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Canada and the European Union on 6 May finalized terms of a commercial aviation agreement calling for additional market access, greater competition and pricing "freedom" for passenger carriers on both sides. Canadian Prime Minister Stephen Harper said the deal "will lower prices and give more choices for people traveling between Canada and Europe."
Meanwhile, rhetoric around a second-stage air services pact between EU and its larger transatlantic trade partner recently has grown louder. If the cynics are to be believed, US protectionism will stymie that agreement and nullify the historic first-stage EU-US deal signed in March 2007and activated a year later.
Canada's deal with the European Union is based on a loosening of Canadian restrictions on foreign ownership. It comes as Canada's leading carrier, Air Canada, struggles with financial turmoil.
Specifically and initially, the agreement provides airlines "unlimited freedoms to operate direct services between any point" in Canada and the 27-country EU trading bloc," according to EU information. Additional carrier rights take effect once Canada "has taken the steps necessary to enable European investors to own up to 49 percent of a Canadian carriers' voting equity"--up from 25 percent. [The Canadian government already has introduced such a proposal.]
At a third stage--"once both sides enable investors to set up and control new airlines in each others' markets"--passenger airlines will be able to fly onward to third countries. The final stage would come "once both sides complete steps to allow the full ownership and control of their carriers by the others' nationals," and would provide carriers "full rights to operate between, within and beyond both markets, including between points in the territory of the other party," a set of rights known as cabotage.
The agreement also allows new "commercial arrangements," including codeshare partnerships, and includes cooperation on "consumer interests," air traffic control, access to airport facilities and environmental issues.
The European Union cited a 2007 European Commission study that found an "an open aviation area" between EU and Canada in the first year would generate "half a million passengers," as much as "€72 million" (US$98 million) in economic benefits and 1,000 new jobs. It could lead to as many as 3.5 million additional passengers "after a few years."
Previously, Canada had inconsistent and restrictive agreements with some EU member states, and no pacts whatsoever with eight.
The agreement would take effect immediately following a formal signing of the agreement, expected soon. A joint EU-Canadian committee will ensure both sides honor all terms.
South Of The Border
Association of European Airlines Secretary General Ulrich Schulte-Strathaus said the EU-Canada deal would "shine a spotlight on the negotiations with the US The US call their agreement with the EU 'Open Skies,' but the deal with Canada will redefine what Open Skies really should be."
But US labor groups and some lawmakers oppose cabotage and meaningfully higher foreign ownership caps--two primary European demands for second-stage Open Skies. A 2006 Bush administration proposalto encourage more foreign investment did not gain support. Provoked more recently by outspoken disapproval of looser regulations by Rep. James Oberstar(D-Minn.), who serves as chairman of the US House of Representatives' Transportation and Infrastructure Committee, proponents of greater transatlantic freedoms for airlines have stepped up their arguments.
EU ambassador to the United States John Bruton in an 18 March letter to US Secretary of Transportation Ray LaHood objected to certain provisions considered for a proposed bill to reauthorize the US Federal Aviation Administration. "The draft legislation would hamper the implementation of the existing EU-US air transport agreement," he wrote, and "would dangerously impair the ability to enter into meaningful second stage negotiations ... which aim at establishing a reciprocal investment regime based on mutual confidence providing new opportunities between the EU and the US in a sector which badly needs it."
According to prepared remarks for a speech later that month at the German Marshall Fund, Bruton said, "We have entered second-stage negotiations with a simple but clear mandate: complete the task of liberalization. Any remaining restrictions on routes and ownership of airlines should be eliminated."
In addition to the deal with Canada, Bruton pointed to ongoing discussions toward that same goal with Australia and New Zealand. Referring to cross-border mergers between Air France and KLM, and between Lufthansa and Swiss, Bruton added, "The sky did not fall when all those mergers took place as one might expect if the concerns opponents of reform were valid. Instead, bigger, stronger, more financially viable entities have been created with better prospects for delivering sustainable returns to investors and preserving jobs and expanding services."
U.K. Secretary of State for Transport Geoff Hoon on 5 May told the International Aviation Club in Washington that stage two of US-EU Open Skies should be completed by summer 2010, "with the headline objective of liberalizing all foreign ownership in airlines to give European and American air carriers a bigger home market and the ability to operate like any other competitive international company."
European officials have some US constituents on their side, including Glenn Tilton, CEO of United Airlines and current chairman of the Air Transport Association of America. "We believe the marketplace--not regulators--should determine where it makes sense to invest or fly," he told the European Aviation Club in Brussels on 7 May. "This is hardly the time for further protectionism in our industry."
Finalizing a second-stage agreement including European demands won't be easy. A friend of US labor groups, Barack Obama as a presidential candidate in late 2007 told the Air Line Pilots Association he opposed legislation that would loosen foreign ownership restrictions. In answering ALPA's 2008 presidential questionnaire, as printed in the January 2008 issue of ALPA's Air Line Pilot, Obama said: "I will work to ensure that foreign investors remain minority shareholders in US airlines." He also told ALPA that he supports "upholding current cabotage laws."
Meanwhile, FedEx Corp. CEO Frederick Smith during a US Chamber of Commerce speech in April, warned of an "all-out air trade war" if Congress hinders deregulation in the transatlantic aviation market, according to the Wall Street Journal.
Michael Goldman, a partner in Washington law firm Silverberg, Goldman & Bikoff who has advised US and foreign carriers, suggested some middle ground. "With President Barack Obama's election, it will be much more difficult to achieve airline ownership and control liberalization in the stage-two US-EU aviation negotiations. It's unlikely that he would break with his pro-labor aviation positions so early--if ever," he wrote in a 29 April white paper posted by ATW, but "negotiations are not doomed to fail."
Goldman said the two sides can achieve progress in the areas of additional traffic rights (though not necessarily cabotage within the United States), security rules, aircraft noise and greenhouse gas emissions.
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