ISSN 145-638X ,Online,

THE tuHPETITIuN LAW REVIEW

Volume S Issue 2 pp J93-2J3 July 2009
Competition Law and the International 1ransport Sectors
oc/Yovg Pbavg

1his article charts the eoling regulation o cooperation and coordination between
international transport irms, in particular those operating within the liner shipping and
international air transport sectors. 1here has been a long history o exemption o these sectors
rom the rules and regulations o antitrust or competition law. In the past three decades,
regulatory reorms and priatization hae, howeer, subjected these sectors to competitie
orces that hae transormed these industries. \ith the introduction o competition law in
many jurisdictions, the justiications or their continued exemption hae come under intense
scrutiny. In the late 190s, the US initiated deregulation o its domestic airline sector and
introduced reorms in the regulation o liner shipping which resulted in greater competition and
lower prices. In 2006, the LU adopted a tougher stance by becoming the irst jurisdiction to
remoe exemption or IA1A passenger tari conerences rom 200 and or liner shipping
conerences rom 2008. \hile arguments or the beneits o competition can be generally made,
the lack o harmonization o competition laws together with the international nature o these
sectors ,which are urther complicated by high concentration, network characteristics, and
goernment sanctioned barriers to entry, continue to present challenges or competition
authorities.
J. IN1RODUC1ION
1he international liner shipping and airline sectors are oundational pillars or global
trade lows and passenger moements. Arising rom their perceied strategic
importance to a nation`s trade and security, there has been a long history o exemption
o these sectors rom the rules and regulations o antitrust or competition law. In the
past three decades, regulatory reorms and priatization hae, howeer, subjected these
sectors to competitie orces that hae transormed the structure o these industries.
\ith the introduction o competition law in many jurisdictions,
1
the justiications or
their continued exemption hae come under intense scrutiny. 1he international nature
o these sectors and the dependence o countries on the serices o oreign leets and
airlines hae constrained national competition authorities rom implementing policies
that depart rom the norm set by the major economic powers, in particular, the US and
LU.

Proessor o Lconomics, Singapore Management Uniersity and Commission Member, Competition

Commission o Singapore. 1he iews expressed here are personal and do not relect those o the
Commission.
1
In 2008, the International Competition Network ,ICN, has a membership o 102 competition agencies rom
91 countries. 1he list o members can be ound at the ICN website at:
http:,,www.internationalcompetitionnetwork.org,.

Competition Law and the International 1ransport Sectors
,2009, 5,2, CompLRe

194
1his article presents the historical arguments both or as well as against the exemption
o these sectors and the practices adopted. It then discusses the current state o
competition policy in these two sectors, ocusing, in particular, on the landmark change
in LC policy or liner conerences rom October 2008. \hile arguments or the
beneits o competition can be generally made, the lack o harmonization o
competition laws together with the international nature o these sectors ,which are
oten urther complicated by high concentration, network characteristics, and
goernment sanctioned barriers to entry, continue to present challenges or
competition authorities.
1he subject matter o this article inoles both law and economic policy and seres as a
good reminder, once again, that competition law is best understood when iewed in its
extralegal historical as well as economic contexts. 1his is especially important in the
context o the international transport sectors where we ind strong interaction between
market deelopments and economic policies on the one hand and the gradual
deelopment o competition laws on the other.
Let us turn now to the irst o these sectors, ri., liner shipping.
2. LINLR SHIPPING
2.J. J87S J998: A Century of Antitrust Immunity
Liner shipping is distinct rom tramp shipping in that liners publish a reight tari,
operate on scheduled routes and leae at scheduled times. 1he ormal history o liner
shipping cartels dates rom 185, the opening year o the Calcutta Conerence
2
and
thereater the practice rapidly spread to most o the main world trade routes. 1hese
cartels hae been ariously known as liner conerences, shipping conerences, and
ocean shipping conerences. A conerence is essentially an association o shipping lines,
all traelling the same route and in the same direction, members explicitly and ormally
agree to common prices, a set schedule, and renegotiation and dispute settlement
procedures. An agreement establishing a conerence may include pooling proits or
reenues, managing capacity, allocating routes, and oering loyalty discounts.
3

1he beginnings o liner conerences in the nineteenth century hae been attributed to
the adent o ast steamships which brought a considerable amount o instability into
the liner shipping sector which was then dominated by obsolescent sailing ships. last
steamships also increased the predictability o sailing times, which made coordination
possible. 1he oer-supply o capacity resulted in sharp rate drops which motiated

2
More detailed inormation relating to the historical origins o shipping conerences may be ound in Morton,
Lntry and Predation: British Shipping Cartels 189-1929` ,199, 6,4, Journal o Lconomics and
Management Strategy 69. Morton studies a small sample o price wars initiated by shipping cartels at the
turn o the 20th century and uses the characteristics o the entrants that are ought to ealuate seeral
theories o predation. le inds support or the long purse` theory o predation as weaker` entrants are more
likely to be ought.
3
See Sjostrom Ocean shipping cartels: a surey` ,2004, 3,2, Reiew o Network Lconomics 10.
Sock-\ong Phang
,2009, 5,2, CompLRe

195
British shipping lines, the dominant players at that time, to opt or ormal agreements
amongst themseles to limit capacity and ix rates.
4
1hese shipping conerences were
subsequently gien sanction by the British courts in 1889 ,and the louse o Lords in
1892, when they held in a predatory pricing case that the law did not prohibit cartel
agreements.
5

In the United States, with the passage o the Sherman Act in 1890, ederal courts
requently ound conerence conduct illegal. A major goernment inestigation at the
turn o the 20
th
century recommended that conerences be tolerated but subject to
goernment oersight.
6
Shortly ater, the US Congress passed the Shipping Act o 1916
which exempted the US international liner shipping industry rom ederal antitrust.

loweer, the Act required conerences in the US oreign trades to be open` and not to
restrict entry and exit o any shipping company.
In the rest o the world, conerences hae historically gone completely unregulated.
Despite Canada`s Competition Act o 1889 ,the oldest antitrust statute in the world,, it
was not until 190 that the biivg Covferevce. evtiov .ct, which ollowed a similar
model to the US legislation, was passed.
8
Conerences continued to enjoy immunity
rom competition regulations een as new competition regimes were established.
According to a recent OLCD report, there were around 150 liner conerences
worldwide in 2002, with membership ranging rom two to as many as 40 separate
lines.
9

Besides liner conerences, there exist other orms o operational cooperation between
shipping lines. Consortia agreements began at the end o the 1960s with the start o
container serices. Consortia agreements are aimed primarily at sharing ixed costs on a
maritime route through arious technical, operational or commercial arrangements such
as joint use o essels, port installations, marketing organizations, etc. 1hese
cooperatie agreements were motiated by the need or high leels o capital

4
See OLCD, Competition Policy in Liner Shipping, linal Report, 16 April 2002, at Sections 2.4 and 2.5. 1he
report is aailable at the OLCD website: http:,,www.oecd.org.
5
In the seminal Lnglish decision o Mogvt teav.bi Co r McCregor, Cor, ava Co, both the Court o Appeal ,in
,1889, 23 QBD 598, and the louse o Lords ,in ,1892, AC 25, held that a number o shipowners who
ormed a cartel which oered artiicially low charges or the carriage o tea rom certain Chinese ports with
the aim o driing out o business other shipowners who were competing with them were not liable to those
other shipowners when they succeeded in their aim, see, generally McBride, 1he Classiication o
Obligations and Legal Lducation`, in Birks ,ed.,, 1be Cta..ificatiov of Obtigatiov., London, Society o Public
1eachers o Law, Oxord Uniersity Press, 199, at p 85.
6
See Report o the Committee on the Merchant Marine and lisheries on Steamship Agreements and
Ailiations in the American loreign and Domestic 1rade, l.R. Doc. No. 805, 63d Cong., 2d Sess., at 415
,1914,, routinely reerred to as the Alexander Report` ater the chair o the committee, Rep Joshua
Alexander.

See Sagers, 1he Demise o Regulation in Ocean Shipping: A Study in the Lolution o Competition Policy
and the Predictie Power o Microeconomics` ,2006, 39,3, Vanderbilt Journal o 1ransnational Law 9.
8
See leaer, 1he Shipping Conerences Lxemption Act: Reiew and Suggestions o Positions Appropriate
or the Panel` ,2001,, paper commissioned by the Canada 1ransportation Act Reiew Panel.
9
See OLCD, op cit, n 4, at p 19.
Competition Law and the International 1ransport Sectors
,2009, 5,2, CompLRe

196
inestment in new essels, containers and port acilities. Unlike conerences, they do
not contain price-ixing proisions and generally inole lower market shares than
conerences. Members o a consortium may be independent lines or they may be
members o the same conerence. It is widely recognized that consortia agreements lead
to cost reductions deried rom risk sharing and economies o scale.
10

Discussion or talking agreements emerged in the 1980s when conerences were unable
to conince independent liners to join them. 1hey acilitate exchange o inormation
about reight rates, costs, capacity and conditions o serice on a particular trade route,
on non-binding terms. 1hese agreements exist mainly in the US and Australia trade
routes. In periods o scarce demand, competition may be limited by agreements
between conerence and non-conerence liners such as Capacity Stabilization
agreements ,binding, and Discussion Agreements ,which are non binding,, by which
liners attempt to control the supply capacity and the leel o rates.
11

In the mid-1990s, the liner industry underwent another period o restructuring arising
rom the ormation o global strategic alliances amongst leading container carriers.
Unlike the route speciic nature o preious agreements, these alliances represent a new
leel o cooperation oer major route networks. 1heoretically, members are not
inoled in price setting ,as this takes place within conerences, but in the
rationalization o their serices on a global basis and optimization o each carrier`s
assets through schemes such as sharing o essels, ports, charters, terminals, joint
scheduling and where permitted, coordination o inland serices.
12
1he establishment
o alliances was motiated by the rapid globalization o world trade and inestments
and the resulting unprecedented leels o demand or world-wide serices, supply chain
management and the proision o logistics alue added serices.
13

1he usual arguments or the long standing exemption o these collusie actiities in the
shipping sector are summarized below.
14

,i, 1he structure o the liner industry predisposes it to decreasing short run marginal
costs. Consequently, a ree market may result in destructie competition, which
undermines the basic characteristics o the liner serice, such as requency and

10
See OLCD, op cit, n 4, at Section 2..
11
See Benacchio, lerrari and Musso, 1he liner shipping industry and LU competition rules` ,200, 14
1ransport Policy 1.
12
1996 witnessed the ormation o our large strategic alliances: Global Alliance, Grand Alliance,
Maersk,Sealand, and lanjin,1ricon. Membership o alliances in the initial years was characterized by a high
leel o instability according to a study by Midoro and Pitto, A critical ealuation o strategic alliances in liner
shipping` ,2000, 2,1, Maritime Policy and Management 31.
13
A study o the changes in the container shipping industry as a result o strategic alliances is to be ound in
Slack, Comtois, and McCalla, Strategic alliances in the container shipping industry: a global perspectie`
,2002, 29 ,1, Maritime Policy and Management 65.
14
Ryoo and Lee, 1he role o liner shipping co-operation in business strategy and the impact o the inancial
crisis on Korean liner shipping companies`, in Grammenos ,ed.,, 1be avaboo/ of Maritive covovic. ava
v.ive.., London, LLP, 2002, proides a list o arguments oten adanced by carriers to justiy exemption o
the sector.
Sock-\ong Phang
,2009, 5,2, CompLRe

19
reliability o schedules, and the certainty that serices will be proided ahead o
demand. 1his argument represents the economic oundation or rate ixing, yet it
implies that in order to stabilize rates, conerences will charge rates in line with the
aerage cost o their less eicient members.
,ii, 1he standard inestment or each ship has increased oer time in order to exploit
the economies o scale so that only large shipping lines can bear the inancial
burden o new ships.
,iii, 1here are substantial imbalances in traic lows on the dierent routes sered by
liners in nearly all markets, resulting in oyages made with part o the ship`s
capacity used to carry ballast.
Other arguments include:
15

,i, 1he theory o the empty core, that is, a natural market equilibrium does not exist.
1his is a characteristic o markets where ew competitors generate supra-normal
proits or the incumbents which then attracts entry and renzied competition and
results in losses or all the market participants. Consequently, exit and solidiication
o market shares by the remaining competitors once again attracts entry.
,ii, Containerization and the deelopment o the hub-and-spoke structure hae
encouraged urther mergers and alliances. Conerences remain a sort o bulwark in
deense o a certain degree o competition within the market.
,iii, Inelastic demand in the short run.
,i, 1he important role o liner shipping in the deelopment o international commerce
and economic deelopment.
Carriers were generally successul in pushing these arguments until the 1980s. In 1984,
the US Shipping Act was passed to clariy the boundaries o antitrust immunity. 1he
legislation subjected all liner agreements to oersight rom the lederal Maritime
Commission as to the agreement`s conormity with the public interest.
16
lor the irst
time, ocean common carriers were permitted to enter into serice contracts with
shippers. 1he 1984 act allowed carriers to legally oer discounted rates so long as these
were made public and communicated to other conerence carriers. 1he eect was to
make reight rates or serice contracts transparent to all carriers as well as shippers.
loweer, ater passage o the Act, conerences either reused to allow their members
to enter indiidually into serice contracts, or they quickly withdrew that right ater
witnessing dramatic alls in reight rates. Not unexpectedly, independent carriers were
aggressie in oering serice contracts.
1


15
As presented by Benacchio et al, op cit, n 11, and Sjostrom, op cit, n 3.
16
Reitzes and Sheran, Rolling seas in liner shipping` ,2002, 20 Reiew o Industrial Organization 51.
1
Ibid.
Competition Law and the International 1ransport Sectors
,2009, 5,2, CompLRe

198
2.2.1. 1986 and 1995 LU block exemptions
1he LU in 1986 allowed liner conerences a block exemption rom antitrust legislation.
Council Regulation ,LLC, 4056,86 which came into orce on 1
st
July 198 ended years
o speculation and uncertainty about whether Articles 81 and 82 LC 1reaty applied to
the liner conerences. 1his block exemption has oten been called the most generous
exemption eer gien as it coered traditional hard-core restrictions and urthermore
did not contain a reiew clause and was to remain in orce or an unlimited period o
time.
18

Unlike other competition regimes that do not distinguish between dierent types o
liner shipping agreements in granting immunity rom competition law, the LC makes a
distinction between liner conerences and liner consortia. lirst adopted in 1995, the
consortia exemption sunsets eery ie years.
19
It was extended in 2000 in Regulation
823,2000 and again in 2005 and proides automatic exemption or joint serice
agreements that exclude price ixing.
20
It also sets a market share threshold o less than
30 ,35 in the case o non-conerence consortia, to qualiy or exemption. 1he
ormation o consortia with market shares between 30 ,35 in the case o non-
conerence consortia, and 50 must be notiied to the Commission. Unlike the LU,
the US does not distinguish between dierent types o agreements in its regulation o
shipping. Canada requires conerence agreements to be iled and does not regulate
consortia agreements.
21
Signiicant dierences thus exist in liner shipping regulation
and institutional mechanisms in dierent jurisdictions.
22

1he adoption o the block exemptions in the LU was ollowed by a long period o
conlicts oer the interpretation o the regulations. During the 1990s, the Commission
made a number o decisions that clariied the scope o the exemptions which were
subsequently upheld by the Court o lirst Instance ,ClI,. 1he decisions include
prohibiting: ,i, inland haulage collectie price ixing or the inland leg o multi-modal
transport operations,
23
,ii, conerence prohibitions on member companies entering into

18
OJ 1986 L38,4 Council Regulation ,LLC, No. 4056,86 laid down detailed rules or the application o
Articles 81 and 82 o the 1reaty to maritime transport: see Benacchio, et al, op cit, n 11 and Pozdnakoa,
iver biivg ava Covetitiov ar, 1he Netherlands, Kluwer Law International, 2008, at Section 9.2.
19
Commission Regulation 80,95 on the application o Article 81,3, o the 1reaty to certain categories o
agreements, decisions and concerted practices between liner shipping companies ,consortia,, OJ 1995 L89,:
see OLCD, op cit, n 4, at p 26 and Benacchio, et al, op cit, n 11.
20
OJ 2000 L100,24 Commission Regulation ,LC, No. 823,2000 expired on 25 April 2005 and was amended
by OJ 2005 L101,10 Commission Regulation ,LC, No. 611,2005.
21
leaer, op cit, n 8, at p 12.
22
In Australia, Canada, Japan, New Zealand, and the United States, consortia agreements are entitled to
immunity rom anti-trust law, without reerence to whether the agreement proides that ship operators
should operate under uniorm or common reight rates ,OLCD, op cit, n 4, at p 25,.
23
1he Commission objected to inland haulage tari ixing in two 1994 cases inoling the 1rans-Atlantic
Agreement ,1AA, and the lar Last lreight Conerence ,lLlC, and in the 1998 1rans-Atlantic Conerence
Agreement ,1ACA,: OJ 1994 L36,1, OJ 1994 L38,1, and OJ 1999 L95,1, respectiely. 1he
Commission`s decisions were upheld by the Court o lirst Instance in three judgments issued on the same
day 28.2.2002 ,Case 186,95 Cavagvie Ceverate Maritive ava otber. r Covvi..iov |2002| LCR II-1011, better
Sock-\ong Phang
,2009, 5,2, CompLRe

199
indiidual contracts, ,iii, restrictie clauses applied to indiidual serice contracts, and,
,i, the ixing o ancillary charges such as reight orwarders commissions.
24
In
Noember 2002, ollowing the ClI conirmation o its earlier decisions, the
Commission granted an indiidual exemption or the reised 1rans-Atlantic
Conerence Agreement ater it held that proisions in the agreement regarding serice
contracts and multi-carrier serice contracts to be outside the scope o the block
exemption.
25
1he decision came ater members agreed to make substantial concessions,
and in the words o the then Luropean Commissioner or Competition Policy, only
because o circumstances peculiar to the market on which the Reised 1ACA
operates`.
26

2.2 J999 - 2008: 1he Gradual Demise of Liner Conferences
2.2.1. 1he US Ocean Shipping Reorm Act
In 1998, the US passed the Ocean Shipping Reorm Act ,OSRA, which continued to
grant immunity to all types o liner conerence agreements but stipulated a list o
permissions,conditions which sered to undermine successul collusion, hence limiting
the extent o anti-competitie behaiour. 1he list includes: ,i, shippers and carriers may
negotiate conidential serice agreements and keep the terms o the contracts sae rom
other carriers and shippers, ,ii, conerence taris still had to be published, and, ,iii,
allowing independent rate action or carriers to coer multiple trade lanes, making it
easier or larger shippers to do one-stop shopping`. Allowing independent rate action
across multiple trade lanes dealt a urther blow to conerences organized on the basis o
indiidual trade lanes. 1he OSRA by eliminating tari iling requirements also
eectiely eliminated lMC`s role o enorcing tari rates. In essence, the OSRA
transormed ocean shipping in the US rom the concept o common carriage` to
contract carriage` whereby tari iling with ederal authorities and strict enorcement
o these taris hae been replaced by conidential contracts between shippers and
carriers`.
2


known as the C case, Case 1395,94 .ttavtic Covtaiver ive c otber. r Covvi..iov |2002| LCR II-85,
better known as the 1.. case, and Case 118,9 .ttavtic Covtaiver ive c otber. r Covvi..iov |2002| LCR II-
1125, the 1.C. vvvvit, case,.
24
1he 1998 Commission decision on 1.C., ibid, was wide ranging in scope and dealt with ixing o reight
orwarder commissions, conerence restrictions on member companies entering into indiidual contracts,
restrictie clauses applied to indiidual serice contracts, and inducing competitors to join the conerence
,Benacchio, et al, op cit, n 11,.
25
1he indiidual exemption, cleared in Noember 2003, replaced the agreement prohibited by the Commission
in 1998: see Reised 1ACA, OJ 2003, L26,53. See also Marlow and Nair, Serice Contracts - An
instrument o international logistics supply chain: Under United States and Luropean Union regulatory
rameworks` ,2008, 32 Marine Policy 489.
26
Monti, A time or change - Maritime competition policy at the crossroads`, speech to the Luropean
Shipper`s Council by then Luropean Commissioner or Competition Policy, Antwerp, 12 June 2003.
2
As succinctly described in Shipping Conerences Lxemption Act, 1989, Consultation Paper`, July 1999,
1ransport Canada Policy Group, Canada.
Competition Law and the International 1ransport Sectors
,2009, 5,2, CompLRe

200
By reducing the transparency o reight rates and giing conerence members
independent contracting rights, the Act increased cartel enorcement costs. 1he US
shipping market was eectiely reed, except or the act that carriers are still not
subject to antitrust - they may share price inormation, agree to non-binding guidelines
or rates and terms o serice, adopt common non-binding taris, and so on. 1here
hae been seeral eorts since 1999 to do away with US conerence antitrust
exemption entirely.
28

Since 1 May 1999, the day that OSRA became eectie, the ollowing impacts hae
been obsered:
,i, 1here has been upheaal in liner conerences` - seeral conerences operating US
trade routes hae disbanded. \hile 32 conerence agreements were in eect in
199, the number had dwindled to 22 by May 2000. Conerences that remained lost
signiicant membership.
29

,ii, 1here has been an increase in the number o discussion agreements inoling
conerence carriers and independent carriers.
,iii, 1he use o conidential serice contracts increased dramatically. 1he lMC reported
that between 1 May 1999 and 30 June 1999, 15,000 serice contracts were signed in
comparison with 3,400 in the same period o the prior year.
30

,i, Many conerences stopped issuing joint serice contracts - only our conerence
serice contracts remained in eect in May 2000, as compared with oer 400 a year
earlier.
31

,, Price discrimination increased.
,i, 1here has been consolidation o shipping lines through mergers and acquisition.
,ii, Data published on the website o Containerization International showed an
increasing gap between westbound and eastbound reight rates in the transatlantic
and transpaciic routes rom 1999. lrom approximate parity in 1999, aerage
eastbound ,US-Lurope, reight rates were approximately 80 below aerage
westbound ,Lurope-US, rates on the transatlantic route by 2005. Aerage
westbound ,US-Asia, rates were haled aerage eastbound ,Asia-US, rates on the
transpaciic route by 2005. \hile a part o the rate imbalance is due to trade
patterns, US exports,shippers hae undoubtedly beneited rom a large reduction
in reight rates as a consequence o the OSRA.
32


28
Sagers, op cit, n , reiews the US deregulation o the liner shipping sector and concludes that the experience
suggests that liner markets can perorm well under normal price competition, contrary to long-standing
claims rom the industry and some academics.
29
Statistics rom the lederal Maritime Commission as reported by Reitzes and Sheran, op cit, n 16.
30
As reported by Reitzes and Sheran, op cit, n 16.
31
Ibid.
32
See Benacchia et al, op cit, n 11, or graphs o the trends in reight rates.
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,2009, 5,2, CompLRe

201
2.2.2. 2006 LU repeals block exemption or liner shipping conerences
1he eects o the 1998 US reorm o ocean shipping practices were closely monitored
across the Atlantic. In March 2003, ollowing an OLCD report
33
which seerely
criticized the need or conerences to hae antitrust exemption, the LU competition
commission decided to re-examine Regulation 4056,86. 1he Commission adopted a
three stage approach: the irst being a consultation paper in March 2003,
34
ollowed by
a \hite Paper published in October 2004,
35
and thereater, a legislatie proposal or a
Council regulation to repeal the conerence exemption on 14 December 2005.
36
1he
proposal to repeal the block exemption was thus the result o a thorough three year
long process o consultation, reiew and studies. 1he Commission indings were that
the exemption did not ulil the our cumulatie conditions o Article 81,3, which were
necessary or it to continue, these being:
3

,i, concrete beneits resulting rom price ixing and capacity regulation are identiied,
,ii, a air share o the proed beneits are passed on to consumers,
,iii, the indispensability o price ixing and capacity regulation or the proision o
reliable serices, and
,i, competition is not eliminated on a substantial part o the market.
Instead, the Commission`s reiew process ound:
38

,i, no causal link between price ixing and reliable liner serices as conerences are not
able to enorce the conerence tari nor do they manage the capacity aailable.
loweer, the conerence tari still acts as the benchmark which impacts on the
negotiation o indiidual contracts. O greater concern was the joint ixing o
charges and surcharges ,on aerage 30 o the price o transport, where there is no
competition between conerence members as well as non-conerence members.

33
See OLCD, op cit, n 4. 1he OLCD report recommended that member countries seriously consider
remoing antitrust exemptions or price ixing and rate discussions. Lxemptions or other operational
arrangements may be retained so long as these do not result in excessie market power.
34
See Commission, Consultation Paper on the reiew o Council Regulation ,LLC, No 4056,86 laying down
detailed rules or the application o Articles 81 and 82 o the 1reaty to maritime transport`, 2 March 2003.
Aailable at DG Competition website, section Maritime 1ransport under Antitrust - Legislation`:
http:,,ec.europa.eu,competition,antitrust,legislation,maritime,.
35
See Commission, \hite Paper on the reiew o Regulation 4056,86, applying the LC competition rules to
maritime transport`, COM ,2004, 65 inal. Aailable at DG Competition website, ibid.
36
See Commission, Proposal or a Council Regulation repealing Regulation ,LLC, No 4056,86 laying down
detailed rules or the application o Articles 85 and 86 to maritime transport, and amending Regulation ,LC,
No 1,2003 as regards the extension o its scope to include cabotage and international tramp serices`, COM
,2005, 651 inal. Aailable at DG Competition website, ibid.
3
See Impact Assessment`, Annex to the Commission Proposal, ibid. Also Lans, 1he uture regulatory
ramework or liner shipping`, speech at 8th Global Liner Shipping Conerence, London, 2th April 2006,
and Benacchia et al, op cit, n 11.
38
Ibid.
Competition Law and the International 1ransport Sectors
,2009, 5,2, CompLRe

202
,ii, transport users hae opposed the conerence system which they do not consider to
delier adequate serices.
,iii, reliable scheduled liner serices are proided in seeral ways.
,i, gien the extent o relationships between carriers in conerences, consortia,
alliances and essel sharing agreements, determining the extent to which a
conerence is subject to outside competition is a complex analysis that must be
carried out on a case by case basis. loweer, the Commission noted that all carriers
operating on the same trade tend to apply the same charges and surcharges.
1he Commission also assessed the expected impact o the repeal on the basis o
independent consultancy reports and concluded that it would lead to a moderate drop
in ocean transport prices and considerable reductions in charges and surcharges. It also
expected serice quality and innoation to be improed.
39

1he Luropean Parliament subsequently issued a report in July 2006 and on 25
September 2006, the Competitieness Council agreed to repeal Council Regulation
4056,86. 1he repeal o the block exemption makes the LU the irst jurisdiction to put
an end to the possibility or liner carriers to meet in conerences, ix prices and regulate
capacities with eect rom October 2008 ,Council Regulation 1419,2006 o 25
September 2006 repealing Regulation ,LLC, 4056,86,.
40
In July 2008, the Commission
published guidelines on the application o Article 81 o the LC 1reaty to maritime
transport serices.
41
Regulation 823,2000 on maritime consortia which has been
extended until 2010 is not aected by the repeal and liner carriers will continue to be
allowed to oer joint serices.
2.3 1HL IU1URL: LIILC1S OI 1HL LU RLPLAL IROM OC1OBLR 2008
\ith the LU repeal o the block exemption or liner conerences rom October 2008,
two questions are raised here with regard to the uture: ,i, the likely market eects, and
,ii, expected changes in regulatory regimes in other jurisdictions.
2.3.1. \hat will be the market eects o the LU repeal
1he commission has predicted that with newound competition, prices will decline and
serice quality will either be unaected or will improe`.
42
Proessor laralambides o
Lrasmus Uniersity has, howeer, continued to push the traditional argument that the
liner conerence system produces much-need certainty and predicted that rates would

39
Ibid.
40
OJ 2006 L269,1. 1he documents relating to the reiew process are aailable in the DG COMP website:
http:,,ec.europa.eu,comm,competition,antitrust,legislation,maritime,.
41
Commission o the Luropean Communities, Guidelines on the application o Article 81 o the LC 1reaty to
maritime transport serices`, published on 1 July 2008, may be accessed at: http:,,ec.europa.eu,
comm,competition,antitrust,legislation,maritime,guidelines_en.pd.
42
LUROPA Press Release, Competition: repeal o block exemption or liner shipping conerences - requently
asked questions` ,25 September 2006, MLMO,06,344 Brussels.
Sock-\ong Phang
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instead rise as carriers consolidate urther. Logistics costs would also rise, he said, while
carriers may consider a return to the use o smaller essels as capacity sharing declines.
1he Luropean oicials are making a big blunder -- they are looking inside themseles
when their competitors are thinking globally`.
43
loweer, contrary to the iews
expressed by laralambides, studies on the eects o the US OSRA hae shown clearly
that competition in the liner shipping sector can work and can bring prices down.
\ith the repeal o the block exemption, the market conduct o shipping companies will
be subject to the ull application o the LC 1reaty competition proisions. Gien the
industry`s priileged position historically and the existing complex links among
competitors, interpreting and applying the competition rules o the LC 1reaty present
legal problems in their own right.
44
Many issues remain to be clariied while in some
cases existing interpretation o competition law may not be appropriate in the speciic
context o liner shipping. \ithout doubt, the shipping industry will continue to
consolidate and most existing conerences will be transormed into consortia. 1he LU
Competition Commission will necessarily need to study the net economic beneits o
proposed mergers and indiidual applications or exemptions. In concentrated markets,
the market conduct o dominant irm,s, becomes potentially subject to prohibition o
abuse o dominance laid down in Article 82 LC. 1he Commission will hae to deote
substantial resources to inestigating alleged abuses o dominance as well as gathering
eidence o price ixing actiities which are likely to go underground.
2.3.2. \hich is a preerred way to regulate the maritime transport sector
Other jurisdictions including Australia, Japan and Brazil hae also been reiewing
exemptions or liner shipping agreements. In 2006, the newly ormed Competition
Commission o Singapore decided to grant a ie year block exemption to all liner
shipping agreements, subject to a list o conditions.
45
1he decision was made a ew
months prior to the LU announcement o the repeal o block exemption or liner
shipping. As a major transshipment hub competing or transshipment cargo with other
regional ports, a non-exempt decision could hae risked the diersion o cargo to
nearby ports without a competition law regime or with antitrust exemption or the
sector. 1hese considerations also weighed in Canada`s 1999 reiew o its Shipping
Conerences Lxemption Act where the ollowing iews were expressed: lor Canada to
remoe the exemption while others, particularly the U.S. do not, would in all likelihood
result in a shit o some cargo being moed through U.S. ports rather than Canadian
ports due to the imbalance in antitrust protection. Signiicant economic harm to

43
International lerald 1ribune, 22 No 2006. lree llow: A maritime cartel nears its end`.
44
Pozdnakoa, op cit, n 18, is a recent book based on the author`s doctoral thesis that analyzes the application
o Articles 81 and 82 LC 1reaty to the market conduct o liner shipping companies.
45
On 14 July 2006, the Singapore Minister or 1rade and Industry issued the Competition ,Block Lxemption
or Liner Shipping Agreements, Order 2006, exempting a category o liner shipping agreements rom the
section 34 prohibition o Singapore`s Competition Act. 1he order is aailable online at the Competition
Commission o Singapore`s website at: www.ccs.go.sg,Legislation,Block-Lxemption-Order,.
Competition Law and the International 1ransport Sectors
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Canadian shippers, railway and trucking irms, and ports could result i the Act were to
be abolished at this time.`
46

\ith the LU repeal, existing competition authorities will need to consider the
ollowing: Is the US likely to ollow the LU in remoing antitrust exemption or liner
shipping conerences Is the US present maritime regulatory model o conditional
antitrust exemption suiciently competitie and eicient in its outcome, or should the
LU strict repeal o liner conerences be ollowed Nascent competition authorities
would also hae to consider whether to make distinctions between the dierent liner
shipping agreements when granting exemptions. International competition policy or
the maritime sector now stands at the crossroads, with uture deelopments dependent
on whether the US chooses to align its policy with the LU.
\e now turn to a discussion o competition issues in the international aiation sector.
3. IN1LRNA1IONAL AIRLINLS
3.J. 1he Past: 1he Arcane Web of Aviation Regulation
1he aiation industry has been shaped largely by goernment policy or most o its
history. \ithin the US domestic interstate market, the Ciil Aeronautics Board ,CAB,
regulated entry, exit, and ares o priately owned airlines as well as undertook merger
reiews and other antitrust unctions rom 1938-198.
4
1he result was relatiely high
ares, ineicient operations, and airline earnings olatility as rents were dissipated
through competition on serice quality.
In the area o international aiation, the 1944 Chicago Conention
48
established the
ramework or market behaiour that discouraged competition as it was based on
bilateral agreements between goernments rom which airlines derie the right to
operate international air serices. It led to the general adoption o a one country one
airline policy. State ownership and subsidies or lag carriers became the norm in the
international aiation sector. Restrictions on oreign ownership o domestic air carriers
were uniersal. International serices were tightly controlled by bilateral Air Serices
Agreements ,ASAs,
49
and prices generally established jointly by airlines themseles
under the ASAs or International Air 1ransport Association ,IA1A, conerences ,IA1A

46
Shipping Conerences Lxemption Act, 1989, Consultation Paper`, op cit, n 2.
4
Ciil Aeronautic Act o 1938, 52 Stat. 93. lor a historical oeriew o US regulation and deregulation o the
domestic aiation sector, see Borenstein and Rose, low airline markets work, or do they Regulatory reorm
in the airline industry` in Rose ,ed.,, covovic Regvtatiov ava t. Reforv: !bat are !e earvea., Chicago, 1he
Uniersity o Chicago Press, 2006, and Bailey, Aiation policy: past and present` ,2002, 69 ,1, Southern
Lconomic Journal 12.
48
International Ciil Aiation Organization ,ICAO,, Conention on International Ciil Aiation, Doc 300,9,
9th edition, Montreal, 200. 1his and all earlier editions are aailable at the ICAO website at:
http:,,www.icao.int,icaonet,dcs,300.html.
49
1he irst bilateral agreement was signed between the US and UK at Bermuda on 11 lebruary 1946 ,known as
Bermuda I,: Agreement between the United Kingdom and the United States`, 11 lebruary 1946, 60 Stat.
1499.
Sock-\ong Phang
,2009, 5,2, CompLRe

205
is a trade association representing some 260 airlines worldwide,. 1he bilateral
agreements oten did not permit ith reedom which enables airlines to carry
passengers to one country, and then ly on to another country rather than back to their
own.
50

1he US became the irst country to deregulate its domestic airline industry in 198
when the US Congress passed the Airline Deregulation Act.
51
1he Act proided or a
phase out o the CAB by January 1983 its elimination by 1985. Under the CAB Sunset
Act o 1984,
52
CAB`s antitrust authority was transerred to the Department o
1ransportation ,DO1,. loweer, DO1`s antitrust powers with respect to domestic air
transportation expired on 1 January 1989 and this was transerred to the Department o
Justice ,DOJ, Antitrust Diision. lor international intercarrier arrangements, both
DO1 and the DOJ are empowered.
1he result o airline deregulation has been tremendous growth in capacity, lower ares
and more eicient operations - all o which hae beneited the majority o consumers.
Competition has resulted in innoations in the orm o hub-and-spoke networks,
complex yield management systems, price discrimination among traellers, as well as
the deelopment o computer reseration systems initially and internet sales in recent
years. 1he initial entry o about one hundred new low cost carriers was ollowed by a
wae o airline mergers, insolencies and consolidation o the industry. Volatility in
industry earnings has continued and aerage earnings hae declined.
53
1he industry
continues to contain a complex mix o competitie, cooperatie and regulated elements
with airport slot allocations and international route allocations still not competitiely
determined.
1he US experience with deregulation was ollowed with much interest around the
world. New Zealand abolished the goernment control o ares and entry barriers in
1983 with subsequent priatization o Air New Zealand in 1989. Canada moed to
partially liberalize its airline sector in 1984 and 1988, deregulation in Australia was
introduced through the passage o the Airline Agreement ,1ermination, Act o 1990.
54

Deregulation in the LU was implemented in phases starting rom 1988.
55
1he irst
phase allowed multiple designations, ith reedom rights and automatic approal o

50
Jennings has described the resulting ramework as the insane world o international aiation regulation`.
Jennings, 1he insane world o bilateral international aiation regulation` ,2003,, aailable at:
http:,,www.samizdata.net,blog,archies,005229.html.
51
1he Airline Deregulation Act o 198, 92 Stat. 144.
52
1he Ciil Aeronautic Board Sunset Act o 1984, 98 Stat. 103. See Lu, vtervatiovat .irtive .ttiavce.: C
Covetitiov ar, | .vtitrv.t ar ava vtervatiovat .ir 1rav.ort, 1he lague, Kluwer Law International, 2003,
at p 26.
53
See Borenstein and Rose, op cit, n 4.
54
See Sinha, Deregvtatiov ava iberati.atiov of tbe .irtive vav.tr,: ..ia, vroe, ^ortb .verica ava Oceavia, Lngland,
Ashgate, Aldershot, 2001, or the experiences with domestic airline deregulation in New Zealand, Australia,
Canada, Lurope and India.
55
See Lu, op cit, n 52, at Section 2.2.1, and Gil-Molto and Piga, Lntry and exit in a liberalised market`,
Discussion Paper Series, Department o Lconomics, Loughborough Uniersity, UK, 2006.
Competition Law and the International 1ransport Sectors
,2009, 5,2, CompLRe

206
discount ares.
56
1his package, and the second in 1990, loosened the constraints o
bilateral agreements by reeing capacity limitations, allowing additional airlines to be
designated and creating additional route rights.
5
1he third and most signiicant package
implemented rom 1993 to 199 replaced the bilateral system with a multilateral system
o air transport regulation.
58
Most signiicantly, there was to be no restrictions on
pricing, no regulatory distinction between scheduled and charter airlines, and
moement away rom the requirement o national ownership. lrom 199, ull cabotage
,occasionally reerred to as the ninth reedom, granted permission to Luropean carriers
to operate domestic lights in member countries other than their home market.
59

1he irst package also contained three block exemptions or the air transport sector or
joint planning, coordination o schedules, joint operations, and consultation on taris
and slot allocation agreements, categories o agreements between undertakings relating
to computer reseration systems, and ground handling serices.
60
1he majority o the
exemptions had been allowed to expire with the exception the block exemption or
IA1A tari conerences, and IA1A slots and scheduling conerences which was
renewed in 1993.
61

3.2. 1he Present: 1he Age of Budget Airlines and Alliances
1he past decade has seen increased liberalization which has resulted in worldwide
growth in the olume o air passengers, the prolieration o low cost carriers worldwide
and the increased cooperation between airlines in the orm o global alliances and code-
sharing arrangements. Increased liberalization has also been accompanied by the greater
requency in the application o competition law to a ariety o issues within the airline
sector.

56
1he irst package contains our pieces o legislation: Council Regulation 395,8, OJ 198 L34,1, Council
Regulation 396,8, OJ 198 L34,9, Council Directie 8,601, OJ 198 L34,12, and Council Decision
8,602, OJ 198 L34,19.
5
1he second liberalization package contains ie regulations: Council Regulation 2342,90 reoking Council
Directie 8,601, Council Regulation 2343,90 reoking Council Decision 8,602, Council Regulation
2344,90, Commission Regulations 83,91 and 84,91. See OJ 1990, L21,15 and OJ 1991, L10,14.
58
Council Regulation 240,92, OJ 1992, L240,1. See Morrell, Air transport liberalization in Lurope: the
progress so ar` ,1998, 3,1, Journal o Air 1ransportation \orld \ide 42.
59
Chang and \illiams inestigate how Luropean major airlines responded to the liberalized policy. 1hey
conclude that British Airways and the SAirGroup hae pursued a policy o acquiring airlines in LU countries,
with the ormer inding it an expensie and questionable strategy and the latter disastrous: see Chang and
\illiams, Luropean major airlines` strategic reactions to the 1hird Package` ,2002, 9 1ransport Policy 129.
60
See supra, n 56. 1he air transport sector had enjoyed special exemption rom LC competition law dating
back to 1962 under Council Regulation 141,62, OJ 124, 28.11.62, p 251, Lnglish Special Ldition 1959-62, p
291.
61
Commission Regulation 161,93 ,IA1A 1ari and Slot Conerences,, OJ 1993 L155,18. See inra, text
accompanying n 5 and n .
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20
3.2.1. Low cost carriers ,LCCs, take o worldwide
In the atermath o deregulation, low cost carriers hae cared a sizeable niche o the
industry or themseles. In the US, Southwest Airlines, America`s most proitable
airline, and JetBlue hae shown that the low cost segment can be ery lucratie.
62
In
Lurope, low cost air carriers such as Ireland`s Ryanair and UK`s LasyJet hae been ery
successul as well.
63
1he success o LCCs in the US and Lurope helped to break down
resistance to aiation liberalization globally. In the past ie years in the Asia Paciic, the
growth o LCCs has been the single most important actor shaping the airline industry
in the region. In the Asian Paciic region, LCCs hae emerged in India, Japan, Malaysia,
New Zealand, Philippines, 1hailand, Australia and Singapore.
64
1he growth o LCCs
internationally howeer continues to be constrained by regulations on oreign
participation in ownership and management and bilateral agreements between
goernments.
3.2.2. Alliances and other orms o cooperation
Increased competition in the aiation sector has been paralleled by increased
cooperation between airlines in the orm o both domestic and global alliances and
code-share agreements. Since the ormation o the Star Alliance global network in 199,
other major global alliance groups hae been ormed. At present the three major global
alliances are Star Alliance, oneworld and Sky1eam, each inoling major carriers rom
at least ten dierent nationalities. Alliances may represent dierent leels o
cooperation rom joint marketing to integration o businesses. Alliance cooperation can
include code-sharing agreements which allow airlines to market seats on lights
operated by partner airlines where the light carries both airline identiiers and airline
speciic light numbers. loweer, non-alliance airlines also make use o code-share
agreements which allows partner airlines to jointly set ares.
65

1he most important reason or the prealence o alliances is that generally, cross-
border mergers and acquisitions o airlines in order to expand route networks are not
possible. 1he obstacle deries rom bilateral air serices agreements ,ASAs, between
pairs o states which proide that a state may reuse to allow an airline rom the other
state to operate i it is not substantially owned and eectiely controlled by that other
state or its nationals. Gien that a change o ownership could result in the withdrawal

62
Ito and Lee, Low Cost Carrier Growth in the U.S. Airline Industry: Past, Present, and luture` ,2003, Brown
Uniersity Department o Lconomics Paper No. 2003-12.
63
Gil Moto and Piga, op cit, n 2, Paul and lartmann, 1he \orld Airline Industry: A Luropean Perspectie`
,2003,, Case 303-03-1, Luropean Case Clearing louse Collection.
64
lindlay and Goldstein, Liberalization and loreign Direct Inestment in Asian 1ransport Systems: 1he Case
o Aiation` ,2004, 21,1, Asian Deelopment Reiew 3, also presents case studies o deelopment in China,
1hailand and India.
65
Czerny, Code-sharing and its eect on airline ares and welare` ,2006, CNI-\orking Paper No. 2006-15,
Center or Network Industries and Inrastructure ,CNI, at Berlin Uniersity o 1echnology.
Competition Law and the International 1ransport Sectors
,2009, 5,2, CompLRe

208
o operating permission, alliances which do not inole the acquisition o substantial
ownership or eectie control are the next best option.
66

Regulators and competition authorities can either approe or prohibit an alliance or
adopt a decision with remedies. A database on Regulatory Actions on Major Airline
Alliances` can be ound on the website o the International Ciil Aiation Organization
,ICAO,.
6
Most applications or immunity concern air traic on routes between the US
and Lurope. Although there are at present more than a hundred jurisdictions with
competition law regimes, the database contains only regulatory actions o the US DO1
,39 cases,, Luropean Commission ,24 cases,, the UK Oice o lair 1rading ,3 cases,,
the Australian Competition and Consumer Commission ,8 cases, and the New Zealand
Commerce Commission ,2 cases,.
68

Legal procedures and requirements or approal o alliances dier between countries.
69

In the US, international airline alliances apply to the Department o 1ransportation
,DO1, or immunity rom antitrust litigation, which DO1 has the sole authority to
coner or withhold. DO1 considers seeral broadly deined actors such as the public
interest` and oreign policy`, and also relies on the Department o Justice ,DOJ, to
complement its qualitatie approach with a more quantitatie analysis o the proposed
alliance similar to the approach DOJ utilizes or domestic airline mergers.
0
DO1
generally grants antitrust immunity subject to a reiew ater ie years. DO1 has also
granted antitrust immunity or alliance partners to jointly set ares on an indiidual
basis. loweer, in some instances, coordinate pricing between alliance members has
not been permitted. According to Chang and \illiams, the US DO1`s policy in the
1990s was to strategically grant anti-trust immunity to transatlantic alliances subject to
the conclusion o Open Skies Agreements with the goernments o the airlines
inoled.
1


66
See Balour, LC competition law and airline alliances` ,2004, 10 Journal o Air 1ransport Management 81.
6
ICAO`s database o regulatory actions on major airline alliances is at: http:,,www.icao.int,
icao,en,atb,epm,ecp,AirlineAlliances.pd.
68
Since competition law came into eect in Singapore in 2006, the Competition Commission o Singapore has
excluded two airline agreements rom Section 35 prohibition o the Competition Act: the Qantas-British
Airways Joint Serices Agreement and the Qantas-Orangestar Co-operation Agreement, both decisions were
made in 200. Details o the decisions may be ound online at the Competition Commission`s website at:
http:,,www.ccs.go.sg,PublicRegister,Notiications-Decisions---Public-Register.htm.
69
Lu, op cit, n 52, is a detailed study o the problems acing international airlines due to conlicts arising rom
the applications o arying competition laws by the US and LC on airline alliance actiities.
0
See Schlangen, Diering Views o Competition: Antitrust Reiew o International Airline Alliances` ,2000,
Uniersity o Chicago Legal lorum 413. Schlangen highlights the similarities and dierences in the antitrust
analysis by DO1 and DOJ.
1
Switzerland and Belgium signed open skies agreements with the US in 1995, in 1996 Swissair, Austrian
Airlines Sabena and Delta Air Lines were granted antitrust immunity by the US authorities. A ull Open Skies
deal was signed by the lrench and US goernment in Oct 2001, which enabled the Air lrance-Delta alliance
to be granted antitrust immunity: see Chang and \illiams, op cit, n 59. In lennes` iew, the US opens skies
policy and its twin arrangement, the enticing bait o antitrust immunity, represents one o the most important
breakthroughs in changing the international regulatory ramework o commercial air transport .`: see
Sock-\ong Phang
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209
1he Luropean Commission`s approach to a proposed alliance has been to inestigate
its eect on competition by considering market shares on the releant routes as well as
legal and,or practical barriers to entry by potential competitors. Alliances hae oten
been permitted to proceed subject to remedies. 1he types o remedies ordered by the
Commission in order to mitigate the potential negatie eects on competition hae
included:
,i, reezing or reducing requencies on the routes in question,
,ii, constraints on are reductions or the serices oered by the parties to make it
more diicult or them to engage in anti-competitie pricing strategies,
,iii, parties agreeing to allow would-be competitors access to their requent lyer
programs and airport slots, as well as allowing competitors to interline with the
parties,
,i, relaxation o bilateral constraints by goernments in order to allow competition,
and
,, wider remedies such as undertakings rom the airlines not to oer olume related
discounts or bonus commissions.
2

1he welare and competition eects o alliances and code-sharing hae been intensely
studied.
3
Amongst the ot cited beneits are that alliances oer more extensie
networks where partners are complementary resulting in decreased costs and ares, and
better quality o serice. loweer, they also raise competition concerns on routes
where partners are competitors as this reduces competition and may preclude
competitors rom entering the markets sered by alliances. \hile on some routes there
is strong competition between alliances, this is not the case in eery instance. On some
routes, a particular alliance might be the only operator and competitors ace too high

lennes, 1he Luropean Community and the United States: expanding horizons and clipped wings`, Luropean
Air Law Association, Lleenth Annual Conerence in Lisbon, 5 Noember 1991.
2
Balour examines in detail the Commission`s decisions on the Luthansa , SAS alliance in 1996, the KLM ,
Alitalia alliance in 1999, the Luthansa ,Austrian Airlines alliance in 2002, the British Airways , SN Brussels
Airlines cooperation agreement in 2003, as well as three transatlantic alliances or which inestigations
stretched rom 1996 to 2002. See Balour, op cit, n 66.
3
1he literature analyzing the eects o these cooperation agreements is extensie and includes Bilotkach,
Price competition between international airline alliances` ,2005, 39,2, Journal o 1ransport Lconomics and
Policy 16, Brueckner, International airares in the age o alliances: the eects o codesharing and antitrust
immunity` ,2003, 85,1, 1he Reiew o Lconomics and Statistics 105, Brueckner and \halen 1he price
eects o international airline alliances` ,2000, 43,2, Journal o Law and Lconomics 503, Clougherty,
Globalization and the autonomy o domestic competition policy: an empirical test on the world airline
industry` ,2001, 32,3, Journal o International Business Studies 459, lassin and Shy, Code-sharing
agreements and interconnections in markets or international lights` ,2004, 12,3, Reiew o International
Lconomics 33, Oum, Key Aspects o Global Strategic Alliances and the Impacts on the luture o Air
Canada and other Canadian Air Carriers` ,2001, Research paper commissioned by the Canada 1ransportation
Act Reiew, Park and Zhang, An empirical analysis o global airline alliances: cases in North Atlantic
markets` ,2000, 16 Reiew o Industrial Organization 36, and \halen, A panel data analysis o code
sharing, antitrust immunity and open skies treaties in international aiation markets` ,200, 30,1, Reiew o
Industrial Organization 39.
Competition Law and the International 1ransport Sectors
,2009, 5,2, CompLRe

210
hurdles to hae any chance to access such markets. Recently, increasing public concern
in the US oer the possible anticompetitie eects o international airline alliances
prompted a congressman to propose legislation in lebruary 2009 that calls or a ederal
goernment study o alliances and the antitrust immunity they receie.
4

3.3 1he Iuture: Competition Policy for Imperfect Aviation Markets
3.3.1. LU reises block exemption or IA1A conerences
In 2005, the Luropean Commissioner or Competition made a proposal to lit the
exemption or IA1A passenger tari conerences which allows members to discuss
interlining prices or scheduled passenger lights.
5
1his was ollowed in July 2006 by
the US DO1 proposal to reoke long standing antitrust immunity held by the IA1A to
set passenger and cargo prices or US-Lurope and US-Australia lights, claiming the
growth o airline alliances has made the pricing conerences unnecessary.
6
Competition
authorities argued that the growth o international aiation alliances has enhanced
competition, lowered ares and oered consumers more choices, making it diicult to
justiy a continuation o the exemption.
In October 2006, Luropean Commission acted decisiely to reoke the exemption
IA1A passenger tari conerences hae enjoyed in phases.

lor routes within LU,

tari conerences ceased to be exempt rom January 200, or routes between the LU
and the US and Australia, rom June 200 and routes between LU and other non-LU
countries, rom October 200. 1o prolong the exemption or routes to non-LU
countries, IA1A will hae to proide data to the commission showing that IA1A
interlining continues to beneit consumers. 1he new regulation also ended the block
exemption or IA1A slots and scheduling conerences. Since the LC decision,
Australia`s ACCC has also ended immunity or IA1A tari conerences at the end o
June 2008 or markets to and rom Australia.
3.3.2. US-LU Open Skies
1he success o domestic deregulation o airlines in the US and the LU naturally led to
considerations or Open Skies` between Lurope and the US. 1he US had negotiated
bilateral Open Skies` agreements with seeral indiidual Luropean goernments in the
1990s. loweer about 10 LU Member States including Britain, which account or

4
Legislation introduced by Rep. James Oberstar, l.R. 831, A Bill to Lnsure Adequate Airline Competition
Between the United States and Lurope`, 3 lebruary 2009. Its proisions hae since been attached to the
lederal Aiation Administration ,lAA, Reauthorization Bill.
5
Commission`s Discussion paper on Regulation 161,93 ,IA1A 1ari and Slot Conerences, may be iewed
at the Commission`s website at: http:,,ec.europa.eu,competition,antitrust,others,air_transport.html.
6
See US DO1 proposal at the agency`s website: http:,,www.dot.go,aairs,dot506.htm.

Commission Regulation 1459,2006, OJ 2006 L22,3. See Luropean Commission. Competition:

Commission reises Block Lxemption or IA1A passenger tari conerences` ,2 Oct 2006, IP,06,1294,
Brussels.
Sock-\ong Phang
,2009, 5,2, CompLRe

211
about hal o all LU-US traic, had not signed Open Skies agreements with the US.
8

One outcome was the ailed merger o KLM and British Airways in 2000 because o
the risk o jeopardizing routes to US under the bilateral treaties.
1he Luropean Commission had argued throughout the 1990s that the bilateral Open
Skies Agreements between US and indiidual member states resulted in ragmentation
o Lurope`s common aiation market and thereore inringed LU law. On 5 Noember
2002, the Luropean Court o Justice made a landmark decision that declared the then
existing national bilateral treaties illegal.
9
\ith the uncertainty hanging oer the
bilateral treaties, the Luropean Commission was gien the mandate it had long sought
to begin negotiations or an open aiation area with the US in 2003. 1he US-LU
aiation pact
80
that was inally announced in March 200 ,or open skies rom March
2008, ended the dangerous legal uncertainty that has clouded transatlantic aiation or
ie years`. It is expected to result in cheaper lights that will boost transatlantic traic
by 50 or 26 million passengers a year within ie years as well as trigger urther
consolidation o LU airlines through mergers.
81

Under the pact, Luropean and American airlines can ly any route between any
Luropean city in the 2-nation bloc and one city in the US. loweer, while US carriers
can operate serices between Luropean countries, Luropean airlines will not be allowed
to ly rom city to city within the US. Restrictions on oreign inestment in US airlines
remain. Second stage talks hae begun in May 2008 and are aimed at opening up the US
domestic market and at easing current ownership restrictions on oreign inestment in
US airlines. 1he most signiicant outcome o the pact has been to open up access to
London`s leathrow Airport which had preiously limited rights to ly between US and
leathrow to our carriers ,British Airways, Virgin Atlantic, United Airlines and
American Airlines,.
1he landmark US-LU Open Skies deal has prompted discussion o airspace
liberalization in Japan
82
as well as within ASLAN.
83
1he US and China hae also began
discussions on a US-China open skies deal.
84
1he pace o liberalization has howeer
been painully slow, with goernments haing to weigh the beneits o traic growth

8
Robyn, Reitzes and Moselle, Beyond Open Skies: 1he Lconomic Impact o a US-LU Open Aiation Area`,
in lamilton and Quinlan ,eds,, Dee vtegratiov: or 1rav.attavtic Mar/et. are eaaivg Ctobatiatiov, Johns
lopkins Uniersity Center or 1ransatlantic Relations, \ashington, D.C. and Centre or Luropean Policy
Studies, Brussels, 2005.
9
Judgments o the Court, in Case C-466,98 Covvi..iov r |K |2002| LCR I-942, Case C-46,98 Covvi..iov r
Devvar/ |2002| LCR I-9519, Case C-468,98 Covvi..iov r reaev |2002| LCR I-955, Case C-469,98
Covvi..iov r ivtava |2002| LCR I-962, Case C-41,98 Covvi..iov r etgivv |2002| LCR I-9681, Case C-
42,98 Covvi..iov r vevbovrg |2002| LCR I-941, Case C-45,98 Covvi..iov r .v.tria |2002| LCR I-99,
and Case C-46,98 Covvi..iov r Cervav, |2002| LCR I-9855.
80
LC-US Air 1ransport Agreement, OJ 200, C301 L,143.
81
LU agrees US open skies deal`, 1he linancial 1imes, 23 March 200.
82
Japan in open skies airport access push`, 1he linancial 1imes, 31 March - 1 April 200.
83
ASLAN Open Skies seen to gain momentum this year`, 1he Inquirer, 9 April 200.
84
US presses China or Open Skies deal`, 1he Straits 1imes, 14 April 200.
Competition Law and the International 1ransport Sectors
,2009, 5,2, CompLRe

212
against threats to the commercial interests o their own country`s carriers. National
carriers in many instances, earul o oreign competition, continue to lobby iercely or
the protection o their own interests.
4. CONCLUSION: 1HL ABANDONLD OCLANS AND CON1LS1LD
SKILS
Despite the international liner shipping and aiation sectors being key inrastructure
proiders or global trade and mobility, competition in these two sectors is a airly
recent phenomenon. 1he two sectors hae presented dierent kinds o challenges to
antitrust and competition authorities, generating numerous studies both or as well as
against their exemption rom competition laws. Beginning in the late 190s, the US was
the irst moer to deregulate the airlines sector and to introduce reorms in the
regulation o the international shipping sector -- which hae resulted in greater
competition and lower prices in both sectors. In 2006, the LU adopted a tougher stance
by becoming the irst jurisdiction to remoe exemption or IA1A passenger tari
conerences rom 200 and or liner shipping conerences rom 2008. Other orms o
cooperatie agreements in both sectors howeer continue to receie aourable
treatment under competition laws worldwide.
Gibson and Donoan
85
hae highlighted the increasing comparatie disadantage o
the US, irst, in shipbuilding and, later, in operating a US lag oreign going merchant
marine leet. 1he exemption o the shipping conerences rom antitrust law or most o
the preious century helped to presere an industry that was in obious decline, that is,
until the passage o the OSRA in 1998. Reitzes and Sheran hae argued that this policy
change to aour shippers oer carriers was not unexpected, gien the general
importance o international trade to US businesses and the urther diminution in the
already small number o US lag carriers. 1he two largest US lag carriers, American
President Lines and Sealand, hae been acquired by oreign-owned carriers ,Neptune
Orient Line in 199 and Maersk in 1999, respectiely, in recent years.`
86
As a result, the
industry structure o international shipping has become increasingly concentrated
through acquisitions and mergers een as reight rates hae declined with increased
competition.
\hile many nations hae chosen to ollow the US lead in abandoning national lag
carriers or the oceans, the international skies remain a contested domain, greatly
distorted by an arcane web o restrictie national aiation policies. Immunity or
cooperation between airlines through ASAs, code sharing and alliances continues to be
justiied and justiiable as a result o market distorting regulations: oreign ownership
restrictions that obstruct eiciency enhancing cross-border mergers and acquisitions,
state aids or national carriers, bilaterally negotiated air rights, as well as restrictions to
airport access. 1he spread o the 190s US innoation, the low cost carrier, to other

85
Gibson and Donoan, 1be .bavaovea Oceav: . i.tor, of |vitea tate. Maritive Potic,, Columbia, Uniersity o
South Carolina Press, 2000.
86
See Reitzes and Sheran, op cit, n 16, at p 56.
Sock-\ong Phang
,2009, 5,2, CompLRe

213
regions o the world ,only, in the past decade, has certainly beneited passengers
greatly. 1he terms o the recent US-LU Open Skies agreement howeer illustrate that
restrictions on substantial oreign ownership o airlines and on domestic lights by
oreign-owned airlines within the US remain obstacles in the liberalization process.
1he international transport sectors, with their network characteristics, continue to pose
challenges to national competition policy which must be tailored to deal eectiely with
their unique characteristics - not so much in terms o traditional concerns o
competitie prices and abuse o dominance but, rather, conlicting national interests,
especially with regard to oreign ownership and air rights. Len as the international
shipping sector consolidates and adjust to the ull application o competition law in the
LU, there will be greater conergence o competition policy in the airline sector, albeit
at a pace that continues to leae much to be desired. 1he clear desirability or
international harmonization and compatible regulatory approaches to reduce the
potential or conlicting application o competition laws is apparent. Proposals or an
integrated international policy position, leading to the eentual establishment o an
independent supranational airline regulation authority` are not new.
8
\hile this will be
beneicial globally, national agendas and local conditions dier. 1he uncertain
distribution o beneits causes one to be sceptical that we will be able to witness the
establishment o such a supranational airline regulation authority in the near uture.
88



8
Round and lindlay, Competition policy in international airline markets: an agenda and a proposed solution`,
presentation at 1th International LCM1,OLCD Symposium on 1ransport Lconomics and Policy, Berlin,
25-2 October 2006.
88
1his scepticism is shared at the general leel by Guzman, Is international antitrust possible` ,1998, 3 New
\ork Uniersity Law Reiew 1501. Guzman suggests that negotiations on antitrust policy be combined with
negotiations o other issues as concessions in other areas o negotiations may be necessary to compensate
countries that will suer a loss under a cooperatie antitrust policy.