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Clash of the Titans or Tempest in a Teapot? Conflicts between Swiss-EU Bilateral Agreements

There are a number of “typical” questions that arise in the context of the Swiss-EU Bilateral Agreements and that have also repeatedly been treated in the doctrine, such as the topic of parallel interpretation of agreement provisions mirroring provisions of EU law or the (scarily named) Guillotine clauses. One topic that – as far as visible – has received rather little attention is the question of a conflict between Bilateral Agreements. This is arguably no coincidence. The Bilateral Agreements pursue a sectoral approach, i.e. each agreement is focused on a rather narrow, specific set of questions and of limited scope, so it is not obvious why one would put much thought into whether one agreement might endanger the implementation of another. Nonetheless, cases of conflict may arise, as this blog post argues. As will be shown subsequently, there are legal mechanisms available to deal with such cases, but the devil is in the detail or, as lawyers would perhaps put it, in the implementation.

Author: Benedikt Pirker


Background

The background to the present rather abstract legal discussion are real life events which concern air travel and in terms of Swiss-EU relations the Agreement on the Free Movement of Persons (AFMP) and the Agreement on Air Transport (AAT). There are currently mainly (though not exclusively) two factors which create difficult conditions for airlines and the market for air travel as a whole, namely the instability caused by the war Russia started against Ukraine and the unpredictable recovery of said market after it had been heavily hit by the Covid-19 pandemic. As a consequence, airlines try various strategies. Swiss decided to rely on wet-leasing planes to be able to perform certain flights and to avoid overburdening its crews, both for winter 2022 and summer 2023. For those not familiar with the terminology, wet lease is called in more technical terms ACMI which stands for “aircraft, crew, maintenance and insurance”. This means, simplifying deliberately, that one airline leases planes from the other; the second airline (here Air Baltic) takes care of the operational aspects, whereas the first airline (airline client, here Swiss) remains responsible for direct operating costs like fuel, airport fees or ground handling charges.


Air Baltic, in turn, faced a difficult business environment having to adapt to lost traffic to Russia and Ukraine and the need to circumnavigate various Eastern European destinations, with the consequence that such a wet-lease appeared beneficial. Mainly due to the similarity of planes used by both airlines and the above-described complementary business needs, this approach seemed economically advantageous for both companies. At the same time, concerns regarding working conditions and lower wages were uttered by union representatives for cabin crews and pilots of Swiss.


Legally speaking and through the lens of the Bilateral Agreements, such wet-leases may raise questions under the AFMP (freedom to provide services and free movement rights of natural persons) and under the AAT (freedom to provide services and EU secondary legislation regulating wet-leases in more detail). As will be shown, there may, in addition, even be – at least at first view – conflicting prescriptions by the two agreements. 


Prescriptions of the Agreement on the Free Movement of Persons

The legal regime established by the AFMP for the free movement of persons must not be confused with that existing within EU law. As two key differences, in the AFMP the freedom of establishment is only granted to natural persons (see e.g. here), and the freedom to provide services is much more limited. In the latter regard, Article 5 (1) AFMP (spelled out additionally in Articles 17 ff. of Annex I AFMP) provides that persons providing services (including here legal persons) have the right to provide a service in the other contracting party’s territory for a period “not exceeding 90 days” per calendar year. The necessary entry and residence rights are granted to service providers and receivers. For example, the relevant persons do not need a residence permit for periods of residence of up to 90 days (Art. 20 (1) Annex I AFMP).


For the purposes of the wet lease discussed here, this means that in 2022 Air Baltic’s provision of services falls in all likelihood under the AFMP. The underlying contract is clearly about the provision of services (in essence flying certain routes for the other airline using own aircraft, cabin and maintenance crews etc.) and – at least for 2022 – will as far as visible not have exceeded 90 working days. Under Swiss law, certain requirements have to be fulfilled that Switzerland considers to be in line with the AFMP, notably a prior notification procedure. On this basis, service providers can fully avail themselves of their rights under the AFMP.  


For 2023, with the winter and summer season covered by the wet lease, the contract’s execution will most likely go beyond this time limit. This does not mean that there is a legal problem. Simply, this provision of services goes beyond the scope of the AFMP and thus does not benefit from that agreement’s specific rights. For example, if there were a requirement to apply for a permit or license that is not applicable under the AFMP it could now be applied, as the AFMP no longer covers this provision of services.

 

Prescriptions of the Agreement on Air Transport

The AAT liberalises air transport very broadly between Switzerland and the EU and its member states. Next to other rules on competition or state aids, the agreement prohibits discrimination on the grounds of nationality (Art. 3), provides for the freedom of establishment (Art. 4) and explicitly includes quite broadly legal persons (Art. 5). It also contains secondary legislation in an annex which spells out in more detail the legal regime applicable in the air transport sector between Switzerland and the EU. This secondary legislation also includes Regulation 1008/2008 on common rules for the operation of air services which in its Article 13 (1) creates a quite permissive regime for dry and wet lease agreements between Community air carriers. The Commission is to ensure the reasonable implementation of the provision and that safety considerations are taken into account. Moreover, there is a clause allowing restricting rights from the agreement if they are justified on grounds of public policy, public security or public health (Art. 7).


For our purposes of wet leases, the AAT thus foresees a broad right to conclude and implement such contracts for air carriers, whereas restrictions imposed by states need to be justified and proportionate.

 

Of conflicts and conflict clauses

A conflict between the AFMP and the AAT could now arise if one agreement permits what the other prohibits. As shown above, the wet lease scenario is one where both the AFMP and the AAT can apply, namely in the case of short term wet lease contracts (under 90 days). Let us assume (arguendo for our present purposes) that under the AFMP, the freedom to provide services regulated in the particular manner that it is allows the mentioned prior notification procedure. A service provider must thus announce services that are to be provided in advance and provide information about them.


At the same time, since it is a wet lease, the AAT and its rules apply, providing in essence that no disproportionate restrictions must apply. If we assume (again arguendo) that the notification procedure were to be found disproportionate under the AAT, there would be a conflict. The AFMP allows the procedure in our fictitious example, the AAT excludes it.


As another example for a similar conflict, the AFMP exempts from its provisions on the freedom to provide services the activities of temporary and interim employment agencies (Art. 22 (3) (i) Annex I AFMP) and thereby permits e.g. Switzerland to prohibit cross-border activities of such agencies through national law. At least theoretically, however, the question arises whether such a prohibition could constitute a disproportionate restriction under the AAT as far as the air transport sector is concerned. Were such cross-border activities to take place in the context of a wet lease contract, therefore, once again the AFMP could allow a behaviour (prohibiting cross-border activities of such employment agencies) that could be prohibited under the AAT.


Fortunately, there is a conflict clause. Art. 5 (1) AFMP provides that the right to provide a service under its provisions is “[w]ithout prejudice to other specific agreements between the Contracting Parties specifically concerning the provision of services”. Thereby, primacy is given to “specific agreements” concerning the provision of services like the AAT over the AFMP.


As a result, in order to determine whether there is indeed a conflict a proportionality review of restrictions allowed under the AFMP has to be undertaken against the benchmark of the AAT. The legal outcome, if there is a finding of disproportionality, is not that the AAT requires the annulment or non-application of parts of the AFMP. The assessment simply determines the solution for the conflict at issue (namely that the AFMP rules have to step back for this conflict and the AAT has primacy and effectively prohibits a certain behaviour).


A precedent from the past provides more concrete insights. In the years up to 2017, legal questions were raised regarding the treatment of entry, residence and economic activity of transport service providers and drivers in the context of land transport. The Agreement on Land Transport (ALT) contains detailed provisions in this regard and similarly prohibits disproportionate restrictions to the provision of services as far as they fall within the ALT’s scope. Again, the conflicts clause of the AFMP applies in addition and grants primacy to the ALT. In practice, as a 2017 joint circular letter from the State Secretariat for Migration and the State Secretariat for Economic Affairs (available here) sets out, only transport service providers/drivers who provide regular passenger transport services with buses are subject to the relevant notification or even authorization procedure, because they are not regulated under the ALT and thus the AFMP fully applies to them. By contrast, for instance services relating to transport of goods are exempt from the mentioned procedures, to the extent that they are subject to the ALT and thus the latter’s primacy applies.

 

Coda

Is thus all well that ends well? Ultimately, the proof of the pudding always remains in its eating, and in the present context the legal framework that emerges from the preceding analysis remains complex to administer in practice. It is comparatively easy from a theoretical perspective to argue that the key rule applying is the conflict clause giving primacy to the AAT over the AFMP and that therefore the necessary assessment is about whether there are prohibited, disproportionate restrictions of the provision of services under the AAT. It can be rather challenging in practice, however, for national authorities to judge what regulatory burdens are disproportionate in this context. Moreover, wet lease contracts in reality typically involve a high amount of persons travelling in and out of a country and residing there for very different timespans and based on volatile schedules, depending on the unpredictability of present day international air travel, shift changes, sicknesses and many other reasons. Nonetheless, formally the requirements of national law, in particular migration law, will have to be fulfilled to the extent that they apply under the primacy clause of the AFMP, forcing national authorities to find solutions and to apply the existing national tools such as various kinds of short and middle term residence permits with the appropriate flexibility and agility so as to not let migration law become a disproportionate restriction. While the Bilateral Agreements therefore provide tools to avoid the clash of the titans invoked at the beginning, the practical administration of conflicts between these agreements nonetheless certainly amounts to more than a mere tempest in a teapot. 

 

Author

Benedikt Pirker, Titularprofessor/Senior Lecturer, Chair for European, International and Public Law, University of Fribourg and Legal Advisor, Swiss Federal Department of Foreign Affairs. The author is expressing a personal point of view in his academic capacity. The opinions stated in this text should not be regarded as the official position of Switzerland or of the Federal Department of Foreign Affairs.

 

How to cite

Pirker, Benedikt (2023): Clash of the Titans or Tempest in a Teapot? Conflicts between Swiss-EU Bilateral Agreements. Blog. EFTA-Studies.org.

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