EU Announces “Open Skies” Arbitration Action Against U.S. Over Norwegian Airlines (7/29)     Print Email
Friday, 29 July 2016

By Brian Beary, Washington
Europe’s patience finally ran out. After waiting more than two years for U.S. authorities to give a fly permit to an Irish-based subsidiary of low-cost Norwegian airlines, the EU Commission has told Washington that it will launch arbitration proceedings against it for breaching the 2007 EU-U.S. Open Skies agreement. “I find it regrettable that this is the outcome,” EU Transport Commissioner Violeta Bulc wrote in a letter to U.S. Transportation Secretary Anthony Foxx. Bulc said that formal notification that the agreement’s arbitration clause was being invoked would be made “in the coming weeks.”
This is the latest episode in an ongoing battle. On one side are the Commission, Ireland, Norwegian and other carriers who feel that the U.S. administration is in clear violation of the “Open Skies” agreement and put in peril the aviation liberalization agenda by dragging its heels on the Norwegian application, first filed in December 2013. On the opposite side is a coalition of forces, spearheaded by airline employee unions and major U.S. carriers. They view Norwegian’s bid to establish a transatlantic budget airline as a threat to U.S. jobs and their commercial interests. They allege that by setting up an Irish-based subsidiary that hired pilots and flight attendants under Singapore contracts and domiciled them in its Asian hub of Bangkok and its U.S. hubs, Norwegian flouted article 17 bis, a pro-worker addendum to the 2007 agreement.
The protracted tug-of-war between the sides is having unexpected twists and turns. The EU Commission grew increasingly dismayed in 2014 and 2015 because the Open Skies agreement requires that fly permits be granted without undue delay once it is established that the airline applying for the permit is legally licensed to fly in the EU or in U.S. The reason that Norwegian chose to headquarter its transatlantic market-oriented subsidiary in Dublin, Ireland was so that it could benefit from all of the open skies agreements the EU has concluded with countries around the world.   (Norway is not an EU member state.) 
Norwegian has, since a couple of years ago, been operating transatlantic flights from the Scandinavian-based hubs of its mother company and is keen to build on those initial successes. But these plans have been frustrated by the U.S. DOT’s decision to carry out a substantive, lengthy review of the Irish subsidiary’s application to determine if granting a permit was in the U.S. ‘public interest.’ Norwegian and the Commission say that this public interest standard should never have been applied given the existence of the open skies pact.
Commissioner Bulc breathed a premature sigh a relief in April when the DOT published a preliminary finding that the permit should be granted. The pro-Norwegian camp saw this move as light at the end of the tunnel, while being mindful that DOT also said it was inviting public comment on the finding to enable it make a final decision. The decision has yet to come. Moreover, the pro-Norwegian camp got rudely rebuffed in late June when another subsidiary that Norwegian had established, this one based in the UK, saw its application for expedited processing firmly rejected by the DOT. Meanwhile, signs have emerged that this dossier is getting sucked into U.S. presidential politics this election year, with two Democratic leaders, Hillary Clinton and Bernie Sanders, making statements opposing the granting of the new permit to Norwegian.
This latest development is a major milestone, marking the first time that either side has invoked the arbitration clause since the landmark agreement was concluded nine years ago. Commissioner Bulc acknowledged that she had concerns about the negative impact of triggering the arbitration “at a time where closer bilateral ties are being put into question by many sectors of societies.” But with Commission officials having been publicly proclaiming for well over a year that Washington is violating its commitments under the agreement, she felt she could no longer refrain from action.
DOT Secretary Foxx is trying to juggle a tricky array of countervailing forces, while the U.S. State Department is believed to be pushing for Norwegian to get the go-ahead. Consumer advocates and the airports the Irish-based Norwegian subsidiary would serve, including Cork, Ireland and Fort Lauderdale, Florida, are keen for the permit to be granted. They argue that jobs would be created, not lost, in the U.S. by a positive decision.  
Should arbitration proceed, the EU and U.S. will each name an arbitrator, while a third arbitrator will be appointed by their mutual consent. If the arbitration panel were to find the U.S. in breach of the agreement, the EU would be allowed suspend U.S. carriers’ benefits under the 2007 pact, which lets airlines fly point-to-point between any EU and U.S. airport. The agreement has widely been seen as having boosted transatlantic travel, so both sides have a strong incentive to resolve the dispute before things get that far.
Brian Beary is Contributing Editor for European Affairs.