Liberalization of Air Transport in the European Community

During the first 20 years of the EC, the European Council was unable to come to any consensus as to how to break down the State-sponsored anticompetitive barriers and practices that char­acterized European airlines, even though this was clearly its mandate. The European Com­mission, chafing at the lack of movement in this area, began the “liberalization” process with its Memorandum No. 1 in 1979, which dealt pri­marily with the existence of high tariffs between Member States. The Commission does not have authority to enact binding regulations, but only proposes to the Council, which has that authority. The Commission, therefore, used the “Memoran­dum” vehicle as a gentle prod to the Council.

When the Council had failed to take action by 1984, the Commission published its Memo­randum No. 2. This position paper was an expan­sion of the positions taken in Memorandum No. 1, and contained further, comprehensive pro­posals aimed at breaking down anticompetitive practices in air transportation among the Member States. The paper dealt with the intransigence of Member States in implementing Common Mar­ket unification strategies required by the Treaty of Rome, and emphasized the need for a unified European Community position in view of the effects of deregulation in the United States.

Further, between the Commission’s Memo­randum No. 1 and Memorandum No. 2, the Par­liament brought an action against the Council in the European Court of Justice seeking a declara­tion that the Council had failed in its duty to act in promoting a common transportation policy. While the decision of the Court of Justice was wide-ranging, the decision did agree that the Council had effectively eschewed its responsibil­ities regarding air transport. With the rendering of this opinion of the Court of Justice, the Coun­cil had effectively been chastised by all three of the other EC institutions.

In April 1986, the European Court of Justice rendered its decision in the case of Nouvelles Frontieres.’ This decision removed any remain­ing doubt that air transport was subject to the competition rules of the Treaty of Rome. The court held, in effect, that if the Council failed to act on competition issues, the Commission could issue a “reasoned decision” under Article 89 that would have the effect of putting competition issues into litigation for resolution. This decision constituted an “end run” around the Council, giv­ing the Commission direct means to address the issue of competition in air transport matters.

Strengthened by Nouvelles Frontieres, later in 1986 the Commission sent letters to

10 European airlines alleging that they had vio­lated the anticompetitive provisions of the Treaty of Rome by price fixing, capacity limitations, and various other practices. In due course, nego­tiations between the carriers and the Commission led to the implementation of restrictions of some of these anticompetitive practices for the first time.

After years of stagnation regarding the ques­tion of “liberalization” in the European air transport industry, things were now beginning to happen. The Single European Act,2 an agreement ratified by the Member States in February 1986, and which went into force on July 1, 1987, effectively laid the necessary groundwork for the creation of the European Union. Its intention was finally to create a true internal market in the Community, one in which restrictions on the movement of goods, ser­vices, people, and capital were eliminated. Addi­tionally, by its amendment of the voting procedures used within the European Council (it eliminated single state veto and mandated majority vote), the Council was freed from its preexisting paralysis on a number of issues, including the issue of a com­mon transport policy regarding aviation. No longer could one Member State veto action by the Coun­cil. No longer could minority bickering between nations within the 12-member Council thwart the efforts of the majority toward full integration of Member States and the elimination of frontiers. At last, the Treaty of Rome had teeth.