U.S. Officials Urge Congress Not To Block Airline Investment Rule
U.S.-EU air transport liberalization depends on it, they tell House panel
By Andrzej Zwaniecki
Washington File Staff Writer
Washington -- A "unique" opportunity to reach agreement on liberalizing air transport between the United States and the European Union (EU) is likely to be lost if Congress blocks a proposed regulatory change intended to allow more foreign investment in ailing U.S. airlines, Bush administration officials say.
John Byerly, deputy assistant secretary of state, suggested that the EU has made a long-sought open skies agreement between the two parties conditional on adoption of a proposed Department of Transportation (DOT) rule intended to expand opportunities for foreign citizens to invest in U.S. carriers and participate in their management. (See related article.)
Byerly told a House of Representatives' transportation subcommittee February 8 that the EU's 25 transport ministers will wait for a final rule before they give necessary consent to an agreed text of the agreement at their June meeting.
Some legislators who question the legality and supposed benefits of the proposed change have interjected themselves into the rulemaking process and introduced legislation that would effectively block for a year the issuance of a final rule. Absent congressional action, the final rule is expected to be issued this spring.
Byerly espoused the potential benefits of an open skies agreement with the EU such as expanding open skies rights to all EU members, removing restrictions on access to key European airports, particularly London's Heathrow, and encouraging trans-Atlantic competition and cooperation.
He appealed to lawmakers not to let an opportunity to reach such an agreement with the EU pass. He said that in a year, market and other conditions may change and the opportunity might be lost.
Open skies agreements give airlines of involved countries the right to operate air services from any point in one country to any point in the other, as well as to and from third countries. The United States so far has negotiated 74 bilateral open skies agreements.
At the heart of the controversy is the DOT proposal that would allow foreign investors to enter into investment deals with U.S. airlines giving them power to make operational decisions concerning, for example, rates and routes a carrier serves. The change would apply only to international investors from countries that have open skies agreements with the United States. It would allow similar investments by U.S. citizens in those countries' domestic airlines.
At the same time, the proposal would continue to preclude foreign citizens control over security and safety issues.
At the hearing, members of the House Transportation and Infrastructure Subcommittee on Aviation uniformly questioned not only the rule itself but even the department's authority to issue it.
Transportation Under Secretary Jeffrey Shane, who also testified, strongly defended DOT prerogatives. He said the department has the right to interpret a legal requirement concerning "actual control" of U.S. airlines and that the proposal would not alter that requirement, but change how DOT interprets it.
Current law mandates that U.S. airlines must be under the “actual control” of U.S. citizens to be licensed for operation. For corporations, this means at least 75 percent of the voting interest must be held by U.S. citizens and two-thirds of the directors and officers must be U.S. citizens.
Shane, who presented the proposed rulemaking as part of the department's deregulation agenda, said that substantial structural changes have taken place since the original law was enacted and its narrow interpretation established.
He said that DOT tentatively concluded that its current interpretation of the actual control test has failed to keep pace with those changes by "needlessly" restricting commercial opportunities for U.S. airlines and their ability to compete.
Shane said that U.S. airlines require significant capital investment and therefore should have the "broadest access to global capital markets permitted by law."
Most U.S. cargo and passenger airlines support the change; labor unions oppose it.
Subcommittee members expressed concern that increased power of foreign nationals to influence managerial decisions could pose risk to national defense and security.
But Shane assured them that his department had consulted the Defense Department about its intentions and encountered no objections.
The text of Shane’s prepared testimony is available on the DOT Web site.
Background information on the hearing is available on the House Transportation and Infrastructure Committee Web site.
http://usinfo.state.gov/eur/Archive/2006/Feb/09-211270.html
