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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 2:Regulatory 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

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• 7 Safety

• - 2008 Aviation Safety Agreement