other factors.
A. GROWTH OF OPEN-SKIES AGREEMENTS
8. Research by the Secretariat and information furnished by ICAO have documented the
dramatic increase in bilateral air services agreements, in particular, the most liberal form of such
agreements, known as “open-skies.”
9. According to the Secretariat’s October 2000 compilation of S/C/W/163/Add. 2, there were
roughly 74 open-skies agreements, more than one-third of which did not involve the United States,and more than two-thirds of which were said by ICAO to be with or between developing countries
(see Table 23 of the cited document).  Since that paper was issued, the United States alone has
negotiated six more bilateral open-skies agreements (with Morocco, Poland, Rwanda, Malta, Benin,
and Senegal), in addition to the states identified in Tables 23 and 24.
10. It should again be noted that the substantial majority of these open-skies agreements involve
developing countries, many with relatively small airlines.  They nonetheless have reaped economic
benefits in terms of access to all destinations in the US market and those of other aviation partners.
These benefits have been realized both through new services operated by their flag carriers and
through cooperative marketing arrangem ents with other, network airlines.
11. In addition to the full open-skies agreements referred to above, the United States has
concluded other significantly liberalized aviation agreements.  These include a “transborder
open-skies” agreement with Canada, all-cargo open-skies agreements with Australia and Jamaica, and
substantially liberalized regimes with France and Japan.
12. As reflected in S/C/W/163/Add. 2, of the many countries that have concluded open-skies or
other liberal agreements with aviation partners other than the United States, it is not surprising that
among those most often listed are three that have consistently made valuable contributions to this
review: Chile, New Zealand, and Singapore.  These and other countries continue to announce newlyliberalized agreements month after month.  At  the December 2000 review session, New Zealand
reported another agreement.  In January 2001, in addition to the US-Senegal agreement, Brazil and
Peru announced that they had agreed on open skies.  In February 2001, New Zealand reported signing
liberal agreements with Denmark, Norway, and Sweden.
13. The reciprocity-based system is not limited to bilateral arrangements, but is also proving
adaptable beyond bilateral open-skies.  On November 15, 2000, the governments of Brunei, Chile,
New Zealand, Singapore, and the United Stat es, meeting with other Asia-Pacific Economic
Cooperation (APEC) members in Brunei, announced agreement on the first plurilateral open-skiesS/C/W/198
Page 3
agreement, titled  “Multilateral Agreement on the Liberalization of International Air Transportation.1
The new open-skies text is based on the bilateral open-skies agreements that these countries already
have with one another and with other aviation partners, but it also contains several new features.
Significantly, the new agreement modifies the traditional bilateral requirement that “substantial
ownership” of an airline be held by nationals of the country designating it in order to exercise rightsunder the agreement.  The new agreement substitutes a requirement that the airline be “incorporated
in and has its principal place of business in the territory of the Party designating the airline".
2
14. This plurilateral agreement will, after it enters into force, be open to accession by others on
terms no less favorable than those of the original signatories.  In addition, the open-skies plurilateral is
amendable by a simple majority of the signatories, affording substantial opportunity for refinement,
expansion, and additional liberalization.  For instance, the agreement includes a protocol that
establishes a mechanism for adoption of additional liberalizing provisions in the future.
B. FACILITATING ROLE OF ICAO
15. Although the Chicago Convention left the exchange of air transport economic rights among
states to the states themselves, ICAO has nonetheless played an important role in facilitating those
reciprocal relationships.  Over the years, ICAO has encouraged pricing freedom; urged more liberal
ownership and control provisions; developed liberal model provisions in such “doing-business” areasas ground handling for bilateral, regional, and plurilateral air transport agreements; and otherwise
promoted liberalization in air transport throughout the world.
C. O
THER LIBERALIZING FACTORS
16. Certain other factors have also promoted the liberalization of the air transport sector.  First,
overflight freedoms are granted multilaterally through the 1944 International Air Services TransitAgreement (IASTA).  In the last five years, this agreement was ratified by 17 additional Contracting
States, bringing the current total to 118.
17. Second, no list of achievements in air transport would be complete without acknowledgement
of the EU integration of its Member States’ cross-border and domestic markets, phased in through
1997 pursuant to its Third Package of air transport liberalization measures.
D. T
ANGIBLE BENEFITS
18. Wherever constraints on air transportation have been removed, and airline managerial
freedom for economic matters substituted, the consumers of air transportation have gained.  With a
wider array of price and service options available, air travel and air shipments have multiplied.  In
1995, the United States had open-skies agreements with 10 countries; that year some 5.8 million
passengers travelled by air between those countries and the United States.  Five years later, in 2000,
those same 10 open-skies countries exchanged more than 10 million passengers with the UnitedStates, an average annual growth rate of nearly 12 percent.  Meanwhile, 37 additional air transport
partners had adopted open-skies, bringing the total open-skies passenger volume in 2000 to
38.8 million.  Over the same period, the countries that never concluded an open-skies agreement with
the United States averaged only 6.4 percent annual growth in US bilateral traffic.
3
                                                     
1The full, official text of this agreement is available at
www.state.gov/www/issues/economic/tra/001115_apec_opskies.html.
2Article 3(2)(c) of the Agreement.
3US fiscal years ended September 30. Those ten original open-skies partners are Austria, Belgium,
Denmark, Finland, Iceland, Luxembourg, the Netherlands, Norway, Sweden, and Switzerland.  Traffic data for
US and foreign carriers combined are from US DOT T-100 database.S/C/W/198
Page 4
19. The EU Third Package referred to above is often cited for the dramatic changes realized in
just the first three years of implementation.  In 1996, the European Commission reported the issuance
of 800 new operating licenses and a 20 percent increase in traffic attributed to availability of reduced
fares.4  These are merely illustrative examples that doubtless can be matched or surpassed in other
open-skies markets.
III. DEVELOPMENTS IN THE AIR TRANSPORT SECTOR - LIBERALIZATION
OUTLOOK
20. The above liberalization efforts and others are continuing.  Countries are continuously
refining their existing air transport agreements and forging new ones.  Facilitated by open-skies
agreements, global airline alliances are evolving, offering passengers seamless travel among all points
in their growing, aggregated route systems.  The mutual open-skies agreement initiated by five APEC
members will soon be open for accession by others  both within and outside APEC.  In addition,
APEC as a whole has endorsed eight recommendations on liberalization of air services.5  Air transport
liberalization in Europe is expanding beyond the EU Third Package in agreements with EFTA states
and with Eastern European aviation partners.  The OECD is working on a draft, prototype air-cargo
open-skies agreement.  In that exercise, issues working groups now are established to develop further
the aspects that require concentrated effort.
21. Furthermore, ICAO’s faci litative work is continuing and expanding.  ICAO announced that it
is preparing a broad program dealing with significant aspects of air transport liberalization including:
intensified promotion of adherence to and implementation of IASTA; a comprehensive study of
ownership and control (with designation, right of establishment, inward investment, management,
leasing, alliances, code-sharing, franchising and safety aspects); a re-examination of market accessissues with emphasis on elements of traffic rights, as cited in the Annex definition; and consideration
also of airport access, competition law, and the participation of developing countries.
22. Building on existing material and recent experience, the ICAO Secretariat is also developing
a template air services agreement for liberalization, including safety and security as well as market
access elements and safeguards, for selective or comprehensive, optional use by States, eitherbilaterally or multilaterally.  ICAO has indicated to this Council that the template is intended to
facilitate harmonized evolution and extension of both bilateral and regional agreements.   ICAO will
convene a conference on the liberalization of international air transport during 2003, “to develop a
framework for the progressive liberalization of intern ational air transport, with safeguards to ensure
fair competition, safety and security, and including measures to ensure the effective and sustained
participation of developing countries.
6
23. All of the foregoing developments in the air transport sector have taken place and are
continuing to evolve under the established system, outside the auspices of the WTO.  There is little to
suggest that comparable – let alone greater – liberalization would have occurred had the GATS
applied to air transport services, and there therefore is no reason to believe that future liberalization
could best occur under GATS auspices.
                                                     
4Impact of the Third Package of Air Transport Liberalization Measures, COM(96) 514, October 20,
1996.
5 These cover ownership and control, tariffs, doing business matters, air freight, multiple designation,
charter services, airline cooperative arrangements,  and market access. WT/L/313, September 20, 1999.
6 ICAO Working Paper A33-WP/6, June 5, 2001, p. 6.S/C/W/198
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IV. OPERATION OF THE ANNEX
24. The second aspect of the mandated review is an assessment of the operation of the Annex
during the period since entry into force of the GATS.  The developments discussed in the preceding
sections are directly relevant to such an assessment; that is, they demonstrate that the Annex has
successfully facilitated liberalization in the air transport sector by ensuring that venues andmechanisms outside the WTO operate effectively.
25. On the other hand, it is clear that with respect to air transport services covered by the GATS –
aircraft repair and maintenance, computer reservation system (CRS) services, and selling and
marketing of air transport – there is no appreciable liberalization that can be attributed to the GATS.
26. For aircraft repair and maintenance, S/C/W/59 records that nearly all Members (113) took on
MFN obligations, and, of these, 45 countries made market access and/or national treatment
commitments on repair/maintenance services.  The United States and many other countries thatscheduled these commitments bound already-established open access and uniform treatment that did
not constitute new liberalization.  The United States is not aware of liberalization that has occurred as
a result of GATS commitments in this area.  In S/C/W/59, the Secretariat notes a general increase in
the number of new repair facilities established from 1995 to 1998, but adds, that “this is more likely to
result from market growth than from the effects of the GATS.”
27. CRS services and selling and marketing may be considered together, because, as has been
pointed out in Council by the Secretariat  and several members, CRS and selling and marketing often
go hand-in-hand.  CRS services have become an essential marketing and booking medium for airlines
and travel agencies.  ICAO, the European Civil Aviation Conference (ECAC), the EU and many
individual countries, including the United States, have adopted guidelines and rules aimed at insuringfair, unbiased depiction of all carriers’ services.
7  Although CRS services are widely covered by
bilateral agreements and also by national laws and international guidelines, many of the 16 WTO
Members that listed MFN exemptions for CRS stated, as the condition creating the need for the
exemption, “The need for the exemption results fro m the insufficient development of multilaterally
agreed rules for the operation of CRS.”  Seventeen Members listed MFN exemptions for selling andmarketing of air transport services (two of which did not list exemptions for CRS).
8   As with aircraft
repair and maintenance services, the United States is not aware of liberalization that has occurred as a
result of GATS commitments in these areas.  On the other hand, parties to dozens of open-skies
agreements concluded over the last six years have undertaken strong disciplines for CRS and selling
and marketing within those agreements.
28. Thus, the experience of the six years following entry into force of the GATS indicates that the
Air Transport Annex has not had a discernible liberalizing influence on trade in the three services towhich the Agreement applies.  On the other hand, the exclusion of most other air transport services
has, in fact, been the foundation for significant and continuing liberalization outside the WTO.
Evidence to date – and, the United States believes, evidence likely in the foreseeable future – does not
demonstrate that liberalization would be assisted by further application of the GATS in this sector.
V. SCOPE ISSUES
29. Questions have been raised regarding the scope of the Air Annex’s exclusion.  Therefore it is
useful to recall the reasons why the Annex explicitly excludes traffic rights, “however granted,” and
services directly related to the exercise of traffic rights.
                                                     
7 As a practical matter, the United States provides national treatment in these services.
8 S/C/W/59, Table 7, page 50.S/C/W/198
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30. The Secretariat’s overview provided in the September session reminds us that the drafters of
the Air Annex excluded from the GATS those services for which rights were exchanged in
bilateral/multilateral air transport services agreements.  The GATS general obligations do not apply to
the excluded services, and specific commitments cannot be made regarding such services.   This
central principle underlies the provisions of the Air Annex and is reflected in the discussion ofspecific service issues below.
31. As will be recalled, the exclusion of traffic rights was the central feature of the earliest drafts
of the Annex before and in the Draft Final Act produced at the end of 1991.  The traffic rights
definition was therefore given considerable attention because it was expected to be relied upon in
years to come.
32. One unified term, “traffic rights,” was made to stand for all the air transport operations to be
excluded, because there was no reason to add more numerous, specialized air transport terms forpurposes of the Air Annex.  In early 1992 GNS sectoral meetings, delegates explicitly stated their
governments’ intentions to exclude from the Agreement ferry flights, without passengers or cargo,
and transit flights that would not take up or discharge revenue traffic, so that there would be no
confusion or overlap between the GATS and existing bilateral and multilateral agreements.
9  Because
of the degree of consensus on this point, the traffic rights definition was essentially completed byMarch 1992.  In its final form, it reads as follows:
(d) “Traffic rights” mean the right for scheduled and non-scheduled services to
operate and/or to carry passengers, cargo and mail for remuneration or hire from, to,
within, or over the territory of a Member, including points to be served, routes to be
operated, types of traffic to be carried, capacity to be provided, tariffs to be chargedand their conditions, and criteria for designation of airlines, including such criteria as
number, ownership, and control.
33. This definition contains no qualifications relating to aircraft size, interchange, sub-service,
code sharing, or other such criteria.  Accordingly, at present, air taxis and commuter services meet the
definition, as do wet-lease operations, franchise operations, and code-shares.  These services arecovered in many bilateral/plurilateral agreements, often under the term “cooperative marketing
arrangements. ”  Moreover, they usually require specific approval by the aeronautical authorities of
the territories in which they are operated.
34. A few delegations have also raised questions concerning the scope of “services directly
related to the exercise of traffic rights.”  Some delegations have even suggested that ground handling
services have become less directly related to traffic rights as airlines, the exercisers of traffic rights,
have increasingly divested themselves of such functions and contracted them out.
35. Again, to address these issues, one must recall the intent of the drafters.  The original concept
of “services directly related to the exercise of traffic rights” was functional.  The term referred to
services directly related to the exercise of traffic rights regardless of whether performed by carriers
themselves or by contractors.  During the Uruguay Round, from January 1992 until October 1993, the
addition of ground handling services to the list in paragraph 3 was debated at each of seven GNSsectoral meetings, but always under the common understanding that the service was directly related to
the exercise of traffic rights.  Ground handling was treated in bilateral air transport services
agreements then and is even more widely addressed in such agreements now.  Then, as now, some
such services were performed by the airlines and many were contracted out to specialized service
                                                     
9 In particular, the words “operate and/or carry” were added to include technical stops and positioning
or ferry flights without revenue traffic; “from” and “to” covered second, third and fourth freedoms; “within”
referred to cabotage, and “over” was added to include first freedom rights.S/C/W/198
Page 7
providers.  Some airlines performed the services for one another. There has been no change in the
industry or other basis to call into question the well-settled understanding that ground handling
services are directly related to the exercise of traffic rights.
36. Finally, some have asserted that air traffic control and airport services could be subject to
GATS obligations under certain circumstances.  Without  entering into a discussion of the various
ways in which these services are organized and provided around the world, the United States has no
GATS obligations with respect to those services; moreover we foresee no future circumstance in
which GATS obligations could be applicable to United States.
VI. CONCLUSION
37. Air transport is not only a significant industry in its own right, but also is one of the most
important instruments of international trade.  Ai r transport is an important complement to many
aspects of the WTO – promoting interchange of goods, services, and individuals.  The United Statesbelieves strongly that the WTO, its objectives, and WTO Members will benefit from continued
liberalization in this sector.  But the United States also believes strongly that in view of the
demonstrated success of the traditional, reciprocity-based air transport system, and the numerous
promising initiatives ongoing bilaterally, plurilaterally, and multilaterally, the greatest contribution the
WTO can make in this sector is to ensure that existing venues and mechanisms for air transportliberalization be allowed to reach their potential.
38. In the view of the United States, no changes should be made to the status quo solely in an
effort to create an impression of positive change or to resolve what is perceived as anomalous in the
GATS context.  Nor should any change be undertaken that could produce detriment greater than any
improvement that can be assured.  The goal for WTO Members should be the further liberalization ofthe air transport sector, and it is clear that this goal will best be achieved under the current, broad
exclusion from the GATS of most activities in this sector.
39. Following completion of the current review, the United States would expect to participate in
another review in five years.  We expect that many Members whose air transport sectors face
significant changes would support maintaining the five -year interval.  Meanwhile, it is clear that the
present, thoroughly-informed review provides no  basis for amending the Annex on Air Transport
Services.
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