CIVAIR: ITALIAN VIEWS ON U.S.-EU AIR SERVICES

UNCLAS ROME 002190 SIPDIS SENSITIVE STATE FOR EB/TRA BYERLY, EUR/WE, EUR/ERA DOT FOR PGRETCH USDOC FOR DE FALCO E.O. 12958: N/A TAGS: EAIR IT EUN AVIATION SUBJECT: CIVAIR: ITALIAN VIEWS ON U.S.-EU AIR SERVICES AGREEMENT REF: A. STATE 124593 ¶B. ROME 1893 Sensitive But Unclassified -- Not for Internet Distribution ¶1. (SBU) Summary: The Ministries of Transport and Foreign Affairs, as well as Alitalia, all confirm that Italy has serious concerns about accepting a first-step U.S.-EU air services agreement. However, our discussions with all three entities revealed a range of rationales for the GOI's current reticence. Both the MFA and Alitalia indicated that certain provisions within the draft agreement, particularly USG's inability to offer cabotage rights, were the source of the GOI's concerns. However, a key aviation contact in the Transport Ministry told us that the GOI is not particularly concerned with the provisions of the draft agreement per se. Rather, he said that government preoccupation centers on the aftereffects such an agreement could have on Alitalia's precarious financial situation and, equally important, the precedents that will be set by the European Commission's finalizing its first aviation agreement on behalf of EU member states. While we doubt that Italy would stand alone to block consensus in favor of a first-step agreement, as long as other major EU members express serious reservations at the June 10-11 Transport Council meeting, Italy can be expected to remain in the nay-sayers' camp. End summary. -------------- -------------- ALITALIA: MARKET ACCESS AND REGULATORY CONVERGENCE CONCERNS -------------- -------------- ¶2. (SBU) As background for our discussions with Italian government ministries, on June 7 Ecmin obtained an update from Alitalia Institutional Relations Director Olivier Jankovec on the carrier's views toward ongoing air services negotiations. (Jankovec has represented Alitalia in stakeholder meetings with Commission negotiators.) Jankovec confirmed, not surprisingly, that Alitalia has worked closely with the Italian government throughout the negotiations and was satisfied that, so far, the GOI has represented and defended the company's positions well. He further noted that Alitalia has coordinated closely with other major European carriers, claiming that British Airways, Lufthansa, and (for the most part) Air France shared the same views, while KLM and Iberia did not. ¶3. (SBU) Jankovec maintained that, despite its financial difficulties, Alitalia does not oppose a new air services agreement. It would like negotiations to continue and to succeed -- but the outcome had to be "balanced." The U.S. proposal currently on the table was insufficient in several respects, in Alitalia's view. A successful conclusion of even a "first step" agreement, therefore, did not yet appear at hand. ¶4. (SBU) More specifically, Jankovec argued that the negotiating mandate given by member states to the Commission to negotiate a genuine transatlantic "Open Aviation Area" rested on two pillars: balanced market access and regulatory convergence between the U.S. and EU. On market access, cabotage remained the key issue. Alitalia understood the political sensitivity for the United States, but given that U.S. carriers effectively enjoyed "intra-EU cabotage" already, there had to be a "rebalancing" of cabotage rights between the U.S. and Europe. Promising to come back to the issue in a follow-on agreement would not be sufficient. Jankovec also dismissed as "not meaningful" the latest U.S. offer to grant European carriers the right to market and provide indirect air transportation. ¶5. (SBU) Equally important as market access, Jankovec continued, was the necessity of greater regulatory convergence between Europe and the U.S., given the evolution of the U.S. regulatory framework since September 11. Among the U.S. regulations which, in Alitalia's view, put European carriers at a competitive disadvantage were: public financing of security measures, U.S. application of the "public interest principle" in the context of competitiveness, light penalties (compared with the EU) for denied boarding, and CRS rules. -------------- MFA: FOCUS ON MARKET ACCESS -------------- ¶6. (SBU) Ecmin raised ref. A points on June 8 with Michele Quaroni, Office Director for EU External Relations at the MFA, and Andrea Sama, who handles aviation issues in Quaroni,s office. Ecmin strongly urged GOI support for a first-step agreement at the June 10-11 Transport Council meeting, underscoring the broad mutual benefits of locking in the agreements achieved on a wide range of issues. The U.S. understood the importance of the right of establishment for the EU, and was willing to make this a priority agenda item for a second phase of negotiations. We had also offered other creative ideas on market access. At the same time, beyond-EU fifth-freedom rights were a "must have" for the U.S. ¶7. (SBU) Quaroni said repeatedly that access to the U.S. aviation market remained the key point for Italy and other EU members. EU negotiators, he claimed, had offered several proposals for improving market access for European carriers, including code-share for domestic U.S. flights, chartering arrangements, and the establishment of U.S. subsidiaries by foreign carriers. The U.S., however, had been unable to accept any of these ideas. ¶8. (SBU) Quaroni remarked that he understood how difficult it would be for the U.S. to make concessions on cabotage or right of establishment in an election year. But, he asserted, the situation was also difficult for EU members given that many European airlines are in precarious financial positions. Quaroni claimed that Italy, like many EU members, preferred a single, comprehensive U.S.-EU agreement rather than the two-step approach. Sama interjected quickly, however, that a two-step air services agreement could be acceptable, provided the first-step agreement included meaningful access to the U.S. market. ¶9. (SBU) Sama was dismissive of the U.S. offer to allow marketing and sale of indirect air transportation for passengers and cargo, saying that he believed this would add little to what foreign carriers are already allowed under existing U.S. regulations. Sama said indirect marketing would simply relegate Alitalia to the role of a ticket seller for U.S. domestic carriers. ¶10. (SBU) When Ecmin again stressed the importance of beyond-EU fifth-freedom rights for U.S. carriers, Quaroni thought that this caused Italian officials little heartburn, given the existence/acceptance of fifth-freedom provisions in the existing U.S.-Italy bilateral. -------------- --- TRANSPORT MINISTRY: ALITALIA IS THE REAL PROBLEM -------------- --- ¶11. (SBU) In a separate meeting June 8, econoff also raised ref A points with Aldo Sansone, DG for International Aviation at the Transport Ministry. Sansone told us that the GOI's current concerns with approving a first-step U.S.-EU air services agreement were not due to significant problems with the provisions of the draft agreement. Rather, Sansone reiterated the GOI's commitment to a liberalized air services relationship with the U.S., as exemplified by the U.S.-Italy Open Skies agreement. In fact, the GOI's current preoccupation with concluding a first step U.S.-EU agreement centered on two concerns that were less directly related to that agreement: Alitalia's worsening financial troubles, and the scope of the European Commission's mandate to negotiate air services on behalf of the EU member states. ¶12. (SBU) Sansone said the GOI was worried that approval of an agreement at this time, even a first-step agreement that might have minimal impact on Alitalia's operations, could upset the delicate equilibrium the GOI had reached in recent weeks to avert the carrier from bankruptcy. The GOI was concerned that Alitalia (both its new administration and its labor unions) would interpret EU acquiescence to a new agreement with the U.S. as a betrayal, ostensibly exposing the carrier to increased competition while it was still in an especially weak financial condition. ¶13. (SBU) The GOI (or at least the Transport Ministry) was equally concerned about the EU's mandate to negotiate air services agreements, Sansone continued. Reiterating the points he made to us in a meeting in May (ref. B),Sansone said the Ministry believed member states should insist that the European Commission be made to clarify its negotiating mandate before any EC-negotiated agreement was approved. The Ministry continued to believe the Commission had overstepped its authority in negotiating with the U.S. (although Sansone emphasized that the GOI was not especially concerned about the provisions of the draft agreement with the U.S.). Clarification of the EU's mandate was needed, so that member states would know whether the EC intended to negotiate on behalf of member states globally, or just in a limited number of markets. Sansone told us the GOI was particularly worried about the prospects for EC-led air services negotiations with Australia and Japan. ¶14. (SBU) Finally, Sansone stated that he was perplexed by U.S. pressure to conclude an agreement for the U.S.-EU Summit. The precedent of approving an EC-negotiated agreement was a significant step that all EU member states should consider carefully. Alitalia's near-collapse in the last month provided yet another reason for the GOI to advocate caution. Sansone would not predict, however, the ultimate stance that Transport Minister Lunardi would take at the EU Transport Council Meeting June 10-11, deflecting our query whether Lunardi was prepared to come down squarely against the agreement in its current form. -------------- Comment -------------- ¶15. (SBU) While there were considerable variations in emphasis and rationale between the Ministries of Transport and Foreign Affairs, we suspect that Sansone was speaking candidly in pointing to Alitalia's weakness as a major reason for GOI hesitancy on concluding a first-step agreement now. At the same time, the MFA appears in no mood to undermine other EU governments that continue to insist that cabotage rights in the U.S. be part of any accord. Our sense is that these factors would not be sufficiently compelling to prompt Italy to stand alone against a consensus in favor of a first-step agreement. But as long as other major EU states remain skeptical at the June 10-11 Transport Council meeting, Italy looks set to remain in the nay-sayers' camp. ¶16. (SBU) Ecmin is scheduled to meet with Transport Minister Lunardi's Diplomatic Advisor, Emiglio Maraini, Thursday morning, shortly before Maraini departs for Brussels with the Minister. Visit Rome's Classified Website: http://www.state.sgov.gov/p/eur/rome/index.cf m SKODON NNNN 2004ROME02190 - Classification: UNCLASSIFIED