EU considers ways to hit foreign air subsidies

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BRUSSELS, Feb 5 (Reuters) - The European Commission is considering ways to
force foreign airlines to hike what it reckons are unfair cut-price fares,
giving a new armoury against U.S. and other competitors, an official said on
Tuesday.

"We are thinking about giving the EU tools to fight against any future
unfair pricing on air traffic," Commission spokesman Gilles Gantelet told
Reuters.

He said any new European Union system could be modelled on duties imposed on
shipping firms judged by the Commission to be undercutting minimum prices on
trips to and from EU ports. Maritime anti-dumping rules have been in place
since 1986.

The Commission reckons that the EU needs clearer rules since aviation
pricing falls outside World Trade Organisation (WTO) regulations. The United
States and the EU are the world's biggest aviation markets.


Gantelet denied that the measures were a response to aid from Washington to
keep airlines in business after a global downturn for the sector since the
September 11 suicide hijacker attacks.

"What we're thinking about is not against a specific country," Gantelet
said. "It's just that we are lacking such a tool." He said the plans had not
had not yet been fully drafted and declined to predict when they might be
adopted.


U.S. AID PACKAGE

Even so, the Commission has expressed concern in the past that a $15 billion
U.S. package of aid last year may skew competition, especially on lucrative
transatlantic routes.

Washington says that the aid, comprising $5.0 billion in cash to compensate
for the shutdown of U.S. airspace after the September 11 attacks and $10
billion in loan guarantees, does not amount to any subsidies.

The possible penalties would be imposed on airlines in nations with which
the EU has no bilateral agreements. In Europe, these include Switzerland and
some nations in central and eastern Europe.

Gantelet defended aid handed out over the years to EU airlines, saying it
was done under strict conditions.

"Any state aid given to European airlines, included that companies receiving
aid could not have price leadership on the most price sensitive routes," he
said.

Under the possible rules, the Commission would investigate allegations by EU
carriers of unfair pricing on flights to and from EU destinations by foreign
airlines. If it agreed, it could slap penalties on the foreign airline.

Loyola de Palacio, the Commissioner in charge of transport, also said at the
weekend that the Commission was considering measures to penalise third
country airlines.

"It is time to rethink the international agreements and to work for a better
international liberalisation of the sector," she said in a speech at the
World Economic Forum in New York.

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