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.

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ALITALIA: MARKET ACCESS AND REGULATORY CONVERGENCE CONCERNS
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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.

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MFA: FOCUS ON MARKET ACCESS
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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.

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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.

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Comment
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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.

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2004ROME02190 - Classification: UNCLASSIFIED