The three pillars of stagnation: challenges for air transport reform

Abstract

Various aspects of trade and investment in air transport services are regulated by a series of bilateral agreements in which rights of market access are exchanged. Industry commentators have identified this system and the associated national ownership rules as well as the prevailing attitude of competition authorities (on merger policy and on airport pricing) as the most important factors limiting adjustment in the international air transport industry. These ‘pillars of stagnation’ are examined here. Features of the bilateral agreements in aviation that are similar to those of other preferential trading agreements are noted and linked to the slow pace of policy reform in this industry. The three ‘pillars’ are not independent, and effective liberalization of trade and investment in air transport services depends on complementary regulatory reform. Options are presented on ways in which these changes might be designed and introduced, and in what sequence that might be done. Air transport services are currently excluded from the WTO's General Agreement on Trade in Services (GATS), and an important enquiry is how multilateral commitments recorded in the GATS might support reform.