FAQ on EU-Canada Aviation Agreements

May 7, 2009 // Published as a news service by IHS

The EU-Canada Air Transport Agreement represents a significant step in the opening of markets and investment opportunities. It is expected to generate major benefits for consumers and airlines, as well as broader economies on both sides of the Atlantic.

The EU-Canada Air Safety Agreement should save millions of euros annually, thanks to shorter and simpler approval procedures and mutual acceptance of product tests.

Formal signature of the agreements will take place as soon as all language versions are authenticated by the parties.

This document answers frequently asked questions about the two agreements.

Air Transport Agreement

Why a general air transport agreement?
Europe and Canada are close international partners, with strong economic,cultural and political ties. However, arrangements for air transport do notreflect this reality, with Canada having restrictive or no agreements onaviation with the vast majority of EU member states.

The new agreement transforms this important market to the benefit of European and Canadian consumers and airlines. It also brings legal certainty to operations between the EU and Canada by recognizing the principles of the EU internal aviation market and of a European Community carrier.

What changes can passengers and the industry expect from theagreement?
In 2007, nine million people were traveling between the EU and Canada. Astudy launched by the European Commission (EC) suggested that an open agreement would generate an additional half a million passengers in its first year. After a few years, 3.5 million extra passengers are expected to make use of the opportunities of an open aviation area between the two partners.

The agreement gives additional freedoms to airlines - including the access to new markets and full pricing freedom - as well as an improved way of regulating the industry. An increase in direct flights between the EU and Canada is also expected, as well as more competition and lower prices.

What are the economic benefits of the agreement?
The agreement will directly contribute to the further development of tradebetween the EU and Canada. Aviation is crucial for bringing Canada and the EUcloser together by facilitating the flow of people and valuable goods. Theopening of our aviation markets could bring economic benefits of at least€72 million and more than 1,000 extra jobs in the first year alone.

What are the new rights for EU airlines?
New rights for EU airlines include:

• The possibility for any "Community air carrier" to fly between any point inthe EU to any point in Canada, without any restrictions on the number offlights. This freedom did not exist before.
• Freedom to enter into commercial arrangements with other airlines - that is,code-share agreements,^[1] whichare important for airlines when serving a large number of destinations, and norestrictions for airlines to establish their tariffs in line with competitionlaw.
• Provisions for phased market opening linked tothe granting of greater investment freedoms by both sides:
  • Phase 1 applies where the foreign ownership of airlines is limited to 25%, as was the case when the negotiations on the agreement were completed. Airlines have unlimited freedoms to operate direct services between any point in Europe and any point in Canada. There will no longer be a limitation on the number of airlines flying between the EU and Canada, nor on the number of services operated by any airline. Cargo airlines will have the right to fly onward to third countries.
  • Phase 2 starts as soon as Canada has taken the steps necessary to enable European investors to own up to 49% of a Canadian carrier's voting equity. Since Canada already introduced the possibility in March 2009 to allow up to 49% investment by foreigners, it is possible that the rights associated with phase 2 of the agreement will be applied from the start. This means certain additional rights, including the right for cargo operators to provide services to third countries from the other party to third countries without connection to their point of origin (so called "7th freedom" rights) will be available.
  • Phase 3 begins once both sides enable investors to set up and control new airlines in each other's markets. Then passenger airlines will be able to fly onward to third countries.
  • Phase 4 is the final step with full rights to operate between, within and beyond both markets, including between points in the territory of the other party (cabotage). It will be granted once both sides complete steps to allow the full ownership and control of their carriers by the other's nationals.

Which rules applied to EU-Canada services until now?
Despite a close network of bilateral aviation arrangements, eight member states^[2] do not yet have an agreement with Canada. Furthermore, many existing agreements are old and do not offer full access to the respective markets. In some agreements, even the number of weekly flights is restricted, and prices are controlled. Existing bilateral agreements between member states and Canada will be replaced by the EU agreement.

How will the EU and Canada cooperate on regulatory issues?
The agreement deals with regulatory issues in order to give greater opportunities to airlines in areas where bilateral agreements were restrictive, such as tariff control, pricing, statistics or operating conditions. Airlines can now freely set their tariffs in line with competition law.

In the field of safety and security, Canada and the EU are moving towards mutual recognition and one-stop security. This would mean that both partners finally recognize the high level of their respective security and safety systems, and would avoid double checks by authorities.

The agreement provides for a strong mechanism for the application of a non-discriminatory competitive framework. It ensures that airlines cannot be discriminated in terms of access to infrastructure or state subsidies. This would be a novelty in such international aviation agreements.

A groundbreaking element is the provisions on environment establishing close cooperation between the parties to mitigate the effects of aviation, notably global warming.

How will the implementation of the agreement be monitored?
The agreement establishes a new governance mechanism: the EU-Canada Joint Committee. It will oversee the implementation of the agreement, including the facilitation of close regulatory cooperation. Duties of the EU-Canada Joint Committee include:

• Confirming the move to a next phase of implementation.
• Discussing important operational issues and market developments.
• Ensuring the non-discriminatory treatment of operators.
• Making proposals to further develop the agreement.
• Discussing other issues of bilateral or international importance.
• Making decisions where provided for in the agreement.

How will the mechanism to ensure a non-discriminatory competitive framework work?
If a party believes that there are conditions that negatively affect a fair and competitive environment leading to a disadvantage for its own carriers (for example, in the field of state aids), it will be able to take measures. The exact procedures and criteria for this mechanism will be developed in the framework of the EU-Canada Joint Committee.

When will the agreement be applied?
Formal signature of the agreement will take place as soon as all language versions are authenticated by the parties. The rights of the agreement will be made available from the day of signature.

How does this agreement compare to the agreement with the U.S.?
The following table compares these two agreements:

Air Safety Agreement

How will the new air safety agreement work?
The agreement provides for the mutual recognition of certification findings and approvals in the areas of airworthiness of civil aeronautical products, services and manufacturing and maintenance facilities, as well as environmental testing of civil aeronautical products.

It foresees a set of procedures and contains technical requirements which, when complied, with enable the two sides to validate each other certification findings without a full certification process.

Exploratory talks between the EU and Canada started in 2003 when the European Aviation Safety Agency (EASA) became operational. These talks had as objective to clarify how the new EU system will work and how confidence can be built in that system, taking into account past co-operation and the confidence already established with member states' administrations and the Joint Aviation Authorities (JAA), the European body created by the European Civil Aviation Conference in 1990 to look into all safety matters in Europe. The negotiating mandate was granted by the European Council on April 21, 2004.

To maintain confidence in each other's systems, it foresees for joint inspections, investigations, exchange of safety data (such as information of aircraft inspections and accident-related information) and increased regulatory cooperation ("early warning system") and consultations at a technical level to solve matters before they can become "disputes." It foresees for the creation of a joint committee and subcommittees in the specific areas covered by the annexes - certification of airworthiness and maintenance.

Successful exploratory talks and fruitful past cooperation pushed the negotiations further: Canada has not insisted on a prior confidence-building process, provided the agreement contains appropriate safeguard provisions, they can retain a certain involvement in the certification processes themselves and the agreement is ready to go for full mutual recognition - in particular, in the field of maintenance, which would imply that European administrations would issue maintenance approvals on their behalf and reciprocally.

The scope of the agreement is clearly linked to trade needs (coverage of those products and services actually produced by the parties) and the level of reciprocal trust and confidence of the parties in their ability to conduct the related certification tasks and monitor their continuing safety.

What benefits will the air safety agreement generate?
The Canadian and European companies - aircraft, engine and avionics manufacturer organizations - that will benefit from this agreement are among the world leaders. The combined exports of civil aviation technology exceed €50 billion. European and Canadian trade in aerospace products is already significant - in 2008 overall trade in aircraft, spacecraft and parts was worth more than €49 billion. Such trade will be given yet another boost of growth.

Companies will save millions of euros a year thanks to shorter and simpler - hence also less costly - product approval procedures and mutual acceptance of product tests. This, in turn, will also facilitate exchanges and healthier competition.

Airlines will also benefit, since the agreement provides for the use of each other's approved repair and maintenance facilities.

But the benefits of this agreement are even more significant. It will not only make the Canadian and European markets more competitive, it will also make them safer as regulators and enforcement authorities are moving closer to cooperate in all matters of certification, inspections and enforcement to ensure the highest level of safety for passengers and goods.

Last but not least, the agreement has the potential to quickly encompass further areas in safety where the EASA has recently seen its remit expanded, such as aircraft operations and pilot licenses. These are areas where the relevant technical rules are currently being prepared, and for which the agreement gives an excellent opportunity to find appropriate solutions tailor-made to the needs of airlines and their flight crews.

^[1] These code-share agreements allow use of the code-share partner's flight designator code to identify flights and fares in computer reservation systems, permit use of logos, service marks, aircraft paint schemes and uniforms similar to those of the code-share partner and provide coordinated schedules and joint advertising.

^[2] Cyprus, Estonia, Latvia, Lithuania, Luxembourg, Malta, Slovakia and Slovenia do not have bilateral air transport agreements with Canada.

^[3] "Fifth freedom" is the right to carry revenue traffic (cargo/passengers) from the other party to a third country on services starting or ending in its home country.

^[4] "Seventh freedom" is the right to carry revenue traffic between the territory of the other party and a third country without connection to the home country.

Source: European Commission (EC).