INTRODUCTION TO THE FORUMS IN RESOLVING INTERNATIONAL AVIATION DISPUTES.

• Author: Zhang, Luping

I SIGNIFICANCE OF INTERNATIONAL CIVIL AVIATION

International civil aviation has special features and has also witnessed great growth in the economic market compared to the time when the Chicago Convention (1) was concluded in the 1940s.

1. Special Features of Aviation

   The sectorisation of the aviation industry leads to further specialisation in the resolution of disputes arising therein. The aviation industry involves myriads of sectors, both military and civil. Distinctive features of sectorisation in the aviation industry are as follows. The first feature of sectorisation in the aviation industry is primarily a highly-regulated industry by national governments, as the Chicago Convention is particularly deferential towards national sovereignty. (2) This explains the early inclination towards the ICAO Council and the ICJ to resolve international aviation disputes.

   The second feature in sectorisation is a liberalisation process, ending in the co-existence of various multilateral agreements and bilateral agreements on the subject. This feature leads to a multiplicity of dispute resolution forums that acquire their own sphere of competence: the ICAO Council and the ICJ are more involved in security-related disputes, while other forums, such as ad hoc arbitration, DSB in WTO, are more involved in trade-related issues.

   The third feature in sectorisation is the emphasis on technicality, which is a strong feature in aviation. Therefore, it leads to a demand for experts in dispute resolution.

   The fourth feature is that the stakes involved in the aviation industry are often significant in financial terms, and it sometimes requires expedited procedure as the longer the procedure lasts, the more money parties will lose.

   The fifth feature is that the aviation industry involves a wide range of stakeholders, both private and public. However, with the exception of ad hoc arbitration, other forums only allow access to States to argue cases directly. In practice, disputes between airlines are often standing in a 'gray area' (3) of international aviation disputes. (4) It has been suggested that airlines should have standing like States in the dispute resolution process, since they are the actual beneficiaries of the dispute resolution. (5)

   The need for inclusion of private parties in the same forum as public parties is mainly based on the following three reasons. First, an international aviation dispute involves three layers of interests: the political interests of States; the commercial interests of airlines; and the legal interests of all these entities. (6) Therefore, every stakeholder including both public and private parties should be offered an option to have equal access to the same forum. Second, as shown by State-to-State aviation arbitration cases, the cases argued between States involve States advocating for their national carriers. Third, with the increased privatisation of airlines and alliances as well as liberalisation, inter-State dispute settlement could be a valuable platform for mediation of commercial interests. (7) The resolution of the so-called 'Hushkit' dispute between the EU and the US is an example of a complex procedure that is potentially 'damaging to the commercial interests most directly involved.' (8) Following the Hushkit dispute, an Irish hushkit and aircraft manufacturer, Omega Air, commenced three-tiered litigation after failing to lease aircraft in the EU. Omega Air attempted to 'retrofit and lease aircraft in the EU and found itself potentially blocked by the new EU regulation.' (9) The manufacturer challenged EU regulators in the Irish High Court, English High Court and before the European Court of First Instance. (10) If private parties were offered standing in the same dispute resolution forums as States, there is an option to shorten the procedure and save the time and costs for the parties. It is further argued that 'airlines should be parties to international disputes that involve their commercial interests, making "the method of arbitration all the more effective and meaningful", and allowing recourse to "well-functioning methods of arbitration."' (11)

   This point is reinforced by two recent landmark disputes in civil aviation: one is the European Union Emissions Trading Scheme ('ETS') dispute, which generated controversy over the sovereignty of non-EU countries; and the other is the massive anti-Gulf carrier campaign by European and US airlines regarding a government subsidy dispute. In the ETS dispute, the Court of Justice of the European Union ('CJEU') reviewed the inclusion of aviation within the ETS in light of the Open Skies Agreement, the Kyoto Protocol, and customary international law. (12) It concluded that ETS did not infringe the principle of territoriality nor the sovereignty of its contracting States. In reality, it caused great controversies as seen in the Moscow Declaration, made by 23 ICAO non-EU Member States, who sought to cease the application of the Directive 2008/101/EC to non-EU airlines. (13)

   In the government subsidy dispute, a senior WTO officer 'quashed the idea the trade body could help to quickly resolve a high-profile international airline spat over market access and subsidies, after calls for the institution to serve as an arbiter over competition among carriers.' (14)

   The most important aspects of the aviation industry, such as traffic rights, are considered as a 'sector out of the scope of the WTO' since the majority of air services are negotiated through air services agreements. (15) However, the officer said that 'a fuller involvement of the WTO in air-transportation issues would be possible, but would take time.' (16)

   On the anti-Gulf campaign, International Air Transportation Association ('LATA) Director-General Tony Tyler commented that '[r]egardless of your viewpoint, LATA is not the battleground on which any resolution will be achieved. You, our members, have not given us a mandate to take a position on such issues.' (17) Therefore, a pure airline-to-airline or State-to-State dispute resolution mechanism may not be the most effective. A mechanism that allows private parties to have a direct dialogue with States, such as the ICSID mechanism may be better-suited. This feature may have a role in designing a new forum for international aviation disputes and it requires normative support as currently international conventions are mostly binding among State actors.

2. Growth in the Aviation Market

   Aviation disputes can be categorised into two general types (security-related and trade-related disputes). Those two categories of disputes are rooted into the global economy. Security-related disputes occur mostly due to political tensions in the international arena, which are inevitably related to the international economy. In the modern era, the nature of disputes has switched from security-related to trade-related, where the growth in the aviation market lays the foundation.

   The confidence in the future of the aviation market can be supported by LATA reports. According to the statistics of the LATA website, 769 billion US dollars was spent on air transport in 2017. (18) The increasing number of passengers travelling by air will spur the airline industry. Similarly, a good economy stimulates cargo services, and disputes on cargo service are a typical kind of aviation dispute, as illustrated by the US v Italy arbitration case. (19)

   Besides growth in number, the centre of gravity of aviation is moving eastwards. On a region-by-region comparison, the Asia-Pacific seems to be the most promising market in the future. (20) The growth of airlines in developing countries may repaint the picture of the aviation market in the world. Especially on the environmental front, the difference between developing countries and developed countries will cause more controversies, such as the European ETS dispute. (21) There might be a challenge to the implementation of the second phase of the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), as a potential replacement for the ETS globally. (22)

   Regional difference in the aviation industry also plants the seeds of disputes in aviation competition law, such as the fight over anti-gulf carriers' subsidies. (23) In addition, Airbus and Boeing have dominated for a very long time the aircraft manufacture market. Other countries, such as China, are beginning to compete in this area with the launch of the C-919. (24) The C-919, manufactured by the State-run Commercial Aircraft Corporation of China (Comae), is designed to compete with the Airbus 320 and Boeing 737. A dispute was promptly filed in the WTO against China. (25)

   II DEFINITION AND SCOPE OFTHE ANALYSIS

   What is an international aviation dispute? What kinds of international aviation disputes are covered by this article? The answers to these two questions circumscribe the scope of the current analysis.

   'International' parties involved in a dispute come from two or more countries. In order to define the term 'aviation' in this article, we first need to define air law. Air law is 'a series of rules governing the use of airspace and its benefits for aviation, the general public and the nations of the world.' (26) Aviation generally refers to activities related to mechanical flight and the aircraft industry. (2) Aviation disputes in this article refer to legal disputes in which air law plays a significant role. For the definition of a 'legal dispute', it is considered that parties have to bring a dispute to a formal legal forum to become a legal dispute. Article 36(3) of the Charter of the United Nations (UN Charter) states that 'in making recommendations under this Article the Security Council should also take into consideration that legal disputes should as a general rule be referred by the parties to the International Court of Justice in accordance with the provisions of the Statute of the Court.' Article 36(1) of the ICJ Statute further...