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Intercontinental regulation
of civil aviation
Bargaining and Implementing the
Open Skies Agreement
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• Adrienne Héritier EUI, Florence
• Yannis Karagiannis, IBEI Barcelona
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• Research Question
• European Union and the United States
finally signed an Open Skies Agreement
(‘OSA’) in 2007
• Parties with mixed motives bargaining
process : both gain from successful
outcome
• both feared giving up too much.
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• Outcome biased in favour of U.S.
• Therefore EU only concluded under
condition of re-negotiation
• RQ 1: do negotiations stage two lead to
more symmetrical outcome?
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• Outcome provides for convergence
mechanism to produce mutual
rapprochement of EU and US regulation
• RQ 2: Does joint decision committee
produce decisions indicating more
convergence?
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• RQ 1 and RQ 2 linked:
• Decisions of joint decision committee (RQ
2)
• feed back into stage-two negotiations (RQ
1)
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•
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RQ 1: Why did the agreement grant US
airlines rights that it did not recognize to their
European counterparts?
Why EU stand a better chance now for a more
symmetric outcome?
How do changed macro-institutional conditions
affect re-bargaining process?
How do different actor preferences affect
outcome?
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• RQ 2:Regulatory convergence mechanism as a case of
intercontinental regulatory policy-making.
• Do decision-making rules affect the probability of
successful policy decisions?
• What explains the observed variation in convergence
scores between different policy areas?
• Why do implementation decisions sometimes fall on
regular bureaucrats and sometimes on national-level
politicians?
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Background information
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Cooperative marketing arrangements for code sharing, franchising, and
leasing.
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Cooperative joint committee to further airline deregulation
Guarantees for US investors to participate as minority shareholders in any
majority-EU-owned airline
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Restatement of US investment policy in US airlines (25% legislated cap on
voting equity, 25%-minus-one-share regulatory cap on non-voting equity)
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For EU carriers: ability to operate flights between any EU member state and
the US
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EU carriers can carry certain Fly America traffic
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EU cargo carriers: operate flights between third-party states and the US
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• From the EU perspective
• outcome of 2007 biased in favour of the US
• - namely “cabotage” (i.e. the right of a foreign
carrier to operate purely domestic flights)
• and ownership rights (i.e. the right of a foreign
carrier to acquire a domestic carrier).
• Therefore, re-negotiation condition under which
EU accepted the “biased” negotiation outcome
of OSA 2007.
• Since May 2008 negotiating OSA stage two
approval in November 2010.
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• OSA traffic liberalization subject to jointly agreed
regulatory provisions – ‘convergence’.
• within a converging international regulatory
framework
• air carriers can make use of the new
opportunities from agreement to improve their
market positions and increase transatlantic
capacity.
• OSA takes highly unusual step of establishing
common decision-making institutions in view of
achieving full-range regulatory convergence.
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• This applies to such diverse policy areas
as
• (a) competition and state subsidies,
• (b) ownership and control,
• (c) environmental standards,
• (d) security
• (e) health and safety,
• (f) consumer protection.
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Theory and hypotheses
• Assumptions:
Firms:
• First political agreement necessary because airlines do
not agree on their own
• - because the financially strong carriers do not commit to
not acquire the weaker ones,
• - and the weaker ones do not commit to not lobby
governments for special treatment.
• Second, aviation sector never relatively free market
• - . …vested interests stronger than universalistic or
consumer interests.
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• Third, we assume that liberalization is the result of the
wish of comparatively better endowed or richer airlines
looking for new growth opportunities.
• Political actors:
Fourth, officials are policy oriented and politicians are
voter oriented
Fifth, elected or politically accountable negotiators are
more risk averse than unelected officials.
Finally, adapting to regulations may be costly, and
adapting to more stringent regulations more costly than
relaxing regulations once one has adapted to them.
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• Each bargaining situation
• We focus on two bargaining situations and the
link between the two:
• (a) a market in which actors differ along their
capital endowments, and the stringency of the
regulations they have had to adjust to;
• (b) a bargaining situation in which negotiators
differ according to the constituencies they are
accountable to, and their respective regulatory
backgrounds.
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• power-based bargaining argument
• Applied to
• negotiations a) in the joint decision-making
committee
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• and b) the stage-two negotiations
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• All actors jointly profit from liberalization
• However, benefits not evenly distributed.
• Distributional consequences of different types of
liberalization agreements for different actors,
e.g. different types of airlines, different types of
negotiators.
• Different redistributive consequences
(“redistributive” in terms of votes or policy) will
inform the strategies that different actors follow
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Hypotheses
• first varying macro institutional aspects
• holding constant preferences of actors
• three important macro-factors in the
environment: assuming unanimity/consensus
• structure of the agenda (single issue or multiple
issues),
• the finiteness of the negotiations (plus sanctions
in case of non-agreement)
• and the number of veto-players in a polity.
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• H1: Under a multi-issue agenda the
negotiation outcome ceteris paribus will be
characterized by a more equitable
distribution of the surplus of the bargaining
process, i.e. a specific actor will gain more
on some issues, but less on others.
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• H2: If there is only one bargaining round
with a set time limit and credible threats of
suspension of previous agreements, the
likeliness of regulatory convergence is
higher.
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• H3: The actor from the polity with many
veto-players will ceteris paribus prevail in
the negotiation process and shape its
outcomes
• H3.1 Multiple “domestic” veto-players may
weaken a negotiator and accordingly
influence outcomes.
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• H4 The negotiators of the polity with the
financially sound carriers will ceteris
paribus seek to accelerate measures of
liberalization of market access and
ownership and control
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• H5 If negotiators of the polity with the lenient
market-correcting regulation will prevail in
negotiations ceteris paribus transatlantic marketcorrecting regulation will be limited.
• H6 If the negotiators of the two polities are
confronted with similar wide and diverse
constituencies they will be more likely to agree
on converging regulation
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• H7: In bargaining rounds dominated by
bureaucrats (in politically non-salient issue
areas) regulatory convergence is reached
more easily than in bargaining rounds
dominated by politicians (in politically
salient issue areas)
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Empirical Considerations: issues on agenda/basis for case
selection:
• 1 Ownership and control restrictions on US
carriers:
• 2 Cooperation between competition authorities
• 3 Further extension of traffic rights
• - Cabotage
• - Government financed air transportation
• - Provision of aircraft with crew (wet leasing)
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• 4 Infrastructure constraints on traffic rights
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- Night flight restrictions
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- Aviation Traffic Management ATM
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- Slot allocation
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- Ground handling
• 5 Environmental regulation:
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- Emission trading system:
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- Night flight restrictions:
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• 6 Security:
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- one-stop security
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• 7 Safety
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- 2008 Aviation Safety Agreement
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