Intercontinental regulation of civil aviation

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Intercontinental regulationof 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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• 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 2Regulatory 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

• Cooperative marketing arrangements for code
  sharing, franchising, and leasing.
• Cooperative joint committee to further airline
  deregulation
• Guarantees for US investors to participate as
  minority shareholders in any majority-EU-owned
  airline
• Restatement of US investment policy in US
  airlines (25 legislated cap on voting equity,
  25-minus-one-share regulatory cap on non-voting
  equity)
• For EU carriers ability to operate flights
  between any EU member state and the US
• EU carriers can carry certain Fly America traffic
• 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
• 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
  market-correcting 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
• - Night flight restrictions
• - Aviation Traffic Management ATM
• - Slot allocation
• - Ground handling
• 5 Environmental regulation
• - Emission trading system
• - Night flight restrictions

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• 6 Security
• - one-stop security
• 7 Safety
• - 2008 Aviation Safety Agreement