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Flying friendlier skies : the effect of the 2002 ECJ "open skies" ruling on EU-US air transportation… Smith, Edwin Keith 2009

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Full Text


 
 
 FLYING
FRIENDLIER
SKIES:

 THE
EFFECT
OF
THE
2002
ECJ
‘OPEN
SKIES’
RULING
ON
EU­US
AIR
 TRANSPORTATION
NEGOTIATIONS
–
A
STUDY
IN
POLICY
CONVERGENCE
 
 
 by
 
 
 EDWIN
KEITH
SMITH
 B.A.,
Colorado
State
University,
2007
 
 
 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS in THE FACULTY OF GRADUATE STUDIES (European Studies)  THE UNIVERSITY OF BRITISH COLUMBIA (Vancouver) February 2009 © Edwin Keith Smith, 2009
  Abstract
 
 The
international
air
transportation
industry
has
historically
been
a
paradox.

While
 the
 industry
 enables
 globalization,
 historically,
 the
 international
 air
 transportation
 regulatory
regime
has
been
largely
mired
in
protectionism.


This
restrictive
regime
 was
 developed
 by
 national
 actors,
 who
 either
 owned
 or
 heavily
 subsidized
 their
 domestic
 carriers,
 and
 guarded
 their
 interests
 very
 closely,
 thus
 insulating
 the
 industry
from
large
levels
of
foreign
competition.

This
paradox
of
international
air
 transportation
continued
until
the
development
of
convergence
in
regulatory
policy
 through
 the
 2007
 ‘open
 skies‐plus’
 air
 transportation
 agreement
 between
 the
 United
 States
 (US)
 and
 the
 European
 Union
 (EU).
 
 This
 thesis
 examines
 the
 developmental
 process
 of
 this
 agreement
 as
 an
 examination
 of
 policy
 convergence
 theory,
 in
 order
 identify
 the
 explanatory
 powers
 leading
 to
 the
 formation
 of
 the
 ‘open
skies‐plus’
agreement.



 
 To
identify
the
explanatory
powers,
a
comparative
analysis
is
established,
using
two
 historical
 reference
 points,
 t0
 and
 t1,
 as
 case
 studies.
 
 This
 thesis
 uses
 two
 mechanisms
 for
 the
 development
 of
 policy
 convergence,
 international
 harmonization
 and
 regulatory
 competition,
 to
 identify
 why
 the
 convergence
 took
 place
 at
 this
 specific
 time
 and
 why
 it
 was
 set
 at
 this
 specific
 level
 of
 regulation.

 Using
 these
 mechanisms,
 the
 2002
 European
 Court
 of
 Justice
 (ECJ)
 ‘open
 skies’
 ruling
 is
 identified
 as
 the
 explanatory
 power
 for
 the
 convergence
 of
 policy
 in
 this
 field,
and
the
precedent
set
by
the
previous
bilateral
agreement
between
the
US
and
 the
Netherlands
is
identified
as
establishing
the
standards
of
regulation
in
the
2007
 ‘open
 skies‐plus’
 agreement.
 
 The
 thesis
 concludes
 with
 an
 examination
 of
 the
 prospects
 for
 further
 liberalization
 of
 transatlantic
 air
 transportation,
 as
 well
 as
 recommendations
for
the
continued
development
of
the
field.
 
 Key
 words:
 United
 States,
 European
 Union,
 Policy
 Convergence,
 ‘open
 skies‐plus’,
 ECJ,
 European
 Community,
 European
 Commission,
 Council
 of
 the
 European
 Union,
 Open
Aviation
Area,
Air
Transportation
Agreement,
Chicago
Convention,
Bermuda
II
  
  ii
  
  Table
of
Contents
 Abstract ...................................................................................................................................... ii
 Table
of
Contents....................................................................................................................iii
 List
of
Abbreviations ............................................................................................................. iv
 Acknowledgements .................................................................................................................v
 Chapter
One:
Introduction ................................................................................................... 1
 Thesis
Statement................................................................................................................................... 5
 Chapter
Two:
Theoretical
Framework...........................................................................10
 Policy
Convergence............................................................................................................................12
 Mechanisms
for
Policy
Convergence..........................................................................................14
 Emulation ..............................................................................................................................................15
 International
Harmonization
and
Regulatory
Competition ...........................................16
 Chapter
Three:
Historical
Development
of
International
Air
Transportation
 Regulation................................................................................................................................18
 Beginnings
of
Regulation
and
the
Chicago‐Bermuda
Regime .........................................18
 From
the
Bermuda
Regime
to
‘Open
Skies’ .............................................................................22
 The
2007
‘Open
Skies‐Plus’
Agreement....................................................................................28
 Chapter
4:
International
Harmonization ......................................................................35
 International
Harmonization
Mechanism................................................................................35
 ‘Open
Skies’
Framework
Agreements
(t0)................................................................................37
 The
2002
ECJ
‘Open
Skies’
Ruling................................................................................................41
 Council
Authorization
and
Implementation
of
the
Mechanism
(t1) .............................45
 Chapter
5:
Regulatory
Competition ................................................................................48
 Regulatory
Competition
Mechanism..........................................................................................48
 Regulatory
Competition
between
the
Member
States
(t0) ...............................................51
 M
ovement
towards
Liberalization.............................................................................................56
 Setting
the
Level
of
Liberalization
(t1) ......................................................................................57
 Chapter
Six:
Conclusions,
Outlook
and
Recommendations ....................................61
 Open
Aviation
Area............................................................................................................................63
 Recommendations..............................................................................................................................66
 Bibliography ...........................................................................................................................69
 
 
 
  
  iii
  List
of
Abbreviations
 
 American
Airlines
(AA)
 British
Airlines
(BA)
 British
Midlands
Airways
(BMI)
 Convention
on
International
Civil
Aviation
of
1944
(Chicago
Convention)
 Council
of
the
European
Union
(Council)
 European
Civil
Aviation
Conference
(ECAA)
 European
Commission
(Commission)
 European
Common
Aviation
Area
(ECAA)
 European
Community
(EC)
 European
Court
of
Justice
(ECJ)
 European
Union
(EU)
 International
Air
Transport
Association
(IATA)
 Open
Aviation
Area
(OAA)
 Royal
Dutch
Airlines
(KLM)
 United
Kingdom
of
Great
Britain
and
North
Ireland
(UK)
 United
States
of
America
(US)
 United
States
Department
of
Transportation
(US
DoT)
  
  iv
  Acknowledgements
 
 I
would
like
to
thank
the
students,
staff
and
faculty
at
the
IES
for
all
of
the
support
 and
knowledge
that
you
have
given
me
during
my
studies.


I
am
particularly
 grateful
to
Dr
Kurt
Hübner
for
the
countless
hours
of
work
and
tireless
efforts
he
 has
given
for
all
us
of
at
the
IES;
to
Dr
Dietmar
Schirmer
for
his
attention
to
detail
 and
for
helping
me
develop
methodological
foundations
in
all
of
my
work;
and
to
Dr
 Ljiljana
Biukovic
for
all
of
your
supper
and
helping
me
developing
the
analytical
 tools
for
studying
legal
perspectives
of
European
integration.
 
 To
the
city
of
Vancouver
for
eliminating
distractions
with
your
miserable,
rainy
 climate,
allowing
this
thesis
to
be
completed
on
schedule.
 
 To
my
family,
your
never‐ending
love
and
support
has
given
me
the
strength
to
 reach
my
goals.
 
 Finally
to
Julia,
I
love
you.  
  v
  
 
  Chapter
One:
Introduction
 
 
  Historically,
the
international
air
transportation
industry
has
been
a
paradox
  ‐
while
air
transportation
is
a
visible
enabler
of
international
business,
tourism
and
 globalization,
 the
 industry
 itself
 has
 been
 dominated
 by
 protective
 national
 regulations
 on
 cross‐border
 control
 and
 competition
 (Robyn
 et
 all,
 2002).
 Even
 before
 the
 development
 of
 powered
 flight,
 national
 actors
 began
 developing
 a
 heavily
restrictive
framework
for
the
regulation
of
international
air
transport.

This
 was
 initially
 pursued
 as
 a
 means
 of
 defense
 from
 cross‐border
 military
 incursion,
 particularly
 by
 the
 United
 Kingdom
 of
 Great
 Britain
 and
 North
 Ireland
 (UK).
 
 This
 soon
changed
with
the
development
of
nationally
owned,
‘flag
carrier’1
airlines,
from
 which
 governments
 developed
 a
 stake
 in
 the
 industry,
 and
 subsequently
 acted
 to
 protect
 their
 interests.
 
 In
 the
 immediate
 aftermath
 of
 the
 two
 World
 Wars,
 there
 were
significant
attempts,
most
notably
by
the
United
States
of
America
(US),
to
ease
 the
regulations
on
the
industry,
but
these
were
overcome
by
the
desire
to
maintain
 national
superiority
over
the
ownership
and
operation
of
air
transportation.
  























































 1
 The
 term
 flag
 carrier
 airline
 refers
 to
 airline
 companies
 that
 were
 traditionally
 established
 and
  operated
by
the
national
government
of
a
state.

After
the
industry
was
deregulated,
many
of
the
‘flag
 carrier’
airlines
became
privatized,
at
least
partially.

Currently,
they
are
the
largest
airline
of
a
given
 state,
and
often
carry
the
name
of
the
state
its
flag
on
their
airplanes.

Examples
of
such
airlines
are
 British
Airlines,
Air
France
and
Lufthansa.
  
  1
  The
restrictive
regulatory
regime
continued
until
the
late‐1970s
when
the
US
 initiated
 a
 campaign
 to
 liberalize2
 the
 industry,
 the
 first
 action
 of
 which
 was
 the
 deregulation
 of
 their
 domestic
 market.
 
 This
 initiated
 change
 from
 the
 previous
 restrictive
regulatory
regime
towards
a
more
liberalized
international
market.

The
 US
 quickly
 followed
 domestic
 deregulation
 with
 a
 round
 of
 renegotiating
 foreign
 bilateral
 agreements,
 which
 had
 great
 effect
 on
 reducing
 the
 protectionism
 in
 international
 air
 transportation.
 The
 deregulatory
 measures
 launched
 by
 the
 US
 coincided
 with
 a
 general
 movement
 towards
 liberalization
 by
 global
 political
 and
 economic
actors
during
the
1980s,
most
notably
by
the
Reagan
administration
in
the
 US
 and
 the
 Thatcher
 government
 in
 the
 UK.
 The
 shift
 towards
 liberalization
 continued
with
the
establishment
of
a
single
European
aviation
market
in
the
early‐ 1990s,
 greatly
 opening
 access
 and
 competition
 for
 intra‐European
 air
 transportation.
 
 At
 the
 same
 time,
 the
 US
 again
 renegotiated
 many
 of
 its
 bilateral
 agreements
with
many
European
countries
towards
larger
levels
of
liberalization.
 
  Generally,
 economic
 liberalization
 entails
 lower
 prices
 and
 better
 products
  for
consumers,
increases
competition
and
cost
benefits
for
businesses,
and
creates
 more
 and
 superior
 opportunities
 for
 employees.
 
 
 The
 economic
 benefits
 of
 liberalization
 over
 the
 past
 30
 years
 have
 been
 particularly
 evident
 for
 the
 international
 air
 transportation
 industry.
 
 
 Between
 1987
 and
 1993,
 passenger
 traffic
between
the
US
and
foreign
destinations
increased
by
47%,
largely
in
part
to
 























































 2
For
the
purpose
of
this
paper,
liberalization
will
be
defined
as
“the
exposure
of
air
transport
to
 laissez­faire,
or
free‐market,
forces,
achieved
through
the
removal
of
most
regulatory
 controls…permitting
carriers
to
enter
and
leave
markets
at
will”
(Goetz
and
Graham
2004:270).

 More
specifically,
this
definition
will
be
expanded
to
include
the
removal
of
nationality‐based
 restrictions
on
air
transportation
ownership
and
operation,
as
well
as
removal
of
regulatory
control
 over
fare
setting,
frequency
of
flights,
destinations,
and
the
ability
to
enter
in
code‐share
alliances.
  
  2
  reduction
 of
 international
 restrictions
 during
 this
 time
 period
 (Robyn,
 Reitzes,
 Moselle
2002).
Growth
in
air
transportation
in
the
US
continued.

Between
1993
and
 1998,
combined
domestic
and
international
air
traffic
in
the
US
increased
from
93.4
 million
passengers
to
126.1
million
(Button
and
Taylor
2000).

Liberalization
of
the
 air
 transportation
 industry
 also
 created
 economic
 benefits
 for
 cargo
 services.
 Between
1990
and
2003,
the
cost
of
air
cargo
transport
was
nominally
reduced
by
 9%
 between
 the
 US
 and
 countries
 that
 agreed
 to
 liberalizing
 bilateral
 agreements,
 while
 the
 volume
 increased
 greatly
 (Micco
 and
 Serebrisky
 2006,
 Piermartini
 and
 Rousova
2008).

 Opening
 air
 transportation
 markets
 to
 further
 competition
 can
 also
 provide
 large
cost
benefits
to
consumers
and
employees.

In
1983,
before
the
conclusion
of
 new
 bilateral
 agreement
 between
 the
 UK
 and
 the
 Netherlands,
 the
 lowest
 cost
 of
 airfare
between
Heathrow
airport
in
London
and
Amsterdam
was
£83.

Two
years
 later,
after
a
liberalizing
bilateral
agreement
was
signed,
the
lowest
cost
of
fare
for
 the
 same
 route
 was
 £55.
 
 This
 was
 do
 to
 an
 increase
 in
 competition
 from
 new
 carriers,
 which
 added
 15
 more
 flights
 on
 this
 route,
 forcing
 the
 previous
 carriers
 British
 Airlines
 (BA)
 and
 Royal
 Dutch
 Airlines
 (KLM)
 to
 lower
 their
 fares.
 
 Button
 and
 Taylor
 (2000)
 show
 that
 liberalization
 can
 also
 create
 large
 advantages
 for
 employees
 and
 their
 local
 communities.
 
 They
 calculate
 that
 by
 increasing
 the
 number
 of
 transatlantic
 destinations
 served
 from
 3
 to
 4,
 1760
 to
 2900
 new
 employment
 opportunities
 are
 created
 for
 the
 region,
 resulting
 in
 an
 economic
 benefit
 of
 up
 to
 $160
 million
 per
 annum.
 
 For
 larger
 markets,
 adding
 additional
 destinations
 show
 diminished
 returns,
 but
 still
 provide
 economic
 rewards
 for
 the
  
  3
  local
community.

When
the
number
of
transatlantic
destinations
is
increased
from
 20
 to
 21,
 around
 440
 new
 employment
 opportunities
 are
 created
 (Button
 and
 Taylor
2000).
 The
liberalization
of
the
air
transportation
industry
can
provide
benefits
for
 governments,
business,
employees,
and
consumers.

Because
of
these
benefits,
many
 national
and
international
organizations
have
advocated
on
behalf
of
liberalization3.
 In
 the
 1980s,
 the
 US
 began
 the
 process
 of
 liberalization
 far
 earlier
 their
 European
 counterparts,
which
operated
in
a
fragmented
and
regulated
market.

Because
of
the
 contrasting
 regulatory
 regimes,
 the
 US
 and
 the
 Member
 States
 of
 the
 European
 Union
 (EU)
 carried
 asymmetric
 goals
 towards
 the
 standards
 of
 liberalization
 in
 international
air
transportation.


 In
 the
 early
 1990s,
 the
 EU
 Member
 States
 began
 to
 shift
 towards
 liberalization
with
the
development
of
a
single
European
aviation
market.

Through
 the
 ‘three
 packages’
 of
 legislation4,
 culminating
 in
 1997,
 the
 EU
 deregulated
 intra‐ European
 air
 transportation
 market.
 
 During
 this
 time,
 the
 European
 Commission
 (The
 Commission)
 sought
 to
 gain
 the
 right
 to
 negotiate
 a
 European‐level
 air
 transportation
 agreement
 with
 the
 US,
 which
 would
 have
 to
 be
 granted
 by
 the
 Council
 of
 the
 European
 Union
 (The
 Council).
 
 Several
 Member
 States
 also
 renegotiated
 their
 bilateral
 agreements
 with
 the
 US,
 but
 at
 varying
 levels
 of
 liberalization.
 
 While
 many
 of
 the
 protective,
 nationality‐based
 regulations
 on
 air
 























































 3
 See
 (US
 Department
 of
 Transportation:
 1995);
 (US
 Department
 of
 Commerce:
 2007);
 (European
  Commission‐
 Directorate
 General
 of
 Energy
 and
 Transport:
 2003);(European
 Commission‐
 Directorate
General
of
Energy
and
Transport:
2007);
(International
Air
Transport
Association:
2006)
 4
 (Council
 Regulation
 3975/87/EEC);
 (Council
 Regulation
 3976/87/EEC);
 (Council
 Directive
 87/601/EEC);
 (Council
 Decision
 87/602/EEC);
 (Council
 Regulation
 2342/90/EEC);
 (Council
 Regulation
 2343/90/EEC);
 (Council
 Regulation
 2344/90/EEC);
 (Council
 Regulation
 2407/92/EC);
 (Council
Regulation
2408/92/EC)
  
  4
  transportation
 were
 being
 removed,
 little
 congruence
 developed
 as
 to
 the
 appropriate
level
of
liberalization.

 
The
 international
 irregularity
 of
 policy
 continued
 until
 2007,
 when
 the
 US
 and
 the
 EU
 developed
 the
 ‘open
 skies‐plus’
 agreement5
 for
 the
 regulation
 of
 air
 transportation
services
between
the
two
trading
partners.
The
agreement
contains
a
 high‐level
 of
 liberalization
 and
 develops
 strong
 congruency
 to
 the
 specific
 policies
 for
 the
 regulation
 of
 the
 transatlantic
 industry.
 
 Considering
 the
 disjointed
 and
 heavily
 regulated
 environment
 from
 which
 this
 agreement
 developed,
 ‘open
 skies‐ plus’
is
a
remarkable
development
for
the
air
transportation
industry.

My
thesis
will
 specifically
 focus
 on
 the
 developmental
 process
 of
 the
 ‘open
 skies‐plus’
agreement
 in
order
to
indentify
the
factors
in
the
formation
of
policy
convergence
in
this
field,
 ending
the
longstanding
paradox
in
the
international
air
transportation
industry.
  Thesis
Statement
 
 
  In
 Europe,
 the
 ‘flag
 carriers’
 operated
 in
 virtual
 monopolies
 within
 their
  respective
markets.

States
viewed
air
transportation
operations
as
public
services.

 Much
 like
 other
 forms
 of
 public
 transportation,
 air
 carriers
 were
 owned
 and
 operated
by
states,
typically
at
a
loss,
as
a
service
for
to
citizenry
(O’Reilly
and
Stone
 Sweet,
 1998).
 
 Even
 before
 the
 US
 market
 was
 deregulated,
 their
 domestic
 air
 transportation
carriers
operated
within
a
different
environment
than
the
carriers
in
 Europe.
 
 Multiple
 carriers
 operated
 domestic
 and
 international
 services
 in
 the
 US,
 and
 while
 the
 market
 was
 still
 heavily
 regulated,
 there
 was
 some
 competition,
 























































  5
 I
 will
 refer
 to
 the
 2007
 Air
 Transportation
 Agreement
 between
 the
 US
 and
 the
 European
 Union
  informally
 as
 ‘open
 skies‐plus’,
 as
 per
 the
 academic
 naming
 of
 the
 agreement.
 (Air
 Transport
 Agreement
between
the
United
States
and
the
Member
States
of
the
European
Union,
2007)
  
  5
  unlike
 the
 monopolies
 in
 the
 European
 industry.
 
 The
 US
 government
 viewed
 carriers
 more
 as
 private
 businesses,
 and
 was
 therefore,
 more
 receptive
 to
 liberalization
of
the
industry.
 Beginning
in
the
1980s,
some
EU
Member
States
began
considering
air
carriers
 in
 this
 regard,
 no
 longer
 as
 public
 service.
 
 When
 the
 air
 transportation
 industry
 shifted
 towards
 privatization,
 Member
 States
 also
 adjusted
 the
 regulatory
 regime.
 When
air
transport
became
a
private
business,
states
changed
the
regulation
of
the
 industry
towards
the
most
beneficial
regime
for
the
operation
of
these
services.

As
 noted
 above,
 increased
 liberalization
 has
 proven
 to
 be
 the
 most
 successful
 regulatory
 regime
 available
 for
 the
 operation
 of
 air
 transportation
 services.
 
 After
 the
 industry
 was
 no
 longer
 viewed
 as
 a
 public
 service,
 the
 shift
 towards
 liberalization
in
the
Member
States
was
natural.
 
  While
 the
 above
 section
 offers
 an
 examination
 of
 the
 reasons
 behind
  liberalization
in
the
air
transportation
industry,
this
thesis
is
not
primarily
focused
 on
why
liberalization
developed,
but
rather
how
a
common
regulatory
regime
was
 developed
in
the
transatlantic
market.
 My
 thesis
 will
 examine
 why,
 after
 fifty
 years
 of
 attempts
 to
 create
 a
 European‐level
 air
 transportation
 agreement
 by
 the
 Commission
 and
 thirty
 years
 after
the
US
began
the
initiative
to
liberalize
the
industry,
air
transportation
policies
 have
 converged
 between
 the
 EU
 and
 the
 US
 at
 a
 high‐level
 of
 liberalization
 in
 the
 2007
 ‘open
 skies‐plus’
 agreement.
 
 I
 will
 argue
 that
 the
 2002
 European
 Court
 of
  
  6
  Justice
 (ECJ)
 ‘open
 skies’
 ruling6,
 and
 the
 Council
 subsequently
 granting
 authorization
 to
 the
 Commission
 to
 enter
 into
 an
 agreement
 with
 the
 US,
 was
 the
 explanatory
 power
 in
 the
 development
 of
 policy
 convergence.
 
 I
 will
 examine
 two
 mechanisms
 for
 policy
 convergence,
 international
 harmonization
 and
 regulatory
 competition,
 to
 demonstrate
 how
 the
 convergence
 took
 place,
 and
 why
 the
 agreement
 is
 set
 at
 this
 specific
 level
 of
 regulation.
 
 I
 will
 establish
 a
 comparative
 study
 of
 two
 historical
 reference
 points,
 t0
 and
 t1,
 to
 demonstrate
 that
 during
 this
 timeframe
the
‘environmental
conditions’
remained
the
same,
with
the
exception
of
 the
 2002
 ECJ
 ‘open
 skies’
 ruling
 and
 subsequent
 authority
 granted
 to
 the
 Commission,
 thereby
 isolating
 this
 event
 as
 the
 explanatory
 variable
 in
 the
 development
 of
 policy
 convergence
 in
 this
 field.
 In
 this
 thesis,
 I
 will
 identify
 the
 different
motives
for
the
actors
involved
towards
liberalization
of
the
transatlantic
 air
transportation
industry,
but
I
will
primarily
focus
on
the
processes
that
led
to
the
 development
of
policy
convergence.
 The
 following
 Chapter
 Two:
 Theoretical
 Framework
 will
 establish
 the
 theoretical
 framework
 and
 methodology,
 under
 which
 my
 thesis
 argument
 will
 be
 developed.

This
chapter
will
include
a
brief
review
of
the
terms
and
topics
included
 in
the
literature
of
policy
convergence
theory
and
will
examine
the
mechanisms
that
 can
 be
 identified
 for
 the
 development
 of
 this
 theory.
 
 Chapter
 Three:
 Historical
 Development
 of
 International
 Air
 Transportation
 Regulation
 will
 focus
 largely
 on
 the
 historical
 development
 of
 international
 air
 transportation
 agreements,
 specifically
 between
 the
 US
 and
 Member
 States
 of
 the
 EU.
 
 In
 order
 to
 provide
 a
 























































  6
(Joined
Cases
C‐466/98‐469/98,
C‐471/98‐472/98,
C‐475/98‐476/98,
2002
ECR
I‐9427).

For
the
  purpose
of
this
thesis,
I
will
refer
to
these
cases
as
the
2002
ECJ
‘open
skies’
ruling.
  
  7
  background
 of
 the
 ‘environmental
 conditions’
 from
 which
 the
 ‘open
 skies‐plus’
 agreement
developed,
this
thesis
will
contain
a
historical
analysis
of
the
regulation
 of
 international
 air
 transportation.
 
 This
 will
 include
 the
 Chicago
 Convention
 of
 19447,
the
deregulation
of
the
domestic
air
transportation
markets
(the
US
in
1978
 and
 the
 EU’s
 ‘three
 packages’
 in
 the
 late‐1980s),
 the
 numerous
 attempts
 by
 the
 Commission
to
gain
competency
in
the
air
transportation
market
from
the
Council,
 and
will
conclude
with
an
examination
of
the
‘open
skies‐plus’
agreement.
 Chapter
 Four:
 International
 Harmonization
 and
 Chapter
 Five:
 Regulatory
 Competition
 will
 present
 the
 focal
 point
 of
 the
 convergence
 argument,
 specifically
 an
analysis
of
the
two
historical
reference
points
between
the
early‐1990’s,
t0,
until
 completion
 of
 the
 ‘open
 skies‐plus’
 agreement
 in
 2007,
 t1.
 
 It
 is
 within
 this
 time
 frame
that
the
specific
mechanisms
for
convergence
developed
and
can
be
observed.

 A
 comparative
 analysis
 of
 the
 failed
 attempts
 at
 convergence
 in
 the
 early‐1990s,
 when
the
mechanisms
were
not
present,
to
the
successful
completion
of
the
policy
 in
 2007,
 will
 identify
 how
 and
 why
 the
 convergence
 in
 policy
 developed.
 
 Chapter
 Four
 will
 examine
 the
 international
 harmonization
 mechanism
 and
 Chapter
 Five
 will
analyze
the
regulatory
competition
mechanism.

The
examination
of
these
two
 mechanisms
 will
 demonstrate
 how
 convergence
 of
 policy
 took
 place
 in
 the
 regulation
of
air
transportation
between
the
US
and
the
EU
between
the
historical
 reference
points
t0
and
t1.
 Chapter
 Six:
 Conclusions,
 Outlook
 and
 Recommendations
 will
 summarize
 these
 arguments
 and,
 with
 these
 conclusions
 in
 mind,
 assess
 the
 future
 of
 the
 























































  7
(Convention
on
International
Civil
Aviation,
December
1944)
  
  8
  transatlantic
 air
 transportation
 industry.
 
 The
 process
 of
 policy
 convergence
 between
 the
 US
 and
 the
 EU
 is
 incomplete,
 with
 the
 two
 partners
 in
 the
 midst
 of
 negotiating
 a
 further
 liberalizing
 air
 transportation
 agreement.
 
 This
 thesis
 will
 briefly
 analyze
 the
 significance
 of
 such
 an
 agreement
 on
 the
 transatlantic
 air
 transportation
industry,
and
the
urgency
in
which
it
is
required
to
be
finalized.
 
  
  9
  Chapter
Two:
Theoretical
Framework
 
 Over
the
past
fifty
years
there
has
been
an
increase
of
scholarship
in
the
field
 of
 policy
 convergence.
 Policy
 convergence
 is
 the
 process
 in
 which
 separate
 structures
 continuously
 develop
 similarity
 and
 likeness
 in
 their
 policies
 and
 regulations.
 
 While
 there
 has
 been
 much
 work
 recently
 in
 this
 field,
 there
 is
 –
 ironically
 ‐
 limited
 convergence
 in
 the
 theoretical
 study
 of
 policy
 convergence8.

 Echoing
Tews
(2002),
Knill
claims
that
the
“empirical
and
theoretical
assessment
of
 policy
 convergence
 is
 generally
 hampered
 by
 the
 use
 of
 different,
 partially
 overlapping
 concepts”
 (Knill,
 2005:
 765).
 
 Because
 of
 this
 ambiguity
 I
 will,
 for
 the
 purpose
 of
 this
 thesis,
 briefly
 examine
 relevant
 concepts
 related
 to
 policy
 convergence,
 and
 in
 doing
 so,
 will
 establish
 a
 common
 terminology
 for
 coherent
 analysis
of
the
subject
matter.
 There
are
many
terms
related
to
policy
convergence,
of
which
I
will
examine
 the
 three:
 policy
 transfer,
 policy
 diffusion
 and
 isomorphism.
 
 Policy
 transfer
 “processes
 by
 which
 knowledge
 about
 policy,
 administrative
 arrangements,
 institutions
 and
 ideals
 in
 one
 political
 system
 (past
 or
 present)
 is
 used
 in
 the
 development
 of
 policies,
 administrative
 arrangements,
 institutions
 and
 ideals
 in
 another
political
system”
(Dolowitz
and
Marsh,
2000:5).

In
this
process,
new
policy
 types
 are
 not
 developed;
 instead
 previously
 established
 policy
 is
 taken
 from
 an
 independent
 political
 system
 and
 imitated
 by
 a
 separate
 system
 making
 policy
 changes.
 
 Similar
 to
 policy
 transfer,
 policy
 diffusion
 is
 defined
 as
 “the
 socially
 























































 8
See
(Heichel
et
all,
2005)
  
  10
  mediated
 spread
 of
 policies
 across
 and
 within
 political
 systems,
 including
 communication
 and
 influence
 processes
 which
 operate
 both
 on
 and
 within
 populations
 of
 adopters”
 (Knill,
 2005:766).
 The
 use
 of
 the
 term
 diffusion
 can
 be
 linked
 to
 its
 scientific
 definition,
 implying
 the
 dispersion
 of
 an
 idea
 or
 policy
 throughout
 a
 specific
 international
 environment.
 
 In
 this
 process,
 models
 of
 a
 specific
 developed
 policy
 are
 diffused
 throughout
 separate
 political
 systems,
 creating
 policies
 that
 are
 similar
 in
 nature,
 but
 are
 not
 exact
 copies
 (Kern
 et
 all,
 2005).
 
 While
 policy
 transfer
 copies
 the
 policies
 of
 separate
 independent
 political
 systems,
 policy
 diffusion
 diverges
 by
 adapting
 the
 models
 to
 local
 circumstances.

 These
two
terms
are
concerned
with
the
process
leading
to
convergence
of
policy,
as
 opposed
 to
 the
 final
 outcome.
 
 They
 also
 describe
 mechanisms
 that
 could,
 but
 not
 necessarily,
lead
to
convergence
of
policy.


 The
 third
 related
 term,
 isomorphism,
 is
 a
 process
 that
 “forces
 one
 unit
 in
 a
 population
 to
 resemble
 other
 units
 that
 face
 the
 same
 set
 of
 environmental
 conditions”
(DiMaggio
and
Powell,
1991:66).

The
term
comes
from
organizational
 sociology,
 and
 is
 very
 similar
 to
 policy
 convergence
 in
 that
 it
 studies
 the
 mechanisms
causing
separate
institutions
and
organizations
to
resemble
each
other.

 The
 two
 terms
 diverge
 in
 the
 focus
 of
 the
 literature
 studying
 the
 two
 theories.

 Policy
 convergence
 focuses
 on
 the
 changing
 characteristics
 of
 national
 policy,
 whereas
 isomorphism
 studies
 are
 concerned
 with
 institutional
 structures
 and
 cultures
(Knill,
2005).
 These
three
related
terms
are
essential
for
understanding
the
mechanisms
of
 policy
 convergence
 theory
 because
 they
 describe
 some
 of
 the
 ‘environmental
  
  11
  conditions’
 in
 which
 policies
 could
 converge
 with
 each
 other
 on
 the
 international
 level.
 
 While
 these
 terms
 relate
 to
 policy
 convergence,
 they
 are
 each
 separately
 incomprehensive
 in
 their
 descriptions
 of
 the
 mechanisms
 of
 this
 theory.
 
 In
 the
 following
section,
I
will
further
explain
the
theory
of
policy
convergence
and
identify
 the
mechanisms
described
in
the
literature
for
its
development.
  Policy
Convergence
 
 
  The
consensus
definition
of
policy
convergence
is
“the
tendency
for
societies
  to
 grow
 more
 alike,
 and
 to
 develop
 similarities
 in
 structures,
 process,
 and
 performances”
 (Kerr,
 1983:3).
 
 In
 defining
 policy
 convergence,
 Drezner
 (2001)
 retains
Kerr’s
phrase,
but
substitutes
societies
with
policies.

This
is
a
more
accurate
 illustration
of
the
modern
state
of
the
literature
on
the
term,
in
which
many
scholars
 examine
 specific
 policies
 cross‐nationally
 as
 examples
 of
 convergence
 between
 political
 systems.
 
 Most
 scholarship
 on
 convergence
 focuses
 on
 cross‐national
 policies,
 with
 the
 majority
 of
 the
 studies
 focusing
 on
 either
 environmental
 agreements9
or
the
control
of
capital
flows10.

As
mentioned
above,
the
literature
on
 policy
convergence
theory
is
spread
across
many
disciplines,
and
as
a
result,
there
 has
 problems
 in
 merging
 the
 scholarly
 work
 and
 clearly
 defined
 theory
 building.

 Recently
 many
 scholars
 have
 written
 articles
 reviewing
 the
 literature
 and
 attempting
 to
 succinctly
 define
 the
 theory11,
 but
 none
 have
 been
 completely
 successful
in
doing
so.

Because
there
is
little
convergence
in
the
field,
I
will
rely
on
 























































 9

(Drezner
2001,
2005);(
Lenschow
et
all,
2005);
(Kern
et
all,
2000)
 10
(Simmons
and
Elkins,
2004);
(Drezner,
2005)
  11
(Bennett,
1991);
(Holzinger
and
Knill,
2005);
(Heichel
et
all,
2005);
(Drezner
2001,
2005);
(Knill,
  2005)
  
  12
  all
 of
 the
 authors
 mentioned
 above
 to
 define
 the
 theory
 and
 mechanisms
 of
 policy
 convergence.
 
  Bennett
 (1991)
 claims
 that
 the
 study
 of
 convergence
 should
 be
 seen
 as
 the
  process
 of
 policies
 becoming
 more
 similar,
 as
 opposed
 a
 study
 of
 the
 developed
 states
 of
 being
 alike.
 
 Because
 of
 this,
 the
 recommended
 approach
 to
 theory
 is
 comparative
analysis
of
case
studies,
as
opposed
to
statistical
analysis,
which
would
 be
 better
 suited
 for
 studies
 of
 the
 outcomes
 of
 the
 policy.
 Bennett
 stresses
 the
 importance
 of
 focusing
 on
 the
 policy
 content,
 the
 rules,
 regulations,
 laws
 and
 formalities
 of
 the
 policy,
 and
 the
 policy
 instruments,
 the
 mechanisms
 available
 in
 the
institution
to
apply
and
enforce
the
policy,
as
the
research
dimensions
for
policy
 convergence
 (Bennett,
 1991).
 
 In
 this
 thesis,
 I
 will
 follow
 Bennett’s
 design
 of
 research
 dimensions,
 as
 it
 most
 aptly
 fits
 a
 comparative
 case‐study
 model
 and
 allows
 for
 focus
 on
 the
 process
 of
 convergence,
 as
 opposed
 to
 analyzing
 the
 outcomes
of
a
developed
policy.

I
will
examine
the
2002
ECJ
‘open
skies’
ruling
and
 subsequent
 action
 by
 the
 Council
 of
 the
 EU
 granting
 the
 European
 Commission
 competency
to
negotiate
in
this
field
and
the
previous
bilateral
agreements
between
 the
 US
 and
 the
 EU
 Member
 States
 as
 the
 policy
 content.
 
 I
 will
 also
 examine
 the
 influence
 of
 EU
 law
 and
 the
 single
 market
 initiatives
 of
 the
 EU
 as
 the
 policy
 instruments
in
this
analysis
of
the
‘open
skies‐plus’
policy.
 
  Heichel
 et
 all
 (2005:
 829)
 claim
 that
 “by
 definition,
 convergence
 means
 the
  development
of
policy
similarity
over
time”.

Therefore,
when
establishing
reference
 points
 for
 case‐studies,
 one
 of
 the
 “most
 decisive
 of
 which
 is
 time.”
 
 Convergence
 research
cannot
solely
infer
that
policies
are
alike,
it
must
first
recognize
that
they
  
  13
  were
 once
 dissimilar,
 and
 that
 policies
 did
 merge
 with
 each
 other
 over
 a
 specific
 time‐frame,
in
order
to
prove
that
convergence
did
occur
(Ibid).

The
comparison
of
 established
specific
time
reference
points
is
essential
to
the
proof
of
convergence
in
 policy
between
clearly
identified,
independent
political
systems.

The
time‐frame
for
 the
 comparative
 case
 studies
 can
 be
 noted
 as
 t0,
 the
 ‘before’
 historical
 reference
 point,
 and
 t1,
 the
 ‘after’
 historical
 reference
 point.
 Comparing
 t0
 with
 t1
 will
 show
 that
convergence
took
place
over
this
period,
and
the
explanatory
powers
for
which
 can
be
identified
within
this
time
frame.
The
recommended
‘medium
time‐frame’
for
 reference
points
is
fifteen
to
twenty
years
(Ibid).

 For
 the
 purpose
 of
 this
 thesis,
 the
 t0
 historical
 reference
 point
 will
 be
 the
 negotiation
of
bilateral
agreements
of
the
early
1990s,
and
the
t1
historical
reference
 point
 will
 be
 the
 culmination
 of
 the
 2007
 ‘open
 skies‐plus’
 air
 transportation
 agreement.

A
comparative
analysis
of
these
two
case
studies
will
demonstrate
that
 policy
convergence
did
take
place
in
the
air
transportation
industry
between
the
US
 and
the
EU.

The
convergence
of
policy
can
be
identified
through
an
examination
of
 the
mechanisms
that
led
to
the
‘open
skies‐plus’
agreement.

The
following
section
 identifies
 the
 mechanisms
 discussed
 in
 the
 literature
 that
 can
 lead
 to
 policy
 convergence.
  Mechanisms
for
Policy
Convergence
 
  There
are
many
mechanisms
observable
in
the
international
community
that
 can
be
used
to
describe
the
process
in
which
policy
convergence
takes
place.

They
 can
be
grouped
into
three
categories:
elite
networking,
international
harmonization
 and
regulatory
competition
(Holzinger
and
Knill,
2005).
 
  14
  Emulation
 
 The
 term
 ‘elite
 networking’
 refers
 to
 how
 polices
 are
 determined
 within
 ‘epistemic
communities’12,
and
are
characterized
by
governments
examining
at
the
 policies
 of
 others
 with
 their
 community,
 and
 using
 the
 information
 in
 varied
 manners
to
make
conclusions
about
their
own
polices.

One
of
the
processes
in
this
 category
 that
 could
 lead
 towards
 policy
 convergence
 is
 emulation.
 
 
 Emulation
 is
 very
 similar
 to
 policy
 transfer
 and
 can
 be
 defined
 as
 the
 intentional
 borrowing
 or
 copying
 by
 one
 political
 system
 of
 a
 policy
 from
 another
 and
 adopting
 it
 as
 their
 own.
 Emulation
 implies
 the
 voluntary
 and
 intentional
 direct
 copying
 of
 a
 specific
 policy
 (Bennett,
 1991).
 
 In
 emulation,
 principals
 of
 a
 policy
 are
 taken
 from
 a
 separate
system
and
are
slightly
changed
by
a
system
to
hopefully
improve
on
them.

 Holzinger
and
Knill
(2005)
link
emulation
to
two
other
mechanisms
under
the
elite‐ networking
 category.
 
 ‘Lesson‐drawing’
 is
 when
 governments
 refer
 to
 a
 specific
 environment
 of
 policies
 and
 pick
 and
 choose
 parts
 of
 different
 policies
 that
 suit
 them
 best.
 
 ‘International
 policy
 promotion’
 is
 when
 international
 institutions
 promote
 or
 advocate
 a
 specific
 policy,
 but
 do
 not
 force
 adherence
 to
 it
 through
 methods
of
cohesion.

The
elite
networking
mechanism
is
useful
in
defining
many
of
 the
developments
of
policy
convergence,
but
does
not
properly
describe
the
factors
 leading
to
the
‘open
skies‐plus’
agreement
examined
in
this
thesis.
 
  























































 12
  Drezner
 defines
 epistemic
 communities
 as
 “a
 network
 of
 policy
 experts
 who
 share
 common
 principled
 beliefs
 over
 ends,
 causal
 beliefs
 over
 means,
 and
 common
 standards
 of
 accruing
 and
 testing
new
knowledge”
(Drezner,
2001:63).
  
  15
  International
Harmonization
and
Regulatory
Competition
 
  
 The
second
mechanism
for
policy
convergence,
international
harmonization,
  is
 defined
 as
 a
 process
 “that
 leads
 to
 cross‐national
 convergence
 if
 the
 involved
 countries
 comply
 with
 uniform
 legal
 obligations
 defined
 in
 supranational
 law”
 (Holzinger
and
Knill,
2005:781).

This
mechanism
requires
specific
policy
developed
 out
of
international
communities,
in
which
the
member
states
are
legally
required
to
 adopt
 the
 policy
 or
 regulation.
 
 When
 an
 international
 institution
 develops
 policy
 with
strong
enforcement
capability
over
its
members,
there
is
likely
to
be
a
strong
 degree
 of
 convergence
 towards
 this
 policy.
 
 In
 this
 thesis,
 the
 international
 harmonization
mechanism
will
be
used
to
describe
the
process
in
which
European‐ level
governance
was
granted
competency
to
negotiate
a
foreign
air
transportation
 agreement
 with
 the
 US,
 resulting
 in
 the
 ‘open
 skies‐plus’
 agreement.
 
 In
 Chapter
 Four:
 International
 Harmonization,
 this
 mechanism,
 the
 process
 towards
 granting
 EU
 competency,
 and
 the
 establishment
 of
 policy
 convergence
 in
 this
 field
 will
 be
 further
developed
and
analyzed.
 The
 third
 mechanism
 for
 policy
 convergence,
 regulatory
 competition
 contends
that
when
states
are
faced
with
economic
pressures
in
international
trade,
 they
will
adjust
their
regulatory
standards
to
be
more
similar,
and
therefore,
more
 properly
equipped
for
international
competition
(Holzinger
and
Knill,
2005).

States
 converge
 on
 a
 cross‐national
 policy
 in
 order
 to
 avoid
 loss
 of
 their
 share
 in
 a
 particular
market
to
international
competitors.

In
regulatory
competition,
it
is
likely
 that
 the
 level
 of
 regulation
 will
 be
 set
 at
 the
 standards
 of
 the
 most
 laissez‐faire
 country
 (Drezner,
 2001).
 
 The
 regulatory
 competition
 mechanism
 helps
 describe
  
  16
  why
states
develop
similar
policies
for
international
trade,
and
how
the
regulations
 in
this
policy
are
set
at
specific
levels
of
liberalization.

For
the
purpose
of
this
thesis,
 I
 will
 use
 this
 mechanism
 to
 establish
 explanations
 for
 how
 and
 why
 policy
 convergence
 developed
 between
 the
 US
 and
 the
 EU.
 Chapter
 Five:
 Regulatory
 Competition
 will
 contain
 a
 more
 in‐depth
 discussion
 of
 this
 mechanism
 and
 will
 then
continue
with
an
examination
of
how
regulatory
competition
can
describe
the
 development
of
policy
convergence
in
the
‘open
skies‐plus’
agreement.
  
  17
  Chapter
Three:
Historical
Development
of
 International
Air
Transportation
Regulation
 
 The
 following
 chapter
 will
 focus
 on
 the
 historical
 development
 of
 international
air
transportation
regulation
and
will
demonstrate
the
‘environmental
 conditions’
under
which
the
‘open
skies‐plus’
agreement
between
the
US
and
the
EU
 developed.
 
 This
 chapter
 will
 focus
 on
 the
 beginnings
 of
 international
 air
 transportation
 regulation,
 the
 deregulation
 of
 domestic
 markets
 in
 the
 US
 and
 the
 EU,
the
attempts
by
the
Commission
to
gain
external
trade
negotiation
competency
 from
 the
 Council,
 and
 will
 conclude
 with
 an
 analysis
 of
 the
 ‘open
 skies‐plus’
 agreement.
  Beginnings
of
Regulation
and
the
Chicago­Bermuda
Regime
 
  
 The
 regulation
 of
 international
 air
 transportation
 has
 historically
 been
  dominated
 by
 strong
 governmental
 protection
 of
 national
 interests.
 
 Beginning
 in
 1880,
 thirty
 years
 before
 the
 Wright
 Brothers
 and
 Bleriot,
 various
 international
 organizations
 have
 attempted
 to
 adopt
 rules
 for
 the
 governance
 of
 aviation
 (Jönsson,
1987).
In
1910,
delegates
from
eighteen
European
countries
met
in
Paris
 to
 convene
 the
 first
 major
 conference
 on
 international
 air
 code.
 
 During
 the
 Paris
 Conference,
two
diverging
principles
to
the
regulation
of
the
industry
emerged.

The
 French
 and
 German
 delegation
 argued
 in
 favor
 of
 extensive
 freedom
 of
 flight,
 whereas
 the
 British
 delegation
 supported
 national
 sovereignty
 over
 air.
 
 The
 Conference
 suspended
 with
 no
 major
 international
 agreements,
 and
 did
 not
 reconvene
 before
 the
 outbreak
 of
 World
 War
 I.
 
 Instead,
 the
 British
 Aerial
 
  18
  Navigation
 Act
 of
 191113
 established
 precedent
 for
 national
 protection
 and
 sovereignty
 over
 its
 airspace
 in
 Europe.
 
 Soon
 thereafter,
 England,
 France
 and
 Germany
 all
 created
 prohibited
 air
 transportation
 zones
 in
 their
 border
 regions.

 With
the
beginning
of
World
War
I
in
1914,
European
countries
closed
off
their
air
 boundaries
to
foreign
air
transportation.
 
  After
the
war
ended,
the
international
community
discussed
the
regulation
of
  civil
aviation
at
the
Paris
Convention
of
1919,
as
part
of
the
overall
peace
talks.

The
 Convention
 created
 the
 principle
 of
 unrestricted
 state
 sovereignty,
 meaning
 the
 state
has
the
ultimate
authority
over
the
regulation
of
its
airspace.

This
created
the
 system
 of
 bilateral
 agreements
 between
 states
 that
 has
 remained
 the
 decision‐ making
procedure
for
the
regulation
of
the
air
transport
(Jönsson,
1987).

Bilateral
 agreements
have
developed
under
the
model
of
reciprocity,
in
which
agreeing
states
 grant
 equivalent
 aviation
 rights
 to
 each
 other’s
 airspace.
 
 The
 ‘horse
 trading’
 that
 took
 place
 during
 these
 bilateral
 agreements
 created
 an
 extremely
 restricted
 transatlantic
market,
which
was
not
resolved
until
after
the
end
of
World
War
II.

It
 is
also
worth
noting
that
although
the
US
and
the
Soviet
Union
were
not
signatures
 to
the
Treaty
of
Versailles,
and
also
therefore
to
the
accords
of
the
Paris
Convention,
 they
 still
 operated
 under
 the
 same
 principles
 of
 national
 sovereignty
 and
 bilateral
 agreements
as
the
international
community.
 
  In
November
1944,
delegations
from
54
nations
convened
the
Convention
on
  International
Civil
Aviation,
which
has
become
known
as
the
Chicago
Convention,
to
 decide
the
future
of
air
transportation
after
the
end
of
World
War
II.

The
US
entered
 























































 13
(Aerial
Navigation
Act,
1911)
  
  19
  the
 Chicago
 Convention
 with
 the
 intention
 of
 abandoning
 the
 principle
 of
 national
 sovereignty
 of
 air
 transportation
 in
 favor
 of
 ‘open
 skies’.
 
 At
 the
 opening
 of
 the
 Chicago
Convention,
President
Roosevelt
asserted:
 Let
us
rather,
in
full
acknowledgement
of
the
sovereign
rights
of
all
nations
and
the
 legal
equality
of
all
peoples,
work
together
in
order
that
the
skies
of
the
world
can
 be
exploited
by
man
for
all
mankind
(Sampson
1984,
66).
  
 While
 the
 US
 argued
 in
 favor
 of
 ending
 national
 control
 of
 the
 skies,
 the
 international
 community
 rejected
 this
 assertion,
 and
 decided
 to
 further
 affirm
 the
 system
of
national
sovereignty
and
bilateral
agreements
in
the
Chicago
Convention
 (Ibid).

 Beyond
 the
 reaffirmation
 of
 the
 previous
 regulatory
 regimes
 of
 the
 Paris
 Convention,
Chicago
marked
the
establishment
of
the
eight
‘freedoms
of
air’:


 The
first
 freedom
 grants
 the
right
 for
 an
aircraft
to
 land
in
 foreign
territory
 for
 technical
or
safety
purposes
 • The
second
freedom
allows
for
an
aircraft
to
land
in
foreign
territory
for
technical
 or
safety
purposes.
 • The
 third
 freedom
 is
 the
 right
 to
 transport
 passengers
 and
 cargo
 from
 one’s
 home
country
to
foreign
territory.
 • The
 fourth
 freedom
 awards
 the
 right
 to
 carry
 passengers
 and
 cargo
 from
 a
 foreign
 country
 to
 one’s
 own.
 
 The
 third
 and
 fourth
 freedoms
 are
 typically
 granted
simultaneously.
 • The
fifth
freedom
grants
the
privilege
to
carry
passengers
and
cargo
from
one’s
 home
country
to
a
second,
and
then
on
to
a
third
country.
 • The
 sixth
 freedom
 allows
 for
 the
 transport
 of
 passengers
 and
 cargo
 from
 a
 second
 country
 to
 a
 third,
 by
 stopping
 in
 the
 home
 country.
 
 For
 example,
 an
 Asian
 carrier
 is
 able
 to
 offer
 transportation
 from
 Europe
 to
 North
 America
 by
 making
an
intermediate
connection
in
their
home
country.
 • The
seventh
freedom
is
the
right
to
operate
service
between
a
second
and
third
 country,
without
making
a
connection
to
the
home
country.
 • The
 eight
 freedom,
 also
 called
 cabotage,
 grants
 the
 right
 to
 conduct
 air
 transportation
 between
 destinations
 within
 only
 one,
 single
 foreign
 country.
 (Bartlik,
2007;
Doganis,
2001;
Jönsson,
1987)
 
 The
 first
 two
 freedoms,
 considered
 ‘technical
 freedoms’,
 were
 granted
 by
 the
 •  Chicago
Convention
to
all
signatory
countries,
which
is
considered
to
be
the
greatest
 
  20
  improvement
over
the
Paris
regime.

States
were
therefore
allowed
civil
aircraft
to
 fly
over
foreign
territory,
without
the
need
to
enter
into
a
bilateral
agreement
with
 them,
 allowing
 for
 the
 opening
 of
 many
 new
 routes
 (Jönsson,
 1987).
 
 While
 universally
granting
the
first
two
freedoms
was
a
step
forward
in
terms
of
opening
 the
 skies,
 the
 failure
 of
 the
 Chicago
 Convention
 to
 ensure
 further
 ‘freedoms
 of
 air’
 secured
the
nationally
protective
system.
 
  After
the
Chicago
Convention,
the
US
and
European
countries,
led
by
the
UK,
  still
held
diverging
objectives
for
the
regulation
of
international
air
transportation.

 The
 US
 advocated
 for
 freedom
 of
 the
 air
 traffic
 rights,
 whereas
 the
 UK
 favored
 strong
 governmental
 control
 over
 the
 regulation
 of
 air
 transportation.
 
 The
 two
 powers
 compromised
 in
 the
 1946
 Bermuda
 agreement14,
 which
 defined
 the
 philosophy
 for
 other
 bilateral
 agreements
 worldwide
 (Lawton,
 1999).
 
 The
 principles
 of
 the
 agreement
 were
 very
 restrictive:
 exact
 routes
 between
 the
 two
 countries
 were
 to
 be
 negotiated
 in
 the
 bilateral
 agreement,
 and
 each
 government
 was
 granted
 the
 right
 to
 control
 which
 specific
 carriers
 were
 allowed
 to
 operate
 these
routes;
the
frequency
of
flights
and
the
capacity
of
airplanes
was
left
up
to
the
 air
transportation
operators,
but
the
governments
retained
the
power
to
intervene
 on
 behalf
 of
 their
 national
 interests;
 and
 the
 International
 Air
 Transport
 Association15
(IATA)
would
hold
negotiations
between
the
air
carriers
to
determine
 the
fares
(Jönsson,
1987).
  























































 14
 (Air
 Transportation
 Agreement
 between
 the
 United
 Kingdom
 of
 Great
 Britain
 and
 North
 Ireland
  and
the
United
States
of
America,
1946)
  15
 The
 International
 Air
 Transport
 Association,
 established
 in
 1945,
 is
 an
 industry
 trade
 group
 of
  international
air
carriers
that
helps
develop
and
organize
the
setting
of
fares.
  
  21
  
  The
 compromise
 that
 was
 developed
 in
 the
 Bermuda
 Agreement
 greatly
  favored
 the
 negotiating
 position
 of
 the
 UK.
 
 The
 only
 provisions
 of
 the
 agreement
 allowing
for
market
forces
‐
the
ability
to
set
frequency
and
capacity
of
flights
‐
were
 often
 overruled
 by
 national
 legislation.
 
 The
 provisions
 allowed
 for
 governmental
 intervention,
and
the
European
states
“never
accepted
the
flexibility
of
the
Bermuda
 Agreement:
 they
 insisted
 on
 fixing
 frequencies
 and
 fares
 rigidly”
 (Sampson,
 1984:92).
 
 The
 Bermuda
 Agreement
 did
 grant
 third
 and
 fourth
 freedoms
 to
 both
 trade
partners,
but
the
UK
did
not
agree
to
US
demands
for
extensive
fifth
freedom
 rights.


Granting
such
rights
would
be
negotiated
on
a
country‐by‐country
basis
in
 supplementary
 agreements
 (Zacher
 and
 Sutton,
 1996).
 
 The
 precedent
 setting
 Bermuda
 Agreement
 made
 for
 an
 extensively
 regulated
 international
 air
 transportation
 market,
 heavily
 influenced
 by
 national
 protection
 of
 their
 interests.

 The
US
and
UK
set
the
international
standard
for
bilateral
agreements
that
made
for
 more
closed
markets
in
the
industry
for
the
decades
that
followed.
  From
the
Bermuda
Regime
to
‘Open
Skies’
  
  
 In
 the
 first
 years
 of
 the
 Council,
 discussions
 were
 held
 as
 to
 the
 possibility
  and
 means
 of
 creating
 regional
 co‐operation
 in
 the
 air
 transportation
 industry
 (Sochor,
1991).

In
1954,
the
European
Civil
Aviation
Conference
(ECAC),
a
regional
 consultative
 organization
 for
 the
 industry,
 was
 established.
 
 
 The
 push
 for
 the
 European‐level
 control
 of
 the
 regional
 air
 transportation
 was
 included
 in
 the
 establishment
of
the
European
Community
(EC)
in
1957.

Under
Article
80(2)
of
the
  
  22
  Treaty
Establishing
the
European
Community
(Treaty
of
Rome)16,
“the
Council
may,
 acting
 by
 a
 qualified
 majority,
 decide
 whether,
 to
 what
 extent,
 and
 by
 what
 procedure
appropriate
provisions
may
be
laid
down
for
sea
and
air
transport”.

This
 Article
gave
the
Council
large
abilities
to
enact
European‐level
regulations.

In
1964,
 the
 Commission
 attempted
 to
 expand
 on
 this
 provision
 in
 an
 effort
 to
 create
 a
 common
transport
policy
for
both
sea
and
air
transportation
(Lawton,
1999).

In
the
 end,
 the
 Council
 did
 not
 accept
 the
 Commission’s
 plan
 because
 there
 was
 little
 backing
 from
 the
 national
 governments
 for
 granting
 European
 level
 competency
 (Sampson,
 1985).
 
 For
 the
 following
 25
 years,
 the
 Commission
 sought
 to
 develop
 common
 European
 air
 transportation
 policies,
 but
 very
 little
 substantial
 progress
 occurred.
 In
1977,
the
US
and
the
UK
negotiated
a
second
bilateral
agreement
known
 as
‘Bermuda
II.’

The
British
government
believed
that
the
previous
agreement
had
 become
disadvantageous
to
their
carriers,
in
relation
to
their
US
counterparts.
The
 US
 had
 negotiated
 supplemental
 agreements
 to
 the
 original
 Bermuda
 agreement
 with
 the
 UK,
 granting
 their
 carriers
 fifth
 freedom
 rights
 to
 carry
 passengers
 from
 London
 Heathrow
 to
 most
 major
 European
 destinations.
 
 The
 ‘Bermuda
 II’
 agreement
rolled
back
many
of
the
fifth
freedom
rights
for
US
carriers,
while
at
the
 same
time,
created
new
routes
for
British
carriers
to
US
cities.

The
agreement
also
 restricted
the
access
to
Heathrow
Airport
to
two
US
carries,
limited
the
number
of
 US
 cities
 eligible
 for
 non‐stop
 service
 to
 Heathrow
 and
 Gatwick
 airports,
 and
 “effectively
 disallowed
 pro‐competitive
 pricing
 initiatives”
 (Robyn
 et
 all,
 2002).

 























































  16
(Treaty
Establishing
the
European
Economic
Community,
1957)

  
  23
  Many
 in
 the
 US
 considered
 ‘Bermuda
 II’
 to
 be
 more
 restrictive
 than
 the
 previous
 agreement
(Jönsson,
1987).
 
  In
 1978,
 the
 US,
 partly
 in
 response
 to
 the
 provisions
 of
 ‘Bermuda
 II’,
  established
 the
 position
 of
 liberalization
 for
 air
 transportation,
 beginning
 with
 the
 deregulation
 of
 their
 domestic
 market.
 
 President
 Jimmy
 Carter
 announced
 the
 primary
 objective
 should
 be
 “to
 move
 toward
 a
 truly
 competitive
 system”,
 one
 in
 which
 “market
 forces
 should
 be
 the
 main
 determinate
 of
 the
 variety,
 quality
 and
 price
 of
 air
 services”
 (Jönsson,
 1987:36).
 
 The
 deregulation
 of
 the
 domestic
 US
 market
 was
 the
 first
 major
 step
 towards
 the
 liberalization
 of
 the
 international
 air
 transportation
industry.
 
  In
 the
 first
 half
 of
 the
 1980’s,
 the
 US
 and
 the
 UK
 became
 the
 leaders
 in
 a
  global
 trend
 towards
 general
 economic
 liberalization.
 
 During
 this
 time,
 the
 EC
 initiated
development
towards
the
creation
of
a
Single
Market.

In
1984,
the
UK
and
 the
Netherlands
negotiated
a
new
bilateral
agreement
that
effectively
liberalized
air
 transportation
between
the
two
countries.

This
agreement
was
a
breakthrough
for
 the
 European
 market,
 and
 initiated
 renegotiation
 of
 other
 bilateral
 agreements
 between
 European
 countries
 (Doganis,
 2001).
 
 By
 the
 end
 of
 1985,
 the
 UK
 had
 negotiated
 new
 air
 service
 agreements
 with
 Germany,
 Luxembourg,
 France,
 Belgium,
Switzerland
and
Ireland.

Not
all
of
these
agreements
were
as
liberalizing
 as
 the
 agreement
 with
 the
 Netherlands,
 but
 they
 reduced
 many
 of
 the
 restrictions
 that
national
actors
had
enacted
on
the
industry.

While
the
UK
became
an
initiator
 of
 liberalization
 in
 the
 European
 market,
 they,
 like
 the
 rest
 of
 the
 European
  
  24
  countries,
 remained
 protective
 of
 their
 national
 interests
 in
 transatlantic
 relations
 and
did
not
renegotiate
with
the
US
at
this
time.
 
  Until
the
mid‐1980’s,
European
institutions
had
been
largely
inconsequential
  and
uninvolved
 in
 the
 development
 of
 air
 transportation
agreements,
but
with
the
 movement
towards
deregulation
and
the
creation
of
a
Single
European
Market,
the
 Commission
began
to
have
an
increasingly
influential
role
(Lawton,
1999).

In
1987,
 the
Council
agreed
to
the
first
of
‘three
packages’
that
would
lead
to
the
deregulation
 of
the
internal
European
aviation
market.

The
most
important
provision
of
the
‘first
 package’17
 was
 the
 inclusion
 of
 air
 transportation
 into
 the
 competency
 of
 the
 EC
 (Bartlik,
2007).

As
previously
noted,
Article
80(2)
of
the
Treaty
of
Rome
grants
the
 Council
the
discretion
to
decide
whether
it
desires
to
act
in
the
fields
of
air
and
sea
 transportation,
and
the
ability
to
decide
what
the
“appropriate
provisions”
for
such
 actions
would
be.

Until
this
time,
the
Council
had
largely
resisted
exerting
itself
in
 the
field
of
air
transportation.

The
‘second
package’
of
legislation18,
passed
in
1990,
 further
liberalizing
the
market.

The
Council
decreased
regulations
on
fares
and
the
 frequency
 of
 flights
 between
 Member
 States.
 
 It
 also
 granted
 full
 third
 and
 fourth
 freedom
rights
to
all
members
of
the
EC,
and
allowed
for
partial
fifth
freedom
rights.
 
  The
‘third
package’19
was
the
final
set
of
liberalizing
provisions,
culminating
  in
 the
 deregulation
 of
 the
 European
 air
 transportation
 market.
 
 Full
 fifth
 freedom
 rights
 were
 granted
 to
 all
 European
 carriers,
 and
 all
 remaining
 constraints
 on
 























































 17
  (Council
 Regulation
 3975/87/EEC);
 (Council
 Regulation
 3976/87/EEC);
 (Council
 Directive
 87/601/EEC);
(Council
Decision
87/602/EEC)
 18
 (Council
 Regulation
 2342/90/EEC);
 (Council
 Regulation
 2343/90/EEC);
 (Council
 Regulation
 2344/90/EEC)
 19
(Council
Regulation
2407/92/EC);
(Council
Regulation
2408/92/EC)
  
  25
  frequency
 and
 capacity
 were
 to
 be
 removed.
 
 This
 package
 also
 established
 the
 eighth
 freedom,
 or
 ‘true
 cabotage’20,
 was
 to
 be
 gradually
 introduced
 and
 become
 active
 by
 1997.
 
 The
 extensive
 control
 over
 the
 setting
 of
 fares
 would
 also
 be
 eliminated
by
1996,
after
which,
carriers
would
only
be
required
to
publish
fares
24
 hours
 before
 they
 become
 effective.
 
 The
 establishment
 of
 these
 three
 packages
 created
 a
 unique
 environment
 in
 Europe.
 
 While
 air
 transportation
 operations
 between
 Member
 States
 are
 still
 classified
 as
 international
 travel,
 the
 carriers
 function
as
though
they
are
operating
completely
within
a
single
domestic,
national
 market
(Ibid).

 
  Beyond
the
liberalization
of
operating
procedures
for
European
carriers,
the
  ‘third
package’
introduced
two
important
measures
ending
nationality‐based
rules.

 First,
 restrictions
 upon
 cross‐national
 ownership
 of
 air
 carriers
 were
 removed21.

 This
is
an
important
and
often
disregarded
step
in
this
process,
noting
the
shift
from
 an
 industry
 dominated
 nationally
 owned
 and
 operated
 airlines
 to
 one
 that
 has
 removed
 regulations
 on
 ownership
 and
 opens
 itself
 up
 the
 European
 market.

 Second,
 the
 ‘third
 package’
 removed
 the
 exemptions
 from
 EC
 competition
 laws
 available
 for
 the
 air
 transportation
 industry.
 
 This
 helped
 further
 institute
 the
 competency
of
the
ECJ
over
the
industry.

The
establishment
of
these
provisions
and
 implicit
induction
of
the
ECJ
competency
into
the
field
of
air
transportation
became
 an
essential
development
leading
to
the
‘open
skies‐plus’
agreement
with
the
US.


  























































  20
 ‘true
 cabotage’
 is
 the
 right
 to
 conduct
 air
 transportation
 between
 destinations
 within
 only
 one,
  single
foreign
country
without
making
a
stop
in
the
home
country
of
the
air
carrier
(Bartlik,
2007)
 21
(Council
Regulation
2408/92/EC)

  
  26
  In
 the
 early
 1990’s,
 the
 US
 began
 to
 renegotiate
 their
 bilateral
 agreements
 with
 Member
 States.
 
 The
 first
 of
 these
 new
 ‘open
 skies’‐
 framework
 agreements
 was
 established
 between
 the
 US
 and
 the
 Netherlands
 in
 199222.
 
 This
 agreement
 created
competition
between
the
Member
States
in
their
separate
negotiations
with
 the
 US.
 
 The
 goals
 of
 the
 Member
 States
 diverged
 greatly,
 with
 many
 of
 the
 larger
 countries
favoring
less
liberalizing
measures
than
the
principles
agreed
upon
in
the
 bilateral
between
the
Netherlands
and
the
US
(Doganis,
2001).

Perceiving
that
the
 opportunity
to
negotiate
a
European‐level
air
transportation
agreement
with
the
US
 was
beginning
to
fade,
the
Commission
strongly
asserted
its
dissent
to
the
wave
of
 new
bilateral
agreements
being
negotiated
by
the
Member
States.

 In
 1995,
 Transport
 Commissioner
 Neil
 Kinnock
 wrote
 to
 the
 six
 Member
 States
who
were
in
negotiation
with
the
US,
and
asked
them
not
to
sign
any
further
 bilateral
 agreements.
 He
 argued
 that
 by
 negotiating
 from
 a
 common
 European
 policy,
they
would
be
coming
from
a
better
bargaining
position,
and
would
therefore
 develop
and
more
favorable
agreement.
Kinnock
threatened
to
pursue
legal
action
 against
 these
 Member
 States;
 Austria,
 Belgium,
 Denmark,
 Finland,
 Luxemburg
 and
 Sweden,
if
they
signed
new
agreements
with
the
US
(Meurnier,
2003).

Nevertheless,
 these
six
Member
States
did
sign
bilateral
agreements
in
1995.
 The
Commission
held
the
opinion
that
the
bilateral
agreements
with
the
US
 were
in
violation
of
the
Member
States’
obligations
to
the
Treaty
of
Rome
(Bartlik,
 2007).

In
1998,
the
Commission
brought
this
charge
against
eight
Member
States23
 























































 22
  (Air
 Transport
 Agreement
 between
 the
 United
 States
 of
 America
 and
 the
 Kingdom
 of
 the
 Netherlands,
1992)

 23
Austria,
Belgium,
Denmark,
Finland,
Germany,
Luxembourg,
Sweden
and
the
UK
  
  27
  to
 the
 ECJ,
 and
 argued
 that
 they
 alone
 had
 the
 power
 to
 enter
 into
 foreign
 air
 transportation
 agreements
 with
 the
 US.
 
 In
 November
 2002,
 the
 ECJ
 ‘open
 skies’
 ruling
concluded
that
the
bilateral
agreements
with
the
US
were
contradictory
to
EU
 competition
laws.

This
created
a
void
in
the
air
transportation
agreements
between
 the
US
and
the
Member
States.

In
2003,
the
Council
intervened
and
authorized
the
 Commission
 to
 begin
 negotiations
 with
 the
 US
 on
 behalf
 of
 the
 Member
 States.

 These
negotiations
concluded
with
the
‘open
skies‐plus’
agreement
in
2007.
  The
2007
‘Open
Skies­Plus’
Agreement
  
 On
April
18th
2007,
the
US
and
the
EU
formally
concluded
negotiations
with
  the
signing
of
the
‘open
skies‐plus’
air
transportation
agreement.

The
agreement
is
 the
 culmination
 of
 four
 years
 of
 negotiations
 between
 the
 two
 trade
 partners,
 and
 takes
the
place
of
sixty
years’
worth
of
bilateral
agreements
between
the
US
and
the
 27
Member
States
of
the
EU.


‘Open
skies‐plus’
came
into
effect
on
March
30th
2008,
 and
 will
 go
 great
 measures
 to
 promote
 “significant
 economic
 benefits
 for
 America
 and
Europe”
(US
Department
of
State,
2007).
The
agreement
was
modeled
after
the
 ‘open
 skies’
 framework
 used
 in
 the
 previous
 bilateral
 agreements
 that
 the
 US
 had
 signed
 with
 16
 of
 the
 Member
 States24.
 
 The
 agreement
 will
 eliminate
 most
 of
 the
 regulations
 on
 air
 transportation
 operations
 between
 the
 US
 and
 the
 European
 Common
 Aviation
 Area
 (ECAA)25.
 
 Previous
 to
 the
 agreement,
 transatlantic
 air
 transportation
 accounted
 for
 more
 then
 half
 of
 all
 international
 traffic.
 
 50
 million
 























































 24
Austria,
Belgium,
Czech
Republic,
Denmark,
France,
Finland,
Germany,
Italy,
Luxembourg,
Malta,
  Netherlands,
Poland,
Portugal,
Romania,
Slovakia,
Sweden
all
had
‘open
skies’
agreements
with
the
 US
prior
to
the
implementation
of
this
agreement
in
2008.
 25
The
European
Common
Aviation
Area
is
defined
as
the
27
Member
States
of
the
EU,
plus
Albania,
 Bosnia‐Herzegovina,
 Croatia,
 Iceland,
 Kosovo,
 Norway
 and
 the
 former
 Yugoslav
 Republic
 of
 Macedonia.

The
Gibraltar
Airport
is
excluded
from
the
ECAA.
  
  28
  passengers,
 on
 400
 daily
 flights,
 went
 between
 the
 EU
 and
 the
 US
 in
 2007
 (Ibid).

 The
 agreement
 intends
 to
 greatly
 increase
 the
 volume
 of
 traffic
 through
 liberalization
 of
 the
 air
 transportation
 market.
 
 
 Over
 the
 next
 five
 years,
 the
 agreement
 is
 projected
 to
 add
 an
 increase
 of
 25
 million
 passengers,
 which
 would
 result
in
around
12
billion
dollars
of
economic
benefits,
and
approximately
80,000
 new
job
opportunities
will
be
created
in
the
US
and
the
EU
(EU‐US
Open
Skies
Air
 Transportation
Agreement
Q
and
A,
2008).
 The
 ‘open
 skies‐plus’
 agreement
 grants
 several
 rights
 to
 both
 trading
 partners
 and
 removes
 many
 of
 the
 previous
 restrictions
 on
 the
 transatlantic
 air
 transportation
operations.

The
agreement
affords
third
and
fourth
freedom
rights
 to
all
air
carriers
within
the
US
and
the
ECAA.
Air
carriers
are
allowed
to
fly
between
 any
point
within
these
two
areas,
without
any
restrictions
on
pricing,
frequency
or
 capacity.
 
 This
 provision
 creates
 new
 markets
 for
 US
 and
 EU
 carriers.
 
 Previous
 to
 the
 implementation
 of
 ‘open
 skies‐plus’,
 the
 US
 did
 not
 have
 an
 agreement
 with
 several
 newer
 Member
 States,
 such
 as
 Bulgaria,
 Cyprus,
 Estonia,
 Latvia,
 Lithuania
 and
Slovenia.

 This
 provision
 also
 removes
 the
 regulations
 preventing
 entrance
 for
 US
 carriers
into
the
largest
transatlantic
European
market,
London‐Heathrow
Airport.

 In
2006,
40%
of
the
total
EU‐US
air
transportation
traffic
was
between
the
US
and
 the
 UK,
 with
 the
 largest
 gateway
 being
 Heathrow
 (Buyck,
 2008).
 
 Previous
 to
 the
 agreement,
only
two
carriers
from
each
the
US
(American
and
United
Airlines)
and
 the
UK
(BA
and
Virgin
Atlantic)
were
allowed
to
fly
between
Heathrow
and
specific
 US
cities.

These
carriers
were
also
limited
by
regulations
on
frequency,
capacity
and
  
  29
  pricing
 of
 their
 operations.
 
 The
 ‘open
 skies‐plus’
 agreement
 opens
 access
 to
 the
 Heathrow
market.

Since
the
implementation
of
the
agreement,
there
are
already
18
 more
daily
flights
from
US
cities
to
Heathrow,
an
increase
of
20%
(EU‐US
Open
Skies
 Air
 Transportation
 Agreement
 Q
 and
 A,
 2008).
 
 The
 private
 market
 is
 now
 able
 to
 decide
the
direction
of
air
transportation
between
the
US
and
UK.

Currently,
there
is
 strong
 competition
 for
 entrance
 into
 the
 Heathrow
 market,
 Alitalia
 recently
 sold
 three
of
its
Heathrow
slots
for
a
total
of
€92
million
(Buyck,
2008).
While
previous
 air
 transportation
 agreements
 were
 completed
 on
 the
 national
 level,
 a
 European‐ level
agreement
with
the
US
grants
carriers
from
all
the
Member
States
equal
access
 to
 the
 Heathrow
 market.
 
 Air
 France
 now
 offers
 service
 from
 Heathrow
 to
 six
 US
 cities,
while
BA
has
begun
operations
from
Paris
to
New
York.
 The
‘open
skies‐plus’
agreement
also
grants
full
‘fifth
freedom’
rights
to
the
 US
and
EU
Member
States.

This
provision
will
allow
for
carriers
to
continue
flights
 beyond
 the
 transatlantic
 air
 transportation
 area.
 
 Previous
 to
 the
 agreement,
 fifth
 freedom
 rights
 were
 negotiated
 on
 a
 limited
 basis,
 in
 which
 the
 two
 negotiating
 countries
 would
 decide
 which
 specific
 third
 countries
 they
 would
 allow
 access
 to.

 Under
 ‘Bermuda
 II’,
 carriers
 were
 not
 allowed
 to
 continue
 transatlantic
 flights
 to
 several
 commercially
 important
 destinations:
 namely,
 China,
 France,
 Hong
 Kong,
 Italy,
 Japan
 and
 Spain
 (Robyn
 et
 all,
 2002).
 
 Through
 this
 agreement,
 access
 to
 all
 third‐countries
 is
 now
 available,
 particularly
 the
 increasingly
 commercially
 important
destinations
in
Asia.
 It
 is
 important
 to
 note
 that
 this
 agreement
 applies
 to
 the
 transport
 of
 passengers
and
cargo.

Many
US
cargo
carriers
were
particularly
disadvantaged
by
  
  30
  the
previous
agreements.

FedEx,
for
example,
was
forced
to
operate
out
of
Stansted
 Airport
 in
 London
 since
 they
 were
 not
 allowed
 access
 to
 Heathrow
 for
 their
 transatlantic
transportation
of
cargo.

Because
they
were
not
granted
‘fifth
freedom’
 rights
under
‘Bermuda
II’,
FedEx
was
also
not
allowed
to
fly
this
cargo
from
London
 to
their
European
hub
in
Paris.

Transportation
of
this
cargo
had
to
be
done
via
train
 or
bus,
or
by
contracting
a
EU
carrier
to
fly
the
cargo
(Robyn
et
all,
2002).
The
‘open
 skies‐plus’
 agreement
 also
 grants
 seventh
 freedom
 rights
 to
 cargo
 carriers.
 
 This
 means
 that
 companies
 are
 allowed
 to
 provide
 service
 from
 either
 the
 EU
 or
 US
 to
 third‐party
countries,
without
being
required
to
make
a
stop
in
their
home
country.

 Through
 eliminating
 the
 regulations
 of
 the
 previous
 bilateral
 agreements,
 air
 carriers
are
able
to
freely
decide
how
best
to
organize
their
operations.
 ‘Open
 skies’‐framework
 agreements
 contain
 the
 provisions
 previously
 discussed
 in
 this
 section:
 unlimited
 third,
 fourth
 and
 fifth
 freedom
 rights,
 and
 removal
of
controls
on
frequency,
capacity
and
pricing,
as
well
as
the
ability
to
enter
 into
code‐share
agreements
with
foreign
air
carriers,
which
will
be
discussed
below.

 The
 ‘plus’
 portion
 of
 the
 agreement
 between
 the
 EU
 and
 the
 US
 refers
 to
 the
 reduction
 of
 the
 ‘nationality
 clauses’
 on
 ownership.
 
 Under
 the
 ‘open
 skies‐plus’
 agreement,
EU
nationals
are
allowed
to
purchase
majority
stakes
in
US
airlines,
as
 long
 as
 they
 do
 not
 control
 more
 than
 25%
 of
 the
 voting
 equity.
 
 US
 carriers
 are
 allowed
 to
 purchase
 up
 to
 49.9%,
 or
 ‘50%
 minus‐one’,
 of
 EU
 airlines,
 and
 are
 allowed
to
have
up
to
49.9%
of
the
voting
equity
of
that
carrier.

These
provisions
 accentuate
 a
 large
 transition
 over
 the
 past
 few
 decades
 from
 an
 industry
 that
 was
 dominated
by
nationally
owned,
‘flag‐carrier’
airlines
to
one
that
allows
for
foreign,
  
  31
  private
 ownership
 of
 these
 same
 airlines.
 
 Recently,
 the
 German
 airline
 Lufthansa
 has
purchased
19%
of
the
low
cost
US
carrier,
Jet
Blue
(Michaels
and
Carey,
2007).

 Such
 cross‐national
 investment
 and
 ownership
 is
 likely
 to
 increase
 in
 the
 years
 following
the
implementation
of
the
agreement.

UK
entrepreneur
Richard
Branson,
 owner
 of
 Virgin
 Airlines,
 has
 expressed
 interest
 in
 starting
 a
 low‐cost
 US
 airline.

 Under
 this
 agreement,
 Branson
 would
 be
 allowed
 to
 start
 his
 own
 airline
 and
 operate
 it
 as
 a
 US
 company,
 as
 long
 as
 he
 does
 not
 control
 more
 than
 25%
 of
 the
 voting
stock
(Ibid).

 The
‘open
skies‐plus’
agreement
also
includes
provisions
for
foreign
airlines
 to
 apply
 for
 immunity
 from
 anti‐trust
 laws
 in
 the
 US,
 so
 that
 they
 can
 freely
 enter
 into
 code‐share
 agreements
 with
 US
 carriers.
 
 A
 code‐share
 agreement
 is
 a
 marketing
 strategy
 between
 two
 foreign
 airlines,
 where
 one’s
 airline
 code
 is
 marketed
 on
 a
 flight
 operated
 by
 another
 company.
 
 This
 allows
 air
 carriers
 to
 cooperate
 by
 selling
 tickets
 for
 connecting
 flights
 operated
 by
 partner
 airlines
 to
 their
consumers,
which
greatly
increases
their
access
to
international
markets.

The
 largest
 examples
 of
 such
 code‐share
 agreements
 are
 the
 Star
 Alliance,
 which
 includes
United
Airlines,
US
Airways,
Swiss
Airlines,
Lufthansa,
Air
Canada
and
BMI;
 and
 the
 SkyTeam
 alliance,
 which
 includes
 KLM,
 Air
 France,
 Alitalia,
 Delta,
 and
 Northwest.
 Recently,
 the
 SkyTeam
 alliance
 has
 applied
 to
 the
 US
 Department
 of
 Transportation
(US
DoT)
for
anti‐trust
immunity,
in
order
to
fully
include
their
most
 recent
addition,
Delta,
to
the
partnership.
 Code‐sharing
is
another
example
of
the
reduction
of
the
‘nationality
clause’
in
 air
 transportation,
 and
 has
 been
 received
 in
 Europe
 as
 another
 example
 in
 the
  
  32
  transference
of
power
to
the
supranational
level.

Pierre‐Henri
Gourgeon,
President
 and
COO
of
Air
France,
said
that
the
‘open
skies‐plus’
agreement,
“confirms
that
we
 were
right
to
take
the
risk
of
purchasing
the
Dutch
company
while
not
being
Dutch”,
 referring
to
the
merger
of
Air
France
and
KLM
in
2004.

“We
bet
that
with
time,
the
 only
 question
 of
 ownership
 would
 be
 European”,
 and
 that
 it
 is
 the
 “European
 nationality”
 that
 is
 emerging
 in
 the
 control
 of
 the
 transatlantic
 air
 transportation
 market
with
the
US
(Buyck,
2008).
 The
final
major
provisions
of
the
‘open
skies‐plus’
agreement
are
related
to
 the
 development
 of
 further
 liberalization
 between
 the
 EU
 and
 US.
 
 The
 two
 trade
 partners
 established
 the
 EU‐US
 Joint
 Committee
 to
 monitor
 the
 implementation
 of
 the
 ‘open
 skies‐plus’
 agreement
 and
 to
 ensure
 regulatory
 cooperation.
 
 The
 Committee
is
mandated
to
meet
at
least
once
a
year
to
discuss
and
mediate
issues
 arising
 from
 the
 ‘open
 skies‐plus’
 agreement.
 
 In
 May
 2008,
 the
 EU
 and
 US
 began
 negotiations
 for
 a
 second‐stage,
 further
 liberalizing
 air
 transportation
 agreement.

 The
EU
holds
the
objective
in
these
negotiations
of
creating
an
Open
Aviation
Area
 (OAA)
between
the
US
and
the
EU.
 An
OAA
amounts
to
“a
free
trade
zone
in
air
transport
encompassing
not
just
 transatlantic
operations,
but
operations
within
the
European
Union
and
the
United
 States
as
well”
(Robyn
et
all,
2002:58).

This
means
that
all
of
the
eight
freedoms
of
 air
established
in
1944.

The
remaining
restrictions
regarding
ownership
of
foreign
 airlines
 would
 also
 likely
 be
 removed.
 
 This
 would
 result
 in
 the
 creation
 of
 essentially
one
transatlantic
air
transportation
market,
in
which
carriers,
regardless
  
  33
  of
their
European
or
US
ownership,
would
operate
in
either
area
as
if
it
were
their
 domestic
market.
 Because
this
would
involve
the
dissolution
of
national
control
remaining
over
 the
air
transportation
industry,
there
has
already
been
resistance
to
the
progression
 of
such
an
agreement.

The
UK,
the
leading
European
critic
of
the
‘open
skies‐plus’
 agreement,
 and
 the
 US
 Congress
 have
 both
 expressed
 contention
 with
 such
 an
 agreement
 (EU,
 US
 Launch
 Second
 Round
 of
 ‘Open
 Skies’
 Talks,
 2008).
 
 While
 the
 detractors
 from
 an
 OAA
 may
 be
 difficult
 to
 overcome
 in
 negotiations,
 the
 ‘open
 skies‐plus’
 agreement
 carries
 a
 provision
 that
 ensures
 a
 further
 liberalizing
 agreement
 will
 be
 met.
 
 The
 two
 parties
 are
 required
 to
 develop
 a
 second‐stage
 agreement,
or
significant
progress
towards
one,
by
November
2010,
and
if
such
an
 accord
 is
 not
 reached,
 each
 party
 reserves
 the
 right
 to
 suspend
 the
 provisions
 granted
 in
 the
 initial
 ‘open
 skies‐plus’
 agreement.
 The
 EU
 has
 threatened
 to
 take
 such
action
if
they
are
not
satisfied
with
the
progress
of
negotiations
with
the
US.
 
  In
 terms
 of
 liberalization
 and
 cross‐national
 policy
 convergence,
 the
 ‘open
  skies‐plus’
 agreement
 is
 a
 remarkable
 achievement.
 
 The
 principals
 of
 regulation
 and
 national
 protection
 of
 the
 industry
 dates
 back
 to
 before
 international
 air
 transportation
was
even
technologically
possible.

The
agreement
removes
many
of
 these
 nationality‐based
 restrictions,
 and
 opens
 transatlantic
 air
 transportation
 to
 market
forces.

The
following
chapter
will
analyze
the
2002
ECJ
‘open
skies’
ruling,
 and
the
subsequent
measures
by
the
Council
granting
the
Commission
the
right
to
 enter
 into
 negotiations
 with
 the
 US,
 as
 an
 example
 of
 the
 international
 harmonization
mechanism
for
policy
convergence.
  
  34
  Chapter
4:
International
Harmonization
 
 The
previous
chapter
established
the
‘environmental
conditions’
from
which
 the
 2007
 ‘open
 skies‐plus’
 agreement
 was
 developed,
 and
 concluded
 with
 an
 analysis
of
the
provisions
of
the
agreement.

The
following
chapter
will
demonstrate
 why
the
US
and
the
EU
converged
on
air
transportation
policy
at
this
time.

This
will
 be
 done
 through
 an
 examination
 of
 the
 international
 harmonization
 mechanism,
 which
will
identify
the
2002
ECJ
‘open
skies’
ruling
and
the
subsequent
regulations
 by
 the
 Council
 granting
 the
 Commission
 the
 right
 to
 enter
 into
 negotiations
 on
 behalf
 of
 the
 EU
 as
 the
 explanatory
 variable
 in
 the
 development
 of
 policy
 convergence.
  International
Harmonization
Mechanism
 
 
  As
 previously
 discussed,
 in
 the
 international
 harmonization
 mechanism
 for
  policy
convergence,
cross‐national
convergence
is
developed
through
international
 legal
 obligations,
 which
 participatory
 states
 are
 legally
 required
 to
 adopt.
 For
 the
 purpose
of
this
thesis,
harmonization
refers
to
“a
specific
outcome
of
international
 co‐operation,
 namely
 to
 constellations
 in
 which
 national
 governments
 are
 legally
 required
 to
 adopt
 similar
 policies
 and
 programs
 as
 part
 of
 their
 obligations
 as
 members
 of
 international
 institutions”
 (Holzinger
 and
 Knill,
 2005:781‐782).
 The
 obligation
 for
 states
 member
 to
 an
 international
 institution
 to
 adopt
 homogenous
 policies
 can
 be
 more
 properly
 described
 as
 ‘uniformity’,
 as
 opposed
 to
 harmonization.
 
 While
 these
 two
 terms
 are
 similar,
 uniformity
 describes
 a
 more
 ‘top‐down’
 approach
 to
 policy
 formation,
 whereas
 harmonization
 could
 be
 used
 to
  
  35
  describe
 ‘bottom‐up’
 development
 of
 policy.
 
 While
 uniformity
 could
 be
 more
 properly
suited
for
discussion
of
this
form
of
policy
convergence,
for
the
purpose
of
 this
thesis,
the
term
international
harmonization
will
be
used
as
a
reflection
of
the
 literature
in
the
field.
 Two
 basic
 conditions
 must
 exist
 for
 the
 international
 harmonization
 mechanism
to
be
implemented:
the
national
government
must
first
be
a
member
of
 an
 international
 or
 supranational
 organization,
 and
 this
 organization
 must
 carry
 strong
 levels
 of
 competency
 to
 enforce
 its
 obligations
 on
 their
 members.
 
 If
 these
 two
 conditions
 are
 met,
 than
 the
 degree
 of
 convergence
 through
 this
 mechanism
 varies
 depending
 on
 two
 further
 factors.
 
 First,
 the
 measure
 of
 specificity
 in
 the
 international
 law
 or
 regulation
 carries
 strong
 influence
 on
 the
 degree
 of
 policy
 convergence.
 The
 more
 specific
 and
 defined
 the
 parameters
 and
 scope
 of
 the
 law
 are,
the
higher
the
level
of
convergence
will
result
out
of
this
mechanism.

Second,
 the
ability
of
the
international
organization
to
enforce
compliance
with
obligations
 resulting
from
the
law
or
regulation
on
its
members
affects
the
level
of
convergence.

 When
 the
 international
 organization
 has
 strong
 enforcement
 capabilities
 for
 its
 actions
on
its
members,
there
will
likely
be
a
high
degree
of
convergence
in
policy.
 
  With
strong
specificity
of
a
law
or
regulation
and
the
ability
to
enforce
their
  obligations,
 the
 level
 of
 policy
 convergence
 caused
 by
 the
 international
 harmonization
mechanism
will
be
high
and
tend
towards
total
harmonization
(Ibid).
 The
following
chapter
will
examine
the
2002
ECJ
‘open
skies’
ruling26
as
an
example
 of
 the
 international
 harmonization
 mechanism
 described
 above.
 
 
 The
 chapter
 will
 























































 26
See
footnote
on
page
11
  
  36
  develop
 the
 argument
 that
 this
 ruling
 was
 the
 explanatory
 power
 leading
 towards
 policy
 convergence
 in
 the
 transatlantic
 air
 transportation
 market
 between
 the
 EU
 and
 the
 US
 by
 exhibiting
 a
 comparative
 analysis
 of
 the
 previously
 described
 historical
 reference
 points,
 t0
 and
 t1.
 
 It
 will
 identify
 the
 variables
 and
 ‘environmental
 conditions’
 present
 at
 t0,
 and
 will
 demonstrate
 that
 these
 same
 variables
 remained
 present
 immediately
 previous
 to
 t1.
 
 With
 these
 variables
 influencing
 the
 transatlantic
 air
 transportation,
 limited
 policy
 convergence
 took
 place.
 
 At
 t1,
 the
 ‘environmental
 conditions’
 remained
 unchanged;
 except
 for
 the
 induction
 of
 this
 ECJ
 ruling
 and
 its
 implications
 on
 the
 Member
 States
 into
 the
 transatlantic
air
transportation
negotiations,
thereby
isolating
it
as
the
explanatory
 power.


 This
 chapter
 will
 use
 the
 methodology
 defined
 above
 to
 demonstrate
 that
 this
ruling
is
an
example
of
the
international
harmonization
mechanism.
It
will
close
 with
 an
 examination
 of
 the
 specificity
 of
 the
 ECJ
 ‘open
 skies’
 ruling
 and
 the
 subsequent
package
of
measures
by
the
Council,
as
well
as
how
the
capability
of
the
 EU
to
enforce
its
laws
led
to
the
large
degree
of
policy
convergence
present
in
the
 ‘open
skies‐plus’
agreement.
  ‘Open
Skies’
Framework
Agreements
(t0)
 
  During
 the
 process
 of
 deregulating
 the
 domestic
 US
 market,
 the
 Carter
 administration
 developed
 new
 policies
 towards
 international
 air
 transport
 operations,
 with
 the
 priorities
 of
 eliminating
 restrictions
 on
 pricing
 and
 capacity,
 and
 creating
 more
 flexibility
 for
 carriers
 to
 decide
 which
 routes
 they
 will
 operate.

 This
mandate
for
liberalization
in
1978
called
for
the
US
to
renegotiate
their
existing
 
  37
  bilateral
 agreements
 (Doganis,
 2001).
 
 The
 first
 of
 these
 new
 ‘open
 market’
 agreements
 was
 between
 the
 US
 and
 the
 Netherlands
 in
 1983,
 and
 was
 quickly
 followed
 by
 agreements
 with
 Belgium
 and
 Germany
 in
 1984
 (Ibid).
 
 These
 agreements
 reduced
 restrictions
 of
 capacity,
 and
 discouraged
 tariffs,
 while
 also
 allowing
 for
 greater
 market
 access
 to
 destinations
 in
 each
 country.
 
 The
 renegotiation
 of
 these
 transatlantic
 agreements
 initiated
 a
 similar
 movement
 between
 European
 countries
 to
 conclude
 more
 liberalizing
 bilateral
 agreements
 with
 each
 other.
 
 As
 previously
 noted,
 this
 process
 ended
 with
 the
 introduction
 of
 European‐level
 control
 over
 the
 internal
 air
 transportation
 industry
 through
 the
 implementation
of
the
‘three
packages’
of
deregulation.
 In
 1992,
 the
 US
 developed
 the
 position
 that
 the
 ‘open
 market’
 bilateral
 agreements
 negotiated
 with
 some
 Member
 States
 in
 the
 late‐1970s
 did
 not
 go
 far
 enough
 in
 liberalizing
 air
 transportation,
 and
 began
 a
 campaign
 for
 ‘open
 skies’.

 ‘Open
skies’‐
framework
agreements
are
characterized
by
a
few
key
elements:
open
 route
 access
 from
 any
 point
 in
 either
 of
 the
 agreeing
 countries,
 unlimited
 fifth
 freedom
rights,
removal
of
control
over
frequency
or
capacity.

The
US
Open
Skies
 Initiative
 was
 announced
 in
 March
 1992,
 with
 the
 goal
 of
 developing
 bilateral
 agreements
containing
the
key
elements
outlined
above
(Oum,
1998).

The
Initiative
 began
 two
 months
 before
 the
 passing
 of
 the
 third
 and
 final
 air
 transportation
 liberalization
package
in
the
EU.


 The
US
was
strongly
in
favor
of
liberalizing
transatlantic
air
transportation,
 but
was
weary
of
the
possible
effects
of
the
‘three
packages’
could
have
on
this
goal.

 They
 feared
 that
 the
 creation
 of
 the
 Single
 European
 Market
 would
 result
 in
 a
  
  38
  ‘Fortress
Europe’
mentality
towards
external
air
transportation
agreements.
Such
a
 development
 would
 likely
 discourage
 the
 Member
 States
 from
 granting
 the
 US
 full
 ‘fifth
freedom’
rights,
and
could
therefore
prevent
opening
of
the
market
(Chang
et
 all,
 2004).
 
 In
 order
 to
 guard
 against
 this
 possibility,
 the
 US
 swiftly
 negotiated
 an
 ‘open
skies’‐
framework
bilateral
agreement
with
the
Netherlands
in
1992.

In
1995,
 six
 other
 Member
 States27
 followed
 the
 Netherlands
 by
 negotiating
 similar
 agreements.
 While
 the
 US
 was
 renegotiating
 its
 bilateral
 agreements
 with
 several
 of
 the
 Member
 States,
 the
 Commission
 was
 hoping
 to
 use
 the
 development
 of
 the
 single
 European
 transportation
 market
 to
 enter
 into
 foreign
 trade
 negotiations
 with
 the
 US.

But
the
Commission
still
lacked
the
necessary
mandate
from
the
Council.

The
 US
 maintained
 the
 goal
 of
 opening
 up
 the
 transatlantic
 market
 for
 its
 air
 transportation
 industry,
 and
 was
 receptive
 to
 the
 prospect
 of
 European‐level
 agreement,
 but
 was
 unwilling
 to
 negotiate
 with
 the
 relatively
 powerless
 Commission.

The
Commission
held
extremely
limited
powers
in
this
field,
and
the
 US
was
only
interested
in
negotiating
matters
resulting
in
‘hard
rights’
(Ibid).
 It
is
worth
noting
the
interests
of
the
airline
business
sector
during
this
time‐ period.

Historically,
the
US
and
EU
Member
States
concluded
agreements
that
were
 strongly
 dictated
 by
 the
 concerns
 of
 their
 domestic
 carriers
 (Lobbenberg,
 1994).

 Operating
in
by
far
the
largest
domestic
aviation
market,
the
carriers
in
the
US
were
 better
 suited
 to
 take
 advantage
 of
 transatlantic
 air
 transportation
 liberalization.

 The
 US
 carriers
 were
 more
 equipped
 to
 support
 low
 fares
 and
 pricing
 wars
 on
 























































  27
Austria,
Belgium,
Denmark,
Finland,
Luxembourg,
Sweden
  
  39
  transatlantic
 routes
 because
 international
 operations
 accounted
 for
 a
 smaller
 proportion
 of
 their
 total
 revenue
 than
 their
 European
 counterparts
 (Ibid).
 
 Also,
 liberalization
of
the
restrictions
on
capacity
would
prove
to
be
more
beneficial
for
 American
carriers.

 The
 political
 decisions
 made
 by
 Member
 States
 were
 more
 closely
 aligned
 with
 the
 business
 interests
 than
 in
 the
 US,
 primarily
 because
 most
 of
 the
 international
 carriers
 were
 either
 owned
 or
 largely
 subsidized
 by
 the
 national
 governments.
 
 There
 were
 two
 primary
 approaches
 to
 the
 regulation
 of
 the
 transatlantic
market
at
the
time,
characterized
by
the
UK
and
the
Netherlands.
The
 UK
operated
in
a
situation
unique
from
the
rest
of
Europe.

Approximately
40%
of
 the
traffic
between
the
US
and
EU
was
through
the
UK
in
the
early‐1990s,
more
than
 twice
the
percentage
of
the
next
highest
country,
Germany
(Ibid).

The
UK
also
had
 negotiated
 a
 very
 restrictive
 bilateral
 agreement
 with
 the
 US,
 the
 aforementioned
 ‘Bermuda
 II’
 agreement.
 
 Because
 the
 UK
 held
 such
 a
 high
 percentage
 of
 the
 EU
 market
share,
they
were
able
to
negotiate
an
agreement
with
the
US
that,
through
its
 restrictions
 and
 regulations,
 created
 a
 competitive
 advantage
 for
 their
 domestic
 carriers
(Chang
et
all,
2004).
 Carriers
 in
 the
 Netherlands,
 like
 many
 other
 smaller
 Member
 States,
 were
 heavily
 dependant
 on
 transatlantic
 operations.
 
 KLM
 relied
 on
 operations
 to
 and
 from
the
US
for
32%
of
their
overall
revenue
in
1991
(Lobbenberg,
1994).

Because
 of
 this,
 the
 Dutch
 government
 was
 largely
 receptive
 to
 liberalization
 with
 the
 US.

 The
US
carriers
were
also
searching
for
other
gateways
into
the
European
market
to
 circumvent
the
‘Bermuda
II’
agreement
with
the
UK.

The
Netherlands
offered
one
  
  40
  such
 gateway.
 
 In
 their
 1992
 agreement,
 the
 US
 and
 the
 Netherlands
 granted
 each
 other
unrestricted
fifth
freedoms
rights.

This
provision
thereby
opens
up
the
rest
of
 Europe
for
American
carriers
beyond
just
the
Netherlands,
while
at
the
same
time,
 increases
the
access
to
the
domestic
market
in
the
US
for
Dutch
carriers.
 In
 the
 following
 five
 years,
 six
 more
 Member
 States28
 signed
 ‘open
 skies’‐
 framework
agreements
with
the
US,
while
at
the
same
time,
the
Commission
tried
to
 gain
competency
to
negotiate
a
European‐level
agreement.

During
the
time
period
 between
 t0
 and
 t1,
 the
 ‘environmental
 conditions’
 in
 the
 transatlantic
 aviation
 private
 market
 remained
 the
 same,
 with
 many
 of
 the
 Member
 States
 pushing
 for
 liberalization
 and
 the
 UK
 advocating
 for
 the
 continuation
 of
 its
 comparatively
 restrictive
 policies.
 However,
 there
 was
 no
 progress
 made
 towards
 a
 new
 agreement
 negotiated
 by
 the
 Commission.
 
 In
 summation,
 while
 the
 two
 trade
 partners
 shared
 common
 goals
 in
 the
 early‐1990s,
 they
 were
 unable
 to
 develop
 coordinated
policy.

 The
ECJ
‘open
skies’
ruling
in
2002,
at
time
t1,
implemented
the
international
 harmonization
 mechanism
 for
 policy
 convergence
 described
 above,
 and
 a
 new
 European‐level
agreement
was
swiftly
developed
between
the
Commission
and
the
 US.

  The
2002
ECJ
‘Open
Skies’
Ruling
  
 Since
 the
 development
 of
 European‐level
 governance,
 the
 Commission
 had
  requested
the
Council
to
grant
them
authorization
to
enter
in
foreign
negotiations.

 Under
Article
133(3)
of
the
Treaty
of
Rome,
“where
agreements
with
one
or
more
 























































  28
Czech
Republic,
France,
Germany,
Italy,
Poland,
and
Portugal


  
  41
  States
 or
 international
 organizations
 need
 to
 be
 negotiated,
 the
 Commission
 shall
 make
 recommendations
 to
 the
 Council,
 which
 shall
 authorize
 the
 Commission
 to
 open
 the
 necessary
 negotiations”.
 The
 Treaty
 in
 Article
 80(2)
 also
 states
 that,
 “the
 Council
may,
acting
by
a
qualified
majority,
decide
whether,
to
what
extent
and
by
 what
procedure
appropriate
provisions
may
be
laid
down
for
sea
and
air
transport”.

 These
two
Articles
explicitly
allow
for
the
Council
to
grant
far
reaching
foreign
trade
 negotiation
 powers
 to
 the
 Commission,
 specifically
 in
 the
 areas
 of
 sea
 and
 air
 transport.

The
Commission
had
long
requested
the
Council
to
grant
them
authority
 to
 enter
 in
 foreign
 negotiations,
 but
 was
 denied,
 including
 requests
 in
 1990
 and
 1992.
 As
 previously
 noted,
 Transport
 Commissioner
 Neil
 Kinnock
 wrote
 to
 six
 Member
States,
and
asked
them
to
negotiate
new
bilateral
agreements
with
the
US.

 Nonetheless,
all
of
the
six
Member
States
signed
‘open
skies’‐framework
agreements
 with
the
US
between
June
and
September
of
1995.

The
Commission,
frustrated
by
 the
 Council
 continued
 denial
 of
 their
 requests
 for
 competency
 in
 foreign
 negotiations
 and
 their
 inability
 to
 convince
 Member
 States
 to
 wait
 for
 Council
 authorization
 before
 renegotiating
 their
 own
 agreements,
 brought
 actions
 against
 eight
Member
States29
before
the
ECJ
in
1998,
under
Article
22630
of
the
Treaty
of
 Rome.
  























































 29
The
eight
Member
States
originally
included
in
this
case
were
the
UK,
Denmark,
Sweden,
Finland,
  Belgium,
 Luxembourg,
 Austria,
 and
 Germany.
 
 The
 Netherlands
 was
 later
 added
 to
 the
 case,
 upon
 their
insistence
to
provide
solidarity
with
the
charged
Member
States.
 30
Article
226
states
if
the
Commission
considers
that
a
Member
State
has
failed
to
fulfill
an
obligation
 under
this
Treaty,
they
can
bring
the
matter
before
the
European
Court
of
Justice.
  
  42
  In
 these
 cases,
 the
 Commission
 charged
 eight
 Member
 States
 with
 violating
 their
 obligations
 to
 the
 EC
 under
 the
 Treaty
 of
 Rome
 in
 their
 bilateral
 agreements
 with
the
US.


The
Commission
developed
three
main
arguments
against
the
Member
 States.
 
 First,
 that
 the
 ‘three
 packages’
 of
 legislation
 had
 established
 a
 common
 internal
 European
 aviation
 market,
 and
 that
 the
 Member
 States
 were
 thereafter
 disallowed
 from
 entering
 into
 new
 bilateral
 agreements.
 
 The
 Commission
 argued
 that
 since
 the
 enactment
 of
 these
 legislative
 measures,
 they
 alone
 had
 the
 right
 to
 negotiate
foreign
trade
agreements
in
the
air
transportation
sector
(Joined
Cases
C‐ 466‐475/98;
Hoffmeister,
2004).

Second,
the
Commission
claimed
that
the
bilateral
 agreement
contained
clauses
that
prevented
common
competition
between
Member
 States.
 
 Third,
 the
 Commission
 claimed
 that
 these
 eight
 countries
 had
 violated
 Article
43
of
the
Treaty,
the
right
of
establishment,
because
of
the
nationality
clauses
 for
 ownership
 and
 operation
 of
 airlines
 in
 the
 ‘open
 skies’
 bilateral
 agreements
 (Joined
Cases
C‐466‐475/98;
Bartlik,
2007).
 The
Commission’s
first
claim
to
the
ECJ
stating
that
they
owned
the
sole
right
 to
 negotiate
 foreign
 air
 transportation
 agreements,
 was
 backed
 by
 a
 previous
 decision
 by
 the
 Court,
 the
 so‐called
 ‘1/76’
 principal.
 
 The
 ‘1/76
 principal’
 is
 developed
out
of
an
opinion
of
the
Court
in
197631,
which
states
that
the
EC
can
be
 granted
the
right
to
conclude
an
international
agreement
on
behalf
of
the
Member
 States,
but
the
“agreement
must
be
necessary
to
attain
the
objectives
of
the
Treaty
 and
 those
 objectives
 must
 not
 be
 attainable
 by
 merely
 introducing
 autonomous
 common
rules”
(Hoffmeister,
2004:567).

The
Court
ruled
that
the
‘1/76’
principle
 























































 31
(Opinion
1/76,
ECR
741)

  
  43
  was
not
valid
in
this
case,
because
the
Council
could
simply
adopt
legislation
for
a
 common
foreign
trade
agreement,
removing
the
need
to
enact
this
principle.


This
 ruling
 was
 a
 disappointment
 for
 the
 Commission,
 who
 had
 hoped
 that
 they
 could
 use
 this
 principle
 to
 get
 around
 the
 Council
 and
 directly
 gain
 competency
 over
 negotiation
of
foreign
air
transportation
agreements
through
the
ECJ.
 The
 second
 claim
 made
 by
 the
 Commission
 involved
 the
 ‘ERTA
 principle’32,
 which
 states
 that
 once
 the
 EC
 enacts
 a
 legislation
 or
 rule,
 Member
 States
 cannot
 interact
with
nonmember
countries
in
a
way
that
could
change
or
negate
those
rules
 (Case
 22/70;
 Hoffmeister,
 2004).
 
 The
 ECJ
 ruled
 that
 Commission
 legislation
 contained
 no
 provisions
 directly
 governing
 the
 regulation
 and
 granting
 of
 traffic
 rights
between
Member
States
and
non‐Community
states.

But,
they
found
that
the
 Commission
 had
 adopted
 rules
 regulating
 fares
 and
 rates,
 use
 of
 computer
 reservation
 systems,
 and
 allocation
 of
 airport
 slots
 for
 air
 transportation
 services
 between
the
EC
and
non‐EC
territories
(Joined
Cases
C‐466‐475/98;
Bartlik,
2007).

 The
ECJ
ruled
that
if
any
bilateral
agreement
contained
clauses
regarding
fares
and
 rates,
 computer
 systems,
 or
 the
 allocation
 of
 airline
 slots,
 than
 the
 responsible
 Member
 State
 is
 in
 violation
 of
 the
 Treaty.
 
 ‘Open
 skies’‐
 framework
 agreements
 involve
some,
if
not
all,
of
these
three
provisions.
 The
 final
 argument
 made
 by
 the
 Commission
 pertained
 to
 the
 equal
 rights
 granted
 to
 nationals
 of
 any
 Member
 State
 for
 establishment
 in
 all
 Member
 States.

 The
Commission
charged
that
the
Member
States
were
in
violation
of
Article
43
of
 the
 Treaty
 because
 their
 agreements
 with
 the
 US
 contained
 restrictions
 on
 























































  32
(Commission
v
Council,
ECR
22/70)
  
  44
  ownership,
based
upon
nationality.

The
Commission
claimed
the
ownership
clauses
 were
 discriminatory
 to
 nationals
 of
 Member
 States
 not
 involved
 in
 the
 bilateral
 agreement,
 and
 were
 therefore
 in
 violation
 of
 the
 right
 of
 establishment.
 The
 ECJ
 found
that
the
ownership
of
a
EC
airline
is
not
vested
solely
for
the
nationals
of
the
 carrier’s
Member
States;
it
is
vested
in
the
nationals
of
all
Member
States
of
the
EC
 (Joined
 Cases
 C‐466‐475/98;
 Abeyratne,
 2003).
 
 Therefore,
 any
 agreement
 that
 places
preferential
clauses
for
one
nationality
over
another
is
in
violation
of
Article
 43
of
the
Treaty.
 The
result
of
the
ECJ
‘open
skies’
ruling
is
the
invalidation
of
the
‘open
skies’‐ framework
 bilateral
 agreements.
 
 While
 the
 ECJ
 denied
 granting
 the
 Commission’s
 request
 for
 the
 right
 to
 negotiate
 foreign
 trade
 agreements,
 they
 effectively
 disallowed
 the
 Member
 States
 from
 entering
 into
 ‘open
 skies’‐framework
 agreements.

While
the
ECJ
ruling
did
not
explicitly
allow
the
Commission
to
enter
 into
foreign
air
transportation
negotiations,
they
effectively
forced
the
Council
into
 granting
them
this
right.
  Council
Authorization
and
Implementation
of
the
Mechanism
(t1)
  
 On
 June
 5th,
 2003,
 the
 Council
 authorized
 the
 Commission
 to
 begin
 air
  transportation
 trade
 negotiations
 with
 the
 US,
 exactly
 eight
 months
 after
 the
 ECJ
 ‘open
skies’
ruling.

The
Council
authorized
the
Commission
to
begin
negotiations
in
 three
different
regards:
first,
to
enter
into
negotiations
with
the
US
in
the
field
of
air
 transportation,
 with
 the
 specific
 goal
 of
 developing
 an
 OAA33
 (European
 Commission
 Press
 Release,
 2003);
 second,
 the
 Council
 authorized
 the
 Commission
 























































  33
Open
Aviation
Area,
see
page
38
  
  45
  to
 open
 negotiations
 with
 all
 other
 third‐party
 countries
 to
 replace
 their
 existing
 bilateral
 agreements
 with
 Member
 States;
 third,
 to
 replace
 restrictions
 based
 on
 nationality
in
previous
agreements
(Wassenbach,
2003).


 In
 the
 international
 harmonization
 mechanism
 for
 policy
 convergence,
 the
 level
 of
 convergence
 depends
 on
 the
 specificity
 of
 the
 law
 or
 regulation
 and
 the
 ability
for
the
international
organization
to
enforce
the
measures.

The
provisions
of
 this
‘package’
are
very
brief,
concise
and
specific.

The
Commission
was
specifically
 granted
 authorization
 to
 negotiate
 an
 air
 transportation
 agreement
 with
 the
 US,
 which
 they
 had
 been
 seeking
 for
 decades,
 and
 this
 mandate
 contained
 specific
 guidelines
 for
 the
 provisions
 to
 be
 developed
 in
 the
 agreement,
 the
 eventual
 establishment
 of
 an
 OAA.
 
 The
 decisions
 made
 by
 European‐level
 governance
 also
 have
strong
enforcement
capabilities.
The
‘Van
Gend
en
Loos
case’34
establishes
the
 direct
effect
of
EU
laws,
regulations,
decisions
and
directives
on
the
Member
States.

 There
is
also
supremacy
of
EU
law
over
the
Member
States,
established
in
the
‘Costa
 v
 ENEL
 case’35.
 In
 regards
 to
 the
 ECJ
 ‘open
 skies’
 ruling
 and
 subsequent
 Council
 authorization
 ‘package’,
 the
 specificity
 and
 enforcement
 capability
 were
 extremely
 high,
which
is
evidenced
by
the
expedited
development
of
a
new
agreement.

 On
 April
 18th
 2007,
 at
 historical
 reference
 point
 t1,
 the
 ‘open
 skies‐plus’
 air
 transportation
 agreement
 was
 agreed
 upon
 by
 the
 US
 and
 EU,
 resulting
 in
 large
 degrees
of
policy
convergence.

In
between
t0
and
t1,
the
‘environmental
conditions’
 in
the
transatlantic
air
transportation
remained
the
same.

The
US
and
many
smaller
 Member
 States,
 specifically
 the
 Netherlands,
 were
 still
 largely
 in
 favor
 of
 























































  34
(Van
Gend
en
Loos
v
Netherlands,
Case
C‐26/62)

 35
(Flaminio
Costa
v.
ENEL,
Case
6/64)
  
  46
  liberalization.
 
 The
 UK
 also
 remained
 largely
 against
 redeveloping
 the
 industry,
 preferring
to
continue
operations
under
the
‘Bermuda
II’
agreement.

Air
carriers
on
 both
 sides
 of
 the
 Atlantic,
 namely
 KLM
 and
 United,
 continued
 steady
 support
 for
 liberalization
of
 the
industry.
 
 The
 lone
variable
 that
changed
in
 between
 t0
and
 t1
 was
 the
 ECJ
 ‘open
 skies’
 ruling
 and
 subsequent
 Council
 authorization.
 
 Using
 the
 methodological
 framework
 of
 the
 international
 harmonization
 mechanism
 developed
above,
the
2002
ECJ
‘open
skies’
ruling
and
the
following
regulations
by
 the
 Council
 are
 identified
 as
 the
 explanatory
 power
 in
 the
 development
 of
 policy
 coordination
between
the
US
and
the
EU.

 
  
  47
  Chapter
5:
Regulatory
Competition
 
 Through
the
use
of
the
international
harmonization
mechanism,
the
2002
ECJ
 ‘open
 skies’
 ruling
 and
 mandate
 granted
 to
 the
 Commission
 by
 the
 Council
 is
 identified
 as
 the
 explanatory
 power
 in
 the
 development
 of
 policy
 convergence
 in
 transatlantic
 air
 transportation.
 While
 the
 international
 harmonization
 mechanism
 develops
the
explanatory
power
for
the
convergence
of
policy,
it
is
unable
to
identify
 which
factors
caused
the
degree
of
regulation
to
be
set
at
the
specific
level
found
in
 the
2007
‘open
skies‐plus’
agreement.

The
following
chapter
will
examine
a
second
 mechanism
of
policy
convergence,
regulatory
competition,
in
order
to
identify
how
 the
 EU
 and
 US
 converged
 on
 policy
 at
 a
 specific
 level
 of
 regulation.
 
 This
 will
 be
 demonstrated
through
an
analysis
of
the
previous
bilateral
agreements
between
the
 US
and
several
Member
States.
  Regulatory
Competition
Mechanism
 
  Under
 the
 regulatory
 competition
 mechanism,
 “countries
 adjust
 policy
  instruments
and
regulatory
standards
in
order
to
cope
with
competitive
pressures
 emerging
from
international
economic
integration”
(Holzinger
and
Knill,
2005:789).

 Drezner
 (2001)
 theorizes
 that
 national
 actors
 will
 converge
 on
 a
 specific
 policy
 when
the
costs
of
adjustment
are
overcome
by
the
potential
loss
of
income,
trade,
or
 capital
that
would
result
from
not
adopting
the
policy.

When
there
is
an
established,
 international
 standard,
 convergence
 towards
 this
 policy
 is
 very
 simple,
 national
 actors
 are
 forced
 to
 decide
 whether
 to
 adopt
 the
 regulations,
 or
 be
 left
 behind
 in
 international
 trade
 for
 this
 sector.
 
 However,
 when
 there
 is
 no
 consensus
  
  48
  internationally
 towards
 one
 specific
 policy,
 the
 prospects
 for
 convergence
 become
 much
 more
 varied.
 
 In
 order
 to
 examine
 these
 scenarios
 for
 policy
 convergence,
 Drezner
(2005)
establishes
a
dichotomy.

He
argues
that
national
governments
are
 the
 “primary
 actors
 in
 global
 governance”
 (Drezner,
 2005:
 843)
 and
 that
 each
 government
 is
 separated
 from
 another
 by
 their
 relative
 power.
 
 According
 to
 Drezner,
 there
 are
 only
 two
 ‘great
 powers’
 in
 the
 modern
 global
 economy,
 the
 US
 and
the
EU.

When
the
‘great
powers’
agree
on
a
specific
policy
area,
there
will
be
 high
 levels
 of
 international
 convergence
 to
 this
 position.
 
 When
 the
 ‘great
 powers’
 fail
 to
 agree,
 there
 will
 be
 limited
 policy
 convergence,
 which
 will
 be
 followed
 by
 regulatory
competition,
generating
congruence
at
‘multiple
policy
nodes’.
 
  The
dichotomy
established
by
Drezner
(2005)
is
exemplified
in
transatlantic
  air
 transportation
 negotiations.
 
 At
 the
 historical
 reference
 point
 t0,
 the
 ‘great
 powers’
failed
to
agree
on
a
common
policy
for
the
regulation
of
the
industry.

This
 resulted
 in
 regulatory
 competition
 between
 the
 Member
 States
 in
 their
 separate
 negotiations
 of
 bilateral
 agreements
 with
 the
 US.
 
 When
 the
 ‘great
 powers’
 did
 eventually
 agree
 on
 a
 policy,
 at
 historical
 reference
 point
 t1,
 the
 result
 was
 a
 large
 degree
of
policy
convergence.


 In
the
previous
chapter,
the
ECJ
‘open
skies’
ruling
and
following
regulations
 were
identified
as
the
explanatory
power
for
the
policy
convergence,
exemplifying
 the
international
harmonization
mechanism.

These
findings
of
the
previous
chapter
 are
 supported
 by
 theorized
 result
 of
 when
 the
 ‘great
 powers’
 agree,
 with
 both
 conclusions
 suggesting
 large
 degrees
 of
 policy
 convergence.
 Also,
 since
 the
 deregulation
of
their
domestic
market
in
1978,
the
US
been
steadfastly
committed
to
  
  49
  liberalization,
 while
 at
 the
 same
 time,
 the
 Member
 States
 of
 the
 EU
 have
 held
 different
 levels
 of
 commitment
 to
 liberalization.
 
 Because
 the
 causes
 for
 liberalization
 in
 the
 US
 have
 already
 been
 established,
 the
 following
 chapter
 will
 include
 an
 asymmetric
 analysis
 of
 the
 two
 ‘great
 powers’,
 focusing
 more
 on
 the
 causes
of
for
liberalization
within
the
EU.
 While
 the
 international
 harmonization
 mechanism
 and
 Drezner’s
 ‘great
 powers’
dichotomy
explain
why
convergence
of
policy
did
develop
between
the
US
 and
 the
 EU,
 they
 fail
 to
 explain
 how
 the
 level
 of
 regulation
 was
 determined.
 
 After
 the
Commission
was
unable
to
obtain
Council
authorization
in
the
early‐1990s,
the
 ‘great
powers’
failed
to
agree.

This
resulted
in
regulatory
competition
between
the
 Member
 States
 as
 they
 renegotiated
 their
 bilateral
 agreements
 with
 the
 US.
 
 The
 regulatory
 competition
 resulted
 some
 convergence
 of
 policy
 at
 ‘multiple
 policy
 nodes’.
 When
 the
 ‘great
 powers’
 did
 subsequently
 agree,
 the
 result
 was
 policy
 convergence.
 
 Drezner
 (2001)
 argues
 that
 in
 regulatory
 competition,
 when
 policy
 convergence
does
eventually
take
place,
it
is
likely
that
the
level
of
regulation
will
be
 set
at
the
standards
of
the
most
laissez‐faire
country.

This
assertion
is
evidenced
in
 the
‘open
skies‐plus’
agreement
between
the
US
and
the
EU,
which
closely
parallels
 the
 regulatory
 levels
 of
 the
 bilateral
 agreement
 signed
 between
 the
 US
 and
 the
 Netherlands
in
1992,
the
most
laissez‐faire
of
the
bilateral
agreements
signed
with
 the
Member
States.
 
  The
 following
 chapter
 will
 further
 analyze
 the
 regulatory
 competition
 that
  took
place
between
the
Member
States
in
the
bilateral
agreements
signed
with
the
 US.
 
 These
 negotiations
 occurred
 at
 the
 historical
 reference
 point,
 t0.
 
 The
 chapter
  
  50
  will
 continue
 with
 an
 examination
 of
 levels
 of
 regulation
 in
 the
 ‘open
 skies‐plus’
 agreement,
 at
 the
 historical
 reference
 point
 t1.
 
 The
 comparative
 analysis
 of
 these
 two
 historical
 reference
 points
 will
 demonstrate
 first,
 that
 policy
 convergence
 resulted
 when
 the
 ‘great
 powers’
 did
 eventually
 agree,
 and
 second,
 that
 this
 convergence
took
place
at
a
level
of
regulation
similar
to
the
standards
of
the
most
 laissez‐faire
previous
agreement.
  
Regulatory
Competition
between
the
Member
States
(t0)
 
 
  In
 April
 1992,
 the
 US
 developed
 the
 Open
 Skies
 Initiative,
 aimed
 at
  renegotiating
 their
 bilateral
 agreements
 with
 the
 goals
 of
 opening
 the
 air
 transportation
 market
 and
 decreasing
 regulatory
 barriers.
 
 The
 first
 of
 these
 new
 agreements
was
reached
with
the
Netherlands
in
September
1992.

The
Netherlands
 had
consistently
shared
common
goals
with
the
US
for
liberalization
of
the
industry.
 The
 agreement
 signed
 between
 these
 two
 trading
 partners
 exemplified
 the
 ‘open
 skies’‐framework
 ideals
 and
 became
 the
 standard
 for
 bilateral
 agreements
 of
 this
 type
for
the
decade
to
follow.
 
  This
‘open
skies’
agreement
grants
carriers
from
the
Netherlands
and
the
US
  full
fifth‐freedom
rights,
and
allows
for
multiple
stops
to
be
made
in
the
territory
of
 the
 foreign
 trading
 partner.
 
 The
 agreement
 also
 contains
 provisions
 allowing
 for
 complete
 freedom
 from
 governmental
 regulation
 over
 the
 capacity,
 route,
 pricing
 and
destination
for
an
airline
operating
under
this
accord
(Cordes,
1993).

This
is
in
 strong
 contrast
 to
 previous
 bilateral
 agreements
 between
 the
 US
 and
 its
 transatlantic
partners,
particularly
the
 ‘Bermuda
II’
 agreement
with
the
 UK.
 Under
 the
 agreement
 between
 the
 US
 and
 the
 Netherlands,
 the
 national
 controls
 are
 
  51
  removed,
 and
 the
 carriers
 from
 both
 trading
 partners
 are
 allowed
 to
 compete
 equally
in
this
market.
 The
 ‘open
 skies’
 agreement
 also
 allows
 for
 harmonization
 of
 commercial
 interactions
 between
 carriers
 in
 the
 US
 and
 the
 Netherlands.
 
 The
 agreement
 established
 a
 conflict‐resolution
 mechanism,
 enabling
 quick
 arbitration
 and
 settlement
of
disputes.

The
accord
also
grants
carriers
of
both
trading
partners
to
 enter
into
code‐sharing
alliances
with
each
other.

Such
alliances
allow
for
carriers
 to
 cooperate
 on
 air
 transportation
 operations,
 greatly
 increasing
 their
 access
 to
 foreign
 markets.
 Immediately
 following
 the
 ‘open
 skies’
 agreement,
 the
 Dutch
 carrier
KLM
and
Northwest
Airlines
entered
into
a
code‐sharing
alliance,
which
has
 proven
 to
 be
 largely
 successful
 in
 increasing
 access
 to
 foreign
 markets
 for
 both
 carriers
(Hedlund,
1994).
 
  The
provision
granting
the
ability
for
air
carriers
to
enter
into
code‐sharing
  alliances
carried
a
large
effect
on
the
regulatory
competition
that
took
place
in
the
 mid‐1990s
 between
 the
 Member
 States.
 
 The
 US
 DoT
 maintained
 the
 policy
 of
 granting
 anti‐trust
 immunity
 to
 international
 air
 carriers
 wishing
 to
 form
 code‐ sharing
 alliances
 only
 if
 the
 foreign
 airline’s
 home
 country
 had
 agreed
 to
 an
 ‘open
 skies’‐
 framework
 agreement
 with
 the
 US
 (Chang
 and
 Williams,
 2002).
 
 Immunity
 from
antitrust
legislation
in
the
US
is
legally
required
for
the
development
of
a
code‐ sharing
 alliance
 for
 foreign
 carriers.
 
 In
 1993,
 the
 Dutch
 carrier
 KLM
 was
 granted
 immunity
by
the
US
DoT,
and
quickly
thereafter
entered
into
a
code‐sharing
alliance
 with
Northwest,
which
allows
the
two
carriers
to
“operate
as
if
they
were
a
single
 global
 airline
 system”
 (Hedlund,
 1994:272).
 
 Through
 this
 alliance,
 KLM
 and
  
  52
  Northwest
 have
 been
 able
 to
 integrate
 their
 ticketing,
 marketing,
 and
 baggage
 handling
 services,
 allowing
 for
 seamless
 transportation
 of
 passengers
 to
 any
 destination
offered
by
either
airline.
 
  In
1996,
largely
due
to
the
desires
of
Lufthansa
to
enter
into
a
code‐sharing
  alliance
with
United,
Germany
signed
an
‘open
skies’
agreement
with
the
US.

France
 signed
a
liberalizing
bilateral
agreement
with
the
US
in
1998,
but
it
fell
short
of
full
 ‘open
skies’‐
framework
qualifications.

As
a
result,
Air
France’s
1998
request
to
the
 US
DoT
for
anti‐trust
immunity
was
denied.

In
1999,
France
signed
an
‘open
skies’
 agreement
 with
 the
 US,
 and
 Air
 France’s
 request
 for
 anti‐trust
 immunity
 was
 subsequently
 granted
 by
 the
 US
 DoT,
 allowing
 them
 to
 enter
 in
 a
 code‐share
 agreement
 with
 Delta.
 
 Code‐share
 agreements
 can
 provide
 large
 benefits
 for
 an
 airline
 by
 allowing
 them
 greater
 access
 to
 international
 markets.
 
 Through
 their
 agreement
 with
 Delta,
 Air
 France
 was
 able
 to
 sell
 tickets
 to
 100
 different
 destinations
in
the
US.

Previous
to
the
agreement,
they
were
only
allowed
access
to
 seven
 US
 cities
 (Chang
 and
 Williams,
 2002).
 
 Traffic
 for
 Air
 France
 to
 the
 US
 also
 increased
 by
 20%
 over
 the
 three
 years
 following
 their
 alliance
 with
 Delta
 (Harbrecht,
2001).
 
  In
contrast,
the
UK
did
not
negotiate
a
new
bilateral
agreement
with
the
US,
  and
their
airlines
were
not
granted
many
of
the
benefits
afforded
to
carriers
of
other
 Member
 States.
 
 
 In
 1996,
 BA
 wanted
 to
 enter
 into
 a
 code‐sharing
 alliance
 with
 American
 Airlines
 (AA),
 which
 led
 to
 talks
 between
 the
 US
 and
 the
 UK
 towards
 a
 new
 bilateral
 agreement.
 
 
 These
 negotiations
 eventually
 dissolved,
 with
 the
 UK
 preferring
to
keep
strong
regulations
on
access
to
Heathrow
airport,
which
was
the
  
  53
  primary
concern
for
the
US.

Subsequently,
the
US
DoT
denied
anti‐trust
immunity
 to
BA,
thereby
nullifying
a
possible
code‐sharing
alliance
with
AA.

In
2001,
British
 Midland
Airways
(BMI)
filed
a
complaint
with
the
ECJ,
claiming
that
the
‘Bermuda
II’
 bilateral
 agreement
 was
 against
 European
 competition
 law
 (Chang
 and
 Williams,
 2002).

This
case
became
irrelevant
with
the
ECJ
‘open
skies’
ruling
in
the
following
 year.
 
 The
 UK
 chose
 to
 not
 participate
 in
 regulatory
 competition
 with
 many
 of
 the
 other
Member
States,
but
in
doing
so,
sacrificed
possible
economic
growth
for
their
 air
carriers.
 
  In
 1992,
 the
 Commission
 once
 again
 attempted
 to
 gain
 authorization
 to
  negotiate
 a
 European‐level
 air
 transportation
 agreement
 with
 the
 US,
 but
 their
 request
 to
 the
 Council
 was
 denied,
 and
 the
 Commission
 was
 only
 granted
 ‘soft
 rights’
for
negotiations.

The
US,
concerned
with
changing
the
regulation
of
the
air
 transportation
 industry,
 required
 ‘hard
 rights’
 to
 enter
 into
 negotiations
 with
 the
 Commission,
and
therefore
the
two
‘great
powers’
failed
to
agree.

The
result
of
this
 failure
was
development
of
policy
at
‘multiple
nodes’
in
the
agreements
negotiated
 between
the
US
and
Member
States
during
the
1990s.

The
Netherlands
established
 the
standard
for
the
‘open
skies’
agreements
with
the
US
in
1992,
and
eight
Member
 States,
 most
 notably
 Germany,
 followed
 the
 Netherlands
 by
 signing
 comparable
 agreements
 with
 the
 US
 by
 1996.
 France,
 on
 the
 other
 hand,
 had
 initially
 resisted
 granting
full
‘open
skies’‐
framework
rights
to
US
carriers,
but
eventually
acquiesced
 in
2001,
largely
in
part
due
to
the
failed
attempt
at
a
code‐sharing
alliance
between
  
  54
  Air
 France
 and
 Delta.
 
 The
 UK,
 along
 with
 eleven
 other
 Member
 States36,
 did
 not
 negotiate
 a
 new
 agreement
 with
 the
 US,
 resisting
 competition
 with
 other
 Member
 States.

 The
result
of
this
regulatory
competition
between
the
Member
States
was
the
 development
of
‘multiple
policy
nodes’.

The
first
‘policy
node’
was
highly
restrictive
 with
 strong
 tendencies
 towards
 national
 sovereignty
 over
 policy,
 best
 exemplified
 by
 the
 ‘Bermuda
 II’
 agreement.
 
 UK
 refused
 to
 become
 involved
 in
 the
 regulatory
 competition
 by
 retaining
 the
 heavily
 restrictive,
 regulatory
 regime
 of
 this
 agreement.
 
 Spain
 and
 Ireland
 maintained
 similar
 agreements
 with
 the
 US
 throughout
 this
 era
 of
 regulatory
 competition
 and
 can
 also
 be
 grouped
 into
 this
 ‘policy
 node’.
 
 The
 second
 ‘policy
 node’,
 is
 largely
 liberalizing,
 and
 is
 best
 characterized
by
the
1992
‘open
skies’
agreement
between
the
Netherlands
and
the
 US.
 
 In
 1995,
 six
 more
 Member
 States37
 signed
 similar
 agreements
 with
 the
 US,
 thereby
 affiliating
 themselves
 in
 this
 ‘policy
 node’.
 
 Initially,
 the
 two
 largest
 remaining
trade
partners,
Germany
and
France,
refused
to
enter
in
an
‘open
skies’
 framework
 agreement,
 preferring
 to
 retain
 the
 moderate
 levels
 of
 liberalization
 developed
in
the
mid‐1980s,
thereby
developing
the
third
‘policy
node’.

Eventually,
 both
countries
did
sign
‘open
skies’
agreements
with
the
US,
and
converging
on
the
 second
‘policy
node’.

Finally,
the
‘fourth
policy’
node
was
development
of
no
policy
 at
all.

Many
of
the
5th
and
6th
Enlargement
Eastern
European
Member
States
did
not
 have
an
air
transportation
agreement
with
the
US,
and
therefore
direct
air
transport
 























































  36
When
the
‘open
skies‐plus’
agreement
between
the
European
Union
and
the
US
was
signed,
12
of
  the
EU‐27
Member
States
did
not
already
have
an
‘open
skies’
agreement
with
the
US
 37
Austria,
Belgium,
Denmark,
Finland,
Luxembourg
and
Sweden
  
  55
  operations
 were
 not
 allowed.
 
 Before
 the
 development
 of
 a
 European‐level
 agreement
 with
 the
 US,
 transatlantic
 services
 were
 operated
 out
 of
 4
 different
 ‘policy
nodes’,
creating
an
inconsistent
and
inefficient
regulatory
regime.
  Movement
towards
Liberalization
 
  
 As
 previously
 noted,
 the
 US
 has
 remained
 the
 greatest
 proponent
 of
  international
 liberalization.
 Because
 of
 this
 liberalization,
 air
 transportation
 traffic
 for
 US‐based
 carriers
 increased
 from
 93.4
 million
 passengers
 in
 1993
 to
 126.1
 million
passengers
in
1998
(Button
and
Taylor,
2000:211).

This
immediate
increase
 in
traffic
volume
provided
strong
evidence
to
the
US
to
continue
the
liberalization
of
 international
 air
 transportation,
 most
 notably
 in
 the
 transatlantic
 market.
 
 The
 US
 did
 greatly
 increase
 their
 access
 to
 European
 markets
 through
 the
 ‘open
 skies’‐
 framework
agreements,
but
they
were
unable
to
conclude
such
an
agreement
with
 the
UK,
which
controlled
nearly
half
of
the
transatlantic
air
transportation
market.

 While
the
US
had
hoped
that
the
process
of
negotiating
‘open
skies’
agreements
with
 smaller
 Member
 States
 would
 eventually
 lead
 to
 the
 development
 of
 a
 liberalizing
 agreement
with
the
UK,
in
the
end,
this
did
not
materialize.

 Like
the
US,
the
Commission
had
also
been
active
in
developing
liberalization
 for
 air
 transportation.
 
 The
 international
 air
 transportation
 regulatory
 regime
 between
 European
 nations
 is
 historically
 heavily
 restrictive,
 even
 after
 the
 development
of
the
EC.
In
fact,
“as
late
as
the
mid‐1980’s,
national
governments
still
 guarded
virtually
unchallenged
authority
to
regulate
air
transport
policy”
(O’Reilly
 and
Stone
Sweet,
1998:
447).

Much
of
the
continued
regulatory
capacity
of
national
 governments
 is
 attributable
 to
 the
 entrenchment
 of
 ‘flag
 carrier’
 airlines
 in
 the
 
  56
  European
industry,
which
operated
virtual
monopolies
in
their
domestic
European
 markets.
 Under
 this
 regulatory
 regime,
 “services
 provided
 on
 existing
 routes
 were
 inefficient
 and
 costly,
 and
 restrictions
 in
 the
 bilateral
 intergovernmental
 agreements
 often
 prevented
 airlines
 from
 meeting
 demands
 for
 new
 services”
 (O’Reilly
 and
 Stone
 Sweet,
 1998:451‐452).
 
 In
 the
 mid‐1980’s,
 the
 Commission
 sought
 to
 change
 this
 regulatory
 regime
 by
 introducing
 liberalizing
 measures
 into
 the
industry,
in
hopes
of
furthering
intra‐European
trade.

The
Commission’s
efforts
 to
 liberalize
 EC
 air
 transportation
 resulted
 in
 the
 ‘three
 packages’
 of
 legislation,
 which
deregulated
the
intra‐European
industry.


 
  While
the
domestic
air
transportation
industries
in
the
US
and
the
EU
were
  liberalized,
 the
 transatlantic
 market,
 controlled
 by
 incompatible
 separate
 bilateral
 agreements,
 remained
 largely
 inefficient.
 The
 US
 and
 the
 Commission
 recognized
 the
 benefit
 of
 creating
 a
 common
 regulatory
 regime,
 as
 well
 as
 the
 economic
 benefits
of
liberalization
of
the
industry.


Private
actors
were
also
largely
in
favor
of
 removing
restrictions
to
trade,
particularly
European
carriers
desiring
to
enter
into
 code
share
alliances
with
their
US
counterparts.

The
US
and
the
Commission
were
 motivated
 towards
 the
 establishment
 of
 common
 trade
 liberalization
 in
 the
 transatlantic
 air
 transportation
 industry,
 but
 were
 simply
 unable
 to
 develop
 an
 agreement
because
the
Commission
lacked
competency
in
this
area.
  Setting
the
Level
of
Liberalization
(t1)
 
 In
the
early
1990s,
the
‘great
powers’
failed
to
agree
on
a
common
policy
for
 the
 regulatory
 regime
 for
 transatlantic
 air
 transportation,
 resulting
 in
 minimal
 congruence
 between
 the
 Member
 States.
 
 The
 transatlantic
 regulatory
 regime
 
  57
  entered
 into
 regulatory
 competition,
 resulting
 in
 ‘multiple
 policy
 nodes’.
 
 The
 regulatory
 competition
 between
 the
 Member
 States
 developed
 some
 measures
 of
 liberalization,
 the
 ‘open
 skies’
 bilateral
 agreements,
 but
 failed
 to
 produce
 convergence
on
a
specific
policy
or
a
specific
level
of
regulation.

In
2007,
following
 the
‘open
skies’
ruling
of
the
ECJ
and
subsequent
authorization
of
negotiating
rights
 by
the
Council,
the
two
‘great
powers’
did
eventually
agree
on
a
common
policy
for
 the
 regulation
 of
 the
 air
 transportation
 industry,
 which
 resulted
 in
 international
 convergence
 towards
 this
 specific
 policy.
 
 In
 December
 2008,
 the
 EU
 and
 Canada
 concluded
 an
 ‘open
 skies‐plus’
 air
 transportation
 agreement,
 replicating
 the
 provisions
in
the
2007
EU‐US
agreement
(Breakthrough
in
EU‐Canada
negotiations
 on
 far‐reaching
 aviation
 agreement,
 2008).
 The
 Commission
 is
 also
 currently
 negotiating
 ‘open
 skies‐plus’
 framework
 agreements
 with
 Australia
 and
 New
 Zealand,
which
are
set
to
be
similar
to
the
agreements
already
reached
with
Canada
 and
the
US
(Open
Skies‐
Europe
and
Australia,
2008;
Developing
a
Community
civil
 aviation
policy
towards
New
Zealand,
2008).
 
  This
 development
 of
 policy
 convergence
 closely
 parallels
 Drezner’s
 (2005)
  theory
 of
 neoliberal
 institutionalism,
 which
 describes
 the
 results
 of
 convergence,
 when
the
‘great
powers’
agree/fail
to
agree.

When
the
‘great
powers’
failed
to
agree,
 regulatory
 competition
 ensued,
 culminating
 with
 development
 of
 convergence
 at
 ‘multiple
policy
nodes’,
which
contains
diverse
levels
of
regulation.

When
the
‘great
 powers’
did
agree,
the
result
was
a
large
degree
of
policy
convergence.

According
to
 Drezner
 (2001),
 this
 policy
 convergence
 is
 likely
 to
 be
 set
 at
 the
 standards
 of
 the
 most
 laissez‐faire
 country.
 
 While
 developing
 the
 model
 for
 transatlantic
 air
  
  58
  transportation
services,
the
US
and
the
Commission
both
favored
liberalization,
but
 disagreed
at
precisely
what
level
of
regulation
the
degree
would
be
set.

 After
 three
 years
 of
 negotiations,
 the
 two
 trade
 partners
 developed
 an
 agreement
 that
 closely
 parallels
 the
 regulatory
 standards
 of
 the
 most
 laissez‐faire
 bilateral
agreement,
the
1992
US,
Netherlands
‘open
skies’
agreement.

In
the
2007
 ‘open
skies‐plus’
agreement,
the
US
and
the
EU
granted
each
partners’
carriers
gull
 fifth‐freedom
 rights,
 and
 removed
 restrictions
 on
 capacity,
 route,
 pricing
 and
 destination
in
the
transatlantic
market.

The
agreement
also
allows
for
all
carriers
to
 enter
 into
 code‐share
 alliances
 and
 apply
 for
 anti‐trust
 immunity.
 
 While
 the
 agreement
 grants
 greater
 rights
 for
 the
 foreign
 ownership
 of
 European
 carriers,
 49.9%
 of
 the
 voting
 stock,
 the
 US
 did
 not
 grant
 reciprocity,
 retaining
 the
 previous
 cap
 on
 foreign
 ownership
 at
 25%
 of
 the
 voting
 stock.
 
 
 The
 provision
 of
 this
 agreement
 largely
 match
 the
 provisions
 of
 the
 previous
 ‘open
 skies’
 bilateral
 between
the
US
and
the
Netherlands,
supporting
Drezner’s
(2001)
theorized
result
 of
policy
setting
at
the
level
of
the
most
laissez‐faire
country.
 In
 the
 previous
 chapter,
 the
 international
 harmonization
 for
 policy
 convergence
 mechanism
 was
 used
 to
 identify
 the
 ECJ
 ‘open
 skies’
 ruling
 and
 subsequent
 granting
 of
 rights
 to
 the
 Commission
 as
 the
 explanatory
 power
 in
 this
 development
 of
 policy
 convergence.
 
 
 The
 2002
 ‘open
 skies’
 ruling
 developed
 directly
 out
 of
 the
 regulatory
 competition
 between
 the
 Member
 States
 in
 their
 negotiations
 with
 the
 US.
 
 The
 agreements
 created
 inequitable
 competition
 conditions
for
air
carriers
from
varying
Member
States.

In
order
to
uphold
the
equal
 right
 to
 establishment,
 the
 ECJ
 ruled
 to
 resolve
 the
 regulatory
 competition
 by
  
  59
  invalidating
 the
 ‘open
 skies’‐
 framework
 agreements
 between
 the
 US
 and
 specific
 Member
 States.
 
 Regulatory
 competition
 concluded
 with
 the
 development
 of
 a
 European‐level
 air
 transportation
 agreement
 with
 the
 US,
 standardizing
 the
 regulation
 of
 the
 industry
 at
 the
 level
 negotiated
 between
 the
 US
 and
 the
 Commission.
 
  Comparing
the
conditions
at
historical
reference
points
t0
 and
t1
established
  the
process
of
regulatory
competition,
in
which
Member
States
competed
with
each
 other
in
the
development
of
air
transportation
policy
with
the
US.

The
final
result
of
 this
regulatory
competition
is
the
establishing
the
standards
of
liberalization
in
the
 EU‐US
 ‘open
 skies‐plus’
 agreement.
 
 The
 regulatory
 competition
 mechanism
 provides
 theoretical
 background
 for
 the
 development
 of
 policy
 convergence,
 particularly
when
the
great
powers
either
agree
or
fail
to
do
so,
and
describes
how
 the
level
of
regulation
is
set
at
the
standards
of
the
most
laissez‐faire
level.
 
  
  60
  Chapter
Six:
Conclusions,
Outlook
and
 Recommendations
 
  
 The
 international
 air
 transportation
 industry
 is
 a
 paradox.
 
 While
 the
  technological
 development
 of
 air
 transportation
 has
 been
 indispensible
 to
 the
 formation
 of
 global
 trade,
 the
 “industry
 itself
 remains
 subject
 to
 highly
 restrictive
 national
controls
on
cross‐border
competition
and
investment”
(Robyn
et
all,
2002:
 50).
 
 Preceding
 the
 development
 of
 powered
 flight,
 national
 governments
 sought
 protective
 actions
 for
 the
 regulation
 of
 air
 transportation.
 
 The
 ‘highly
 restrictive
 national
controls’
were
originally
instituted
as
means
of
national
defense,
but
as
the
 national
 governments
 began
 to
 develop
 their
 own
 air
 carriers
 the
 motivation
 for
 heavy
 regulation
 shifted.
 
 The
 interest
 for
 national
 governments
 shifted
 from
 protection
 of
 its
 territory
 from
 military
 incursion
 from
 the
 air,
 to
 protection
 of
 its
 business
interests
in
the
air.

Beginning
with
the
Conferences
of
Paris
and
Chicago
 and
 the
 development
 of
 the
 restrictive
 ‘Bermuda’
 regulatory
 regime,
 national
 governments
 asserted
 that
 the
 ownership
 and
 operation
 of
 air
 transportation
 services
within
their
territory
was
to
be
tightly
controlled
and
influenced
for
their
 own
advantage.
 
  The
restrictive
transatlantic
regulatory
regime
began
to
change
with
the
US’
  campaign
to
open
the
industry
to
market
forces,
beginning
with
the
deregulation
of
 their
 domestic
 market
 in
 1978.
 
 This
 was
 followed
 by
 a
 series
 of
 liberalizing
 air
 transportation
bilateral
agreements
with
many
of
the
Member
States,
most
notably
 between
 the
 US
 and
 the
 Netherlands.
 
 International
 air
 carriers,
 specifically
 Air
  
  61
  France,
 KLM
 and
 Lufthansa,
 often
 heavily
 influenced
 the
 national
 governments
 towards
 the
 further
 liberalization
 of
 transatlantic
 air
 transportation.
 
 For
 decades,
 the
‘environmental
conditions’
for
the
development
of
a
European‐level
agreement
 were
 present:
 the
 US,
 many
 Member
 States
 and
 international
 air
 carriers
 were
 strongly
in
favor
of
continually
developing
further
liberalizing
trade
agreements,
yet
 such
an
agreement
could
not
be
reached.
 
  Through
an
examination
in
the
historical
developments
of
the
international
  air
 transportation
 regulatory
 regimes,
 European‐level
 governance
 of
 the
 industry,
 and
the
bilateral
agreements
between
the
US
and
Member
States,
I
have
argued
that
 policy
convergence
has
taken
place
in
the
transatlantic
air
transportation
industry
 because
 of
 the
 2002
 ECJ
 ‘open
 skies’
 ruling
 and
 subsequent
 Council
 granting
 of
 negotiating
 rights
 to
 the
 Commission,
 and
 that
 the
 standard
 of
 regulation
 in
 this
 policy
 was
 set
 by
 the
 previous
 bilateral
 agreement
 between
 the
 US
 and
 the
 Netherlands.
 
 This
 argument
 was
 established
 using
 the
 theory
 of
 policy
 convergence,
specifically
focusing
on
two
mechanisms,
international
harmonization
 and
regulatory
competition,
to
examine
how
and
why
the
US
and
the
EU
converged
 on
an
air
transportation
policy
at
this
specific
level
of
regulation.

This
thesis
utilized
 two
 historical
 time
 references,
 t0
 and
 t1,
 as
 case
 studies
 to
 develop
 a
 comparative
 analysis
 of
 the
 ‘environmental
 conditions’
 present,
 in
 order
 to
 isolate
 the
 explanatory
power
in
the
development
of
this
policy.


 While
the
2007
‘open
skies‐plus’
agreement
has
not
completely
resolved
the
 paradox
 of
 international
 air
 transportation,
 it
 has
 terminated
 many
 of
 the
 highly
 restrictive
 national
 controls
 over
 the
 industry.
 
 Complete
 resolution
 of
 this
  
  62
  contradiction
in
globalization
would
require
a
further
liberalizing
agreement,
which
 would
 remove
 all
 national
 controls
 over
 ownership
 and
 operation
 of
 air
 transportation
services.
  Open
Aviation
Area
 
  
 The
 US
 and
 the
 EU
 have
 recently
 begun
 a
 second
 round
 of
 negotiations
 for
  the
regulation
of
transatlantic
air
transportation
operations,
with
the
ultimate
goal
 of
establishment
an
OAA
(EU,
US
Launch
Second
Round
of
‘Open
Skies’
Talks,
2008).

 An
OAA
would
develop
“a
free
trade
zone
in
air
transport”
between
the
US
and
the
 EU
for
air
transportation
operations
within
and
between
the
two
partners
(Robyn
et
 all,
2002:58).
The
creation
of
an
OAA
“would
remove
the
constraints
imposed
by
the
 system
 of
 historic
 bilateral
 air
 services
 agreements
 that
 have
 included
 restrictions
 on
the
number
of
airlines
and
flights
as
well
as
the
destinations
that
may
be
served
 between
two
countries”
(Boaz
Allan
Hamilton,
2007:3).

This
would
involve
granting
 full
 ‘freedom
 of
 air’
 rights
 to
 both
 partners,
 including
 the
 right
 to
 ‘true
 cabotage’38
 for
 foreign
 carriers.
 
 An
 OAA
 would
 also
 ease,
 or
 possibly
 remove,
 the
 remaining
 restrictions
 on
 cross‐border
 investment
 between
 nationals
 of
 the
 US
 and
 EU.
 
 The
 United
State’s
chief
aviation
negotiator,
John
Beryl,
recently
remarked
that,
“the
idea
 is
to
break
down
the
sticky
spider’s
web
of
restrictions
in
bilateral
agreements
that
 are
a
real
hindrance
to
cross‐border
investment”
(Zwaniecki,
2008).
 Booz
Allan
and
Hamilton
Ltd,
a
strategy
and
technology
consulting
firm,
were
 tasked
 by
 the
 Directorate
 General
 Energy
 and
 Transport
 of
 the
 European
 Commission
to
produce
a
report
on
the
economic
impact
of
an
OAA
between
the
US
 























































  38
see
footnote
on
page
30
for
definition
  
  63
  and
 the
 EU.
 
 The
 report
 found
 that
 removal
 of
 the
 final
 restrictions
 to
 air
 transportation
would
generate
26
million
additional
passengers
in
the
transatlantic
 market
over
the
next
five
years,
which
equates
to
an
increase
of
between
€6.4
and
 €12
billion
over
this
period
(Booz
Allan
Hamilton,
2007).

The
report
also
calculated
 that
 this
 would
 result
 in
 the
 creation
 of
 72,000
 new
 jobs
 in
 the
 US
 and
 the
 EU
 for
 passenger
 transport,
 and
 five
 to
 nine
 thousand
 jobs
 for
 cargo
 services
 during
 this
 five‐year
period
(Ibid).

While
the
possible
economic
benefits
from
the
creation
of
an
 OAA
 are
 large,
 they
 involve
 the
 removal
 of
 any
 remaining
 nationality‐based
 restrictions
on
ownership.
 The
US
has
remained
reluctant
to
opening
their
domestic
market
to
foreign
 carriers,
 as
 well
 as
 allowing
 international
 investors
 to
 control
 majorities
 of
 their
 domestic
 carriers.
 
 In
 the
 ‘open
 skies‐plus’
 agreement,
 the
 EU
 eased
 restriction
 on
 foreign
investments
to
allow
up
to
49.9%
of
the
ownership
and
controlling
vote
of
 an
airline.

This
was
not
reciprocated
by
the
US,
which
granted
foreign
ownership
of
 up
 to
 49.9%
 of
 an
 airline,
 but
 only
 25%
 of
 the
 controlling
 vote,
 because
 of
 long‐ standing
 national
 legislation.
 
 For
 the
 US
 to
 grant
 greater
 foreign
 investment,
 or
 reciprocal
 rights,
 to
 EU
 nationals,
 the
 Congress
 must
 change
 these
 legislative
 restrictions.

As
of
yet,
Congress
has
resisted
relaxing
foreign
ownership
regulations.

 In
 2006,
 the
 Bush
 Administration
 presented
 a
 “modest
 attempt”
 at
 easing
 restrictions
on
foreign
investors
to
Congress,
which
was
blocked
and
subsequently
 removed
(Zwaniecki,
2008).

US
Special
Envoy
to
the
EU
Boyden
Gray
remarked
that
 he
 believes
 convincing
 Congress
 to
 agree
 to
 an
 OAA
 is
 not
 “impossible…that
 it
 is
 doable,
but
it
is
not
easy”
(EU,
US
Launch
Second
Round
of
‘Open
Skies’
Talks,
2008).
  
  64
  Lufthansa
recently
published
a
policy
brief
on
the
prospect
of
an
OAA
in
June
 2008,
 in
 which
 they
 praised
 the
 prospect
 of
 opening
 up
 the
 US
 market
 and
 increasing
 harmonization
 in
 security,
 environmental
 and
 consumer
 protection
 issues,
 as
 well
 as
 “stopping
 protectionism”
 in
 the
 US
 foreign
 ownership
 policies
 (Lufthansa,
2008).

The
policy
brief
asserts
that
granting
only
25%
voting
rights
is
 “inconsistent
with
a
common
market
and
place
EU
airlines
at
a
disadvantage”
(Ibid).

 The
 disproportionate
 granting
 of
 voting
 rights
 has
 also
 been
 criticized
 by
 the
 UK
 recently,
 which
 has
 also
 warned
 that
 it
 advocates
 for
 the
 termination
 of
 the
 ‘open
 skies‐plus’
agreement
if
the
US
fails
to
lower
its
barriers
to
foreign
investment
(EU,
 US
Launch
Second
Round
of
‘Open
Skies’
Talks,
2008).
 As
 previously
 discussed
 in
 Chapter
 Three,
 the
 ‘open
 skies‐plus’
 agreement,
 the
 EU
 and
 the
 US
 are
 to
 come
 an
 agreement
 on
 “further
 liberalization
 of
 traffic
 rights,
 additional
 foreign
 investment
 opportunities,
 effects
 of
 environmental
 measures
and
infrastructure
constraints
on
the
exercise
of
traffic
rights,
and
further
 access
 to
 Government‐financed
 air
 transportation”
 (Air
 Transport
 Agreement,
 2007).
 
 The
 ‘open
 skies‐plus’
 agreement
 also
 states
 that
 if
 no
 second‐stage
 agreement
has
been
reached
by
November
2010,
than
“each
Party
reserves
the
right
 thereafter
 to
 suspend
 rights
 specified
 in
 this
 Agreement”
 (Ibid).
 
 This
 constricted
 timeframe
 for
 the
 development
 of
 a
 further
 liberalizing
 agreement,
 likely
 towards
 an
 OAA,
 creates
 an
 uncertain
 environment
 for
 the
 future
 of
 the
 ‘open
 skies‐plus’
 agreement,
 especially
 considering
 possible
 policy
 changes
 in
 the
 Obama
 administration.

Because
of
the
potential
loss
to
US
carriers
through
the
suspension
 of
 rights
 granted
 in
 ‘open
 skies‐plus’,
 the
 US
 is
 essentially
 required
 to
 develop
 a
 
  65
  second‐stage
 agreement
 with
 the
 EU.
 
 Whether
 Congress
 will
 be
 persuaded
 to
 remove
 restrictions
 to
 foreign
 investment
 of
 airlines
 remains
 to
 be
 seen,
 but
 whatever
the
outcome,
the
regulation
of
air
transportation
between
the
US
and
the
 EU
 and
 of
 the
 ‘open
 skies‐plus’
 agreement
 will
 assuredly
 be
 altered
 in
 the
 near
 future.
  Recommendations
 
  
 To
ensure
the
continued
cooperation
between
the
US
and
the
EU
towards
the
  further
 development
 of
 liberalization
 in
 transatlantic
 air
 transportation,
 I
 propose
 the
following
three
recommendations.

First,
the
second‐stage
negotiations
between
 the
US
and
the
EU
should
culminate
with
an
agreement
leading
to
the
removal
of
all
 remaining
 restrictions
 of
 the
 eight
 freedoms
 of
 air,
 which
 would
 develop
 a
 transatlantic
open
aviation
area.

This
OAA
should
be
gradually
developed
over
the
 course
of
a
decade
through
multiple
stages
of
increasing
liberalization,
similar
to
the
 deregulation
 of
 the
 domestic
 European
 market
 through
 the
 ‘three
 packages’
 of
 legislation.
 
 This
 would
 allow
 for
 the
 air
 transportation
 industry
 to
 gradually
 redesign
their
business
operations
to
best
fit
this
system.

The
traditional
‘hub
and
 spoke’
 network
 model
 of
 air
 transportation
 has
 been
 challenged
 recently
 by
 the
 ‘low‐cost’
 carriers,
 which
 have
 enacted
 more
 creative
 models
 in
 their
 operations,
 particularly
 in
 Europe.
 
 The
 larger
 US
 carriers,
 already
 struggling
 to
 compete
 with
 the
 current
 domestic
 ‘low‐cost’
 airlines,
 will
 be
 forced
 to
 evolve
 their
 traditional
 network
in
order
to
remain
competitive.

While
in
the
short‐term,
the
development
 of
a
transatlantic
OAA
may
result
in
the
decline
of
larger
carriers;
the
industry
will
 ultimately
redevelop
into
a
more
efficient
model.

Also,
the
gradual
introduction
of
 
  66
  greater
 traffic
 freedoms
 for
 transatlantic
 air
 carriers
 will
 allow
 them
 to
 slowly
 evolve
to
fit
the
needs
of
the
developing
market.
 
  Second,
 to
 ensure
 the
 successful
 completion
 of
 the
 second‐stage
 of
 air
  transportation
 negotiations,
 the
 agreement
 must
 develop
 reciprocity
 between
 the
 US
 and
 the
 EU
 in
 the
 granting
 of
 rights
 for
 foreign
 ownership
 of
 airlines.
 
 The
 current
provisions
on
foreign
ownership
have
been
largely
criticized
in
Europe,
and
 any
 second‐stage
 agreement
 must
 develop
 reciprocity.
 
 I
 propose
 the
 level
 of
 liberalization
 on
 foreign
 investment
 to
 be
 set
 at
 a
 maximum
 of
 49.9%
 of
 the
 total
 ownership
 and
 voting
 stock
 of
 an
 airline
 for
 both
 US
 and
 EU
 investors.
 
 This
 will
 require
legislation
by
the
US
Congress
overturning
the
current
25%
cap
on
foreign
 ownership
 of
 airlines.
 
 This
 proposal
 does
 not
 grant
 unlimited
 foreign
 ownership
 rights
because
Congress
is
unlikely
to
approve
anything
over
the
current
amount
of
 foreign
ownership
allowed
for
US
investors.


 The
 ‘open
 skies‐plus’
 agreement
 between
 the
 EU
 and
 Canada
 contains
 provisions
 for
 the
 removal
 of
 all
 nationality‐based
 barriers
 to
 foreign
 investment.

 These
 provisions
 are
 set
 to
 be
 phased
 in
 through
 four
 tiers,
 culminating
 with
 the
 eventual
 development
 of
 a
 full
 OAA
 (Breakthrough
 in
 EU‐Canada
 negotiations
 on
 far‐reaching
aviation
agreement,
2008).


This
process
should
be
replicated
between
 the
US
and
the
EU.

The
removal
of
the
last
remaining
nationality‐based
restrictions
 on
 air
 transportation
 must
 be
 gradual
 and
 cautious,
 otherwise
 governments,
 particularly
 the
 US,
 will
 not
 approve.
 
 The
 gradual
 introduction
 of
 foreign
 investment
liberalization
will
also
allow
for
easier
transition
for
air
carriers
into
the
 developing
 environment
 of
 unrestricted
 transatlantic
 traffic
 rights.
 If
 unlimited
  
  67
  restrictions
 on
 investments
 were
 to
 be
 granted,
 carriers
 may
 become
 more
 apprehensive
 about
 being
 bought
 by
 foreign
 investors,
 and
 therefore
 unable
 or
 unwilling
 to
 make
 the
 changes
 necessary
 to
 successfully
 adapt
 to
 the
 induction
 of
 freedoms
of
air
into
their
domestic
market.


 
  The
 third
 and
 final
 recommendation
 is
 the
 development
 of
 a
 regulatory
  agency
 with
 strong
 enforcement
 capability
 to
 ensure
 the
 enactment
 of
 these
 provisions
and
to
mediate
conflicts.

This
agency
would
have
to
be
developed
with
 equal
EU
and
US
involvement
and
be
granted
specific
jurisdiction
over
all
regulatory
 matters
in
the
transatlantic
air
transportation
industry.

The
development
of
an
OAA
 and
 continued
 liberalization
 of
 the
 transatlantic
 air
 transportation
 industry
 can
 provide
 great
 benefits
 for
 airlines,
 consumers,
 and
 employees.
 
 These
 recommendations
 were
 developed
 from
 an
 examination
 of
 previous
 successful
 formation
 of
 policy,
 and
 are
 intended
 to
 maximize
 the
 potential
 benefits
 of
 liberalization,
while
minimizing
the
possible
negative
effects
for
consumers,
airlines,
 and
governments.

A
transatlantic
OAA
could
become
very
rewarding,
but
it
must
be
 developed
intelligently
and
gradually
in
order
to
ensure
its
successful
enactment.
  
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