On December 9, 2008, Canada and the European Union successfully concluded negotiations on a landmark Comprehensive Air Transport Agreement ("the Agreement"). The negotiations had commenced in November 2007 and the Agreement will come into effect in the first half of 2009.
This Agreement is the latest agreement pursued as part of Canada's Blue Sky international air policy. The purpose of the Blue Sky policy is to negotiate increasingly liberalized international air transport agreements. Canada currently has bilateral agreements with 19 of the 27 European Union Member States. A single regime will now govern Canada's air transport relations with every member of the European Union.
The Canada-EU Agreement is more far-reaching and open than any similar pact that the EU or Canada has with other countries. Canada and the EU have agreed to remove restrictions on direct flights between Canada and EU Member States and ultimately to remove restrictions on foreign ownership of airlines. The Agreement will provide for increased traffic rights, allowing for unrestricted direct services (on an airline's own aircraft or that of another carrier) between Canada and the EU, without any limitations on the number of flights operated, the routes, or the fares to be offered. All-cargo airlines will also be permitted to operate to or from third countries on flights involving Canada or the EU.
The Agreement will contribute to the growth of transatlantic trade and should result in lower fares. In 2007, nine million passengers travelled between Canada and the European Union. The Agreement is projected to increase the number of Canada-EU passengers by some 500,000 a year. In addition, airlines will now be able to book passengers on each other's flights due to new code-sharing agreements. The European Commission is forecasting that the Agreement will create over €72 million (US$92.6 million) in economic benefits and will lead to the creation of some one thousand jobs in its first year alone.
The Agreement provides for phased market opening linked to the granting of greater investment freedoms by both sides:
- Phase One takes effect when the Agreement is signed, expected to be in the first half of 2009. Airlines will have unlimited freedom to operate direct services between any point in the European Union and any point in Canada. There will be no restrictions on the number of airlines flying between the EU and Canada or on the number of services operated by any airline. Cargo airlines will have the right to fly onward to third countries.
- Phase Two anticipates that Canada will amend its legislation to enable European investors to own up to 49% of a Canadian carrier's voting equity, an increase from the current 25%. At that time, further traffic rights will be granted, including the right for cargo carriers to operate services to third countries from the other party to third countries without connection to their point of origin.
- In Phase Three, both sides will allow investors to establish and control new airlines in each other's markets. At that point, passenger airlines will be able to fly onward to third countries.
- In Phase Four, EU and Canadian carriers will be granted full rights to operate between, within and beyond both markets, including between points in the territory of the other party (known as cabotage). These rights will be granted once both sides complete the necessary steps to allow the full ownership and control of their carriers by the other's nationals.
At this time, the text of the Agreement has not been made public. As a result, the full details of the Agreement are not yet known. If Canada and the EU have indeed made binding commitments with respect to Phases Two through Four, it would represent a fundamental change in Canada's regulatory framework for aviation and would present significant opportunities for carriers in both jurisdictions. If these commitments are realized, the Agreement would likely lead to consolidation and integration between air carriers in the two jurisdictions.
In the shorter term, with the implementation of Phase One in 2009, air carriers and cargo operators will have greater opportunities for new routes and enhanced operational efficiencies, and travellers should benefit from increased competition, routes and lower fares.
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