18 May 2008

US proposes multilateral agreement on foreign investment in international airlines

In a speech to the European Aviation Club on 13 May 2008 looking to the second stage of air transport negotiations between the United States and the European Union, US Deputy Assistant Secretary of State for Transportation Affairs, John Byerly, raised the idea of "an ancillary multilateral agreement that will be open to accession by other countries that are prepared to enter into reciprocal obligations to lift the barriers to cross-border investment by pledging to forgo recourse to the nationality clause."

The European Commission's chief negotiator, Daniel Calleja, was reported by Reuters to be surprised by the proposal. On 16 May 2008 Reuters also reported on the outcome of the first round of talks held between the EU and US in Slovenia.

The problem with allowing majority foreign investment in an international airline is that under traditional air services agreements (ASAs) another country may refuse to grant operating authorisation if the airline is not "substantially owned and effectively controlled" (SO&EC) by nationals of the country designating it. If an airline is operating a network of international services to a number of countries if the ASA with any one of those countries contains the traditional SO&EC criteria then the airline's network is put at risk.

The United States first moved to relax its approach on this point in the MALIAT (see Article 3).

For New Zealand this issue came up in the context of Singapore Airlines and then Qantas looking to take a stake in Air New Zealand (see the NZ Ministry of Transport report dated 16 July 2001). New Zealand has made great progress in removing the "substantial ownership" criterion from its ASAs but many still have it. Long standing New Zealand Government policy is that is will not designate as a New Zealand international airline any company that is not substantially owned and effectively controlled by New Zealand nationals.

An ICAO template ASA proposes that the criteria could now be "principal place of business and effective regulatory control" (see Fifth Worldwide Air Transport Conference papers from March 2003).

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