Proposed replacement to regulation 868/2004: EU moves a step closer to a new Regulation addressing anti-competitive practices from outside the EU

Regulation 868/2004

The current Regulation¹ was enacted in 2004. It was designed to protect EU airlines competing against third country carriers who may benefit from subsidies or other forms of state aid which would be disallowed under Community law. However, the Regulation has never been applied: no official complaint has ever been made and no investigations have been launched. 

There are several key criticisms of the current Regulation. Firstly, there is a high burden of proof required in order to initiate an investigation. A complainant must demonstrate subsidisation or unfair pricing practices (e.g. prices low enough to cause injury to a Community carrier) – evidence of which may be difficult to obtain.  Secondly, rights to complain are limited to Community air carriers supplying "like air services"; Member States and individual air carriers do not have automatic rights as complainants. Thirdly, it does not provide for an EU procedure to address breaches of obligations designed to ensure fair competition in air services agreements. The Committee on Economic and Monetary Affairs described it as "totally ineffective".

The New Proposal

Under the proposed legislation, an investigation can be initiated if there is prima facie evidence of either: (i) violation of obligations contained in an international air transport or air services agreement relating to practices which may affect competition, or (ii) a practice adopted by a third country or third country entity which affects competition and causes injury, or a threat of injury, to an EU airline. 

Complaints may be submitted by a Member State, an EU airline or an association of EU airlines. Investigations may also be initiated by the Commission. The Commission should decide whether to initiate an investigation within six months of a written complaint being submitted, and proceedings should be concluded within two years.

If the Commission makes a finding of injury or a threat of injury the proposed Regulation enables the Commission to adopt redressive measures. The Commission may impose on the third country air carrier either financial duties or 'any measure of equivalent or lesser value' – provided that the measure is proportionate. It must not exceed what is necessary to offset the injury. Such other measures may include 'the suspension of concessions, of services owed or of other rights of the third country carrier', but this must not lead to a violation of an air transport or air services agreement with the third country in question.  

The Commission hopes that, collectively, these provisions will make it easier for EU airlines to complain about practices by non-EU countries which are distorting competition, and for the EU to take effective steps to investigate and redress such practices.  The proposed legislation asserts that fair competition is an important principle under the Chicago Convention that is not generally included in most bilateral air services agreements. 

A number of changes to the draft Regulation were recommended by the Committee on Economic and Monetary Affairs in its February Opinion² for the Parliamentary Transport Committee, but those changes were not fundamental.

Next steps

The Commission's proposal was issued in June 2017, and legislation can take as long as three years to move from this initial stage to final adoption. Following the vote in the Committee of Transport and Tourism, on 28 March 2018 the Committee report was tabled for a plenary reading. A decision in Parliament and negotiations with the Council will follow. The timeframe for adoption will depend heavily on the level of agreement between the Parliament and the Council, and consequently on whether the draft is returned for a second or even third reading.

^{1 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}

^{2 Opinion on the proposal for a regulation of the European Parliament and of the Council on safeguarding competition in air transport, repealing Regulation (EC) No 868/2004, Committee on Economic and Monetary Affairs.}