US embassy cable - 04ROME2190

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. 
 
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SKODON 
 
 
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	2004ROME02190 - Classification: UNCLASSIFIED