As a global—even if not globalized—industry, airlines, along with their airport and air navigation service partners, are presently being buffeted by economic malaise and the debilitating impact of recent international events. It was at the outset of two of these events-the conflict in Iraq and the SARS (severe acute respiratory syndrome) outbreak-that the International Civil Aviation Organization (ICAO) convened the Worldwide Air Transport Conference in March 2003.

Despite the gathering storm clouds, nearly 800 delegates and observers from 145 of the Organization's 188 Contracting States, as well as 26 observer organizations, met in Montreal, Canada to discuss the challenges and opportunities of liberalization, which the ICAO Council had chosen as the Conference theme sixteen months earlier. The global attendance and the ensuing consensus on all issues on the agenda were a testament to the widespread desire to move forward the liberalization process in international air transport and to focus on practical guidance for its implementation. But that desire is to do so without prejudice to the major problems facing the industry, one that has traditionally grown at rates exceeding that of gross domestic product, but which always remained at the low end of the rate of return on investment scale.

Air transport has for decades been a highly regulated national-based industry. Minimum safety standards are set by ICAO through the Annexes to the Convention on International Civil Aviation, more commonly referred to as the Chicago Convention, which is both the constitution of ICAO and the charter for international civil aviation. However, on the economic and regulatory side, market entry and access, pricing and capacity for the airline industry are controlled and regulated primarily through a vast network of some 3,000 bilateral air services agreements between States. Until recently, most of these agreements took relatively protectionist approaches on market access and capacity to ensure the continued viability of their national airlines. The ICAO role in this latter field is not so much legislative as it is advisory and recommendatory. Nonetheless, it is important because ICAO is the global aviation forum and therefore represents the collective view of the international aviation community.

The global forces of privatization, globalization and liberalization that swept all industries and sectors in the 1980s and 1990s inevitably impacted on international air transport as well. Yet, the air transport's essentially national-based industry structure and its bilateral regulatory control of the marketplace have acted as institutionalized and regulatory constraints to the opening-up process that those forces bring to bear. It was against this background that the ICAO Conference in March 2003 picked up the work of the Conference in 1994, which also addressed liberalization and regulatory change. The emphasis in the last Conference, however, was not so much on whether to liberalize, as had been the case in the previous one, but on how to liberalize. Since 1994, liberalization had rippled out from a few industrialized States with mature markets and airline industries into a worldwide trend.

Some seventy States have signed on to one or more liberal so-called "open skies" agreements. Many have begun to adopt liberalized approaches in their bilateral agreements and as many as a dozen regional and sub-regional agreements with liberalization their raison d'être have emerged to impose an additional layer on the bilateral system. Nonetheless, it has been a piecemeal process, far too slow for some States that wish to move forward rapidly and purposefully, but too fast for many others, giving rise to concerns about its consequences. States therefore look to ICAO for leadership and advice on how best to advance the liberalization agenda towards a more open but safeguarded regulatory environment. Air transport remains the one service sector where there is a clear expectation of participation, and that remains a fundamental consideration in liberalization discussions.

Photo/Horst Rutsch

After five days of deliberations, the Conference produced a comprehensive and wide-ranging package of results comprising the Conference Declaration of Global Principles for the Liberalization of International Air Transport, a number of model clauses for optional use by States in their air services agreements, two recommendations and 67 conclusions encompassing all agenda items.The Declaration was adopted by acclamation and all other decisions by consensus. Altogether they provide principles, policy positions, guidance and practical advice which States can use as required.

Some of the principal issues covered by the results are: a more liberalized formula for the designation of air carriers under air services agreements; accelerated liberalization of all-cargo operations; formulas for safeguards, dispute resolution, sustainability and participation, all for optional use in air services agreements; and Conference positions on transparency, product distribution and consumer interests. Permeating the results on all these issues is the recognition of the primacy of safety and security in all economic regulation or liberalization considerations. The link and interrelationship between safety, security and liberalization are well recognized in ICAO work. Conference results will serve as the basis for the follow-up seminars which ICAO will conduct for groups of States in order to maintain the momentum of the Conference outcome and provide assistance in the liberalization process.

One of the recommendations addressed the ICAO role in this field of work and its relations with the World Trade Organization, which through the General Agreement on Trade in Services has a partial trade regime coverage of international air transport. The Conference acknowledged the leading role of ICAO on regulatory matters and directed that its future focus be on promoting and assisting States on liberalization.

Finally, mention should be made of a long-term idea that was endorsed by the Conference: that ICAO in time become a global marketplace for air transport market access negotiations. The Organization will address this idea after careful examination of its feasibility and practicalities. The Conference Declaration gave States, for the first time, a broadly cast framework of principles and positions to guide them and other partners in economic regulatory issues for the foreseeable future. That a consensus could be attained on such a document was a notable achievement in the aeropolitical world and a tribute to the global perspective that governed Conference deliberations. This success was also in part attributable to the thorough preparations made by ICAO leading up to the meeting.

As the ICAO Council President said following conclusion of the Conference on 28 March 2003: "This was truly a remarkable Conference." Air transport regulatory issues on the international stage are often contentious and bilateral market access negotiations can be protracted and difficult.

The aviation world contains a broad spectrum of viewpoints, from the conservative or protectionist through to the most liberal. Yet, this Conference forged a full and constructive package of results on which further and possibly accelerated regulatory reform can be based. There is clearly a recognition at large that regulatory reform must remain on the front burner so that, within the principles and norms of the Chicago Convention, a more open regime can emerge and continue to provide States and peoples with a safe and safeguarded, as well as efficient and economical, international air transport system.

The objective, as was recognized by the Conference, is not liberalization itself, but to harness the liberalization process for its benefits. This will require States to consider liberalization and its options in terms of not only their national aviation interests but also the broader societal and economic development objectives. It will also necessitate a preparedness to adjust to the ever-changing commercial and operating environment of aviation. As recent events have demonstrated, international aviation is a vulnerable but nonetheless resilient sector.

For its part, the future role of ICAO will require the resources and support of its contracting States in order to continue developing policy guidance, especially on crucial and still evolving regulatory issues like airline designation criteria, sustainability and safeguards.

Notwithstanding the calls for rapid regulatory change, global reform in international air transport is an incremental process that requires adaptation and consensus-building, and it must give paramountcy to safety and security. In this connection, ICAO will continue to be the legislative source of safety and security standards and the focus and catalyst for regulatory reform and liberalization guidance. The 2003 Air Transport Conference will undoubtedly go down as a watershed event in the annals of air transport regulation and the liberalization of this sector.