On 10 May 2019, Regulation (EU) 2019/712 on safeguarding competition in air transport (the new Regulation) was published in the Official Journal.1 In accordance with article 19, it will enter into force on 30 May 2019 (i.e. the twentieth day following its publication). The new Regulation replaces Regulation (EC) No 868/2004 (Regulation 868/2004) which, for the reasons set out below, was widely seen as ineffective.
While a detailed assessment of the new Regulation is beyond its scope, this article will briefly summarise the way in which the new Regulation seeks to deal with the perceived weaknesses of the old regime, and offer some preliminary thoughts as to whether the new Regulation is likely to be more effective than its predecessor.
Proposed solutions to the perceived weaknesses of Regulation 868/2004
Regulation 868/2004, in the main a reaction to the billions of dollars of aid provided by Congress to American airlines following the 9/11 attacks,2 sought to protect Community airlines from the damaging effects of the provision of state subsidies to third country airlines.3 Its recitals noted that the competitive position of Community air carriers could be adversely affected by "unfair and discriminatory practices" and it purported to allow the Community to "take action to redress such unfair practices".4
Regulation 868/2004 is widely considered by industry stakeholders to have been ineffective5, as illustrated by the fact that it has never once been successfully applied in the fifteen years between 2004, when it came into force, and now. Indeed, due to features that hinder its effectiveness, it was unlikely ever to be applied.6 Several key problematic features have been identified.7
Firstly, Regulation 868/2004 is of limited scope; it applies only to subsidisation and "unfair pricing practices". Unfair pricing practices are not clearly defined; they are deemed to exist where third country air carriers benefit from a non-commercial advantage and charge air fares sufficiently below those offered by competing Community air carriers to cause injury.8 Given the complex nature of pricing systems in the air transport industry, it is difficult for carriers to identify the existence of unfair pricing practices and furthermore unclear what unfair practices fall within its scope.
Secondly, it places a high evidential burden upon EU airlines: it requires that they adduce evidence of the existence of subsidies or unfair pricing practices, injury and a causal link between the subsidy or unfair pricing practice and the injury.9 In particular, evidence of the existence of subsidies may be difficult to obtain, particularly in relation to state-owned air carriers in the Gulf.
Finally, only the "Community industry" ("the Community air carriers supplying like air services as a whole or those of them whose collective share constitutes a major proportion of the total Community supply of those services") is able to make complaints to the Commission.10 This narrow definition excludes Member States and individual EU air carriers.
In light of these issues and as part of its Open and Connected Aviation package, the Commission proposed to repeal Regulation 868/2004 and replace it with a new instrument. To that end, Regulation (EU) 2019/712 was adopted and finally published in the Official Journal of the EU on 10 May 2019.
Several key features of the new Regulation purport to address some of the deficiencies found in the old one.
First, it goes beyond the scope of Regulation 868/2004 and abandons the unhelpful concept of "unfair pricing practices", instead aiming to redress "practices distorting competition", which covers both subsidisation and "discrimination". Discrimination itself is broadly defined11, and examples include not only unfair prices of, and access conditions to key infrastructure and services such as airport infrastructure, slots, groundhandling, air navigation services etc. but also less tangible forms of potential discrimination such as unduly burdensome administrative procedures.12
Secondly, it explicitly allows Member States, Union carriers and associations of Union carriers to submit complaints to the Commission, broadening the range of parties with standing to complain.13
Finally, it seeks to alleviate some of the evidential hurdles in Regulation 868/2004: it requires complainants to provide only "prima facie evidence" (rather than "evidence") of a practice distorting competition, and the ability to demonstrate a threat of injury (rather than actual injury) suffices, provided a causal link between the practice and (threat of) injury can be established. In addition, inspired by the information gathering powers the Commission has within the context of the EU competition law enforcement regime, the new Regulation empowers the latter to send out questionnaires to verify information with the third country entity or third country concerned, and even to carry out on-site inspections, subject to the consent of the third country entity and lack of objection by the third country government in question.14 Information is expressly made confidential to reduce the reluctance of third parties to disclose commercial data.15 Finally, the Commission may also request the assistance of relevant Member State(s).16
Towards an effective enforcement regime to safeguard fair competition?
As set out above, the new Regulation seeks to rectify some of the most serious shortcomings of the old regime. However, despite these improvements, the hurdles faced by any potential complainant remain daunting.
First, while the initial burden of proof on a potential complainant has been lowered to the provision of prima facie evidence of discrimination (widely defined) causing at least a threat of injury, in practice putting together a successful complaint will remain a tough challenge for the following reasons:
- Unless the source of the discrimination is relatively easy to document, even this lower evidentiary threshold will be difficult to meet. This is particularly the case where discrimination takes on a more intangible form such as unduly burdensome administrative conditions, unjustified refusal of permits etc. Thus, while it is helpful that, contrary to Regulation 868/2004, the new rules seek to deal with discrimination broadly defined, it remains to be seen how helpful this will be in practice to the potential complainant;
- In addition, it will often be difficult to provide evidence – even on a prima facie basis – of a causal link between the alleged discrimination and the injury or threat of injury, again especially where the discrimination is said to result from unduly unfavourable trading conditions.
Secondly, if the Commission decides that the complaint raises a high enough degree of concern to warrant the opening of a formal investigation, the Commission's challenge to build a case that is sufficiently robust to justify the imposition of corrective measures remains formidable. As mentioned above, to assist it in this task, the new Regulation provides the Commission with a number of information gathering powers. It remains to be seen, however, how effective these powers will be in practice. In particular, the usefulness of carrying out in situ inspections is undermined by the fact that such inspections cannot be carried out unannounced (contrary to situation under EU competition law), but are subject to the lack of objection/consent of the third country and/or third country entity in question.
In recognition of those difficulties, article 9 of the new Regulation provides that in the case of non-cooperation, the Commission may adopt a decision on the basis of the available evidence. However, while this is mitigates the challenge the Commission faces, it is unclear how useful this will be in practice, as a certain minimum level of evidentiary robustness will in any case need to be met.
Finally, article 14 of the new Regulation empowers the Commission to adopt redressive measures, proportionate to the injury suffered as a result of the discriminatory actions by the third country or third country entity. These measures can take the form of financial duties or operational measures of equivalent or lesser value, although recital 27 explicitly states that they cannot consist of the suspension or limitation of traffic rights which are granted by a Member State to a third country. While financial duties or operational measures of equivalent value may be effective where the financial impact of the discriminatory actions can be established with reasonable certainty, in practice this will often be difficult to do. Again, this will especially be the case where the discrimination results from general unfavourable trading conditions such as unduly burdensome administrative conditions. It is not obvious what form an effective redressive measure could take in those circumstances.
Given the challenges described above, is the new Regulation doomed to be nothing more than a damp squib? Not necessarily. The most important impact of the new Regulation may well be political rather than purely legal. Indeed, a number of provisions in the Regulation and statements in the recitals would seem to indicate that this is at least part of the aim of the new rules. Thus, the recitals refer to the EU's frustration that although explicitly recognised in the Chicago Convention, the notion of fair competition remains undefined both in the Convention itself or in any of the multilateral rules adopted in the context of ICAO.17 In addition, the recitals point out that a significant number of Air Services Agreements with third countries do not provide adequate fair competition rules.18 Given this context, the Regulation provides the Commission with a significant degree of discretion as to how best to deal with a perceived situation of unfair competition. Thus, where the practice also constitutes a breach of an Air Services Agreement, the Commission may seek to address the situation using the dispute resolution mechanism provided for in the agreement.19 Equally, the Commission has a significant degree of latitude to decide not to pursue, or stop pursuing an infringement procedure against the third country or third country entity where it considers that this is not in the EU's interest.20 This allows the Commission to seek a political solution where it considers this to be a more effective way of addressing the concern.
The new Regulation, while addressing some of the most serious shortcomings of the old regime, is unlikely to lead to a significant increase in successful infringement proceedings against third countries or third country entities. However, this does not mean that the Regulation will necessarily be unsuccessful. It provides the Commission with a more effective tool in its armoury than it currently has to address concerns relating to unfair practices, including (and probably more likely) through political means.
- Regulation (EU) 2019/712 of the European Parliament and of the Council of 17 April 2019 on safeguarding competition in air transport, and repealing Regulation (EC) No 868/2004, OJ L 123, 10.5.2019, p. 4–17.
- The Commission stressed that 9/11 "must not undermine the Commission's policy on state aid" and expressed concerns about the losses Community airlines might suffer as a result – see the Communication from the Commission of the European Communities to the European Parliament and the Council on the repercussions of the terrorist attacks in the United States on the air transport industry of 10 October 2001, available at: http://ec.europa.eu/transparency/regdoc/rep/1/2001/EN/1-2001-574-EN-F1-1.Pdf.
- Regulation (EC) No 868/2004 of the European Parliament and of the Council of 21 April 2004 concerning protection against subsidisation and unfair pricing practices causing injury to Community air carriers in the supply of air services from countries not members of the European Community.
- Recitals 1 and 6 to Regulation 868/2004.
- Commission Staff Working Document Impact Assessment accompanying the document proposal for a Regulation of the European Parliament and of the Council on Safeguarding Competition in Air Transport, Repealing Regulation (EC) No 868/2004 of 8 June 2017, available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1504194801589&uri=CELEX:52017SC0182 (the Commission Staff Working Document).
- Proposal for a Regulation of the European Parliament and of the Council on safeguarding competition in air transport, repealing Regulation (EC) No 868/2004, of 8 June 2017 (see in particular the Explanatory Memorandum), available at: https://ec.europa.eu/transport/sites/transport/files/com20170289-proposal-regulation-safeguarding-competition-air-transport.pdf.
- Commission Staff Working Document.
- Article 5(1) of Regulation 868/2004.
- Article 7(1) of Regulation 868/2004.
- Articles 1(1), 2(6) and (8) of the new Regulation.
- Recital 10 of the new Regulation.
- Article 4(1) of the new Regulation.
- Article 5 of the new Regulation.
- Article 8 of the new Regulation.
- Article 5(7) of the new Regulation.
- Recitals 3 – 5 of the new Regulation.
- Recital 7 of the new Regulation.
- Article 6 of the new Regulation.
- Article 3 of the new Regulation.