December 11, 2009
Though not centered directly on international aviation law, Harvard Law School Professor Rachel Brewster's essay, Shadow Unilateralism: Enforcing International Trade Law at the WTO, 30 U. Pa. J. Int'l L. 1133 (2009), provides an instructive critique of one of international law's most touted judicial mechanisms: the World Trade Organization's dispute settlement system. In Brewer's view, while the current system--embodied in the Understanding on Rules and Procedures Governing the Settlement of Disputes (full text available here)--represents a clear advance over the old General Agreement on Tariffs and Trade dispute settlement regime, it suffers from a flawed institutional design which "creates a need for the unilateral enforcement of trade rules" outside the scope of the WTO while simultaneously "provid[ing] legal protection" for this enforcement. See id. at 1135. Brewster argues that this is due to what she calls the "stall-and-withdrawl" loophole in the WTO's dispute settlement system. States which are alleged to have abrogated WTO trade rules can continue to remain in violation until a dispute settlement decision is rendered--a process which takes, at minimum, 18 months and may, in fact, continue for years. See id. at 1144 (discussing the Bush II Administration's imposition of steel tariffs in 2002 and their subsequent withdrawal over a year later after the WTO declared them illegal). A State (or States) suffering economic harm due to another's unwillingness to adhere to its commitments under the WTO has (have) a strong incentive to undertake unilateral retaliatory measures rather than await a WTO decision. As Brewer notes, such retaliation is afforded the same latitude under the dispute settlement process as the violation which prompted it.
How is this relevant to international civil aviation, particularly since it is largely exempted from coverage under the WTO General Agreement on Trade in Services? See WTO, GATS Annex on Air Transport Services (available here). While trade in air services has traditionally been carried out at the bilateral level, particularly since the 1944 International Civil Aviation Conference which established the Chicago Convention, incremental but important change is underway. The landmark U.S./EC Air Transport Agreement contains provisions allowing it to function as a plurilateral whereby non-parties may accede to the treaty. See 2007 U.S./EC Air Transport Agreement, art. 18(5), 2007 (O.J. L 134) 4; see also Restatement (Third) of Foreign Relations Law of the United States sec. 312 (1987) (discussing plurilateral agreements). This potentiality was actualized earlier this year when the U.S. and EC agreed to terms for Iceland and Norway's accession. See Josh Mitchell, Norway, Iceland to Join "Open Skies" Pact with US, Dow Jones Newswire, Oct. 9, 2009 (available here). It is conceivable that at some stage a "critical mass" of State parties will be reached, requiring a more sophisticated mechanism for settling disputes than the more informal consultation/negotiation/arbitration procedures commonplace in air services agreements. See, e.g., U.S. Dept. of State, Current Model Open Skies Agreement Text, art. 14 (Jan. 10, 2008) (available here); cf. also U.S./EC Air Transport Agreement, supra, art. 18. Even before such a "mass" is reached, enhanced regulatory harmonization between the current parties could demand the eventual establishment of a standing body with the competence and juridical power to settle disputes. Before such efforts are undertaken, however, civil aviation authorities would be well served to scrutinize the WTO model, reflect on the criticisms offered by Brewer, and hopefully develop a system which disciplines global aviation trade through and within the rule of law.
No U.S./Japan Open Skies...Yet
Despite talk that an agreement would be finalized before year's end, the United States and Japan were unable to finalize an open skies treaty in Tokyo yesterday. See Yoshio Takahashi, Japan Transport Min: No Agreement Yet on US-Japan Open Skies, Dec. 10, 2009 (available here). According to news reports, slot allocation at Haneda Airport remains one of the sticking points in the negotiations. While "open gateways" between partners is a central element of the open skies policy template, the Japanese Government has indicated in recent weeks that it will limit slots for U.S. airlines at it Tokyo airports. See "No Japan/U.S. Open Skies?"
December 10, 2009
Transpacific Alliance Approved
As expected, see "Regulators to Approve U.S./Australia Alliance," the Australian Competition and Consumer Commission officially cleared the Delta Airlines/Virgin Blue alliance proposal. See Harry R. Weber, Australian Regulators OK Delta, Virgin Blue Plan, Assoc. Press, Dec. 10, 2009 (available here). The joint venture is still awaiting final approval and antitrust immunity from the U.S. Department of Transportation. See Dkt. No. OST-2009-0155, Application for Approval of and Antitrust Immunity for Alliance Agreements (July 9, 2009).
More on DOT and Passenger Rights
As discussed last month on the blog, see "New Passenger Rights Enforcement," the Department of Transportation set something of a precedent by issuing fines to Continental Airlines, Mesaba Airlines, and ExpressJet for their role in the highly publicized stranding of 47 passengers on the tarmac in August of this year. There's a new story out discussing the fines and their possible ramifications that is well worth reading. See Jay Boehmer, Tarmac Delay Triggers DOT Fine Precedent, Bus. Travel News, Dec. 7, 2009 (available here). As the story discusses, the three airlines were fined a total of $175,000 for engaging in "unfair and deceptive practices" due to their failure to follow Continental's "Airlines Customer First Commitments" published on its website. According to 49 U.S.C. § 41712:
On the initiative of the Secretary of Transportation or the complaint of an air carrier, foreign air carrier, or ticket agent, and if the Secretary considers it is in the public interest, the Secretary may investigate and decide whether an air carrier, foreign air carrier, or ticket agent has been or is engaged in an unfair or deceptive practice or an unfair method of competition in air transportation or the sale of air transportation. If the Secretary, after notice and an opportunity for a hearing, finds that an air carrier, foreign air carrier, or ticket agent is engaged in an unfair or deceptive practice or unfair method of competition, the Secretary shall order the air carrier, foreign air carrier, or ticket agent to stop the practice or method.
Notice, however, that this provision only permits the Secretary to order a halt to an air carrier's deceptive or unfair business practices. It says nothing about issuing monetary penalties. As the DOT order makes clear, the fines levied were agreed upon "in the interest of compromise and settlement" in order "to avoid the substantial burdens of litigation." See Continental Airlines, Inc., Consent Order, Dkt. No. OST-2009-0001 (Nov. 24, 2009), at 3. It remains unclear what criteria the DOT may use in the future to determine a "passenger rights" violation through the exercise of its § 41712 authority and what the penalities for such violations would be. It is also not clear to what extent the DOT will pursue future "passenger rights" cases. The discretion lies with the DOT. The result, unfortunately, is more regulatory uncertainty for the airlines.
December 9, 2009
Turbulent Times at an End?
A report from yesterday's Wall Street Journal indicates that the U.S. airline industry may soon recover from its financial woes. See Susan Carey & Mike Esterl, Airline Appear Headed for Recovery, Wall St. J., Dec. 8, 2009 (available here). While the story notes a number of challenges ahead, including consumer concerns over the spread of the H1N1 virus and potential increases in fuel prices sparked by overall economic recovery, the bottom line is that the U.S. aviation sector has taken the right steps to weather the current economic storm and reposition itself for profitability in the near future.
Assuming the airlines' recovery remains steady over the next several years, one has to wonder whether it will be enough to halt recent discussions about reregulating the industry. Transportation Secretary Ray LaHood has committed himself to establishing a new advisory group for aviation, one which could certainly suggest lawmakers take a more proactive role in "stabilizing" or "maintaining" U.S. air transportation. At the same time, it's important to bear in mind that despite numerous upheavals over the past three decades, the airline industry has done remarkably well staving off reregulation. (Ironically, however, this may have been due to the industry's fractured interests where no "one size fits all" regulatory schema would be appropriate rather than an exercise of bald lobbying power.) Cf. Michael E. Levine, Why Weren't the Airline Reregulated?, 23 Yale J. on Reg. 269 (2006).
December 8, 2009
EU Flag Carrier Phenomenon Not Dead
With the privatization of Alitalia and Olympic Airways earlier this year, it appeared the days of the EU Member State flag carrier were coming to a close. Not so, apparently. According to a new report, Hungary is poised to forgo HUF 19 billion in debt of its former State carrier Malév. See Hungary to Forgo Debts of Ailing Airline Malév . . ., Portfolio.HU, Dec. 4, 2009 (available here). As part of the deal, Hungary could convert its claims into a majority ownership stake. According to the report, the Hungarian Government is looking to partner with Malév's Russian parent company, AirBridge, to help the carrier return to profitability.
Commercial Space Transport: A New Regulatory Challenge
Now that Sir Richard Branson's Virgin Galactic has unveiled the world's first commercial spacecraft, see John Johnson, Jr., Rutan and Branson Make Giant Leap for Space Tourism, L.A. Times, Dec. 8, 2009 (available here), regulators in Washington will have to decide how to handle this new commercial phenomenon. In a report issued last week, the U.S. Government Accountability Office discussed a number of safety oversight issues which will have to be addressed. See Commercial Space Transportation: Development of the Commercial Space Launch Industry Presents Safety Oversight Challenges for FAA and Raises Issues Affecting Federal Roles, GAO-10-286T (Dec. 2, 2009) (available here). From the abstract:
Since the Government Accountability Office (GAO) reported on the commercial space launch industry in 2006, the industry has evolved and moved further toward space tourism. Commercial space tourism promises to make human space travel available to the public for the first time. The Federal Aviation Administration (FAA) oversees the safety of commercial space launches, licensing and monitoring the safety of such launches and of spaceports (sites for launching spacecraft), and FAA promotes the industry. FAA is also responsible for overseeing the safety of space tourism, but it may not regulate crew and passenger safety before 2012 except in response to high-risk incidents, serious injuries, or fatalities. This testimony addresses (1) recent trends in the commercial space launch industry, (2) challenges that FAA faces in overseeing the industry, and (3) emerging issues that will affect the federal role. This statement is based on GAO's October 2006 report on commercial space launches, updated with information GAO gathered from FAA, the Department of Commerce, and industry experts in November 2009 on industry trends and recent FAA actions. In past work, GAO recommended that FAA take several actions to improve its oversight of commercial space launches, including assessing its future resource needs. FAA has taken some steps to address the recommendations.
Recent Trends: Historically, the commercial space launch industry focused primarily on putting payloads, such as satellites, into orbit, using launch vehicles that did not return to earth. Such launches have, however, dropped off, and the industry is increasing its focus on space tourism. Since five manned commercial flights demonstrated the potential for commercial space tourism in 2004, companies have pursued research and development and are further developing reusable vehicles for manned flights. Concurrently, companies and states are developing additional spaceports to accommodate anticipated increases in commercial space launches. States have provided economic incentives, and FAA has provided some funding for development. Oversight Challenges: In overseeing the commercial space launch industry, including the safety of space tourism, FAA faces several challenges. These include maintaining a sufficient number of staff with the necessary expertise to oversee the safety of launches and spaceport operations; determining whether FAA's current safety regulations are appropriate for all types of commercial space vehicles, operations, and launch sites; developing information to help FAA decide when to regulate crew and passenger safety after 2012; and continuing to avoid conflicts between FAA's regulatory and promotional roles. Emerging Issues: The U.S. commercial space launch industry is expected to expand as space tourism develops and the National Aeronautics and Space Administration starts to rely on the commercial sector for space transportation. This expansion will affect the federal role. For example, FAA will face increases in its licensing and regulatory workload, and federal agencies and Congress will face decisions about whether to support the U.S. industry by continuing to provide liability indemnification to lower its costs. Additionally, FAA will face policy and procedural issues when it integrates the operations of spacecraft into its next generation air transportation system. Finally, coordinating the federal response to the commercial space industry's expansion is an issue for the federal government in the absence of a national space launch strategy for setting priorities and establishing federal agency roles.