What Is "Achievable" for the Second Stage?

Michael Goldman, a named partner at the Washington, D.C. law firm Silverberg Goldman & Bikoff, has issued a white paper at Air Transport World entitled, "Elections Do Have Consequences: The Case for a New US-EU Stage Two Agreement."  The title is a curious one since the 2007 U.S./EC Air Transport Agreement explicitly contemplates negotiations for a second stage agreement; no "case" needs to be made for one.  Cf. Air Transport Agreement, art. 21, 2007 O.J. (L 134) 4.  Arguably, however, there remains plenty of room to agitate for the specific content of a second stage agreement.  Goldman believes--no doubt quite rightly--that the chances for progress to be made on liberalizing the U.S.'s rules on foreign ownership and control of airlines are slim.  That doesn't mean, according to Goldman, that all hope for the second stage is lost.  According to Goldman, the second stage could still yield "breathtaking" results in the form of "a substantial expansion of [seventh] freedom traffic rights; arrangements for mutual recognition of each side's greenhouse gas emissions/cap and trade regimes; resolution of the contentious environmental dispute on regulation of aircraft noise near airports; and the harmonization of transatlantic security rules."

While all of these potential elements of a second stage agreement are worthy of reflection, Goldman's optimism that an expansion of seventh freedom traffic rights is "achievable" may be unwarranted.  Goldman asserts that "a broad exchange" of seventh freedom rights will "provide for balance[]" between both sides.  As it currently stands under the 2007 Agreement, the U.S. recognizes the internal EC construct of the "Community air carrier," meaning all EU carriers are eligible for designation by all Member States for seventh freedom passenger/cargo combination services from both EU and European Common Aviation Area States.  See Air Transport Agreement, supra, art. 3(1)-(3).  The 2007 Agreement also provides for unrestricted reciprocal seventh freedom all-cargo rights, except that the U.S.'s rights are limited to the Czech Republic, France, Germany, Luxembourg, Malta, Poland, Portugal, and the Slovak Republic.  See id. Annex 1, sec. 3.  These rights are in addition to the exchange of unrestricted reciprocal third, fourth, and fifth freedoms which have long been part of the U.S.'s "Open Skies" template.  It appears that Goldman perceives the absence of reciprocal seventh freedom passenger/cargo combination services and truly unrestricted all-cargo sevenths for U.S. airlines as creating an imbalance.  But is this view tenable or, rather, does this view have equal purchase on both sides of the Atlantic?

In the years leading up to finalization and signing of the 2007 Agreement, the European Commission and other commentators had analogized a grant of fifth freedom rights to U.S. carriers with eighth freedom (cabotage) rights for EU airlines.  A U.S. carrier could use the fifth freedom rights to pick up new passengers in London as an extension of a New York/London service and carry them onward to Frankfurt or Rome, for example.  However, in order for an EU carrier service from London to New York to include enplaning new passengers in New York for continuing service to Los Angeles, eighth freedom rights would be required.  It was an analogy U.S. negotiators were unwilling to accept for the purposes of the Agreement and yet one which remains important from the European perspective.  Article 21 of the 2007 Agreement specifically mentions "further liberalisation of traffic rights" as part of the second stage agenda.  Air Transport Agreement, supra, art. 21(2)(a).  This agenda item has been interpreted by European Commission Air Transport Director Daniel Calleja to mean "European [airline] companies flying freely in the U.S. and U.S. companies flying freely in Europe.  At the end of the day, you need full access on both sides."  Yet "full access" as a means to achieve balance is not what Goldman is suggesting.  He recognizes that eighth freedom rights will likely be off the negotiating table, but he fails to mention any incentive the EU might have to offer further seventh freedom concessions to the U.S.  From the EU's perspective, any further grant of traffic rights to the U.S. without a further grant of new rights to the EU will only aggravate the perceived imbalance--an imbalance the second stage negotiations are presumably supposed to correct.  

In addition to failing to take into account the backhistory of the 2007 Agreement and the EU's understanding of what constitutes "further liberalisation of traffic rights," Goldman also ignores the rise of protectionist sentiments in the U.S. as evidenced by Rep. James Oberstar's airline alliance and control provisions in the pending 2009 FAA Reauthorization Act.  If either or both provisions are enacted, the EU will have even less an incentive to give the U.S. unrestricted seventh freedom rights.  The EU may very well exercise its option to suspend rights under the 2007 Agreement beginning in 2012 as a means of retaliation.  Given this aeropolitical backdrop, it is difficult to join in Goldman's optimistic appraisal of what is "achievable."