DE PALACIO'S MESSAGE TO U/S LARSON AT US-EU

C O N F I D E N T I A L SECTION 01 OF 02 DUBLIN 000966

SIPDIS

E.O. 12958: DECL: 06/29/2014
TAGS: EAIR EUN
SUBJECT: DE PALACIO'S MESSAGE TO U/S LARSON AT US-EU
SUMMIT: LET'S PRESERVE THE STATUS QUO FOR A CIVIL AVIATION
DEAL NEXT YEAR

Classified By: AMBASSADOR JAMES KENNY PER 1.5 (B) AND (D).




1. (U) EUROPEAN COMMISSION VICE PRESIDENT AND COMMISSIONER
FOR TRANSPORTATION LOYOLA DE PALACIO MET ON THE MARGINS OF
THE JUNE 26 US-EU SUMMIT IN DROMOLAND CASTLE IRELAND WITH
UNDER SECRETARY OF STATE FOR ECONOMIC, BUSINESS AND
AGRICULTURAL AFFAIRS ALAN LARSON. DE PALACIO REQUESTED THE
MEETING TO DISCUSS PROSPECTS FOR A US-EU CIVIL AVIATION
AGREEMENT OVER THE NEXT YEAR. SHE WAS ACCOMPANIED BY THE
EU'S CHIEF CIVIL AVIATION NEGOTIATOR, MICHAL AYRAL, AND AIDE
DANIEL CALLEJA. EUR PDAS RIES AND U.S. NOTETAKERS SAT IN
WITH U/S LARSON.


2. (C) DE PALACIO OPENED BY NOTING THAT SHE HAD INVESTED A
GREAT DEAL OF EFFORT AND HAD "DONE THE BEST I COULD" TO
SECURE A EU-US DEAL, BUT, IN THE END, RECEIVED A VERY
DISAPPOINTING ANSWER FROM MEMBER STATES, "ESPECIALLY THE ONE
WITH 40 PERCENT OF THE MARKET." SHE NOTED THAT THE MAIN
PREREQUISITE FOR THE UK IS SECURING RIGHT OF ESTABLISHMENT
(ROE) IN THE U.S. MARKET WHICH SHE ACKNOWLEDGED THE U.S. HAS
REPEATEDLY SAID IS NOT POSSIBLE. SHE SAID, HOWEVER, IF THE
U.S. DID AGREE TO ROE, "I COULD INITIAL A DEAL TODAY, WITHOUT
FURTHER CONSULTATIONS." IF THE U.S. ANSWER TO ROE CONTINUES
TO BE "NO", THEN IT WILL BE DIFFICULT TO RESIST THE STRONG
PRESSURE FROM MEMBER STATES TO MOVE AHEAD WITH DENUNCIATION
OF THE EXISTING U.S. BILATERAL AGREEMENTS WITH MEMBER STATES.
SHE SAID FROM ONE POINT OF VIEW DENUNCIATION COULD BE
HELPFUL, AS IT WOULD GIVE U.S. AND EUROPEAN PARTIES A ONE
YEAR TIMEFRAME TO WORK OUT A NEW ARRANGEMENT. DE PALACIO
SAID SHE WAS CONCERNED THAT WITHOUT A DEADLINE A U.S.-EU
NEGOTIATION COULD DRAG OUT INDEFINITELY.


3. (C) LARSON REPLIED THAT THE U.S.-EU DEAL THAT WAS
REJECTED BY THE EU AT THE JUNE EU TRANSPORT MINISTERS COUNCIL
WAS OF GREAT BENEFIT TO BOTH SIDES AND ITS REJECTION A LOST
OPPORTUNITY. HE CAUTIONED THAT THOSE IN THE EU INSISTING ON
ROE ARE USING IT AS A MEANS TO KEEP A HAMMERLOCK ON THE
HEATHROW MARKET; ROE IS A DEFENSIVE, NOT OFFENSIVE PLOY.
LARSON SAID IT IS IMPORTANT THAT, IF WE CAN'T GET A DEAL NOW,
BOTH SIDES TAKE TIME TO PAUSE, REFLECT, KEEP UP A DIALOGUE,
AND THEN MEET AGAIN IN THE FALL. HE STRESSED THAT IT IS
IMPORTANT TO PRESERVE THE ARRANGEMENTS IN PLACE THAT ARE
BENEFICIAL TO BOTH THE U.S. AND EU AND NOT UPSET THE
CURRENTLY BALANCED TRANSATLANTIC RELATIONSHIP.


4. (C) DE PALACIO SAID THAT, ALTHOUGH THE UK HAS 40 PERCENT
OF THE MARKET, ROE IS NOT JUST IMPORTANT TO IT BUT TO THE
OTHER MEMBER STATES AS WELL. SHE ADDED THAT HER RECENT
PUBLIC COMMENTS ON A JULY 15 DEADLINE FOR AN AGREEMENT
REFERRED TO THE TIME REMAINING FOR CODIFYING AN AGREEMENT
PURSUANT TO CONGRESSIONAL LEGISLATION BUT "THAT IS CLEARLY
NOT POSSIBLE NOW." THEREFORE, WE MUST PRESERVE THE CURRENT
TEXT AS A STARTING POINT TO RESUME NEGOTIATIONS AT A LATER
DATE, WITH THE GOAL OF CONCLUDING A DEAL WITHIN ONE YEAR.
HOWEVER, SHE CAVEATED THAT SHE CAN'T PREDICT WHAT THE NEW
COMMISSION IS GOING TO DO AND IT WILL BE THEIR CALL AS TO
WHETHER TO SET A DEADLINE FOR CONCLUDING AN AGREEMENT. SHE
NOTED THAT SHE MUST STILL DISCUSS FURTHER INTERIM STEPS WITH
THE COMMISSION IN LIGHT OF THE JUNE TRANSPORT COUNCIL
RESULTS. ONE CLEAR RESULT IS THAT U.S. BILATERAL DISCUSSIONS
WITH TEN MEMBER STATES ARE SUSPENDED. DE PALACIO ADDED THAT
THE ECJ RULING HAS HAD A BROAD EFFECT ON EXISTING U.S.
AGREEMENTS WITH MEMBER STATES AND SHE IS BEING SQUEEZED TO
DENOUNCE THESE AGREEMENTS. IT WILL BE DIFFICULT TO HOLD THE
LINE OVER THE NEXT FIVE MONTHS, AND SHE SUGGESTED A TECHNICAL
MEETING IN JULY TO TRY AND GENERATE SOME FORWARD MOVEMENT.
EU NEGOTIATOR AYRAL INTERVENED TO SUGGEST THAT SEPTEMBER
MIGHT BE MORE CONVENIENT AS IT WOULD GIVE MORE TIME TO FLESH
OUT VIEWS/UNDERSTANDINGS ON THE ROE ISSUE.


5. (C) LARSON AGREED THAT SEPTEMBER WOULD BE A USEFUL TIME
FOR U.S. AND EU EXPERTS TO CONVENE. IF THE DRAFT AGREEMENT
NOW UNDER CONSIDERATION COULD BE PRESERVED, IT WOULD ALLOW
NEW MEMBERS OF THE U.S. ADMINISTRATION AND EU COMMISSION TO
QUICKLY PICK UP WHERE NEGOTIATIONS LAST CONCLUDED. LARSON
STRESSED THAT THE U.S. HAS TRIED TO ADDRESS INTERNAL MARKET
ISSUES THAT TAKE INTO ACCOUNT EU INTERESTS, AS WELL AS 49
PERCENT RIGHT OF OWNERSHIP. HE CAUTIONED THAT EU
DENUNCIATION WAS A ROAD THE EU DID NOT WANT TO TAKE AS IT
POSED LARGE DANGERS: EVEN THOUGH DIRECTED AT MEMBER STATES,
IT WOULD BE VIEWED IN THE U.S. AS VERY THREATENING,
TANTAMOUNT TO TRADE BREAK/RETALIATION. FURTHERMORE, IT WOULD
GIVE GREATER LEVERAGE TO THOSE FORCES OPPOSED TO A DEAL BY
RAISING THE PRICE, CREATING EVEN GREATER HURDLES/ROADBLOCKS
FOR THE NEW TEAMS. LARSON SUGGESTED THAT THE FOCUS SHOULD
NOW BE ON LEAVING A CIVAIR "ROADMAP" FOR THE SUCCESSORS,
NOTING THAT THE U.S. HAS ALWAYS BEEN WILLING TO ADDRESS
ISSUES RAISED BY THE ECJ. LARSON SAID THAT HE HAD BEEN
REFLECTING A GREAT DEAL ON THE UPCOMING POLITICAL TRANSITION
PERIOD COINCIDING -- UNUSUALLY -- ON BOTH SIDES OF THE
ATLANTIC. HE AGREED THAT IT WAS VERY IMPORTANT DURING THE
REMAINING MONTHS UNTIL THE TRANSITION WAS COMPLETED TO KEEP
ON AS CONSTRUCTIVE PATH AS POSSIBLE. "WE UNDERSTAND THAT ROE
AND YOUR DIFFICULTIES WITH MEMBER STATES WILL STILL BE
THERE."


6. (C) DE PALACIO AGREED THAT THE RISK OF FUELING U.S.-EU
TRADE TENSIONS WAS THE BIGGEST DOWNSIDE TO EU DENUNCIATION OF
EXISTING AGREEMENTS. WHILE NOTING THAT SHE COULDN'T GIVE A
FULL ANSWER TODAY, SHE WOULD TRY TO FIND A WAY TO GET MEMBER
STATE APPROVAL FOR DEFERRING DENUNCIATION TO HER SUCCESSOR.
DE PALACIO STRESSED THAT WHILE DENUNCIATION CAN BE DELAYED,
THE NEXT COMMISSION WILL HAVE TO ACT IF THERE IS NO U.S.-EU
AGREEMENT. SHE HOPED THAT THE TECHNICAL DISCUSSIONS IN
SEPTEMBER WOULD MORE CLEARLY DEFINE THE POINTS OF DIFFICULTY
FOR THE NEW TEAM AND CREATE A STARTING POINT FOR CONCLUDING
NEGOTIATIONS.

KENNY