The European Parliament has passed the first reading of a proposal that would punish carriers from outside the European Union (EU) which are deemed to have benefited from subsidies.

However, the plans will have to overcome strong opposition if they are to pass into EU law. The proposals call for duties and, if necessary, slot restrictions to be imposed on non-EU carriers that are in receipt of either direct or indirect subsidies, provided it could be proved that "significant material damage" has been inflicted on EU carriers.

The European Commission (EC) drew up the proposals in response to the subsidies received by US and Swiss carriers after the events of 11 September, with accusations by some airlines that these resulted in unfair pricing practices. Brussels felt that it needed more authority to deal with this type of situation in the future.

However, even Nicholas Clegg, the Member of the European Parliament (MEP) who steered through the legislation, admits that the bill is "premature" given that the EC has not yet been granted competence over external relations with non-EU states. The EC is pushing to be granted the right to negotiate a community-wide bilateral with the USA but no agreement is expected before March at the earliest.

Clegg says: "Given that the EU does not [yet] possess legal competence in this sector, and given the enormous difficulties in proving that third-country airlines are acting unfairly when setting ticket prices at low levels, there is a significant risk that this threat will lack credibility." The bill is also likely to face opposition from some transport ministers when they consider the proposals in March.

The plans are being treated with some scepticism in the USA, where observers point out it is far from clear how Brussels would go about actually implementing any such penalties. One international consultant says that EC transport commissioner Loyola de Palacio has her "heart in the right place", but asks: "How would she do this?" US observers are also questioning how "significant material damage" would be defined and measured?

Even the Association of European Airlines (AEA), representing the carriers that the proposals are meant to protect, has mixed feelings. "In principle we agree with the proposals," says Ren‚ Fennes, AEA general manager public policy. "What we do not agree with is the implementation." He says the measures should only be a last resort, after other methods have failed. "The trouble is, they are the only resort. It is like having a little toy gun aimed at your most important trading partner."

A similar warning comes from MEP Jacqueline Foster. "Trying to even out unfair competition is a noble idea but we need to be careful." She warns the proposals "could precipitate an unnecessary trade war" with non-EU carriers applying exactly the same penalties to European carriers. "Caution should be exercised when applying any sanctions," she says.

The parliament has introduced a conciliatory amendment allowing for the normal investigation period of three months to be extended if there are clear signs that a satisfactory agreement can be reached with the foreign government in question, or "where additional time is needed in order to achieve a resolution which is in the interest of the community".

Other amendments to the EC's original draft include a recommendation that airline services be included within the scope of the General Agreement on Trade in Services (GATS) process of the World Trade Organization (WTO), so that "competition and subsidisation in the sector could be regulated fairly on a global basis".


Source: Airline Business