Wednesday, March 10, 2010

Next Round of U.S./EU Talks

After failing to finalize a new agreement in Madrid last month, negotiators from the United States and the European Union will meet in Brussels on the 22nd of this month to try and forge a second stage agreement which builds on their landmark 2007 aviation treaty.  See Doug Cameron, New EU-US Aviation Talks Planned for March 22, Dow Jones Newswires, Mar. 10, 2010 (available here).

At this point in the negotiating process, it is becoming clear that there will be no substantive progress made on relaxing U.S. foreign ownership and cabotage restrictions.  There is, to put it mildly, no political will in the U.S. to undertake such radical action.  This leaves the EU in a tight spot since ownership and traffic rights were supposed to be central to the second stage negotiations.  See [U.S./EU] Air Transport Agreement, 2007 art. 21, O.J. (L 134) 4.  In 2007, Douglas Alexander, the United Kingdom's former Transport Secretary, declared that his country would withdraw traffic rights granted under the 2007 agreement if "the Americans [fail] to act in relation to stage two."  See Michael Harrison & Stephen Castle, Heathrow Scramble Starts as EU Agrees to Historic "Open Skies" Deal, Independent (London), Mar. 23, 2007, at 54.  (That is, if the U.S. failed to finalize a fully liberalized air services agreement with the EU.)  Of course, the U.K. may be singing a different tune now that its flag carrier, British Airways, has managed to secure (tentative) antitrust immunity from the Department of Transportation to deepen its cooperation with American Airlines and Iberia as part of the oneworld Alliance.  Any act of suspension from the U.K. would likely be met with termination of the alliance's immunization.

This leaves open the question about what can be achieved as part of the second stage.  The U.S. has stated that it remains dissatisfied with night flight restrictions at certain Member State airports and the EU's plan to bring U.S. airlines under its emissions trading scheme starting in 2012.  To make progress on those issues, the U.S. will have to bring something to the negotiating table.  But what does the U.S. have left to give?

Perhaps now is not the time for either party to expect substantive concessions.  That doesn't mean the negotiations have to end in failure, however.  It has been suggested that one area where the two sides could lay the groundwork for future progress is by abolishing the 2007 agreement's provision for unilateral suspension of traffic rights.  See Air Transport Agreement, supra, art. 21(3).  Under this provision, the U.S. or any EU Member State is entitled to give notice after November of this year that it will suspend some (or all) of the traffic rights contained in the 2007 agreement.  For example, the U.K. could reinstate its pre-2008 restrictions on U.S. carrier access to London Heathrow and allow only American Airlines and United access rights while the other 26 Member States continue to honor the U.S./EC air services agreement.  (This is distinct from the 2007 agreement's termination provision which can only be triggered by the Member States acting in tandem.  See id. art. 23.) 

Though some believe that neither party would be so foolish as to actually suspend concessions and thus instigate an aviation trade war, the very possibility of suspension creates an unnecessary air of commercial uncertainty--and even a little bit of latent hostility.  Air carriers on both sides of the Atlantic have been hit hard by the global economic crisis.  Many of them have made provisions for the future in order to survive, including forming cooperative joint ventures and reducing capacity in relation to expected demand in the transatlantic market.  Such measures will only be effective if neither side's airlines lose traffic rights or are compelled by regulators to cease cooperating through their respective alliances.  Removing the 2007 agreement's suspension clause helps ensure that the airlines' strategic planning will not be compromised by impulsiveness from either party.  The agreement's aforementioned termination provision supplies both sides a way out in the remote chance their relations suffer a severe setback.

Additionally, the U.S. and EU can look to ways to strengthening the Joint Committee formed by the 2007 agreement.  See Air Transport Agreement, supra, art. 18.  If the world's two largest aviation powers have any hope of one day creating a truly open aviation area, they will need to be prepared to deal with a plethora of regulatory harmonization issues in areas such as antitrust, safety, security, and the environment.  The U.S. and EU could begin the process of making provisions for this deep level of cooperation now so that when the liberal winds of change start blowing, they will be prepared to capitalize on an authentically open market.

These modest advances will not mark the end of U.S./EU negotiations, of course.  If the suspension threat is removed, both parties can continue to strengthen their aviation ties and push for more substantive advances in the years to come.  It's important to bear in mind that it took near two decades from the time when the U.S. launched its open skies aviation policy to the time it finalized a deal with the EU.  Many political, legal, and economic changes had to occur first.  While the airline industry may be growing impatient with the pace of liberalization, none would likely disagree that the present state of global aviation relations represents an exponential improvement over the days of managed trade and unbridled protectionism which were the hallmarks of international aeropolitics for most of the twentieth century.

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