• Journal of the Korean Society for Aviation and Aeronautics
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• v.15 no.1
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• pp.38-53
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• 2007

In a seminal judgment of November 2002 (Case C-476/98) relating to the compatibility with Community laws of the 'nationality clause' in the 1996 amending protocol to the 1955 U.S.-German Air Services Agreement, the European Court of Justice(ECJ) decided that the provision constituted a measure of an intrinsically discriminatory nature and was thus contrary to the principle of national treatment established under Art. 52 of the EC Treaty. The Court, rejecting bluntly the German government' submissions relying on public policy grounds(Art. 56, EC Treaty), seemed content to declare and rule that the protocol provision requiring a contracting state party to ensure substantial ownership and effective control by its nationals of its designated airlines had violated the requirement of national treatment reserved for other Community Members under the salient Treaty provision. The German counterclaims against the Commission, although tantalizing not only from the perusal of the judgment but from the perspective of international air law, were nonetheless invariably correct and to the point. For such a clause has been justified to defend the 'fundamental interests of society from a serious threat' that may result from granting operating licenses or necessary technical authorizations to an airline company of a third country. Indeed, the nationality clause has been inserted in most of the liberal bilaterals to allow the parties to enforce their own national laws and regulations governing aviation safety and security. Such a clause is not targeted as a device for discriminating against the nationals of any third State. It simply acts as the minimum legal safeguards against aviation risk empowering a party to take legal control of the designated airlines. Unfortunately, the German call for the review of such a foremost objective and rationale underlying the nationality clause landed on the deaf ears of the Court which appeared quite happy not to take stock of the potential implications and consequences in its absence and of the legality under international law of the 'national treatment' requirement of Community laws. Again, while US law limits foreign shareholders to 24.9% of its airlines, the European Community limits non-EC ownership to 49%, precluding any ownership and effective control by foreign nationals of EC airlines, let alone any foreign takeover and merger. Given this, it appears inconsistent and unreasonable for the EC to demand, $vis-{\grave{a}}-vis$ a non-EC third State, national treatment for all of its Member States. The ECJ's decision was also wrongly premised on the precedence of Community laws over international law, and in particular, international air law. It simply is another form of asserting and enforcing de facto extraterritorial application of Community laws to a non-EC third country. Again, the ruling runs counter to an established rule of international law that a treaty does not, as a matter of principle, create either obligations or rights for a third State. Aside from the legal problems, the 'national treatment' may not be economically justified either, in light of the free-rider problem and resulting externalities or inefficiency. On the strength of international law and economics, therefore, airlines of Community Members other than the designated German and U.S. air carriers are neither eligible for traffic rights, nor entitled to operate between or 'free-ride' on the U.S. and German points. All in all and in all fairness, the European Court's ruling was nothing short of an outright condemnation of established rules and principles of international law and international air law. Nor is the national treatment requirement justified by the economic logic of deregulation or liberalization of aviation markets. Nor has the requirement much to do with fair competition and increased efficiency.

• KDI Journal of Economic Policy
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• v.12 no.1
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• pp.31-68
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• 1990

The concentration of economic power takes the form of one or a few firms controlling a substantial portion of the economic resources and means in a certain economic area. At the same time, to the extent that these firms are owned by a few individuals, resource allocation can be manipulated by them rather than by the impersonal market mechanism. This will impair allocative efficiency, run counter to a decentralized market system and hamper the equitable distribution of wealth. Viewed from the historical evolution of Western capitalism in general, the concentration of economic power is a paradox in that it is a product of the free market system itself. The economic principle of natural discrimination works so that a few big firms preempt scarce resources and market opportunities. Prominent historical examples include trusts in America, Konzern in Germany and Zaibatsu in Japan in the early twentieth century. In other words, the concentration of economic power is the outcome as well as the antithesis of free competition. As long as judgment of the economic system at large depends upon the value systems of individuals, therefore, the issue of how to evaluate the concentration of economic power will inevitably be tinged with ideology. We have witnessed several different approaches to this problem such as communism, fascism and revised capitalism, and the last one seems to be the only surviving alternative. The concentration of economic power in Korea can be summarily represented by the "jaebol," namely, the conglomerate business group, the majority of whose member firms are monopolistic or oligopolistic in their respective markets and are owned by particular individuals. The jaebol has many dimensions in its size, but to sketch its magnitude, the share of the jaebol in the manufacturing sector reached 37.3% in shipment and 17.6% in employment as of 1989. The concentration of economic power can be ascribed to a number of causes. In the early stages of economic development, when the market system is immature, entrepreneurship must fill the gap inherent in the market in addition to performing its customary managerial function. Entrepreneurship of this sort is a scarce resource and becomes even more valuable as the target rate of economic growth gets higher. Entrepreneurship can neither be readily obtained in the market nor exhausted despite repeated use. Because of these peculiarities, economic power is bound to be concentrated in the hands of a few entrepreneurs and their business groups. It goes without saying, however, that the issue of whether the full exercise of money-making entrepreneurship is compatible with social mores is a different matter entirely. The rapidity of the concentration of economic power can also be traced to the diversification of business groups. The transplantation of advanced technology oriented toward mass production tends to saturate the small domestic market quite early and allows a firm to expand into new markets by making use of excess capacity and of monopoly profits. One of the reasons why the jaebol issue has become so acute in Korea lies in the nature of the government-business relationship. The Korean government has set economic development as its foremost national goal and, since then, has intervened profoundly in the private sector. Since most strategic industries promoted by the government required a huge capacity in technology, capital and manpower, big firms were favored over smaller firms, and the benefits of industrial policy naturally accrued to large business groups. The concentration of economic power which occured along the way was, therefore, not necessarily a product of the market system. At the same time, the concentration of ownership in business groups has been left largely intact as they have customarily met capital requirements by means of debt. The real advantage enjoyed by large business groups lies in synergy due to multiplant and multiproduct production. Even these effects, however, cannot always be considered socially optimal, as they offer disadvantages to other independent firms-for example, by foreclosing their markets. Moreover their fictitious or artificial advantages only aggravate the popular perception that most business groups have accumulated their wealth at the expense of the general public and under the behest of the government. Since Korea stands now at the threshold of establishing a full-fledged market economy along with political democracy, the phenomenon called the concentration of economic power must be correctly understood and the roles of business groups must be accordingly redefined. In doing so, we would do better to take a closer look at Japan which has experienced a demise of family-controlled Zaibatsu and a success with business groups(Kigyoshudan) whose ownership is dispersed among many firms and ultimately among the general public. The Japanese case cannot be an ideal model, but at least it gives us a good point of departure in that the issue of ownership is at the heart of the matter. In setting the basic direction of public policy aimed at controlling the concentration of economic power, one must harmonize efficiency and equity. Firm size in itself is not a problem, if it is dictated by efficiency considerations and if the firm behaves competitively in the market. As long as entrepreneurship is required for continuous economic growth and there is a discrepancy in entrepreneurial capacity among individuals, a concentration of economic power is bound to take place to some degree. Hence, the most effective way of reducing the inefficiency of business groups may be to impose competitive pressure on their activities. Concurrently, unless the concentration of ownership in business groups is scaled down, the seed of social discontent will still remain. Nevertheless, the dispersion of ownership requires a number of preconditions and, consequently, we must make consistent, long-term efforts on many fronts. We can suggest a long list of policy measures specifically designed to control the concentration of economic power. Whatever the policy may be, however, its intended effects will not be fully realized unless business groups abide by the moral code expected of socially responsible entrepreneurs. This is especially true, since the root of the problem of the excessive concentration of economic power lies outside the issue of efficiency, in problems concerning distribution, equity, and social justice.