(gleicher Artikel in deutsch)

In: 

Zeitschrift für Luft- und Weltraumrecht (German Journal of Air and Space Law), 49^th year 3/2000, p. 331 ff.

Some remarks on

M. Milde’s "Some Question Marks about the Price

of Russian Air"

(ZWL, 49^th year 2/2000, p. 147 ff.)

by Gerhart R. Baum, Köln, Prof. Dr. Elmar Giemulla, Berlin and

Dr. Heiko van Schyndel, Berlin

1.    Background

The authors of these "Remarks" have for about ten years been involved, in an advisory function, in the sector of aviation law of the Russian Federation and were in this connection several times confronted with the problem of transit charges¹ and royalties².

The opinion of Dr. Anatoly Nikolaevich Brylov³ to whom M. Milde refers several times is therefore well-known to the authors. It is in fact problematic since it is the attempt to legally justify a situation which is extremely comfortable for the beneficiary. This attempt can only be explained by the modified version of a well-known epigram: "It is not possible that something is impossible which is absolutely necessary."

We share, on the whole, the concerns expressed by M. Milde with regard to transit charges and "royalties" even if his assumption that nothing has yet been done in this matter is not entirely accurate. In this connection, reference is made to the following activities:

• Bilateral discussions of the (Western or Far Eastern) air carriers concerned with the Russian aeronautical authority (DVT – Department of Air Transport, FAS – Federal Aviation Service, FSVT – Federal Service of Air Transport) and/or the "commercial partner" Aeroflot – Soviet Airlines and later ARIA.

• The analysis of the existing situation made by an independent US-German expert on behalf of the Association of European Airlines, the results of which have, unfortunately, never been published.

• The attempt by the EU to implement a "Transsiberian Air Routes" project which primarily dealt with technical issues of air traffic control in Siberia and which was also to contain the subject of charges; for this reason it was rejected by the Russian side.

• Several initiatives undertaken by IATA emphasizing the problematic nature of this issue vis-à-vis the Russians.

• Efforts made by the Delegation of the European Union in Moscow to put these problems on the agenda for the visits of the Russian Prime Minister to Brussels and/or of the Transport Commissioner to Moscow.

All these efforts were, however, not successful since the Russian aeronautical authority did not feel obliged to take action.⁴ Whoever wants to fly to or from Asia via Siberia will have to pay.

A certain unease was caused in Moscow by the implementation of a EU project in the states bordering Russia of the so-called Southern Ring (former silk road) which was called "The air traffic control training and development of air routes in the Southern Ring". It was feared that the Western and Far Eastern airlines would transfer their services to the newly developed routes. But due to operational considerations of the airlines this is only possible to a limited extent and has been done so up to now only in a few cases.

The authors of these "Remarks", too, have either received no answer at all or only very contradictory ones with regard to the questions raised by M. Milde (p. 148).

• Unofficially it was learned that the European airlines in fact pay about 1 million US$ for each flight pair exceeding the number of flights offered by ARIA to the same destination. Officially, however, none of the airlines involved confirms this as they were already "instructed" that the amount of the charge is a "commercial secret", the disclosure of which would have an impact on the "commercial agreements with ARIA". On the other hand, some airlines perhaps fear that they pay too much compared with other airlines and maybe smiled at by them.

• There are contradictory statements with regard to the use of the funds: a group of (Russian) experts claims that 90% of the money flows to the aeronautical authority and the other 10% to ARIA. Other experts indicate the opposite ratio. It is not possible to find out whether these funds, as is also claimed, are used for the modernization of the air traffic control installations on the routes concerned. Appearances, however, do not support this claim, especially since the Russian air traffic control system is still lacking funds which is also confirmed by its representatives.

• Aeroflot – Russian International Airlines is owned by the Russian Government up to a share of 51%. Therefore, it seems reasonable to assume that the government supports (if necessary) "its" enterprise financially – whether subsidies are granted from the national budget (which might be difficult owing to parliamentary control) or the "more elegant" solution of levying "royalties" is chosen, that means the commercial agreements imposed on the airlines and the "commercial payments" agreed therein by both sides.

• The Western and Far Eastern (and other) airlines have up to now only taken minor substantial measures, as the Russian side announced that the abolition of the "royalties" would only amount to a Pyrrhic victory. This would, as a matter of fact, entail the increase of the route charges which are already among the highest in the world⁵ so that, on the whole, no savings could be expected. Thus, the abolition of the "royalties" would not lead to cost savings but would at best mean the enforcement of the principle of fair competition vis-à-vis ARIA. But since ARIA is predominantly state-owned ...⁶

• Obviously, in some way or other, the states involved accept to be blackmailed. How would it otherwise be possible to agree to the relevant clauses in the bilateral air transport agreements with the USSR and/or the Russian Federation which – as M. Milde correctly states (p. 154) – are in contradiction with the Chicago Convention?

• It must be doubted that ARIA or the other Russian airlines pay the same transit charges as the Western airlines, since in the other former republics of the USSR, with reference to the AIP (Aeronautical Information Publication) of the USSR, which was in principle taken over by Russia, it was allowed (in the mean time) to reduce charges similarly.

• It is also not quite clear who benefits from the "royalties": in the past, Transaero according to their own statements, which is (or was) the "designated airline" for some of the routes in question and in this connection also uses (used) the Siberia route has not received any "subsidies" from the "royalties" and has not even asked for them. Therefore, (possible) reproaches regarding subsidies should be addressed only to ARIA.

The question of the (un-)lawfulness of transit charges and "royalties" can, from a legal point of view, not be measured by the same standards, as M. Milde does. It has to be tackled in a differentiated manner.

As regards the transit charges: the starting point of the considerations is the principle of air sovereignty. Article 1 of the Chicago Convention states in this connection: "The contracting States recognize that every State has complete and exclusive sovereignty over the airspace above its territory."

From this it could first of all be derived that each state is entitled to make the entry into its territory subject to any conditions e. g. including any charges.

This is, however, in contradiction to the last sentence of Article 15 of the Chicago Convention which states that "No fees, dues or other charges shall be imposed by any contracting State in respect solely of the right of transit over or entry into or exit from its territory of any aircraft of a contracting state or persons or property thereon." This provision prohibits to levy a charge for the sole right of transit as such. The Chicago Convention is, however, not in contradiction with the imposition of charges for the provision of air traffic control services for the safe operation of transit flights (route charges). But in accordance with ICAO Document 9082/4, these charges must be cost-related and transparent.

Consequently, as the Russian Federation is, in its capacity as the legal successor of the USSR, a member State of the Convention, charges are in this case unlawful since they are not levied as a consideration for a service (air traffic control services) but for the "right of transit" as such.

Irrespective of the question of the substantive entitlement to charging the question of who is entitled to impose charges has to be asked.

On the assumption that the imposition of charges was legal the Russian state would be entitled to levy them. The airspace is sovereign territory which is administered by the state to which it belongs (cf. Article 1 of the Chicago Convention). Charges for the use of airspace are, therefore, of a sovereign (and not of a commercial) nature.

It is, however, not unusual that the state transfers some functions to the private sector (owing to its greater expert knowledge). But this has to be done explicitly (so-called assigning of rights). Since its organization was privatized, ARIA is no longer a component part of the state. As from this time, charges are no longer imposed in pursuance of its own public powers. In order to maintain this practice, the Russian state would have to explicitly authorize ARIA to do so and to lay down how the charges levied are to be used. As far as we know, these rights have up to now not been assigned.

As regards the "royalties": they are, by nature, no charges (imposed by the state) but (commercial) payments for the granting of a commercial opportunity to one airline by another one.

The (legal) possibility of demanding payment for the granting of this opportunity requires, however, that the initial holding of such an opportunity is already a benefit in money’s worth. Therefore, the question comes up as to whether the traffic rights exercised by a designated air carrier form part of the assets of this company.

It is a well-known fact that the traffic rights accrue from the bilateral agreements between the states concerned on the basis of which the capacities, frequencies and the points to be served are laid down. In any case, in the non-liberalized agreements, the states involved grant each other equal opportunities. The main reason for this is not the (commercial) protection of each domestic carrier against the carriers of the contracting party but it is the result of the application of the principle of "reciprocity" under international law. If the designated carrier(s) is (are) not in a position to exercise these rights and "permit(s)" a carrier of the other contracting party to exercise the rights assigned to itself, this will be done in the interest of both contracting parties (utilization of the whole capacity in the interest of complete services between the two contracting states). The traffic rights are, thus, legal positions under public law which were created by the states concerned, in any case not mainly in the interest of the carriers involved and they are, therefore, no subjective legal positions of these carriers. For this reason, they cannot be commercialized from the legal point of view.

Even in this case, irrespective of the question of the substantive entitlement to charging, the question arises as to who is actually entitled to impose charges?

In this connection, if one assumes the substantive lawfulness of charges contrary to the above statements, their nature under public law could at most be explained under the aspect of a licence fee. If such a fee was levied by the Russian state on the occasion of the designation of a (Russian) carrier and the exercise of this right by this carrier, the passing on of the charging by way of granting rights of use to a Western airline would not change the character of the charges.

In this case, the "royalties" would be due to the Russian state which could entrust the originally designated airline with their levying. But as far as we know, the Russian state does not impose such a licence fee. The thought underlying the development of the "royalties" is rather the participation in the profits made by the Western air carrier through the possibilities of use assigned to it. Thus, the "royalties" are based on commercial considerations. From this point of view, ARIA would be directly entitled (e. g. in its own right) to levy charges; there would no longer exist any legal reason for passing on the receipts to the Russian state.

In view of the membership in the WTO as endeavoured by the Russian Federation, there is still another aspect of this problem which is gaining in importance – non-discrimination and fair competition.

If, contrary to the above opinion, the airspace could be connected with an economic exploitability at least the following questions would arise:

• Why does ARIA not have to pay, either?

If the airspace has an economic value this is independent of the air carrier flying over it in transit. The still different use of the airspace leads to distortions of competition.

 

• What is the special feature of the Siberian airspace?

It is a well-known fact that discriminations are justified if there is a well-founded reason for them in the matter itself. It is not recognizable why the Siberian air- space in comparison with all other airspaces throughout the world, should be the only one to give rise to charges. The argument put forward by the Russian side is: "If a flight is performed via the Transsiberian route the air carriers save money and Russia should benefit from this." This is not a convincing statement. There is only one conclusive answer to the question of what is the "normal case" of a connection between two points, namely: the shortest one. If, for political reasons – and even if it is for a lengthy period – a detour has to be accepted this is nothing more than an exception which is due to the circumstances. The reopening of the shortest connection is in this case not a legal favour but the restoration of a matter of self-evidence which is not liable to charges. It would rather have to be the other way round, namely that Russia would have to contribute to the additional costs for detours due to the closure of its airspace.

 

The authors share the opinion of M. Milde that the problem of transit charges and "royalties" should be solved as soon as possible. But at the moment it only seems possible to achieve a solution via the WTO and Russia’s wish to accede to this organization. The other organizations mentioned by M. Milde (p. 157) have undertaken any efforts which are currently possible and failed for different reasons. It will be interesting to see whether the WTO will be strong enough to force Russia to return to the "normal situation" and – vice versa – which concessions Russia will be prepared to make for its accession to the WTO.

¹ Transit charges in this context are meant to be charges for the use of the airspace. They are levied for the right of transit as such. They are of a sovereign (not a commercial) nature.

² "Royalties" are defined as "payments made to the developer (inventor) of a product based on the amount of product sales" (cf. "Lectric Law Library’s Lexicon, http://192.41.4.29/def2/q060.htm); in this case they are, however, meant to be "commercial payments for the granting of a commercial opportunity to an air carrier by another one".

³ The assumption of M. Milde that it is always the same person is correct. It is "only" his rank and/or the designation of his employer which has changed.

At the moment, Dr. Anatoly Nikolaevich Brylov is a member of the Academy of Natural Sciences and Executive Secretary/Head of the Council of Directors of Aeroflot – Russian International Airlines (hereinafter called : ARIA), formerly he was a member of the Council of Directors of ARIA and Deputy Head of the Legal Division of ARIA and before that he was Deputy Head of the Legal Division of the Soviet Ministry of Civil Aviation which, in commercial relations with third parties, was designated as "Aeroflot – Soviet Airlines", and in this function he was also the representative of the USSR at the ICAO meetings.

⁴ It was and still is of the opinion that it had to defend the positions of "its" national carrier. It would be too early, especially with regard to the airspace of the Russian Federation, to take liberalization or deregulation measures.

⁶ In one case, M. Milde quotes K. Marx : "Freedom is the recognition of necessity." This quotation was, however, supplemented in Marxist social science by the words "... and to act accordingly." And this is what the Western and the Far Eastern airlines seem to do – at least in their (lacking) public relations work: they recognize the need to remain silent and they act accordingly.