Friday, May 23, 2008

Last Week's Second Stage Talks

The first in a series of talks for the second stage of “Open Skies” between the U.S. and EU ended last week in Slovenia.  As discussed on the blog last week, the U.S. announced that both it and the EU should end the series of bilateral restrictions on ownership purity worldwide.  While such a move may provide further investment opportunities for airlines, it failed to capture strong EU support.  According to Daniel Calleja, head of the European Commission’s Aviation Directorate, “Once the United States and Europe agree on liberalising aviation, we would like other countries to share . . . but we think we should first agree with the United States and then expand this to the rest of the world.”  In other words, until the U.S. and EU find some common ground on the highly contentious issues of foreign ownership and control of U.S. airlines and cabotage rights, the U.S.’s initiative is likely to sit dormant.  What likelihood there is that common ground will be found remains uncertain.  When asked about the prospects of the U.S. rolling back its current foreign investment restrictions, U.S. Deputy Assistant Secretary for Transportation Affairs John Byerly remarked the EU would first have to make “a very convincing case.”  Apparently the fact the U.S. aviation industry is starving for investment capital isn’t enough.

To be fair, the U.S. has a number of well-placed concerns of its own.  As Byerly has mentioned, it is difficult to speak of full liberalization when Italy is providing what appears to be illegal state aid to its failing national carrier Alitalia.  Current EU restrictions on night flights, along with the fact that cargo carriers like UPS and FedEx are unable to carry cargo from the EU to other countries, are also on the list of U.S. concerns for the second stage.

Presumably, the Alitalia situation will be taken care of.  Already the European Commission is investigating whether or not its competition laws have been breached by the issuance of state loans.  Similarly, securing further rights for UPS and FedEx will likely not be a problem so long as the EU, whose firms already enjoy the right to transport cargo from the U.S. to third countries, can receive something substantial in return.  In the end, the matter cycles back to foreign investment.  How much is it worth to the EU and under what conditions will the U.S. budge?  Certainly before negotiations are set to conclude in 2010, the red herring of national security will be thrown out multiple times in an effort to give a political basis on which to hold fast to restrictions.  Great Britain, whose Heathrow Airport became central to the first stage of negotiations when the U.S. pressed for unfettered access for its airlines, has been the most vocal country thus far on the need for the EU to make greater advancements during the second stage.  While EU negotiators are downplaying the possibility of Britain—or any other EU Member State—suspending rights under the first agreement should the current negotiations prove unsatisfactory, the perception that the U.S. came away from the first stage with a bigger piece of pie may be enough to compel drastic measures.

Readers interested in the EU’s vision for the second stage may want to consult Calleja’s presentation which is now archived online.  While it brings to light certain hurdles which still exist, the presentation paints an optimistic picture of a shared vision between the EU and U.S. when it comes to air liberalization.

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