Aviation: EU Airline tax starts international incident

The EU's response is that if airlines don't pay the tax, they will not be permitted to land in (perhaps even fly through) EU airspace.

China, India and the USA all say that the tax is in restraint of trade but that argument doesn't stack up because EU airlines have to pay it, too.

The airline tax is, on paper, a carbon tax. But there is an argument that flights departing from the UK are already subject to a per-passenger tax which was supposed to be, at least in part, an environmental tax.

China has indicated that it will consider "counter-measures" if the EU fines or bans Chinese carriers for refusing to pay the tax. The EU has not said so but its ultimate sanction would be to impound taxes - although where the authority for this comes from is not certain - the EU does not, technically, impose taxes. It requires national governments to do so. So, while the EU can issue, at "federal level" an instruction to ban airlines (although, even this is open to debate - see below), it does not appear to have the power to instruct national governments to arrest aircraft.

Where the EU does have that power is through the safety agreements - for example, if one EU country bans an airline on safety grounds, then that ban must be enforced by all EU countries.

And while there are, for individuals, European arrest warrants, there is no equivalent for assets - each must be carried out by administrative or court order, as required, in individual states.

It may be possible, by a contorted use of a mix of tax and civil law to impound aircraft in other countries. A finding of non-payment of tax would be made, a judgment obtained and an order made freezing the assets of the airline within Convention countries. That would take time but an emergency injunction could be sought to freeze assets which are considered to be - literally - a flight risk.

But if any EU country were to do that to e.g. a Chinese or Indian aircraft and not take the same action in relation to a US carrier which also refuses, there would be a major international incident.

Some airlines have already pulled out of the EU or announced plans to do so: AirAsia X, the largest budget carrier in Asia Pacific, for example.

China is the first country to formally ban its aircraft from paying the tax, creating a diplomatic incident. If its airlines were to be banned from the EU, then it is likely EU carriers would be banned from China. While other regional airlines such as Malaysia, Thai, Cathay Pacific, JAL , All Nippon and Singapore Airlines (as well as, possibly, Qantas) could pick up the slack, EU airlines might find themselves pleading with Asia Pacific carriers to allow them to drop off their passengers at a hub and have them carried on. BKK, HKG, SIN and KUL are the most likely candidates although some Emirates (DXB) and Gulf (BAH) are also candidates. Indeed, Emirates' A380 fleet might find that a new business opportunity can be developed by hubbing through its new A380 service at KUL.

The EU might find that this is a battle that it might win, but at the cost of some of its national airlines. And if transatlantic traffic collapses, as it may if a similar situation develops with the US, some airlines will be out of business in a matter of weeks.

In the meantime, carriers who have routes that reach across the world without touching down in the EU will have a huge cost advantage. Singapore Airlines SIN - DME (Moscow) - HOU (Houston) will start to look cheap from the airline's perspective.

Although the tax amounts to only some USD6 per passenger on a full flight, the battle is over principle not amount at this stage. Passengers have seen the UK's passenger tax rise to what many consider penal amounts since its introduction. The fear is that once the tax is established, the numbers will similarly rise.