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In Trade Liberalization in Aviation Services: Can the Doha Round Free Flight? (AEI Press, March 2004), Brian Hindley of the London School of Economics argues that it is time to revisit the rules governing the air transport industry, which includes international aviation services (airlines) and the international express delivery sector. Hindley suggests that the General Agreement on Trade in Services (GATS) of the World Trade Organization (WTO) can and should liberalize international express delivery when the Doha Round of the GATS resumes. Apart from the intrinsic benefits for the world economy, he argues that this would be the first step toward liberalizing the entire international aviation services industry. If GATS can effectively deal with the difficulties facing the aviation-intensive international express delivery sector, it will establish credentials to deal with the eventual absorption of all international air transport services within the GATS framework.

Even though international air transport has greatly progressed technically in recent decades, it is still governed by rules established in 1944, when war-torn European states blocked American proposals for open international aviation and opted instead for protection of national carriers. There are now approximately 3,000 bilateral deals between countries determining the access airlines have to foreign markets and rigidly controlling details from capacity to pricing.

Traffic rights--which determine where carriers can fly--are the necessary core of any agreement, but are, at this time, expressly exempted from the disciplines of the GATS. Successful future multilateral agreements about these rights outside of the GATS could provide a precedent for later negotiation of special provisions within the WTO.

Because of these uneven rules, express delivery in particular is beset by a variety of problems in its overseas operations--restrictions on the weight and value of express shipments; unnecessary delays through customs clearance and cargo-handling procedures; arbitrary re-valuations of shipments; and vulnerability to irregular charges and fees.

Hindley admits that the aviation industry as a whole will not be quick to accept WTO oversight, and that serious obstacles to the integration of aviation services into the GATS framework will remain. Most notably, the WTO dispute settlement mechanism offers little scope for changing or modifying its rules to meet the concerns of carriers--especially U.S. ones. Although such problems mean that the application of WTO disciplines to the aviation industry will be very gradual, Hindley insists that the WTO cannot be ignored in the search for a new way to organize and regulate international aviation.

Trade Liberalization in Aviation Services is part of a series of AEI studies on negotiations to liberalize trade in services. Each study focuses on a particular service sector, identifies major obstacles to liberalization in that area, and presents policy options for trade negotiators and interested private-sector participants.

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