US embassy cable - 04DUBLIN966

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