U.S. and European Negotiators Welcome First Stage of Aviation Agreement

Borrowing his imagery from the trans-Atlantic aviation bill the European Union had just approved, Jacques Barrot, European Commission Transport Minister, said, "I am delighted to have piloted this agreement to its destination with all passengers still on board." Though the U.S.-E.U. "open skies" agreement received unanimous support in the E.U., it may well be resting at a layover, not its final stop.

Barrot claimed the agreement will be good for passengers and for airlines, good for the European Union and good for the United States. He expressed his confidence that the process would continue and would ultimately deliver greater freedom for investors in aviation and even closer cooperation between the two sides. In endorsing the first stage of the agreement, the Transport Telecommunications and Energy Council of the transport directorate reiterated its ultimate objective of a fully liberalized aviation area covering the European Union and the United States. The agreement is scheduled to be signed on April 30, 2007, during an E.U.-U.S. summit.

Of the rights accorded the airlines under the first stage of the agreement, shippers will be most interested in the unlimited all-cargo rights for E.U. airlines but no additional rights for U.S. airlines. In addition, the first stage agreement seeks access for E.U. airlines to certain Fly America traffic. E.U. airlines would also qualify for antitrust immunity.

One of the major sticking points in the negotiations regarded ownership of U.S. airlines. The agreement seeks guarantees concerning permissible percentage ownership by E.U. firms that could include the possibility of exceeding 50% total equity. It also wants a guarantee of fair and expeditious consideration of transactions involving E.U. investment in U.S. airlines.

The E.U. wants the right to limit U.S. investments in E.U. airlines reciprocally to 25% voting equity. It also wants the U.S. to accept any E.U. airline owned or controlled by European Union citizens and unilateral acceptance by the U.S. of E.U. ownership and control of any airline in the European Economic Area (EEA) or European Common Aviation Area (ECAA) and 18 African countries.

On the subject of security, the first-stage agreement seeks a commitment to work towards compatible practices and minimal regulatory divergence. It asks that the U.S. take into account security measures already applied in the E.U. when adopting security measures for entry into U.S. territory.

Important for shippers, the agreement also asks for "one stop" security in the case of equivalent U.S. measures. In other words, where the E.U. security measures are equivalent to the U.S. measures, transfer passengers, transfer baggage and/or transfer cargo would be exempt from re-screening.

Though hailed as a positive development, the first stage agreement is not finalized until both parties have signed, and it will be somewhat dependent on positive action on the second stage agreement. Priorities of the second-stage agreement include facilitating foreign investment, further liberalization, environmental and infrastructure constraints, further access to Fly America by E.U. airlines and wet leasing.

To ensure progress, negotiations on stage two must begin 60 days after the provisional application of the stage-one agreement (e.g. January 2008), progress will be reviewed after 18 months (mid2009) and, if there is no progress within 12 months (mid 2010) possible suspension of certain rights.

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