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Freedoms of the Air - Changing the Patterns of International Trade and Commerce

by Aaron M. Daniels - Canada

(for any comments, please contact Brian Risman, Publisher of The Law Journal UK)

Sixty one years ago the Chicago Convention in November 1944 created a clear definition of the first five freedoms of the air that enabled the first manifestation of globalization of trade and commerce.  Since those days, there have been radical changes in business paradigms, technology, security and safety.  All have contributed to changing process and administration of the conduct of business of transportation called “freedoms of the air” and “open skies”.  In 1995 an agreement between the US & Canada opened up trade that has lasted to this day, but with constraints on each other’s territory and that of other third party countries.  On Friday November 11, 2005 Canada & the U.S announced expanded horizons of “open skies – open minds”. In the words of Mr. Richard Lapierre, Canadian Minister of Transport, “this further liberalization of the Canada-US transport relationship will allow airlines of both countries to better meet the needs of travelers and shippers”.  In fact the biggest gain could be access to third country markets of the US & Canada by both nation's airlines.  It has been a continuing exercise in the gradual integration of the five “freedoms of the air” promulgated in Chicago during WW II.    

            Freedoms one and two provide for peaceful air transit and that of a non-traffic stop in a foreign country. Freedoms three and four permit movement of traffic from home to a second country and that of the same carrier to return home with similar traffic from the second country. These two freedoms single-handedly removed the shackles from international trade. Growth of major world air carriers date from this point and has lasted more than half a century. All of these freedoms are associated with specific terms and conditions such as frequency of flights, mutual docking arrangements and so forth, all of which are determined by bilateral agreements between the nations that are parties to the Chicago Convention.  

            The year 1995 opened up air freedoms to a further liberalization of the fifth freedom only between US/Canada and excluding third country constraints.  This is the one that has been a major stumbling block to any further liberalization of trade for the past decade.  It deals with rights at the second country, to emplane/deplane traffic coming from or going to a third country. According to the US Department of State’s website:  “Open Skies Agreements create a free market for aviation services and provide substantial benefits for travelers, shippers, and communities as well as for the economy of each country.  Bilateral Open Skies Agreements give the airlines of both countries the right to operate air services from any point in one country to any point in the other, as well as to and from third countries. These rights enable airlines to network using strategic points across the globe. Canada and the U.S have such contracts under NAFTA. 

            To gain benefits of economies of scale and scope, from this expanded trade agreement, the airline must have long range landing rights internationally. It is one of the reasons Air Canada is being touted as the largest beneficiary of this latest round.  Another major niche gainer could be the Air couriers operating fleets internationally. Other American carriers will most certainly be involved and will gain some beneficial results.  

            As in the case of customs duties, industry subsidies and other barriers to trade such as import/export quotas, the long-term impact of elimination, wholly or in part, has certainly resulted in improved global trade and commerce. NAFTA is living proof of this.  Freeing up of some major aspects of the 5th freedom, will likewise benefit airlines directly and compensate for the large blip on rising fuel costs recently faced by all carriers. It would improve profitability of some of the poor performance air carriers. It would certainly mean reducing supply management costs and even improved overall productivity.  In the long term, carriers that are presently enjoying near exclusive market share in both Canada and the USA will have to rationalize.  It could prove to be a win-win situation in the long term.   

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