Thursday, June 12, 2014

EU, Russia Spar Over Cargo Rules: New EU Security Rules Could Ground Airfreight Between the Markets

The Wall Street Journal
By  Daniel Michaels And   Robert Wall

June 12, 2014 11:04 a.m. ET

BRUSSELS—The European Union and Russia are sparring over new EU air-cargo security rules that take effect next month and could potentially ground airfreight between the two markets.

From July 1, the EU will require tighter screening of cargo onboard airplanes coming from outside the 28-country bloc. The EU currently deems only a few countries, including the U.S. and Japan, sufficiently safe and diligent to require no extra inspections.

EU air-security regulators for months debated granting Russia similar preferred status and Russia early this year appeared set to join the EU's "green list" of countries, according to people familiar with the discussions and documents reviewed by The Wall Street Journal.

The proposal sparked little opposition because Russia had passed security inspections under global standards set by the aviation arm of the United Nations. But EU regulators postponed a decision in May after Russia annexed Crimea from Ukraine and the EU began imposing sanctions on Russia.

Now, European officials appear set to go the opposite direction and demand more airfreight inspections inside Russia. Russia has opposed the plan and threatened retaliation.

At stake is trade valued at more than €12 billion between the two blocks, according to data from the EU's statistics arm, Eurostat.

"The point isn't to stop trade, the point is to increase security," an EU official familiar with the talks said.

Russia's ambassador to the EU, Vladimir Chizhov, said his country had already met air-cargo security requirements set by the U.N.'s International Civil Aviation Organization and needed no additional verifications.

"Russian airport are recognized as meeting the most severe requirements in the field of aviation security" Mr. Chizhov said. "Russia and the EU continue consultations to elaborate the most effective and practical decisions which will suit both parties."

ICAO rules permit countries to set stricter standards than its global norms, as the U.S. does with passenger screening. Still, Russia in March told ICAO it could be "forced to take countermeasures" and impose extra scrutiny on cargo shipments from the EU.

People familiar with the EU discussion said the ICAO audit is only cursory and Russia has balked at European demands for more inspections.

Caught in the middle are airlines that must demonstrate to the EU that they are meeting heightened scrutiny standards, even if they are unable to carry out audits in Russia. "Airlines are fully committed to the regulation, but it is a very politically sensitive issue," said Kee Kras, cargo and security expert at the Association of European Airlines, a trade group.

From July, cargo carriers must hold a security certificate that assures all shipments have been physically screened according to EU standards. The stamp of approval must come from experts accredited by an EU government.

If a country doesn't comply with the EU rules, the regulation permits an airline to continue carrying freight from it for "a limited period" if EU governments approve the carrier's security measures. So even if Russia and the EU remain at odds on the issue, cargo flights won't cease on July 1.

The EU in 2011 tightened its screening standards after a thwarted terrorist plot the prior year to ship bombs disguised as computer printer cartridges from Yemen to the U.S. The packages were intercepted at airports in Dubai and the U.K. after an intelligence tip off.

African countries have also objected to the EU rules but will receive assistance to improve screening and probably extra time, said one person familiar with the talks.

Russia has for months opposed such cooperation, say European officials, who have struggled with how to handle the situation. An EU meeting in April was slated to take a decision but at the last minute action was postponed, according to security officials familiar with the talks.

The committee of national regulators that handles the issue won't address Russia's situation at a coming meeting, according to a person familiar with the plans.

Air shipments between the EU and Russia had seen strong, double digit growth in the past two years, said Gerard de Wit, managing director for the Amsterdam-based air cargo data specialist WorldACD Market Data. EU air cargo shipments to Russia leapt 33% between 2011 and 2013, with the reverse flow up 25%.

The EU exported more than €8 billion in goods to Russia last year, principally from Germany, the block's largest economy, according to Eurostat. Cargo includes valuable equipment for Russia's oil and gas industry, a shipping executive said.

Russia shipped €4.3 billion worth of goods to the EU in the same period.

Airlines welcome a broadening of the list of trusted cargo countries because it cuts their cost of inspecting cargo. "The more green countries the better," said Mike Woodall, project leader at the International Air Transport Association.

More than 80% of carriers signed up to meet the July 1 target are expecting to do so, Mr. Woodall said.