Examination of Witnesses (Questions 20-39)|
MONDAY 23 JUNE 2003
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 Statesand it
has a horizontal mandate to do that with third countriesor
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
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
(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
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 designationone might think perhaps Australia,
New Zealand and Singapore might fall into that categoryor
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
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
(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
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
30. So it is exceptionally unlikely that a Bermuda-typeand
I put it no more strongly than thatconsideration 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
(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
(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 somethingand in order
of sheer time, it must follow that two follows one and three follows
twoto 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
(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
(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.