EU And US Conclude Draft Aviation Agreement

by Ulrika Lomas, for LawAndTax-News.com, Brussels

07 March 2007

Jacques Barrot, European Transport Commissioner, on Monday welcomed the draft aviation agreement concluded by negotiators for the European Union and the United States of America.

He announced that:

''I am delighted with the progress that has been made this week by the European and American negotiating teams. It is my intention to submit this draft agreement to the Transport Council at its next meeting on 22 March. We have an opportunity to unlock major benefits on both sides of the Atlantic."

" In economic terms, this unprecedented agreement would represent a step change - it could be worth up to 12 billion euro in economic benefits and up to 80,000 new jobs. The decision of the next Transport Council will be crucial. The open aviation area could be a centrepiece for a reinvigorated transatlantic relationship."

Following the launch of negotiations at the 2003 Transatlantic Summit and a further 11 working sessions, negotiators on Monday attained results that are unprecedented in international aviation since the Chicago Convention of December 1944, according to the EC.

The text as agreed on 2nd March provides for:

a) An additional protocol on ownership, investment and control consisting of:

• Rights in the area of ownership, investment and control of US airlines by EU investors;
• Rights in the area of ownership, investment and control by EU investors of third country airlines established in Africa and in non-EU European countries;
• Rights in the area of inward foreign investment in Community airlines by non-EU European investors;
• Provisions on control, notably the development by the EU and the US of a common understanding of the criteria used in making decisions in airline control cases; and
• The possibility for the EU to restrict US investments in Community airlines.

b) A unilateral granting by the United States to the EU of so-called '7th Freedom rights for Passengers' to a number of non-EU European countries, i.e. the right for Community airlines to operate flights between a city in the United States and a city in these European countries.

c) A number of access rights for Community airlines to the US 'Fly America' programme for the transport of passengers and cargo financed by the US Federal government. Such rights have never previously been granted by the United States to a third country.

d) Rights in the area of franchising and branding of air services, defined for the first time in such an agreement, to enhance legal certainty in the commercial relations in between airlines;

e) Provisions on antitrust immunity in order to facilitate the development of airline alliances;

f) Provisions on the development of joint EU-US approaches in international organisations and in relations with third countries;

g) Provisions on EU-US technical cooperation in relation to climate change.

These elements are to be added to the existing provisions of the November 2005 agreement, which has been welcomed by the Council on several occasions and provides for the following:

• The recognition of all European airlines as "Community air carriers" by the United States, allowing for the consolidation of the EU aviation sector and the compliance with the November 2002 Court cases in the so-called 'Open skies judgments';
• The possibility for any "Community air carrier" to fly between any point in the EU to any point in the US, without any restrictions on pricing or capacity. This freedom does not exist for the moment;
• The possibility to operate flights beyond the European Union and the United States towards third countries ('5th Freedom');
• The possibility for the EU airlines to operate all-cargo flights beyond the United States to a third country, without a requirement that the service starts in the EU (7th Freedom - All Cargo), US airlines will preserve their existing rights only;
• Provisions on commercial arrangements between airlines (including code-sharing, wet-leasing);
• Unprecedented Regulatory convergence mechanisms notably in competition, state aid and security. The provisions on security are key in work towards a 'one-stop security' approach; and
• Institutional mechanisms including a Joint Committee to handle any issue covered by the agreement, a dispute settlement procedure with arbitration provisions.

This week, the negotiators also agreed an article on further market access to maximize benefits for consumers, airlines and labour on both sides of the Atlantic, since it foresees a transition to second step negotiations with a priority agenda.

The article also foresees a mechanism to guarantee the second stage agreement in view of the ultimate EU objective of an Open Aviation Area between the European Union and the United States.

The first stage agreement, if approved by the Council of Transport Ministers, would apply as of 28th October 2007.

According to the EC:

"Among the benefits, this agreement opens the possibility of an additional 26 million extra passengers on transatlantic flights over a period of 5 years. This compares with current annual traffic of just under 50 million. At the end of the fifth year, this will mean that the market will be 34% higher with the agreement than without the agreement."

"By eliminating the bilateral agreements and their restrictions on traffic rights, we can already obtain a reduction in the cost of tickets for companies and private customers, with consolidated economic benefits of between 6.4 and 12 billion Euro over a period of 5 years."

"The removal of barriers could lead to the creation of around 80,000 jobs (spread more or less equally between the US and the EU)."

"The cargo market would see growth of between 1 and 2 percent, which is highly significant given the size of the market globally (with the European and American industry accounting for 70% of the global fleet)."

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