EU-US: For Better - Or For Worse?

Last week, the European Commission concluded the third "draft aviation agreement" with the US in four years. The draft agreement will now be presented to the March 22nd meeting of the Council of Transport ministers for approval - something which is still in doubt as at least the UK, which represents 40% of all EU transatlantic traffic, may not vote in favour. The draft agreement would need to be ratified by all the Member States to become valid.

Should ECA support ratification of the agreement, or not?

The reasons which argue that we should support it include:

  • the inclusion of a Community Designation clause. This would take away the need for EU airlines which fly to the USA to be "majority owned and effectively controlled" by citizens of one EU Member State. It is replaced by a requirement for them to be "majority owned and effectively controlled" by EU citizens, as well as have their operating licence and principal place of business in the EU. The practical effect of this change, along with similar changes being pursued elsewhere, would be to allow full mergers of EU network airlines without the need for careful (and expensive) ownership structures, such as in Lufthansa/Swiss and Air France/KLM.
  • The ability for any EU (or US) airline to mount services between any EU/US city pair.
  • A recognition throughout the agreement of the need to take account of social effects, alongside competition and consumer effects of the agreement. This means that ECA, along with the other industry stakeholders, will participate in a Joint Committee. The terms of reference of the Joint Committee include a review of "any social effects of the implementation of the agreement" and a requirement to "develop(ing) appropriate responses to concerns found to be legitimate"
  • Articles which foster cooperation and convergence in safety and security regulations. Flight crew know first hand the difficulties of divergent and occasionally contradictory rules on the operation of international aviation services. Through the Joint Committee, there is a more formal route for considering the anti-competitive effects of chapter 11 and state aid.
  • There are improvements to cargo services' access to US 7th freedom traffic; for network, charter and cargo airlines there is limited access to "Fly America" government traffic; some improved access to international wet leasing arrangements in the US, and passenger 7th freedom access back to the ECAA states from the USA.

However, we have serious reservations over some of the other provisions:

  • At its core, this is an agreement on the rights of access to the aviation markets of the EU and USA. The agreement extends US 5th freedom rights to fly between any city pair in the EU, except those in the same Member State, whilst affording EU airlines no access to the US domestic market. This is the single most important agreement in the creation of the external dimension to the EU's single aviation market, which would finally enable the creation of true EU sized network airlines. It would therefore be ironic if it were this agreement which undermined EU airlines' future by removing protection from their home EU market, whilst not winning equivalent access to the US market.
  • The agreement starts to dismantle the longstanding ownership and control rules which tie an airline to a state or authority. There are provisions for the recognition of airlines from ECAA and African countries, which are owned and controlled by EU citizens. Also ownership and control of EU airlines is allowed by the US for ECAA citizens and governments. The potential for the degradation of safety oversight, for social dumping and outsourcing of quality employment is increased.

The main response to our concerns is that this is only a first stage agreement. The EU intends to open access further with subsequent negotiations. In the interim, any effects can be raised and dealt with by the Joint Committee which is required to meet at least once a year. If the Joint Committee cannot resolve the issues, and the US refuses to sign a second stage agreement, then there are provisions for either side to start to withdraw rights after around 32 months of the agreement.

This is a very political decision for the Member States. As can be seen, the agreement is complex and has some new approaches for which there are no real precedents; there will undoubtedly be unforeseen consequences. ECA believes that if the Council of Transport Ministers decides to approve this agreement, they must also be very clear in insisting that the Joint Committee and withdrawal of rights provisions are used robustly.