The EU-Canada Air Services Agreement

24 May 2010

William Morton

At the end of March, the EU and the US reached agreement on the terms of phase 2 of the Open Skies treaty.  The new agreement is a disappointment in one important respect in that it does not contain any commitment on the part of the US to relax the prohibition on EU persons owning more than 25% of US airlines. In contrast, a groundbreaking air services agreement between the EU and Canada was signed in December 2009.  While the EU - Canada air transport market (9 million passengers) is a somewhat different league from the EU – US market (50 million passengers), the new agreement nevertheless represents an important development in the EU’s relationship with its international partners. 

Features of the Agreement

The new agreement, which replaces all existing agreements between individual EU Member States and Canada, contains provisions that are common in liberalised air services agreements, provisions which the EU would like to be common features of such agreements and also provisions making an appearance for the first time. 

The new liberalised regime will be introduced in phases, in line with the changes in the rules on EU ownership of Canadian airlines.  There are four phases and the provisions of each phase have been agreed in advance: 

Phase one while, as is the case at present, foreign ownership of Canadian airlines is restricted to 25%, EU airlines may operate direct services between the EU and Canada with no restriction on the number of flights or airlines operating. Cargo airlines will have the right to fly on to third countries (5th freedom rights);

Phase two will begin once EU investors are given the right to own up to 49% of a Canadian air carrier’s equity, a measure which the Canadian Government intends to introduce as soon as possible.  Once the change is effective, Canadian airlines will be able to carry passengers between EU Member States (provided that the flight originates or ends in Canada).  In addition, EU and Canadian carriers will have the right to take cargo between each other’s territory and a third country (subject, of course, to the approval of the relevant third country) (7th freedom rights).

While the Agreement is by no means perfect and still requires major legislative changes in Canada, the very fact that it has been concluded represents something of an achievement for both sides, particularly the EU, and is very much a step in the right direction.  It is anticipated that it will result in a significant increase in passengers carried between the EU countries and Canada.