The emerging lex aviatica.

Author:Havel, Brian F.
 
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TABLE OF CONTENTS INTRODUCTION I. THE AVIACION REGIMEN A. A Quick Look at the Bilateral System B. The Nationality Rule and Its Consequences II. IN SEARCH OF A LEX AVIATICA III. "WAIVING" GOODBYE TO THE NATIONALITY RULE A. Unilateral Reciprocity B. A Multilateral Solution IV. BEYOND THE NATIONALITY RULE A. From Citizenship Purity to Corporate Affinity B. Overcoming Bilateralism CONCLUSION INTRODUCTION

After finding that they have survived long enough to make it through the first decade of their "21st Century," members of the cosmopolitan species Homo sapiens have also realized they can enjoy a cup of Starbucks coffee in Moscow; devour a McDonald's hamburger in Beijing; and demand face-to-face technical support for an iPad in Sydney. But if they want to board a Lufthansa flight originating in Los Angeles, aiming to deplane in Tokyo or Seoul, they will find that such an opportunity (and thousands of similar opportunities to use airlines of other countries for overseas travel) is foreclosed by the rules of international aviation law. Why that is so, and how an emerging lex aviatica could lead to an end of that unsettling anomaly, is the subject of this Article.

Transnational corporations are the norm in this 21st Century world. Yet, ever since international commercial air travel became possible at the close of World War II, airlines have been straitjacketed by treaty-based restrictions that require them to be owned and controlled by a specific state (or by the citizens of that state). Only through that state/airline bond (typically based on legal incorporation, principal place of business, and like factors) does the airline receive permission to access the air transport markets of other states. (1) The mandate of citizenship purity means that no airline can be designated by more than one state to serve its international air routes. (2) The purity rules explain why only United Airlines or American Airlines, but not Lufthansa, can serve the Los Angeles/Tokyo or Los Angeles/Seoul markets directly from a permanent hub at L.A. International. They also explain why Lufthansa cannot merge with or acquire United Airlines, its longtime Star Alliance partner, to secure access to United's U.S. international aviation markets. Without a commercial airspace equivalent of the mare liberum, (3) on the one hand, and burdened by the citizenship rules on the other, airlines depend on government-to-government aerodiplomacy--a complex web of bilateral treaties--to secure the traffic rights that enable them to build their international air networks.

The treaty limitations on ownership and control are backed up by national laws that impose similar (and often much more specific) constraints on foreign ownership. These national limits, which serve to uphold the treaty-based restrictions, are beholden to them as well. States that might otherwise remove their national foreign investment restrictions have little incentive to do so if their liberal approach jeopardizes market access rights under treaties with other states that are not similarly inclined.

The citizenship rules essentially confine airlines to their national capital markets. Recent events have exposed the economic deadweight of such a limited horizon. As well as costs associated with protecting air transport from terrorist threats after 9/11, (4) airlines were hit by oscillating kerosene prices (5) and the demand effects of the "Great Recession." (6) Other events, from labor disputes to natural disasters such as Europe's "Volcanic Ash Crisis," (7) battered the industry's stability. And structural factors exacerbate these fiscal strains: major international aviation markets, notably the U.S./EU Atlantic corridor, face overcapacity from multiple (in many cases state-sponsored) air carriers and an inability, dictated by the citizenship regime, to consolidate in order to rationalize market imbalances.

An emerging normative shift, one that we propose to characterize using the undeniably showy but pleasingly resonant term "lex aviatica," (8) holds potential for unseating the citizenship regime in international aviation. The shift is one that we detected in an earlier writing: (9) it derives from an evolving consensus among airlines and sympathetic government officials that the time has come to dismantle the citizenship purity rules. (10) To set the stage for this discussion, we provide first a concise survey of the astonishingly complex bilateral trade system that has governed the world's airlines for over 60 years. The citizenship or nationality rules (11) are embedded in that system and their removal will necessarily unwind a substantial part of it. (12) To understand the consequences of removing these rules, it is necessary to understand what they do. (13) We go on to evaluate two initiatives--twin beachheads of an incoming lex aviatica--which could allow states to suppress the citizenship rules without risking serious disruption of their aviation trade relationships. (14) The Article closes with a glimpse of the kinds of broader state-sponsored reforms, further elements of a new lex aviatica, that could allow the industry that has created our globally connected world to become global itself. (15)

  1. THE AVIACION REGIMEN

    The bilateral aviation treaty system has become, to borrow an uncomplimentary description by one leading jurist, a "labyrinthine legal grotto." (16) Its complexity is apparent from the World Trade Organization's recently created online database of thousands of "air services treaties." (17) Six decades after the first of these treaties appeared, there is some irony in the fact that WTO officials, charged with promoting a liberal trading system, have only now started to pick through their terms. (18) In contrast to other global service sectors, international air transport is a priori blocked from coverage under the WTO's General Agreement on Trade in Services. (19) Trade in air services also has been virtually excluded from muscular regional trade accords including the North American Free Trade Agreement (NAFTA) (20) and the economic integration instruments of the Association of Southeast Asian Nations (ASEAN). (21) Only the European Union (EU), mandated by treaty to pursue market integration across many commercial sectors, successfully established a "single aviation market" for its Member States. (22) But the EU's external aviation relations with non-Member States remain fractured. (23)

    1. A Quick Look at the Bilateral System

      With rare exceptions, trade in air services has been carried out on a strictly bilateral (state-to-state) basis since the close of World War II. (24) In part this is because the foundational multilateral treaty in international aviation, the so-called "Chicago Convention," (25) provides no framework for distributing the world's commercial airspace among its 190 signatories nor does it specify under what conditions their airlines should have access to it. The Convention simply reaffirms the customary international law principle that states have absolute sovereignty their airspace. (26) Concomitantly, it ordains that "[n]o scheduled over international air service may be operated over or into the territory of a contracting state [to the Convention], except with the special permission or authorization of that state, and in accordance with the terms of such permission or authorization." (27)

      The prevailing international law, therefore, gave implicit license to each state to work out with its partner sovereigns the terms under which air carriers resident and operating within its territory would be granted market access to other national airspaces. In the absence of any multilateral formulas, (28) states themselves developed a complex system of bilateral air services agreements (ASAs) containing negotiated terms of access and reflecting a wide spectrum of market liberality. In its most restrictive form, an ASA could limit, cap, or require official intervention in the setting of flight frequencies, fares, or capacity, as well as prescribing the takeoff and landing points of air carriers covered by the agreement. (29) While states have diluted many of the most intrusive features of ASAs in recent years, (30) most bilateral treaties still impose commercial constraints on international air carriers by limiting the route services they may offer. Thus, a carrier incorporated and with its principal place of business in the United States, such as American Airlines (AA), will be permitted to fly passengers and cargo from Chicago to Tokyo by virtue of the ASA between the United States and Japan. (31) But AA would be unable to enplane new passengers or cargo in Tokyo for onward transit to Beijing, China, unless both the China/U.S. and Japan/U.S. treaties specifically grant this "beyond" privilege of access to U.S. carriers.

      Indeed, some market access opportunities are rarely or conditionally conceded. Only a handful of ASAs provide "standalone" privileges for airlines to operate passenger services between points in two different countries without beginning or ending the service in their home state, (32) although exceptions are increasingly given for airlines operating all-cargo services. (33) Thus, while it is permissible under U.S./China and U.S./Germany (34) ASAs for a U.S. express cargo carrier such as FedEx to fly packages from its hub in Guangzhou to its hub in Frankfurt and vice versa, with no U.S. point involved, passenger carrier Delta Air Lines cannot serve a freestanding Tokyo/Sydney route under the relevant U.S./Japan and U.S./Australia bilateral air treaties. And almost no ASAs offer what are known as "cabotage rights," (35) i.e., the privilege to move passengers or cargo between two points within a single state's territory. (36) For example, British Airways (BA) is barred from maximizing use of its aircraft by enplaning passengers and/or cargo in New York for carriage to Los Angeles, even as an intermediate part of a service that...

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