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26 July 2017
On June 28 2017 the House of Representatives Committee on Transportation and Infrastructure reported out to the floor of the House of Representatives for the consideration of HR 2997, the 21st Century Aviation Innovation, Reform and Reauthorisation Act. In addition to privatising US air traffic control the act would, as amended, prevent the entry of 'flag of convenience carriers' into the United States and effectively overturn the legal interpretations by the Departments of State, Justice and Transportation of the 2007 Air Transport Agreement Between the United States of America and the European Community and its Member States as amended in 2010 by the Protocol to Amend the Air Transport Agreement Between the United States of America and the European Community and its Member States.(1) Pursuant to the Air Transport Agreement, the US Department of Transportation issued an order on December 2 2016,(2) which granted a foreign air carrier permit to Norwegian Air International Limited as a certificated Irish foreign air carrier. The final order granted Norwegian Air economic authority to operate to the United States as a foreign air carrier under 49 USC Section 41301 and to conduct foreign scheduled and charter air transportation of persons and property under the Air Transport Agreement.(3)
The final order was the end result of Norwegian Air's 2013 application for a foreign air carrier permit, which was vigorously opposed by many US and foreign airlines and labour groups. The opponents alleged that Norwegian Air was using Ireland as a 'flag of convenience', contending that it is a subsidiary of the Norwegian flag carrier Norwegian Air Shuttle, and that Norwegian Air is based in Ireland to avoid the more restrictive social and labour laws in Norway. Norwegian Air's business plan involved outsourcing its pilot and cabin crew to a third party based in Singapore to take advantage of lower wages and working conditions.(4) Some objectors also asserted that Norwegian Air's business plan raised safety issues.(5)
The opponents' main argument was that Norwegian Air's proposed business plan violated Article 17bis of the Air Transport Agreement. Article 17bis provides as follows:
"1. The Parties recognise the importance of the social dimension of the Agreement and the benefits that arise when open markets are accompanied by high labour standards. The opportunities created by the Agreement are not intended to undermine labour standards or the labour-related rights and principles contained in the Parties' respective laws.
2. The principles in paragraph 1 shall guide the Parties as they implement the Agreement including regular consideration by the Joint Committee, pursuant to Article 18 of the social effects of the Agreement and the development of appropriate responses to concerns found to be legitimate."(6)
The Department of Transportation rejected this position and concluded, in accordance with the legal interpretations of the Air Transport Agreement from the State Department and Justice Department, that Article 17bis does not contain additional requirements for an applicant to satisfy in order to be granted the right to operate under the Air Transport Agreement. Rather, those requirements are found in Article 4 of the agreement which provides:
"On receipt of applications from an airline of one Party, in the form and manner prescribed for operating authorizations and technical permissions, the other Party shall grant appropriate authorizations and permissions with minimum procedural delay, provided:
(a) for a U.S. airline, substantial ownership and effective control of that airline are vested in the United States, U.S. nationals, or both, and the airline is licensed as a U.S. airline and has its principal place of business in U.S. territory;
(b) for a Community airline, substantial ownership and effective control of that airline are vested in a Member State or States, nationals of such a state or states, or both, and the airline is licensed as a Community airline and has its principal place of business in the territory of the European Community;
(c) the airline is qualified to meet the conditions prescribed under the laws and regulations normally applied to the operation of international air transportation by the Party considering the application or applications; and
(d) the provisions set forth in Article 8 (Safety) and Article 9 (Security) are being maintained and administered."(7)
The Department of Transportation Show Cause Order's tentative finding which was affirmed in the Final Order(8) stated:
"The Department has tentatively decided to grant the applicant a foreign air carrier permit, in the form attached as Appendix A to this order. In reaching our decision, the Department tentatively finds that the applicant has demonstrated, based on the record, that it is financially and operationally fit to perform the services authorized; that Irish aviation safety oversight satisfies Federal Aviation Administration (FAA) and [the International Civil Aviation Organisation] standards; and, that the applicant is substantially owned and effectively controlled by citizens of Member States of the European Union, consistent with the provisions of the U.S.-EU Agreement. We also tentatively find that the authority sought by the applicant is encompassed by the U.S.-EU Agreement."(9)
In light of the above, and relying on the reciprocal provisions of Article 6bis of the Air Transport Agreement,(10) the Department of Transportation concluded that Norwegian Air met the requirements under 49 USC Section 41302, which provides that the department may issue a foreign air carrier permit if:
"the applicant is fit, willing, and able to provide the foreign air transportation to be authorized by the permit and to comply with this part and regulations of the Secretary; and (2) (A) the applicant is qualified, and has been designated by the government of its country, to provide the foreign air transportation under an agreement with the United States Government; or (B) the foreign air transportation to be provided under the permit will be in the public interest."(11)
The Department of Transportation further stated that if the applicant is fit under an agreement of the United States it need not address the question of the public interest under 49 USC Section 41302(2)(B) because "the existence of an air service agreement demonstrates that granting operating authority to a foreign carrier is per se in the public interest".(12)
HR 2997 seeks to avoid this result in several ways. First it seeks to amend the requirements for the issuance of a foreign air carrier permit or an exemption from such a permit. In this regard if a party is seeking authorisation under the Air Transport Agreement and an issue is raised by an interested party under Article 17bis, the secretary of transportation could not issue such permit or exemption unless it:
"(1) finds that issuing the permit or exemption would be consistent with the intent set forth in Article 17 bis of the Agreement, that opportunities created by the Agreement do not undermine labor standards or the labor-related rights and principles contained in the laws of the respective parties to the Agreement; and
(2) imposes on the permit or exemption such conditions as may be necessary to ensure that the person complies with the intent of Article 17 bis."(13)
HR 2997 further seeks to undermine the secretary of transportation's authority in issuing foreign air carrier permits under 49 USC Section 41302 by removing its power to conclude that an applicant is qualified because such an applicant is qualified under an agreement with the United States. This modification seeks to prevent reliance on reciprocal provisions of air transport agreements such as Article 6bis of the Air Transport Agreement. It also makes a public interest determination mandatory, in that the secretary can no longer conclude that a permit is in the public interest based only on qualifications under an air transport agreement.(14)
HR 2997 makes a broad statement that preventing entry of "flag of convenience carriers" into the United States is a policy to be considered generally by the secretary of transportation. It proposes to amend 49 USC Section 40101(a) by adding that "preventing entry into United States markets by flag of convenience carriers" is in the public interest.(15) It further proposes to amend 49 USC Section 40101(e)(9) by stating that one of the policies of the United States when formulating air transport agreements is the elimination of unfair competitive practices, which may be caused by the "erosion of labor standards associated with flag of convenience carriers".(16) HR 2997 finally defines a flag of convenience carrier as, "a foreign air carrier that is established in a country other than the home country of its majority owner or owners in order to avoid regulations of the home country".(17)
It remains to be seen if HR 2997 as amended will be passed by the House of Representatives or if it will eventually become law as part of FAA reauthorisation or as an independent bill.(18) Clearly FAA reauthorisation is needed in some form, with or without the prohibitions against alleged flag of convenience carriers or the privatisation of US air traffic control. However, it does represent an effort to overturn the open skies policies that have been the product of both Democratic and Republican administrations, which have guided US international aviation policy for many years. It would also be a turn to protectionism and an alleged implicit overturning of the Air Transport Agreement, which may trigger termination notices under Article 23 of the act,(19) arbitration under Article 19(20) or at a minimum, consideration by the Joint Committee formed under Article 18 of the act.(21)
For further information on this topic please contact Timothy J Lynes at Katten Muchin Rosenman LLP by telephone (+1 202 625 3500) or email (firstname.lastname@example.org). The Katten Muchin Rosenman LLP website can be accessed at www.kattenlaw.com.
(1) The Air Transport Agreement Between the United States of America and the European Community and its Member States April, 25-30 2007, 46 ILM 470 as amended in 2010 by the Protocol to Amend the Air Transport Agreement Between the United States of America and the European Community and its Member States, signed on April 25 and April 30 2007 and June 24 2010, 2010 OJ (L 223)3.
"Upon receipt of an application for operating authorisation, pursuant to Article 4, from an air carrier of one Party, the aeronautical authorities of the other Party shall recognise any fitness and/or citizenship determination made by the aeronautical authorities of the first Partywith respect to that air carrier as if such a determination had been made by its own aeronautical authorities and not enquire further into such matters..."
(13) Amendment to HR 2997.
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Timothy J Lynes