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Session 2006 - 07
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European Standing Committee Debates

Aviation Agreements

The Committee consisted of the following Members:

Chairman: Mrs. Janet Dean
Blizzard, Mr. Bob (Waveney) (Lab)
Butler, Ms Dawn (Brent, South) (Lab)
Carmichael, Mr. Alistair (Orkney and Shetland) (LD)
Clelland, Mr. David (Tyne Bridge) (Lab)
Cunningham, Tony (Workington) (Lab)
Grayling, Chris (Epsom and Ewell) (Con)
Kawczynski, Daniel (Shrewsbury and Atcham) (Con)
Merron, Gillian (Parliamentary Under-Secretary of State for Transport)
Michael, Alun (Cardiff, South and Penarth) (Lab/Co-op)
Rosindell, Andrew (Romford) (Con)
Rowen, Paul (Rochdale) (LD)
Stuart, Mr. Graham (Beverley and Holderness) (Con)
Watson, Mr. Tom (West Bromwich, East) (Lab)
Emily Commander, Committee Clerk
† attended the Committee
The following also attended, pursuant to Standing Order No. 119(5):
Dunwoody, Mrs. Gwyneth (Crewe and Nantwich) (Lab)

European Standing Committee

Monday 23 April 2007

[Mrs. Janet Dean in the Chair]

Aviation Agreements

4.30 pm
The Parliamentary Under-Secretary of State for Transport (Gillian Merron): It is a pleasure to serve under your chairmanship this afternoon, Mrs. Dean, as we deal with this important matter. I shall make some opening comments, after which I will be more than happy to engage in debate and to answer questions.
The subject of the debate is the draft aviation agreement between the European Union and the United States of America, the signing of which has been unanimously endorsed by the EU Transport Council and is envisaged for the EU-US summit meeting at the end of the month. Before I explain why the Government support that decision, it might be helpful if I briefly recap the background to the draft agreement.
Hon. Members will be aware that since its inception in the 1940s, international aviation has been regulated through a complex web of bilateral air services agreements between pairs of countries. They set out in detail the rights and, more particularly, the restrictions that determine which airlines can fly, and how frequently and on which routes they can do so. They also include limitations on commercial pricing, ownership and partnership, as well as more legitimate provisions relating to safety, security and fair competition.
Of those bilateral agreements, one of the most convoluted is that which has been place for the last 30 years between the US and the UK, the so-called Bermuda II treaty. Liberalisation of that treaty and other such restrictive agreements has long been an objective of the Government. In 2002, Bermuda II and many other bilateral agreements were ruled illegal under European Community law because they infringe the fundamental principle that rights should be available to all community operators, not just those from one member state. Other EU countries’ bilateral rights should therefore be available to UK-based carriers, and our rights should be available to operators from other member states.
In 2003, the EU Council of Ministers gave the Commission the mandate to open negotiations with the US for a new EU-wide air transport agreement that would resolve the long-standing problem. In so doing, the Council proposed an ambitious, comprehensive agreement to replace all existing bilateral treaties with the US, which would sweep away all commercial restrictions and establish a single, transatlantic open aviation area, built on the example of a single aviation market that had been established in the EU. That level of ambition proved difficult for the US to accept.
Despite the track record of the US in pursuing open skies agreements for international services, US law specifically forbids foreign airlines from operating in its domestic market. The US Government were unwilling or unable to contemplate changes in that law. They showed greater flexibility when it came to relaxing rules on foreign ownership of US carriers. Ultimately, however, the Administration’s efforts to adjust their restrictive practices were blocked by opposition in Congress. Negotiations continued none the less. In March, after 11 rounds of talks spanning nearly four years—patience is a virtue—the negotiators arrived at the draft treaty, which was conceived as a first-stage agreement. I want to emphasise that we are talking about a first-stage agreement with a commitment to continue negotiations on further stages according to an agreed timetable.
The main element of the draft first-stage agreement is the complete opening up of transatlantic services between the EU and the US. It will allow any UK airline, for the first time, to fly to any point in the US, rather than only to the current, restricted list of destinations. It will put an end to all limits on frequencies and fares. By broadening the nationality criteria to an EU-wide basis, the agreement will correct the problem identified by the European Court, so ending the legal uncertainty of the current arrangements. In the process, it will allow UK airlines to fly to and from the US to any other EU member state.
The draft treaty also contains a great many other provisions, including those on the ability to run through services to other destinations and operate free-standing services from the other country, which at this stage is available to EU airlines only on a limited basis, and new rights on code-sharing, leasing, franchising and branding. In addition, there are important provisions on increased convergence and co-operation between the EU and the US on safety, security, competition, state aid and the environment.
What will that mean for passengers? By opening competition between airlines and airports, we can expect ticket prices to come down and a greater choice of services and destinations. Many new direct services are likely to open up, meaning greater convenience for travellers. By removing the current restrictions on freight operators, there should be benefits for business, the wider economy and indirectly for consumers.
Of course, the precise level of benefits will depend on the commercial decisions of individual airlines, but they will now be able to make their decisions on where, when and how often to operate on a commercial basis in response to passenger needs rather than according to the diktats of restrictive route schedules set out in the annexes to a 30-year-old intergovernmental treaty.
There are some things that the new agreement does not address but that we still want. It falls short of the full open aviation area that remains our ultimate goal and that of the EU. It does not include access to domestic markets on either side and, as I have mentioned, we are disappointed that the US Administration have not yet been able to deliver the relaxation of the limitations on the ownership and control of US airlines which many would like. There are small improvements in that direction in the treaty but the case remains that, for no good reason, foreign investment in airlines on both sides of the Atlanticis far more tightly restricted than in most other industries.
There are other issues that need to be tackled, such as the US Government’s iniquitous and anti-competitive “fly America” policies on Government-funded travel. Those issues will be addressed in further stages of the agreement, and negotiations on them are required to start within 60 days of the first stage coming into effect. Importantly, a clear timetable for the conduct of the second-stage negotiations has been set out in the agreement, with sanctions available if no second-stage agreement is signed in accordance with that timetable. The Government led the debate on ensuring those tough commitments to a second stage of negotiations, which are intended to complete the liberalisation of this key aviation market.
As Members will be aware, the draft agreement was presented to the EU Transport Council of Ministers on 22 March with the recommendation of the Commission and the presidency that the Council endorse it with a view to signature at the forthcoming EU-US summit meeting, which will take place in Washington on 30 April. The Council unanimously gave that endorsement, subject to certain conditions including reaffirming the Commission’s mandate to deliver a full open aviation area agreement through further stages of the agreement, moving back the date of the introduction of the new agreement to give airlines and airports more time to prepare and agreeing an internal process for the suspension of rights by the EU side in the event that a satisfactory second-stage agreement is not reached by the deadline.
We came to the view that, subject to the conditions set out, endorsement of the agreement was consistent with the UK’s overall interests. My right hon. Friend the Secretary of State made it clear that he would not sign up to a deal that was not in Britain’s best interests, and we are firmly of the opinion that the deal will be of benefit to the UK economy and to passengers. I hope that my short explanation of the background to the agreement and the reason for the Government’s position will helpfully inform the Committee in its deliberations. I am sure that hon. Members will wish to take part in debating this important matter.
The Chairman: We now have until half-past 5 for questions to the Minister. I remind Members that they should be brief and asked one at a time. There is likely to be ample opportunity for each Member to ask several questions.
Chris Grayling (Epsom and Ewell) (Con): I am grateful to you, Mrs. Dean. I have six questions for the Minister and, if I may, I shall ask them in groups of two.
The Secretary of State made it clear to the Select Committee on Transport that he would not sign up to an agreement that was not in Britain’s national interest, and the Minister has just reiterated that point. The Select Committee said—I am sure that the hon. Member for Crewe and Nantwich (Mrs. Dunwoody) will amplify this later—that it is
“convinced that the draft Agreement is imbalanced and lacks reciprocity. It would benefit American interests to the detriment of the broader European interest and to the detriment of the UK national interest in particular”.
Why does the Minister think that the deal is good for Britain?
Gillian Merron: We are indeed grateful to the Transport Committee. My right hon. Friend the Secretary of State was very happy to meet it to discuss the matter. In all negotiations, we debate matters of judgment, but although I am extremely respectful of the points made by the Committee, we do not share its conclusions.
For three reasons, I do not consider the agreement to be a bad deal for British interests. First, passengers will benefit from increased competition, lower fares and more convenient services; secondly, the wider economy will benefit from deregulation and the cutting back of red tape, which I am sure all Members will welcome; thirdly, our airlines will benefit, too. I believe that that is in Britain’s best interests, and I emphasise that the Secretary of State has insisted that there will be sanctions if the deal does not produce what we need.
Chris Grayling: Let us be clear about those sanctions. The rest of Europe and the United States appear to have gained from the negotiations much of what they had hoped to secure, whereas, on ownership and access to the US market, this country has not secured the benefits for which we hoped. Given that Europe and the US have got what they wanted, will there be successful phase 2 negotiations, and can the Minister give a clear, unequivocal commitment to the Committee about the Government’s policy on the negotiated sanctions, should such an agreement not be forthcoming?
Gillian Merron: On sanctions, I hope that we do not get to that stage. Indeed, we are in negotiations, but I do not share the view expressed in the first two questions that the deal is unbalanced. A lot has been made of what the US will be able to do, but I emphasise, for example, that EU carriers will have the same fifth-freedom rights to operate onward services from the US to other countries. Certainly, that will make it much easier to support the development of freight traffic, about which we hear very little.
We have a lock on the situation. If no second-stage agreement has been signed within 30 months, either side could begin withdrawing rights. I hope that we will not be in that situation, but I must emphasise to the Committee again that the Secretary of State, on behalf of the UK Government, and supported by other member states, ensured that we have that lock in place. We are conscious of that, but also serious and quite clear that we want an agreement that continues to serve the British interest, as the first stage does—it is just a first stage, as I said in my opening comments.
Mr. Tom Watson (West Bromwich, East) (Lab): It strikes me that the deal is better for British consumers than for British industry, but no one was really expecting the United States to open up some of its restrictive markets overnight. Will my hon. Friend say how the agreement might allow us to keep pressure on the United States to relax its restrictions on foreign ownership? What are our prospects of achieving that over the next few years?
Gillian Merron: In truth, my hon. Friend raises a difficult problem. The US Administration would welcome some relaxation of what are very restrictive limits on foreign investment; that is recognised to be a form of protectionism. However, very strong vested interests are working against such relaxation. I believe that they lie often behind spurious arguments about national security, which we should recognise. At the moment, it is true to say that those interests have the upper hand in Congress, but I firmly believe that there are plenty of voices in the US industry and in the Government that recognise the need for change. This has been a laborious process. It has been going on not only under the present Government, but under the previous Government, and we had not managed to make progress until recently, so we are at the first stage of a two-stage agreement. We are working together with other EU member states. United States commentators say that change is inevitable sooner rather than later, so what we are discussing is part of a continuum.
Mr. Alistair Carmichael (Orkney and Shetland) (LD): When the Minister talks about making progress, I think that perhaps sometimes she confuses making progress with just giving in. She speaks about the importance of sanctions, and I accept that the liberalisation of the transatlantic market will be a positive development that is popular with consumers. In the event that it is necessary to impose sanctions as a result of a failure to secure a second-stage agreement, what reaction does she anticipate from the consumers who have benefited, and what impact might that have on future Government negotiations?
Gillian Merron: I do not share the view that the hon. Gentleman expresses; I do not recognise the view that we are just giving in. This is about removing red tape. It is about deregulation and consumer interest, as well as support for the UK economy. We should remember that we have already made immense progress in this field across the whole of Europe with the introduction and success of no-frills carriers such as Ryanair and easyJet. We have seen that liberalisation of these markets has produced tremendous improvements, and passengers will see the improvements sooner rather than later. We have to work towards the second stage of the deal, but in the first place we have to sign it, and it will be signed by the EU and the United States on 30 March. We know what our final aim is, but our job then is to set out the negotiating markers and the means by which we get there, so it is not appropriate to talk about giving things away. There are tremendous benefits, some of which I have outlined.
Mrs. Gwyneth Dunwoody (Crewe and Nantwich) (Lab): In that case, will my hon. Friend tell us exactly what was earned by British airlines from their transatlantic traffic in the past five years? How much of that will be changed when Heathrow is no longer available to the same degree to British airlines, and what is the exact timetable that has been set out, not only for opening debates, which, as the Minister herself says, have taken up four or five years, but for concluding an agreement that would enable the British Government to impose sanctions when, as we all expect, the United States reneges on its commitments?
Gillian Merron: I hope that we will not find ourselves in that position, and we will work with our EU colleagues to ensure that we do not. The point that I want to emphasise in all this is that the status quo was never an option. Had we not worked towards where we are, we would have found ourselves anyway in a position of having to negotiate with the US, and we have previously been, frankly, rather unsuccessful, so my view is that we have been as successful with EU member states as we could be. On the issue of British Airways, I understand that in the evidence given to the Transport Committee recently—
Mrs. Dunwoody: All British airlines.
Gillian Merron: May I ask my hon. Friend to repeat the question? I heard a reference to British Airways.
Mrs. Dunwoody: I have the figures for British Airways if the Minister does not have them. I am asking what was the total amount earned by British aviation—defined as British aviation companies—in the past five years, because unless we can be clearly aware of what they normally earn and what they will forgo, we cannot judge the efficacy of this agreement. I am sure that the Minister has those figures at her fingertips.
Gillian Merron: I must be honest again and say that I regret that I do not, but I will be pleased to make them available as speedily as possible.
Mrs. Dunwoody: And the timetable?
Gillian Merron: Likewise.
The Chairman: Order. Can we not have supplementary questions until I call hon. Members to ask them?
Daniel Kawczynski (Shrewsbury and Atcham) (Con): What will be the effect on regional airports? A number of us on the Committee represent west midlands seats, and the Minister will know that Birmingham International airport is extremely important for our constituents. Will she expand on what benefits this agreement will bring for airports such as Birmingham International?
Gillian Merron: As I have said, some concerns, which I think are quite legitimate, have been raised about UK regional services in general, and particularly about the use of slots going to Heathrow. Carriers will certainly review their use of slots, but they would do so in any case.
I have always been committed to the development of regional airports, independent of this agreement, and we should support their development. There is a considerable emphasis, obviously, on the airports in the south-east, which are, of course, very important—Heathrow is an international hub. However, my view is that there is considerable benefit to local economies from the development of airports such as Birmingham, Robin Hood airport in Doncaster and all the rest of them. If this agreement opens up the whole market, I believe that it will create a range of opportunities for airlines and airports all around the country. Of course, as a boost to the UK economy, the agreement would benefit Birmingham and the area around it.
Mr. Carmichael: Further to that question, I would like to point out that the opinion of the Transport Committee, quoted on page 7 of the bundle, is that
“The consequences of these changes would be a damaging reduction of feeder routes into Heathrow.”
What assessment of the reduction of the feeder routes into Heathrow has been made by the Government? Do they accept the Transport Committee’s conclusion? If so, are they reconsidering their position with regard to public service obligation orders in relation to slots?
Gillian Merron: I accept that there is concern about that issue. As I have mentioned, airlines review their commercial operations at all times, and they will do so independently of the agreement.
I certainly recognise the importance of regional air services, and there is no doubt about their importance. That was why, in December 2005, we set out guidance on how we might use PSOs. Obviously, the imposition of a PSO on a route would enable slots to be reserved for that service, which already happens in France and Italy. We have had no applications for PSOs for regional services to London since that guidance was published. The provision and availability of regional services is there, and I assure the hon. Gentleman of our commitment to those services.
Chris Grayling: I am not desperately reassured by the Minister’s answer to that question; her answer calls into question just how much detailed homework her Department did before signing up to this agreement.
May I press the Minister on one other area? She will know that, in reality, the average person that flies economy across the Atlantic is unlikely to see a significant price benefit as a result of this agreement. There is relatively little price differential between the transatlantic fares from different airports across Europe to the US, even where no regulatory restrictions apply. The expectations is that savings will come in business class and that they will amount to maybe as little as 5 per cent. in some cases. What detailed assessment have the Government carried out about the implications of the agreement for fare levels? In particular, will the Minister confirm that it is business class flights, rather than economy flights, that are likely to be the ones that see a price change? Also, does she believe that it is worthwhile making that concession to business travellers in return for giving up, basically, access to Heathrow or agreeing to limitations on access to Heathrow in an agreement that does not appear to be entirely balanced?
Gillian Merron: The agreement is not about giving up entire access to Heathrow in the way that has been described. Perhaps the hon. Gentleman will come on to this issue when we have the debate, but if there is criticism of the deal, I would like to know what he would have done. It is quite clear that doing nothing was not an option. Our interest and the Secretary of State’s assurance on this matter were about getting the best deal for the UK.
The Civil Aviation Authority has estimated that the net direct benefits to the UK could be in the order of£1 billion over the next 20 years. It has also been estimated that the benefits to passengers, mainly through lower fares, are in the order of £250 million a year. I am sure that the hon. Gentleman agrees that more competition undoubtedly brings lower fares—one has only to compare ticket prices, and I am happy to refer to premium class travel as well as economy fares. The fare for London to New York costs £200 more than that for Heathrow to Bangkok, which is twice the distance, and £300 more than that for Heathrow to Auckland, which is more than twice the distance. That does not seem to be a fair deal for consumers.
The hon. Gentleman also knows that although having more choice is important, if one travels at peak times on economy fares they cost three times as much as off-peak fares. There are savings, whether they are for business or not, but I would have thought that the hon. Gentleman would agree that making business travel more attractive and making the UK a more attractive place to do business is an attractive option and the right way to go. We also must compete with every other airport, particularly if we are talking about Heathrow as a transit hub.
Chris Grayling: So why does the Minister think that the agreement will be a benefit—she has highlighted the benefits for business travel in particular? Why is it beneficial to British business and British airlines that a British Airways plane flying to New York will not be able to fly further within the United States, but that an American Airlines plane flying to Heathrow will be perfectly capable of flying on to Paris under this agreement? Does that not undermine British business? That explains why the deal is, as yet, completely unbalanced and not in the interests of British business.
Gillian Merron: We are talking about geography. The reason for the difference is because the United Kingdom is a country and France is a country, whereas the whole of the EU is not one country. The United States is one country, so we are where we are in terms of not only geography, but international definitions and agreements as well as US domestic law. The hon. Gentleman may think that that should be changed in the long term, but the definition of a country will doubtless remain as it is.
Ms Dawn Butler (Brent, South) (Lab): The Minister has made it clear that doing nothing and keeping the status quo was not an option. Would it have been possible simply to reject this agreement completely?
Gillian Merron: That is an interesting thought, but as I said in my opening remarks, there was no opportunity to revert to the status quo. The job in hand was to work with the other member states to get the best deal possible that would be in the interest of this country. Had negotiations broken down, which is what I presume that my hon. Friend is referring to, we would have been back in the courts. It is likely that we would have had to scrap the existing agreements and gone straight back to negotiating a new agreement, which we have been trying to do over many years. It was after four years of talks that we arrived at a position where all member states and the Council were unanimous on this. We concluded that we should sign the agreement, as the best first stage of the deal possible at that point, with a view to moving on. This is about work in progress and looking to the future to achieve our ultimate goal.
Mr. Carmichael: The Minister seems to anticipate that the agreement will result in an increase in the volume of transatlantic traffic. What assessment has her Department made of the consequences of that increase for carbon emissions?
Gillian Merron: We are talking about a commercial and economic agreement. Obviously, all the usual rules such as inclusion in the EU emissions trading schemes, the caps on movements, noise levels and so on will all still apply. This is about what airlines commercially decide to do within that. That is a separate issue to be considered.
Mrs. Dunwoody: How many domestic feeder services can get into Heathrow, and what is the existing price of the sale of a pair of slots?
Gillian Merron: I regret to say that I shall have to come back to my hon. Friend on that, but would I be in order to refer back to the issue of the timetable, which she raised earlier?
The Chairman: Yes.
Gillian Merron: Negotiations on the second-stage deal must commence by the end of May 2008, and we will review progress towards a second-stage deal by November 2009. If no deal has been agreed by November 2010, both parties have the right to give notice of suspension of rights, which, if it were to take place, would occur from March 2012.
Chris Grayling: May I ask the Minister, further to the points made by the hon. Member for Orkney and Shetland, about the European emission trading scheme? In terms of the timetable, the negotiating process for this agreement fits in timetable terms alongside the next stages for the emission trading scheme. Will she give a clear and unequivocal commitment to the Committee that the emission trading scheme will not become a part of the negotiations of a further stage of the open skies agreement, and that we will not consider making concessions on that front in order to secure a second stage of open skies?
Gillian Merron: As I have said, those are entirely separate matters.
Chris Grayling: I must press the Minister: it is very likely that there will be pressure from the United States to make a linkage between the two. She has said that the matters are separate, but that is not the question. Will she give an undertaking to the Committee that the Government will not permit a linkage between the two to become a feature of the second stage of negotiations?
Gillian Merron: The EU ETS is not related to discussions between the EU and the United States. The EU ETS is a matter for the European Union, and that is the clarity that we should be putting on record.
Mr. Watson: I understand why the Opposition Front-Bench spokesman wants to press the Minister, because he does not think that a 5 per cent. reduction in business travel costs is a good thing for the UK—he wants to put air fares up. For clarity, the Minister has said that the consequences of rejecting this treaty would be a fall-back to a huge mess in the courts. The Tory Front-Bench spokesman has said that business travel will reduce by at least 5 per cent. and that there is likely to be a benefit for consumers. Will my hon. Friend the Minister confirm that we are making progress with the Bill, and has she received representations from business saying that this a good thing in terms of their business costs and that it might help the UK economy?
Gillian Merron: For example, the chief executive of Virgin Atlantic—somebody who will have to compete more—has said that
“liberalisation is very important for this industry... this is the key one... This is the very industry that has enabled globalisation, and yet it is one that remains restricted”.
The other point in which my hon. Friend might be interested is that the Government are keen to remove red tape and to deregulate. That is not being well received by the Opposition, which is perhaps worth noting. Perhaps Opposition Members will be clear when they speak about whether they think that we should simply have blocked the agreement. If we had done so, however, we would have denied travellers more choice of service and cheaper fares, and it would not have been realistic. This is the best achievable first stage of a deal, leading on to a second one. A delay would have brought disbenefits, not only to the consumer but to the UK industry. It would certainly have blocked carriers from development in terms of jobs and services. In particular, there are tremendous opportunities in respect of freight and for the UK to allow business travel to take place at the right price rather than at an artificially restricted one. My hon. Friend has made an important point.
Mr. Carmichael: The last time that the Minister and I were in this Room, we were discussing the implementation of the EU emissions trading scheme by in this very Committee. She will recall that that scheme is intended to apply to flights to and from points outwith the EU. Will she confirm my recollection that the working details of that have not been resolved? In that context, will she readdress herself to the pertinent question asked by the hon. Member for Epsom and Ewell and give the Committee some assurance that implementation of the emissions trading scheme will not be played off against a second stage agreement?
Gillian Merron: The hon. Gentleman will recall from our earlier debate that this Government have always made it clear that the best way to make environmental improvements in respect of aviation emissions is by including aviation in the EU ETS. That guarantees a specific environmental outcome, which nothing else does. Clearly, aviation has limited opportunities for abatement. Trading produces the most effective environmental outcome most cost-effectively. I do not anticipate that a commercial and economic deal will impact on our appetite for keeping aviation and for having it included as soon as possible. The UK has pushed for that, and we remain committed to it.
Mrs. Dunwoody: Does the agreement contain a commitment from the United States that community airlines will be able to apply for anti-trust immunity?
Gillian Merron: Yes.
Mrs. Dunwoody: Are we reserving the right to introduce new limits on US investment in community airlines, and will we reach agreement in this longed-for second stage?
Gillian Merron: There are already limits in that respect.
Mrs. Dunwoody: But is it our intention to ensure that they will be applied according to the timetable, provided that we are not progressing in the second stage agreement?
Gillian Merron: I can give that assurance to my hon. Friend.
Mrs. Dunwoody: Does the agreement change our ability to own third-country airlines? Will the Minister outline what we asked for in relation to the rights of community investors to own US airlines?
Gillian Merron: Perhaps I could refer to that later in the debate. Before I continue, Mrs. Dean, would it be in order for the sake of clarity to refer to an earlier question from my hon. Friend?
The Chairman: Yes.
Gillian Merron: Thank you, Mrs. Dean. My hon. Friend asked about the price of slots for domestic services. Slots are not charged for by the airport authorities. We understand that there is a secondary market in slots, which is what my hon. Friend was asking about, and I am going to risk saying that, according to press reports, a pair of slots trades for £10 million to £15 million, depending on the time of day.
Mrs. Dunwoody: Will the Minister answer the question about domestic feeder slots?
Gillian Merron: I am happy to return to that when I have the information in front of me.
Chris Grayling: It is disappointing that the Minister did not have that information prepared prior to the debate. However, she is correct. Will she not accept that slots at Heathrow command a substantial premium? The reality of the agreement is that some airlines currently using Heathrow for domestic flights in and around the UK and western Europe are likely to pass those slots on through the secondary market to international carriers looking to open up the transatlantic market. As a result, does the Minister accept the inevitability that some destinations are bound to lose those links in the next few years? Many have already lost their links into and out of Heathrow.
Gillian Merron: I have given the information about the likely effects on UK regional services and the Government’s intention to protect them. There is no reason why we would wish deregulation and the opening up of markets and benefits to consumers in the UK to disadvantage regional services. I have spoken about the opportunity for PSOs on routes, where they are necessary.
On slots, I understand that the hon. Gentleman has a strong view on how things will proceed, but that is his opinion. The point about this deal is that it will benefit consumers and industry. I hope that the hon. Gentleman is asking himself what he would have done in the same situation. It is worth re-emphasising that the UK Government ensured the locking-in on the second stage in order to have some means of bringing the US to talk directly to the EU, which was a major contribution.
The situation that the hon. Gentleman has described is speculation, which suggests that it could not possibly happen at present. He is aware of the current situation.
Mrs. Dunwoody: Does the proposal contain any agreement about the “fly America” conditions that are applied by United States legislators?
Gillian Merron: The honest answer to that question is that we are aware of the difficulties, and that is one of the areas in which we are continuing to work to seek a better agreement. I will not deny the difficulty of the issue to my hon. Friend, who knows, as I do, that it is one of our greater challenges.
Mrs. Dunwoody: Are any other controls raised by the agreement? How will Britain and other European nations benefit from the restrictions being removed?
Gillian Merron: For me, the agreement is important for not only the consumer but other airlines because they can participate, which they cannot do at present. For example, it was nonsense that there was an age-old agreement meaning that it was not possible to fly from Heathrow to Texas, but one could do so from Gatwick, which did not seem to make much sense. The benefit is allowing airlines to make the right commercial decisions to maximise the use of their slots, as well as providing a service to passengers. The issue concerns jobs and services and allowing airports to maximise their opportunities.
To return to a previous point, it is true that we would require the US to pass legislation to change ownership restrictions, which is another area of immense concern as it would not be the most positive outcome for the future. We are at the first stage, and we are seeking to move forward with the other EU member states.
Mrs. Dunwoody: As the Minister has assured us that the matter is about commercial decisions, particularly slots at Heathrow, will she tell me what work the Government have done on the difficulties in protecting domestic feeder flights, if the slots are sold by the member airlines for transatlantic travel? Will slots for flights from Birmingham, Manchester, Scotland and Liverpool, and the slots of other airlines that use Heathrow, be sold to be used for transatlantic traffic or removed from Heathrow?
Gillian Merron: I refer again to PSOs which, if necessary, would be the way to go. As we speak, however, commercial decisions are being made about feeder flights. Regardless of the agreement, airlines are currently making such decisions. Imposing a PSO on a route would enable slots to be reserved for a service, which seems a useful way to deal with the matter. It is done in other countries, and I hope that it would be done here, if necessary.
Mrs. Dunwoody: Are there any PSOs on Heathrow at present? As the Minister has said, there are many PSOs at French airports and Italian airports. Will she tell us about any PSO at Heathrow? How many PSOs does she expect to be imposed, and what work has been done by the Department on the cost, on the need to negotiate with commercial airlines and on possible effects on the economics of transatlantic traffic?
Gillian Merron: As I said earlier, there have been no applications for PSOs. I will be happy to make available to any member of the Committee the cost-benefit analysis and commercial viability analysis produced by the Department.
Mr. Carmichael: Will the Minister tell the Committee how long it takes from the point of application to put a PSO in place?
Gillian Merron: I am sure that I shall be able to come back to the hon. Gentleman on that point.
Mrs. Dunwoody: Is there anything in the agreement that will make it easier for airlines to acquire other European airlines and their existing slots in America for transatlantic flights?
Gillian Merron: There are benefits for EU airlines—for example, the right to fly to the US from other European destinations and the possibility of merging with or acquiring other EU carriers without the loss of transatlantic traffic rights. The deal gives greater potential for alliances with US carriers and greater clarity on rights to own US carriers, although I accept that there are still very restrictive bounds in US law. The agreement provides possibilities for setting up franchising deals with airlines operating in the US and, as hon. Members may be aware, a permanent forum for closer working on matters relating to security, safety, competition and subsidy, all of which will be difficult issues. We have worked on those issues to varying degrees with the US in recent years.
Chris Grayling: The Minister was quick to say that the nature of countries made it impossible to have an agreement that provided for ongoing flights within the European Union, mirroring the debate about ongoing flights within the United States. If that is the case, why did the Government decide to allow the European Union to negotiate on their behalf? Why was the agreement not a bilateral one between us and the US?
Gillian Merron: I thought that I had already covered that. Clearly, the original situation was deemed as not being legal. The myriad bilateral agreements were not acceptable under EU law, and therefore there was a need for an EU-wide agreement. Quite simply, it was not legally possible, as I have explained, which is why the status quo was not an option.
Chris Grayling: Does the Minister agree that it is absurd that we are unable to negotiate a bilateral agreement with the United States? On an EU-wide basis, under EU law, we cannot have country-to-country agreements. We are in an odd situation: we cannot negotiate with the United States because it is one country, but at the same time there cannot be a bilateral negotiation between one country and another. The result is a poor outcome in terms of genuine reciprocity. Does the Minister not agree that that is an unsatisfactory situation?
Gillian Merron: No, I do not accept that. Unless one wishes to withdraw from the European Union, it seems to me that working with EU member states to get the right agreement between two of the largest markets in the world is a strong position and the right way forward. Our goal is an open aviation area, which is what we want to get. The right way to achieve it is through the EU, which is how we will do it. The status quo of myriad bilateral agreements between individual countries was not an option, as had been made clear in law. Any competent Government would have been unlikely to do anything other than work correctly in the interests of the country.
Chris Grayling: Since the EU has failed to negotiate a genuine bilateral agreement—there are many examples of the agreement not offering genuine reciprocity—why should we be confident that it is capable as an institution of negotiating an adequate second-phase agreement?
Gillian Merron: Because the goal, an open aviation area, is there. That is where we want to get to. How to get there, which involves the negotiating timetables and the milestones, is a matter of extreme complexity to be agreed upon. The hon. Gentleman’s difficulty is perhaps in seeing that the status quo was not an option. In a few minutes, we will perhaps have the opportunity to hear the alternative, but confidence should be provided by the locking-in, which was a point made by the UK.
It is important to emphasise that the problem is EU-wide and requires an EU solution. We cannot reach that solution alone, and we must find a way to reduce red tape and open up benefits for both the UK economy and passengers. The agreement is the most liberal open skies deal ever agreed with the US. Of course, we would like to go further—there is no doubt about that—but it is a two-stage process and we have just got to the end of the first stage.
Mrs. Dunwoody: Is there an agreed list of priorities for the second-stage negotiations—things that have not yet been agreed? What is the agreed date for the implementation of the agreement, which affects the home base of British airlines but not that of any other European airline?
Gillian Merron: On the timing, stage 1 could take effect by March 2008. If things were to go well, it could be even sooner, and stage 2 could be by 2009-10. I mentioned earlier the timetable if things do not go as they should. As I have said, our full intention is to move towards the goal of an open aviation area, and our best efforts should be in that regard.
Gillian Merron: As the hon. Gentleman might be aware, in 2004 we rejected a deal on a draft agreement that was not fully worked out but was a set of propositions. There have been further concessions, and my hon. Friend the Member for Crewe and Nantwich mentioned the “fly America” policy. The US has made some effort to begin opening up Government traffic to EU carriers, but that is very limited and therefore not as we would like.
In other areas, we have made further progress. For example, there are further rights for EU freight operators that are not available to US carriers, provision to allow the franchising and branding of US carriers by EU companies and the strengthening and clarification of commitments to a second stage, which we have not had before.
The Chairman: Order. If no more hon. Members wish to ask questions, we will proceed to the debate on the motion.
Motion made, and Question proposed,
That the Committee takes note of European Union Document No. 8656/06, Draft Decisions on the signature and provisional application and conclusion of the air transport agreement between the European Community and its Member States, on the one hand, and the United States of America, on the other hand; and endorses the Government’s approach to discussions on this document.—[Gillian Merron.]
5.25 pm
Chris Grayling: I think that everyone in this Room, from whatever party, agrees with the long-term objective of a proper open-skies area and free trade in aviation across the Atlantic. The Minister, the Liberal Democrats and I agree on that point.
The truth is that the agreement represents virtually no change in the US position from the previous30 years of bilateral negotiations. Having given away our best bargaining chip—access to Heathrow airport—it is difficult to envisage any real progress in the next round of negotiations, not only because the US has received most of what it wants from the EU-US agreement, but because the rest of Europe has as well. Continental airlines have a lot to gain from the opening up of Heathrow and little interest in the domestic US market. What incentive do they have to push the agreement any further? I have already been told that people in Washington are disinterested in pursuing further serious discussions on opening up at the next stage of any agreement. Britain accounts for 40 per cent. of the transatlantic market, but the Minister has failed to provide an adequate explanation how the agreement will truly serve British interests. After all, the British Government’s job, first and foremost, is to represent British interests.
The Minister quoted Virgin Atlantic. Of course, Virgin Atlantic, British Airways and others want a true, open-skies agreement. I do not blame them—they are among the best airlines in the world and would have everything to gain from such an agreement. However, if the Minister is praying in aid our major transatlantic airlines, Virgin and BA, in saying that this is a great agreement, I am afraid that she is wrong. Virgin does not think that this is the best possible deal, and it is extremely concerned about what happens next. She would not find Virgin and BA unequivocally supportive of progress to date.
In the Minister’s winding-up remarks, I would like her to address a further point about the Government’s strategy for building a third runway at Heathrow. How will slots be allocated? And what proportion will be allocated to British carriers? She talked about PSOs and regional feeders, but while she has a moment to think about the issue, will she mention what will happen if the Government pursue their stated strategy for handling Heathrow? How will she ensure that the regions of the United Kingdom are not squeezed out in the face of a transatlantic and global battle to secure routes into and out of Heathrow? In recent years, of course, many parts of the United Kingdom have lost out owing to the focus on Heathrow and transatlantic traffic. Places such as Jersey, for example, no longer have regular links to Heathrow. The same is true of many other smaller airports in the United Kingdom. It is important that when we consider aviation in future, we do not forget the links to places that are not otherwise served by public transport but which, none the less, have an economic need to feed into our international hubs.
It is a great shame that the Government and the EU have so far failed to secure the ability of our airlines to expand within the US. Under the agreement, the options are pretty limited. The US has gained substantial access to the EU market; in return, the EU has not gained anything like comparable rights. As for the third-party rights that the Minister has discussed, the truth is that the value of flying from New York to Heathrow to Frankfurt is vastly greater than the value of flying from New York to Miami to central America. The agreement does not feel like a good deal for British business in that respect.
I have some sympathy for the Minister—I have a lot of regard for her and think that she has been dropped in it by the Secretary of State. The Secretary of State went to Brussels to negotiate the agreement and was originally going to be on the Committee. It is a shame that he has chosen not to be here today, because this issue is of such importance that he should have been here. I have a lot of respect for him, but he has made a misjudgment in this instance. He has also made a misjudgment in assenting to an agreement without being able to provide evidence of a detailed assessment of its impact on the country.
The Minister has talked about benefits for consumers, but we have also to look after the interests of British industry. I am not sure that a deal that offers a US airline the opportunity to take a 49 per cent. stake in a British airline, but offers a British airline no more than a 25 per cent. stake in an American airline is balanced and reciprocal. We have heard about the difficulties in Congress and elsewhere, but I am not satisfied that it is acceptable to sign up for that reason to an agreement that is so unbalanced. If this is a fight worth fighting, we should say no and force the US to a point where finally it accepts that.
Accepting a 25 per cent. stake for our airlines and 49 per cent. for US airlines is one example of why the matter has not been pushed to a satisfactory conclusion. There is no earthly reason why an EU airline and a US airline should not have the same rights of ownership. If we are to have a situation in which majority ownership is not permitted, there should none the less be mirror rights. Having 25 per cent. ownership on one hand and 49 per cent. on the other is a clear example why the agreement is unbalanced and unacceptable. The Government and the EU should have done a better job in negotiating it.
The Minister has talked about the environment. The agreement poses a challenge in terms of the environment and aviation policy. Last December, the Secretary of State wrote in The Guardian:
“There is no question that combating climate change is the most serious challenge we as a society face, and that aviation has a key role to play.”
He went on to defend the Government’s plan for the inclusion of aviation in the emissions trading scheme as their way of addressing aviation emissions. The consequences of this agreement, with the projections that the Secretary of State and the Department have put forward about the growth in transatlantic traffic that may arise as a result, negate any benefits that we might gain from the emissions trading scheme. I would be grateful if the Minister were to clarify the Government’s strategy on carbon emissions and aviation. Liberalisation, such as that outlined in the agreement, will have a direct impact on other aspects of Government policy.
Mr. Watson: I follow the logic of the hon. Gentleman’s argument and understand the dilemma that he is portraying—I think that he is saying that the agreement might increase transatlantic air travel because of the reduction in costs. We have talked about the reduction in costs to business: will he say on the record whether he is against reducing air fares for business travellers, which will be the result of signing the agreement?
Chris Grayling: The hon. Gentleman has misunderstood my point. I am not against taking steps that support British business and the doing of business in the UK. The Government have said that aviation is an environmental problem and are subsequently signing a liberalisation agreement. If he were in opposition and I were in government, I would expect him to expect me to be accountable on the same point. The Minister needs to explain how the Government intend to change their strategy following the agreement, given the Secretary of State’s comments about aviation and the environment.
Mr. Watson: I understand the point that the hon. Gentleman is trying to make, and I am sure that he understands the question that I am trying to get him to answer, which is whether reducing business travel costs on transatlantic flights is a good or a bad thing for UK industry.
Chris Grayling: I am sceptical whether a 5 per cent. reduction in business fares for flights across the Atlantic is an adequate benefit from an agreement that opens up our main domestic airports to competition for the first time in half a century and does so on a basis that is far less balanced than it should be. Were I sitting in the Secretary of State’s chair, which I hope to be in due course and certainly by the end of the process that takes us up to the 2012 limit, my goal would be to secure a better deal for the UK, UK business and the UK consumer.
I appreciate that we all want liberalisation of the transatlantic route, and we face a dilemma. I am not challenging the Minister or saying that there are rights and wrongs, but I would appreciate it if she were to discuss in her closing remarks how the Government intend to approach aviation policy, given the conflicting pressures of liberalisation and growth on the one hand and the need to tackle rising carbon emissions on the other. I should be grateful for clarification of the Government’s thinking in that respect.
Finally, I turn to stage 2. The Minister has argued that we need a phase 1 agreement to get things going and that a phase 2 agreement will follow. I challenge her, however, over what is left to negotiate from a US perspective. The Government have said that we need to be pragmatic and that we have achieved all that we can at the moment, but that is not what has happened—we have given away all our cards at this stage of the negotiations. The Minister has not explained—her answer on this was pretty woolly—why the Government believe that the US position will change between now and 2010 and why she expects the EU to improve its performance in the negotiations, given the rather disappointing job that it has done over the past few years.
On the announcement of phase 1, James Oberstar, the Chairman of the House of Representatives Transportation and Infrastructure Committee, who successfully opposed the much weaker ownership reforms that the Administration proposed for phase 1, said that he would work to ensure that the deal did not lead to foreign control of US airlines. John Byerly, the chief US negotiator on the open skies treaty, has said:
“we have not agreed on either side the content of a second stage. There is no endorsement or presumption of change in US or European laws.”
What do the Government think they can do to change that position over the next three years? Without convincing reassurances from the Minister on the issue, I fail to see the point of going ahead in such an open way with phase 1. We all want liberalisation, but there is a real danger that we are giving away all our aces without taking anything in return and that phase 2 will struggle to get off the ground.
In that respect, I want to send a clear message from this debate. The agreement does not balance the interests of the EU and the United States or those of the United States and the United Kingdom. The EU has not done a good job for Britain in the negotiations. However, to give credit where it is due, I applaud the Secretary of State on securing the provision to suspend the rights that the agreement establishes, if there isno further progress towards a genuine open skies agreement. I want to make it absolutely clear to those listening in this room and outside and to those reading the transcript that if and when my party comes to power after 2009 or 2010, we intend to keep the option to suspend the rights in the agreement clearly open to us.
5.39 pm
Mr. Alistair Carmichael (Orkney and Shetland) (LD): I will not detain the Committee long, because most of what has to be said has already been said in questions to the Minister. However, she and the Government have placed me in some difficulty, because, as the hon. Member for Epsom and Ewell fairly indicated at the start of his contribution, we all support opening up the aviation market across the Atlantic, and we can all see that such a move will have a substantial benefit. The difficulty that I have is that the deal that has been struck leaves so many unresolved issues that will operate to our disadvantage. What the Minister is saying to us today is that we have to see the agreement as part of the process—a staging point—and that all will be fine at the conclusion of the deal, when we eventually get to stage 2. I wish that that were the case, but I regret that reality dictates that wewill probably never reach a satisfactory conclusion on stage 2.
There will be no locking-in from the locking-in provisions, and I see absolutely nothing to make me think that a US Government of any hue would take a different view of the matter in any number of years’ time to that which they have already done. To look at the matter objectively, one must ask: why should they? They have got want what they want—in particular, increased access to Heathrow—for their aviation interests. They have got what they want in terms of intra-EU travel, and they know that we have a sanction that, bluntly, we are never going to be able, for reasons of realpolitik, to enforce. I can see that there is absolutely no reason at all why the US should change their position, and everything that the Minister has said today in answer to questions would indicate that there is absolutely no intention or impetus in US politics for such a change.
There are two unintended consequences which are potentially within our grasp—I am not going to talk about the intra-US situation because, frankly, that is now beyond our grasp. The first point is the question of carbon emissions. I was a little surprised, and not a little disappointed, when the Minister said that this was a commercial and economic agreement, and that somehow, it has nothing to do with the environment. I rather thought that, post-Stern, we had moved on from that sort of silo-based thinking. Those matters are surely not entirely separate, as the Minister has said.
The hon. Member for Epsom and Ewell and I have both asked for a guarantee that the negotiations in relation to stage 2 will not be linked in some way to the evolution of the emissions trading scheme as it applies to flights coming from the United States. Again, I have to say that if the Minister is not going to link the negotiations in that way, I do not see how she will ever reach stage 2.
We have left ourselves no other meaningful bargaining counter.
The other point, which is potentially of massive significance, relates to the working and the transfer of landing slots, particularly at Heathrow, that are currently used by airlines in relation to domestic aviation. That has concerned me throughout my time in the House, particularly in relation to the flights between Inverness airport and Gatwick and Heathrow in London. On that issue, the Minister has referred to slots to London being protected by PSOs. However, there is no such thing as a slot to London. There are slots at Heathrow, there are slots at Gatwick, and there are slots at Stansted. What we want to protect, and what we want the Minister to protect, is the slots at Heathrow and at Gatwick in particular, because those are the ones that offer our people and our business men the opportunities for onward travel.
I am keen for the Government to make much greater use of PSOs. I have made no secret of that in the past, but if, post the implementation of this agreement, the Government continue to approach the question of PSOs as they have done hitherto, frankly that will be meaningless, because the Government have always seen their policy on PSOs as something that is implemented in response to commercial moves. That is to say, they will wait for a commercial decision to be taken that a route will operate no longer and then they will act. That has not caused any major calamity, because of the great health within domestic aviation at the moment. However, post the implementation of the agreement, when the pressure is that much greater on airlines to discontinue less profitable domestic routes in favour of long-haul routes across the Atlantic, that approach will be meaningless.
It takes an age to put a PSO in place. One has to go through the procedure of application, advertisement in the Official Journal of the EU, consultation and lord knows what else, by which time the slot will simply have been removed by the commercial operator. What will be required is a much more proactive approach by the Department to PSOs, anticipating when change will come and acting to preserve the position. What discussions has the Department had in recent times, particularly in relation to the operation of this measure, with organisations such as Highlands and Islands Airports Ltd, Inverness chambers of commerce and other stakeholders who have a particular concern for aviation services in the highlands and islands and, indeed, at other regional hubs throughout the United Kingdom?
It seems to me that the Government are seeking to replace something that will ultimately be illegal with something that is ultimately illogical, which is not a great achievement to boast about.
5.49 pm
Mrs. Dunwoody: I will not impose on your good will, Mrs. Dean, not only because you are a very talented and charming Chairman, but because you have been very tolerant this afternoon. However, this is a very important matter. It is not just a simple discussion of the odd disorientated and badly based directive. This is a major change in an aviation treaty that affects not only the economic but the political and environmental future of the United Kingdom.
I do not take the attitude of Her Majesty’s official Opposition seriously because to my mind this is such an important subject that, if they were serious about their opposition, they would have come here today with a carefully crafted amendment. It would have been presented to the Committee and it would have been possible for us to vote on it. The fact that they have not done so is revealing of their classification of the debate.
For many years, American carriers have been trying very hard to get into Heathrow. Six of them wanted not just to be there but to get the most powerful and economically viable slots, and under this agreement they will do so. British travellers may indeed benefit for a short time from lower fares, but the cost to the United Kingdom economy will be very great. Over and above that, the loss of feeder routes into the main airport will affect every region in the United Kingdom.
It is not just a question of individual airlines; we do not have PSOs. My Committee asked the Department many years ago to do a great deal of work on the matter but it chose to make it clear that it had no intention of creating PSOs, and I see no evidence that that situation has changed.
It is also clear that in future there will be a politically difficult situation for this Government because when the regions wake up to the fact that their direct connections—whether they are Newcastle-London, Manchester-London, Liverpool-London, links to Scottish airports or, worst of all, Northern Ireland-London—are at risk there will be a considerable price to pay.
I made it clear from the beginning of the negotiation that the Commission was incapable of negotiating. It was inexperienced and disinterested, and it has got exactly what it wanted for European airlines at the expense of a British base. This is a very bad agreement and I am sorry to have to say that it will cost us dear. I would have preferred the Secretary of State, if he was in such a difficult situation in these negotiations, to abstain, because that would have been the most honourable thing to do.
In the event, this agreement, which has no timetable for sanctions, suggests various methods that might be applied, all of which, we know, are completely unrealistic. It has given the pass away and it will cost us extremely dear, in political, economic and environmental terms.
I am deeply affronted that the matter should have been dealt with in an anonymous manner in a Committee in which we cannot vote on the outcome, and that hardly anyone in the House of Commons, apart from my Committee and the European Scrutiny Committee, has taken part in the debate.
5.53 pm
Gillian Merron: As I stated at the beginning of our deliberations, this subject has generated a lot of debate, media attention and interest in recent weeks, some of which has been well informed and some of which has not. Much of it has been informed by the strong views of interested parties, both for and against.
We have heard claims that the deal is unbalanced. I would say in response that, in negotiations, judgments are just that; they are a matter of judgment. As my hon. Friend the Member for Crewe and Nantwich pointed out, we have heard nothing from the Opposition about how they would have approached this matter and what the outcome would have been under them. Nobody, including myself, has sought to claim that this deal is perfect.
Chris Grayling: I do not think that I would have done what the Secretary of State did.
The Minister has talked about the benefits that the EU has brought. However, I have the impression that the Secretary of State thinks that this is a bad deal. Can the Minister not just say that it is a bad deal? The amount of progress that she claims to have made is so negligible for the price that is being paid by us, which is giving up Heathrow, that I find her comments inexplicable. Can she not just accept that this is a pretty poor deal but that the Government could not get any more?
Gillian Merron: My right hon. Friend the Secretary of State has made it absolutely clear that he would not have signed up to any deal that was not in the best interests of the UK, and that is indeed the case.
As I said, nobody would argue that this deal is perfect; in reality, it is rarely the case in international negotiations that a deal is perfect. However, I believe that it takes us beyond where we were previously and some way towards our ultimate objective. We have a clear commitment to further liberalisation in further stages, with all the matters of concern specifically listed as priorities for stage 2 negotiations. It is because of the UK’s intervention that we have ensured that there are mechanisms in place to provide every incentive for the next round of negotiations to deliver a productive and timely outcome, which I hope we would all agree is what we want.
Should we have delayed a deal until the US was prepared to move on ownership and control, or cabotage rights? Change in either of those areas requires amendments to US legislation; that is not realistic at present and it is important that we are aware of that. As I have already said, we took the view that maintaining the status quo was no longer a realistic or defensible option and that UK passengers and UK airlines should no longer be denied the benefits that will come from opening up transatlantic aviation.
We have also come to believe that the holding up of key rights for US interests, a policy that we have maintained for many years so as to encourage real liberalisation in the US, was beginning to impose unacceptable costs on UK consumers. There was some prospect that unlocking new rights would create pressure for yet further change.
I would like to refer to some of the specific points that have been made. There was an inquiry earlier from the hon. Member for Epsom and Ewell about Government policy on aviation and our aviation strategy. Nothing has changed in that area, and I refer the hon. Gentleman back to both the air transport White Paper and the most recent progress update.
The fact is that aviation brings real benefits to the economy as well as to the lives of ordinary people. Of course, a balance must be struck—this observation applies to other comments that have been made—between tackling environmental challenges, enabling people to fly and allowing industry to compete internationally. Our commitment as a Government, which is well documented, is to try to ensure that aviation meets its environmental costs, in particular the cost of its impact on the climate. Our priority—I would also say this to the hon. Member for Orkney and Shetland—has been to push our European colleagues hard to include aviation in an EU emissions trading scheme as soon as possible, and to encourage the industry to play its part in reducing emissions.
The hon. Member for Epsom and Ewell asked me whether the Government intend to change their strategy in respect of the environment. The answer is no. As I have said, that strategy is clearly set out in the White Paper and nothing changes that.
There have also been questions about whether we should have held out for more, and indeed questions about why we did a deal at all. As I have said—I cannot emphasise this enough—maintaining the status quo indefinitely was simply not an option. The courts ruled more than four years ago that the current bilateral deals with the US were illegal and had to be replaced. Plenty of interested parties in the UK and elsewhere in Europe had, for various good reasons, long pressed for an agreement. Bearing in mind the economic and consumer benefits that would have been forgone had we delayed still further, our judgment was and still is that the deal is in the overall best interests of the UK. We have heard nothing this afternoon to suggest that another deal would have been better.
Points have been made about the economic impact of the deal. An extensive economic assessment by the Civil Aviation Authority which was sent to the Transport Committee is available to hon. Members.
The hon. Gentleman asked about Virgin Atlantic. Let me quote the comments that it made after the Transport Council:
“It’s a good day for the traveller as consumers should benefit from fully open skies between the EU and US by 2010. Virgin Atlantic is actively looking at expanding in Europe, offering flights from key European hubs such as Paris, Frankfurt, Amsterdam and Madrid to New York. Such a move would create 500 jobs and operations would begin within two years.”
Virgin Atlantic also wrote to the Secretary of State for Transport, saying that although the deal
“fell well short of the genuine ‘open skies’ agreement that we would have the circumstances it was undoubtedly the best that could be achieved.”
I hope that that clarifies the position.
Hon. Members have asked what guarantees have been given about the second-stage deal. The draft agreement with the United States sets out a clear road map towards the second stage. Of course, the Council of Ministers has decided that if no second stage is agreed within the timetable, the EU will set in motion the process for suspending rights, unless the Council decides unanimously not to do so. That came about as a result of the United Kingdom’s efforts to ensure that the second stage would happen. I hope that hon. Members will give us credit for that.
The hon. Member for Orkney and Shetland asked about the environment. I can reassure him that the draft agreement does not adversely affect the ability of either the UK or the EU to take measures to address the impact of aviation on the environment. Our position on environmental obligations and the best way of tackling CO2 emissions is unchanged. The best way to tackle CO2 emissions is certainly not to maintain closed markets or to give privileged status to particular carriers under outdated bilateral air service agreements. That would be rather like trying to tackle lorry emissions by restricting the use of motorways to one or two road haulage companies. I hope that no hon. Member would wish to do that.
I assure the hon. Gentleman that the PSO rules are under review at the EU level, and that stakeholders from all parts of the UK, including the Scottish Executive and the highlands and islands transport forum, have been and will continue to be fully involved. We have issued guidelines that set out the procedures in respect of PSO agreements, and we will keep them under review as and when applications go forward.
My hon. Friend the Member for Crewe and Nantwich asked about the cost of the agreement for the UK economy. The CAA analysis has already been made available in full to the Transport Committee. It estimates that the benefit to the economy will be about £1 billion over 20 years, which is not to be dismissed.
In response to my hon. Friend’s comments that the Commission was inexperienced, I say that the Secretary of State would not have signed up to an agreement if he did not believe that it was in the UK’s best interests. The fact is that Bermuda II was illegal, and standing still was not an option. This deal sweeps away the outdated and illegal restrictions that stand very much at odds with our policy of air services liberalisation.
There are real benefits for UK consumers. Thedeal provides an open, deregulated transatlantic marketplace in which existing and new UK carriers are well placed to compete, which I would hope all hon. Members welcome. It sets out a clear and effective process for delivering our ultimate goal of having a fully liberalised EU and US open aviation area. It will provide a real impetus for the further deregulation and modernisation of the international aviation industry around the globe. This is about promoting the interests of Britain, the travelling public and the aviation industry, as well as the economy as a whole, and I hope that the Committee will support the motion.
Question put and agreed to.
That the Committee takes note of European Union Document No. 8656/06, Draft Decisions on the signature and provisional application and conclusion of the air transport agreement between the European Community and its Member States, on the one hand, and the United States of America, on the other hand; and endorses the Government's approach to discussions on this document.
Committee rose at seven minutes past Six o'clock.

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