Select Committee on European Union Minutes of Evidence

Examination of Witnesses (Questions 20-39)



Lord Fearn

  20. Could you tell me a little bit more about the Community clause? For instance, how is this going to be negotiated between third parties?
  (Mr Smethers) You are aware of the standard clause that exists in bilaterals at the moment, which was judged by the court to be illegal in Community law. What the court has said is that these so-called nationality clauses must be replaced by an equivalent clause, which gives rights to Community carriers rather than to national carriers. Under the arrangements that were agreed at the Transport Council, this may be done either by the Commission on behalf of the Member States—and it has a horizontal mandate to do that with third countries—or it can be done by a Member State which is negotiating in its own right with a third country. There are two ways forward. If we go and negotiate with China, we can try to persuade the Chinese to accept Community designation. Alternatively, the Commission can say, "We are going off to China to do it on behalf of all Member States". There are parallel approaches. I missed the last part of your question.

  21. You have just mentioned horizontal now; horizontal means they can go out individually?
  (Mr Smethers) Yes. It is called a horizontal mandate because it is a restricted mandate. It only applies to Community designation and one or two other issues, but it is horizontal because it gives the Commission the right to go off and talk to any third country about those issues. It is not specific to any particular third country. It can be applied to any third country. The Commission will go off and discuss Community designation with third countries, but it cannot obviously do it all at once. There are, I think, about150 separate countries with which we are dealing. The Commission will take its time; it will identify priorities; and it will go off and negotiate with them as time goes on. In the meantime, individual Member States can try to achieve Community designation with their bilateral partners in their own bilateral negotiations.

  22. Does this give us a level playing field?
  (Mr Smethers) It is possible, one accepts, that if we negotiated Community designation with South Africa but France and Germany did not, there would be some distortion of the playing field. However, you could advance a number of arguments why that is sensible. In the first place, if we have negotiated with South Africa, it makes it more difficult for South Africa to resist an approach from France or Germany or the Commission. Secondly, Community designation is not just about Air France operating from Heathrow to Johannesburg. It is also about inward investment; it means that Air France or another Community carrier would be able to purchase a bit of the UK carrier which could still fly to South Africa. It is about inward investment. It might be attractive to a country to be able to attract inward investment rather than just opening up its airports to other Community airlines.

  23. Is there a great danger of someone purchasing a British airline?
  (Mr Smethers) It could only be done within the Community. At the moment, it would have to be a Community carrier. Lufthansa already owns some of British Midland; Singapore already owns some of Virgin, but it is restricted to below 49 per cent. I would not describe it as a danger. It can happen. BA have owned other Community airlines. What it does, the more you open it up, it enables the airline industry to structure itself as it chooses rather than be restricted by a somewhat anachronistic regulatory structure.
  (Mr Baker) Perhaps I could just add to that because I am actually talking to South Africa later this week to try to persuade them to accept the Community carriers designation clause. I think I would say to them that I do not expect the commercial effects to be very great in the immediate future. I would not expect Air France to try to operate from London to South Africa. I would not actually expect British Airways to operate from Paris to South Africa. The reason for that is that it is very difficult to compete successfully with another carrier out of their hub. If you look at it in terms of the UK/US market, you do not find American competing on the Atlanta/London route because that is Delta's hub. Similarly, you do not find Delta competing on the American hub from Houston to London. I always like to try to be open in negotiations. Where I say that there will be commercial effects in the future is that in future they might well find that there is some consolidation within Europe and they might find that Alitalia has merged with Air France or British Airways with KLM, and that is the sort of medium term prospect which they will probably have to face.


  24. You said that there are 150 agreements or countries and so on. What are the priorities? The Commission must be working on some priorities and we must have an idea of priorities. The French and the Germans have an idea of priorities. You cannot just dash off. Can you just give us your current thinking on priorities?
  (Mr Smethers) Yes. Clearly the US is a priority because the Commission has an all-embracing mandate with the US. When you look at other third countries, in the horizontal mandate it is stipulated that the Commission must draw up a list of priorities in consultation with a committee of Member State representatives. In fact, it also gives some criteria against which those priorities will be drawn up and so, for example, one of the criteria is how big the market is. Clearly, the Commission is likely to want to focus on those countries that have a lot of bilaterals with European Member States rather than those which only have perhaps one or two. Another criteria might be where Member States have been to that third country but have been unsuccessful in doing it on their own account. Another criterion, and an important one, might be where two European airlines want to get together but are being inhibited because they cannot operate to a particular third country. There is a whole string of criteria against which this priority list will be drawn up by the Commission in consultation with Member States.

  25. Would the top few on the list be the subject of dual negotiation by the Commission and Member States?
  (Mr Smethers) This is a list for the Commission to negotiate. Perhaps it would be worth adding one or two other points. I think there is a bit of tension between what might be a priority with regard to one or two countries which you think will be receptive to Community designation—one might think perhaps Australia, New Zealand and Singapore might fall into that category—or perhaps the Commission would aim to take on a really difficult case where you think the countries will not be receptive. One can identify countries around the world where clearly they will extract a price for Community designation at the very least, or will be totally unreceptive. We are talking here about the Commission. This priority list is for the Commission to operate, but if any Member States happen to be negotiating with any third country at any time, they are in fact obliged to raise the issue of Community designation in their bilateral negotiations.

  26. The dog that does not bark so far, of course, is the USA. We are under an obligation to have a Community clause and not a nationality clause. Is that expected to be negotiated and implemented speedily ahead of the other elements?
  (Mr Smethers) The Commission has a full mandate to negotiate with the US. Certainly Community designation is something that will come up in those negotiations, and that will be handled at Community level. I do not think there is any question of individual Member States attempting to discuss Community designation with the US.

  27. But does Her Majesty's Government expect the main EU states to abide by a situation where they have "open skies" but we have not in the United States for some time to come?
  (Mr Smethers) That position is likely to persist until there is a Community agreement with the US.

  28. That is an important point.
  (Mr Smethers) It is important, yes, but that is the case.

  29. Our expectation is that the current arrangements under Bermuda 2, which is not "open skies", are expected to remain in place until an agreement is sorted out by the Commission?
  (Mr Smethers) Under the agreement arrived at in Council, we are free to continue negotiating with the States, but before we could come to any agreement, we would have to go through a Community procedure and get consent. It is fairly clear that we could make minor modifications to Bermuda 2 to update it; we could add the odd provision here and there, and that would be acceptable. If we tried to do a major bilateral agreement with the US, the Commission would almost certainly hold that that undermined the Community level negotiations, and that we accept as a general position.

  30. So it is exceptionally unlikely that a Bermuda-type—and I put it no more strongly than that—consideration would be given by the Government to negotiate a third British airline getting access from Heathrow? That is not likely now to be able to go ahead outside those overall negotiations, even if it were to happen?
  (Mr Smethers) I think it is less likely! Any such agreement would have to be subject to a Community procedure, and so I think you can draw your own conclusions.

  Chairman: You can imagine that we had that drawn to our attention by certain parties.

Lord Faulkner of Worcester

  31. Can I take you back to the issue of safety where, in response to an earlier question, you indicated that the American and European agencies are getting closer together. When a group of us from this Committee visited Washington, we had our ears bent to some extent by Americans who were expressing some doubts about the safety case observance of various airlines, and one particular airline, in Europe. We wonder whether you take a view that their fears are groundless and have attempted to make that point to them.
  (Mr Smethers) I expect whichever airline was being referred to was not a UK airline.

  32. It was not.
  (Mr Smethers) So it is not an issue for the UK Government. I would say that in the process of creating a European Aviation Safety Agency, which will open its doors on 28 September and take over responsibility at least for airworthiness and maintenance certification, one of the fundamental aims is to raise and harmonise standards across Europe so that any distinctions in standards across Europe between European carriers should, as part of the process of EASA, be gradually eliminated.

  33. And in air traffic control as well?
  (Mr Smethers) EASA will not itself deal with air traffic control safety standards immediately; that is on the longer term horizon. At some point the Commission may make proposals to bring air traffic management and airport safety regulation within the scope of EASA. That is some time down the track.


  34. Could I just turn to the question of timing and so on. First of all, in the note that you did as a briefing for UK MEPs that someone kindly sent us, it was said that the texts for the negotiation framework meet our conditions in that they are comprehensive and aimed at a genuinely liberal agreement with the US, with safeguards should the talks fail or the Commission return with an inadequate deal. Could I ask what you would regard as inadequate? What are the key elements that you would regard as being necessary to ensure it is liberal or, by implication, what would be inadequate? Secondly, what are the safeguards should that happen?
  (Mr Smethers) I shall deal with the second part about safeguards and Tony Baker can speak on the other point. I think there are two safeguards. One is, as I said to you a minute ago, that we are free to negotiate with the United States but if we come to any sort of agreement, we have to go through a Community procedure before we could finalise it. That applies so long as the Community, or rather the Commission on behalf of the Community, is actively negotiating with the United States. If the Commission were no longer actively negotiating with the United States because the talks had run into deadlock or an impasse, then the Community procedure would be lighter and we would have more freedom to make our own arrangements. That is the first safeguard. The second safeguard is that we have written into the mandate that if the Commission comes back to the Council and says, "We want to do a phased agreement with the United States", there must be mechanisms to ensure that you do in fact move from phase one to phase two and to phase three. Those are the safeguards.

  35. Before you leave that, could you just tell us what safeguards you can write into something—and in order of sheer time, it must follow that two follows one and three follows two—to ensure that if you only do one, you are guaranteed two will happen?
  (Mr Smethers) I think that is a difficulty. One could envisage phase one coming into operation and then ceasing to operate if phase two did not come into operation, or something along those lines. That is not impossible. I am not disputing that that would be a difficult point of negotiation to find the right mechanism to ensure that you did move on. There might be other commitments between the two sides that would effectively be safeguards.

  36. What were the three phases? You mentioned phases one, two and three.
  (Mr Baker) Shall I move on as I think we are hypothesising in that sense?

  37. Do not leave that out. This issue of no phasing and the importance of open aviation areas, Minister, was extremely important to us. I believe you took this view yourself, that we did not want to accept a watered-down version of "open skies", and that is where things stood. That is not in the British interests. This is clearly an important point. Does this still remain HMG's position?
  (Mr Smethers) Absolutely, yes.
  (Mr McNulty) However, generally we did get a specific sentence put into the mandate that said in terms that a commitment should be there to ensure negotiations at a subsequent stage. I am hypothesising perhaps, but at least the general mechanism is there for saying that if there is phasing, there should be necessary progression to subsequent phases.

Baroness Cohen of Pimlico

  38. May I ask a supplementary on timing? This bit has always struck me as the really difficult trick: how do you go on keeping your agreements up to date while you get the EC wheeled into position to negotiate? Obviously, the longer it goes on, the more difficult it is not to do anything to any of your existing agreements to prevent other people from doing it too. In terms of physical timing, is there a view on how long all this is going to take and, if so, would you care to hazard it?
  (Mr Smethers) I remember you asking me this question when I spoke to you before we started. You commented in your report that different parties have different views: some are optimistic and some are pessimistic. I think the optimistic runs at about 12 months and the pessimistic possibly at over ten years. One would always come down somewhere between those, but it is very difficult to hazard a guess. One could be looking at an extended process to arrive at a full Aviation Area. I think most people would accept that.

  39. There must come a tipping point when enough people will not play or will not adjust their existing agreements and the Americans just sigh and go, "Blast, we will have to negotiate"?
  (Mr Smethers) Or there could be some extraneous incident or impact on the aviation industry that tilts industry into thinking this is a good idea.

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