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U.S.-EU Aviation Talks Bring Prospect of Broader Markets

The United States wants to negotiate a multilateral agreement that would make cross-border investment in airlines easier.

This idea was suggested by the U.S. delegation at the first round of second-stage U.S.-European Union (EU) negotiations on air services liberalization that took place in Slovenia earlier in May.

Under the long-established nationality clauses in bilateral civil aviation agreements, only airlines owned and controlled by nationals of two countries can operate flights between them. For example, a Chilean airline could lose the right to fly to Europe if a U.S. carrier bought a majority stake in that airline.

“The idea is to break down the sticky spider’s web of restrictions in bilateral agreements that are a real hindrance to cross-border investment,” said U.S. chief aviation negotiator John Byerly. Byerly is a deputy assistant secretary in the Department of State.

As a first step toward this goal, Washington would like to facilitate investment by both U.S. and EU investors in air carriers of 65 countries.

Under the U.S.-EU open skies agreement, which entered into force in March, airlines gained the right to fly to any U.S. city from any point in the EU and vice versa, among other benefits. In addition, the United States agreed to allow citizens of EU member states to own and control airlines in 28 specific countries without jeopardizing those airlines’ rights to fly to the United States. U.S. citizens, however, were not granted reciprocal rights by the EU. U.S. negotiators want to work toward an agreement that would lead to equal treatment of investment from both sides of the Atlantic in regard to the 28 countries and expand that group to 65 countries.

Byerly told America.gov that, as the aviation liberalization leaders, the two partners “can bring the rest of the world along.”

Daniel Calleja, aviation director in the European Commission, called the U.S. proposal a “positive contribution.”

But he and other EU officials made it clear that they want to liberalize fully the trans-Atlantic aviation market before the two sides invite other countries to join. Their top priority is an “open trans-Atlantic aviation area” that would entail the reciprocal removal of limits on the ownership of airlines by EU and U.S. investors and also give European carriers rights to fly passengers and cargo between U.S. destinations, known as the right of “cabotage.”

Byerly said that there was no near-term prospect for change in U.S. laws prohibiting cabotage.

He emphasized that the United States approaches the issue of investment liberalization with an “open mind.” But the EU would have to make a “strong and convincing case” about potential benefits of such an arrangement, which would allow mergers between U.S. and EU airlines.

The Europeans would have to address U.S. concerns related to the use of the U.S. air fleet during wars and other emergencies and security issues related to terrorism, according to Byerly. Also, Congress would need to be persuaded about the merits of relaxing airline foreign ownership limits.

C. Boyden Gray, the U.S. envoy to the European Commission, said that convincing lawmakers is possible but would require generating U.S. public support.

The United States caps the foreign ownership of U.S. carriers at 25 percent of voting stock while a similar EU law limits foreign ownership to 49 percent.

A modest attempt by the administration to give foreign minority investors in U.S. airlines more say on operational issues ran into a roadblock in Congress and had to be withdrawn in 2006.

Key lawmakers are concerned that U.S. airlines would be the main takeover targets if mergers between them and European carriers are allowed, according to experts.

Byerly said that the U.S. side also worries that the EU proposal for an “open aviation area” inevitably would entail excessive regulation.

The scope of the negotiations, though, will go beyond the ownership question. U.S. negotiators have voiced concerns that the proliferation of night flight curfews related to noise restrictions at EU airports could affect express delivery carriers such as DHL, FedEx and UPS, which operate most of their flights at night. The U.S. side has seen no evidence that airports in Brussels, Belgium, Frankfurt, Germany, and Porto, Portugal, which introduced such curfews, had considered alternative noise-reduction measures.

The results of the first-stage agreement so far “exceeds my expectations,” Byerly said, calling the progress in opening the U.S. and European aviation markets “phenomenal.”

More airlines now serve U.S.-London Heathrow routes, and they include U.S. cities that previously were off limits. There also are new services between Ireland and U.S. destinations. OpenSkies, a new trans-Atlantic upmarket airline set up by British Airways, will operate flights between New York and Paris and Brussels.

The EU is similarly positive about the initial effects, which Calleja called “very positive developments” with “concrete benefits.”

The second round of U.S.-EU aviation negotiations will take place September 22 in Washington.

Story By Andrzej Zwaniecki

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