EU hits back at "susbsidised" foreign airlines

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By Robin Pomeroy
STRASBOURG, France, March 12 (Reuters) - The European Union will be able to
slap a surcharge on foreign airlines it believes are using government cash
to undercut EU carriers, under measures proposed by the EU Commission on
Tuesday.

EU Transport Commissioner Loyola de Palacio insisted the measure was not
aimed at any one country, but the move is clearly a response to fears among
EU carriers that U.S. airlines are abusing government aid they received
after September 11.

"It is a case of having the appropriate legal instruments to safeguard our
airlines in the European Union, making sure there is fair competition and
avoiding predatory practices by third countries, filling in a legal gap," de
Palacio told a news conference.


Following the September 11 hijacked airliner attacks on the United States,
Washington provided billions of dollars of subsidies and loans to buoy up
its beleaguered airline sector.

The EU declined to give similar support to its own industry which also
suffering an economic crisis, limiting state aid to cover direct losses
suffered immediately after the attacks, terrorism insurance cover and extra
security measures.

"There have been complaints from European airlines saying U.S. airlines are
using these state aids to reduce their prices to such an extent that it is
unfair," de Palacio said, adding the Commission was investigating the
claims.

An EU official said Germany's Lufthansa (LHAG) had complained that U.S.
airlines were using subsidies to offer unreasonably cheap fares on
trans-Atlantic routes.

The new measures, which require approval by EU governments and the European
Parliament before coming into practice, will allow the Commission to follow
up such complaints and impose penalties on foreign carriers if appropriate.

If the EU finds evidence of price dumping by airlines competing with its
carriers on routes into and out of the bloc, it could impose a duty on the
offending airline, possibly via an airport charge.

The size of the penalty would be calculated on the amount of aid the airline
had received, but would not be higher than an amount needed to remedy the
problem, the proposal says.

The measures would be put in place for an initial six-month period which
could be extended ad infinitum.

Trade Commissioner Pascal Lamy said the fact that the proposal had been
unveiled just days after the United States sparked a major trans-Atlantic
trade row by imposing import tariffs on EU steel was a pure coincidence.

"It is not aimed against any particular economic partner," Lamy told the
news conference. "So there is no link, apart from the date, with what
happened last week with steel."

Air traffic is not covered under World Trade Organisation rules and the
bilateral deals that govern international aviation do not usually contain
clauses to deal with price dumping, hence the need for the new regulation,
the Commission said.


©2002 Reuters Limited.

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