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International Air Services Commission Amendment Bill 1994



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House: Senate

Portfolio: Transport

Commencement: Royal Assent

Purpose

The major amendments proposed by this Bill will:

* impose enhanced notification requirements on the International Air Services Commission (IASC) in relation to certain determinations;

* bring capacity (i.e. an amount of passenger or freight carriage space) under certain special air services arrangements within the scope of the International Air Services Commission Act 1992 (the Principal Act);

* impose enhanced disclosure of interest obligations on IASC members;

* allow the whole or part of capacity allocated to an Australian carrier to be used by a wholly owned subsidiary, or if the carrier is a wholly- owned subsidiary of another Australian carrier, that other carrier; and

* allow IASC to consider and make decisions on more than one matter relating to capacity at the same time.

Background

In 1992- 93, revenue passenger movements to and from Australia totalled 9.8 million, representing an increase of 7.9% over the previous year's activity. 1 Qantas carried 39.5% of international traffic to and from Australia during 1992- 93. Sydney airport cleared 47% of Australia's international air traffic, while 18.3% passed through Melbourne and 14.6% through Brisbane. 2

Major reforms to Australia's international aviation policy were announced in February 1992 in the Prime Minister's One Nation Statement. Included among the reforms announced was:

* implementation of a policy of multiple designation for Australian international carriers;

* allowing additional Australian freight carriers to operate on international routes to and from Australia;

* allowing Qantas to enter the domestic market; and

* renegotiation of bilateral air service agreements to secure multiple designation agreements with other countries. 3

Multiple designation allows Australian carriers, in addition to Qantas, to operate international services. For carriers to be designated Australian international carriers, they have to demonstrate compliance with the provisions of Australia's bilateral air services agreements and meet a number of national interest criteria, including that at least two- thirds of the carriers board members are Australian citizens and the carriers head office is in Australia. 4

The Government determined that implementation of a policy of multiple designation required an independent statutory authority to allocate air rights. This independent authority, IASC, was subsequently established in 1992 under the Principal Act.

The object of Principal Act, as set out in section 3, is to enhance international air services by fostering:

* greater economic efficiency in the airline industry, and increased competition between Australian carriers;

* increased responsiveness by airlines to the needs of consumers, including a greater range of choice and benefits;

* Australian trade and tourism; and

* the maintenance of Australian carriers capable of competing effectively with airlines of foreign countries.

The functions of IASC, as set out in section 6 of the Principal Act, include making determinations allocating capacity and route entitlements, reviewing determinations and advising the Minister about any matter referred to IASC by the Minister concerning international air operations. The Ministers statutory powers include:

* the making of policy statements about the way in which IASC is to perform its functions (section 11); and

* requesting from IASC advice about any relevant matter referred to it by the Minister (section 11).

In allocating capacity, IASC is required to comply with criteria detailed in a Policy Statement made by the Minister. These criteria include whether an applicant:

* is reasonably capable of obtaining the necessary approvals to operate on a particular route and is reasonably capable of implementing its proposals;

* will promote international trade and better access to freight services for Australian exporters and importers;

* will increase benefits to Australian consumers through wider choice and lower fairs; and

* will promote tourism to an within Australia. 5

Policy statements are subject to disallowance by Parliament [subsection 11(5)].

IASC comprises Chairperson and two other members (section 39). Members are appointed by the Governor- General on a full- time or part- time basis (section 40). The Governor- General may only appoint a person to IASC if satisfied they have substantial experience or expertise in the fields of law, economics, commerce, business, or public administration (section 41).

For financial reporting and accountability purposes, IASC is a sub- program of the aviation program of the Department of Transport and Communications. IASC is funded through parliamentary appropriations. In 1992- 93, actual monies appropriated to IASC totalled $924 000, and IASC outlays totalled $922 000. 6

In 1992- 93, IASC allocated a total of 38 Boeing 747 equivalent units of capacity per week (13 400 seats per week) to three Australian carriers (Ansett, Australia Air and Qantas) on routes to nine countries (i.e. China, France, Germany, Malaysia, Indonesia, Thailand, Japan and Singapore). 7 This allocation increased total capacity allocated to Australian carriers on those routes by more than 35%.

Based on recent print media reports, the establishment of IASC can be said to have been broadly accepted by the airline industry. 8 However, a number of concerns about IASC's operations have been expressed, including:

* the time taken by IASC to determine uncontested routes (Qantas believes that an abbreviated process should be introduced for rights determinations involving only one bidder); and

* the bureaucratic nature of IASC decision making. 9

The amendments proposed by Bill can be said, in large part, to address the above concerns about IASC's operations.

Main Provisions

Definitions: New definitions of "bilateral arrangement", "capacity" and "another country" will be inserted into the Principal Act by clause 3.

The term "bilateral arrangement" is defined to mean an agreement or arrangement between Australia, or an authorised entity or organisation, and another country under which international carriage is allowed.

The term "capacity" is defined to mean an amount of passenger or freight carriage space that persons authorised by Australia are allowed under a bilateral arrangement to carry by air.

The term "another country" is defined to include any region:

* that is part of a foreign country;

* that is under the protection of a foreign country; or

* for whose international relations a foreign country is responsible.

The reason given in the Explanatory Memorandum for the above definitions is to bring "capacity under certain special air services arrangements within the scope of the Act where the foreign party to the arrangement, such as Taiwan, is not

recognised by Australia as an independent State. This requires amendments to be made to definitions of `Australian carrier', `bilateral arrangement', `capacity' and `another country'... ."

IASC functions: As outlined in the "Background" to this Digest, section 6 of the Principal Act sets out IASC's functions. A new subsection 6(2A) will be inserted into the Principal Act by clause 5 providing that IASC may at the same time consider and make decisions on more than one matter relating to capacity. For example, IASC may at the same time make a decision renewing an allocation of capacity and a decision allocating new capacity.

Policy statements: Section 11 of the Principal Act deals with policy statements. Subsection 11(3) provides that the criteria which may be set out in policy statements may relate to matters referred to in section 3. Section 3 sets out the object of the Principal Act. A new subsection 11(3) will be substituted into the Principal Act by clause 8. Proposed subsection 11(3) provides that the criteria which may be set out in policy statements may:

* relate to matters referred to in section 3; and

* relate to particular circumstances, including where:

- capacity is not limited under bilateral arrangements;

- only one application has been made for the allocation of capacity;

- no submissions are received opposing allocation of capacity; or

- an application for allocation of capacity is opposed on particular grounds.

Content of determination: Section 15 of the Principal Act provides what an IASC determination may and must include. IASC determinations must:

* specify the period during which the determination is to be in force [paragraph 15(2)(a)];

* include a condition that the capacity must be fully used, except so far as the determination provides otherwise in relation to a specified period, or the regulations otherwise allow [paragraph 15(2)(c)];

* include a condition, except to the extent allowed by the condition imposed by paragraph 15(2)(d), that the available capacity only be used by the one or more Australian carriers to whom the capacity is allocated [paragraph 15(2)(d)];

* include a condition stating the extent (if any) to which any carrier may use the available capacity by providing international air services jointly with another Australian carrier or any other person [paragraph 15(2)(e)]; and

* a condition stating the extent to which changes in ownership or control of a carrier is allowed while the determination is in force [paragraph 15(2)(f)].

A new paragraph 15(2)(ea) and subsections 15(2A) and 15(2B), dealing with the content of IASC determinations, will be inserted into the Principal Act by clause 9. Proposed paragraph 15(2)(ea) provides that an IASC determination may include a condition allowing the whole or part of any capacity allocated to an Australian carrier to be used by any one or more of the following:

* the carrier;

* a wholly- owned subsidiary of the carrier; or

* if the carrier is a wholly- owned subsidiary of another Australian carrier, that other carrier.

Proposed subsection 15(2A) provides that if an IASC determination includes a proposed paragraph 15(2)(ea) condition (see above), it may include conditions applicable to all, or some, of the persons allowed to use the capacity. Where subsection 15(2)(ea) applies, a determination must include a condition stating the extent to which changes in ownership or control affect the use of capacity allocated to the subsidiary [proposed subsection 15(2B)].

Notification of determinations: Section 16 of the Principal Act requires IASC, as soon as practicable after the making of a determination allocating capacity, to issue a notice containing a copy of the determination and reasons for it. A new section 16 will be substituted into the Principal Act by clause 10 requiring IASC, as soon as practicable after making a determination, to:

* make copies of the determination and reasons for the determination available to the public; and

* publish, in such way as it thinks appropriate, a notice stating that the determination has been made, and where copies of the determination and reasons may obtained.

The above notification requirements will also be imposed, by clauses 11 and 14, on IASC in relation to renewals and reviews of determinations.

Submissions about reviews: Subsection 22(1) of the Principal Act requires IASC, before conducting a review under section 10, by notice, to invite submissions about the review of the determination. Any person may make submissions [subsection 22(2)]. Section 10 allows IASC, at any time, to conduct a review of a determination if it believes there may be grounds for varying, suspending or revoking the determination. Section 10 requires IASC to conduct a review where an Australian carrier applies to IASC for a determination to be varied.

A new subsection 22(1A) will be inserted into the Principal Act by clause 12 providing that subsection 22(1) [see above outline] does not apply to a review of a determination allocating capacity if:

* the review is a consequence of an application (other than a transfer application) by a carrier to which capacity was allocated requesting variation of the determination; and

* the only effect of the variation would be to reduce the carrier's capacity.

The above reference to a "transfer application" is a reference to an application by an Australia carrier for one or both of the following:

* a variation of the determination allocating capacity in a way which allocates, or has the effect of allocating, that capacity to another Australian carrier;

* a variation of the determination allocating capacity in a way that varies, or has the effect of varying, one or more conditions referred to in paragraphs 15(2)(d), (e) or (f) [see above clause 9].

Decisions on applications for variation: A new subsection 24(3) will be inserted into the Principal Act by clause 13 which will require IASC to vary a determination where the effect of the variation would only be to reduce the capacity already allocation to that carrier.

Disclosure of interests: Section 47 of the Principal Act imposes disclosure of interest obligations on members of IASC. Section 47 will be repealed by clause 20 and a new section 47 substituted. Proposed section 47 differs from the current section 47 in one major respect, that is, it requires a member of IASC, where they become aware that another member has a conflict of interest (i.e. monetary or otherwise) in a proceeding and that other member has not disclosed that interest, to:

* tell the other member they have become aware of the conflict of interest; and

* where the other member does not then disclose the interest, the member must disclose the conflict of interest to the remaining member (if any) and the parties (if any) to the proceedings; and

* except with the consent of the other members and parties (if any) to the proceedings, the member with the conflict of interest must not take part, or any further part, in the proceedings.

Pre- existing capacity under special bilateral arrangement: A new section 54A will be inserted into the Principal Act by clause 22 which will allow the Minister to make declarations in relation to capacity that existed prior to the commencement of this proposed section, and to which an agreement or arrangement entered into between an entity or organisation nominated or authorised by Australia, and another country, relates.

The terms set out in a declaration as the terms and conditions of the determination must state the period during which it is to operate. If it is an interim determination, the stated operating period must be three years from the commencement of this proposed section. Otherwise, the stated operating period must be five years from the commencement of this proposed section. Proposed section 54A declarations will be subject to disallowance by the Parliament.

The purpose given in the Explanatory Memorandum for proposed section 54A is that it "ensures that the Minister may make declarations, ..., in relation to capacity in existence before being brought under the Act by these amendments."

Endnotes

1. Department of Transport and Communications, Annual Report 1992- 93, pp. 15 and 16.

2. Ibid.

3. Statement by the Prime Minister, One Nation, 26 February 1992, pp. 63 and 64.

4. Department of Transport and Communications, Annual Report 1992- 93, p. 12.

5. International Air Services Commission, Annual Report 1992- 93, pp. 6 and 7.

6. Ibid., p. 29.

7. Ibid., p. 10.

8. See for example: Thomas, T., "IASC wins broad acceptance from industry", in The Australian Financial Review, 20 October 1993, p. 40.

9. Ibid.

Ian Ireland (Ph. 06 2772438)

Bills Digest Service 29 July 1994

Parliamentary Research Service

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Commonwealth of Australia 1994.

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Published by the Department of the Parliamentary Library, 1994.