(Adds more background, detail on agreement, Transportation Dept statement)
By David Shepardson
WASHINGTON, Aug 27 (Reuters) - European governments have agreed to scrap restrictions on foreign airlines leasing planes and crews from U.S. carriers under a deal reached with the European Union, Iceland and Norway, the United States said on Tuesday.
The EU in May 2017 agreed to open talks with the United States on the issue. The leasing of crewed planes from another airline - known as wet leasing - is a common practice in the industry to boost flexibility in meeting demand.
The U.S. State Department said the deal signed in Brussels would "remove one-sided time constraints on U.S. air carrier leases of aircraft with crew in the lucrative U.S.-EU air transport market."
The U.S. Transportation Department in a statement said these leases "can represent an important revenue source to the carrier providing the aircraft and crews."
"U.S. carriers will now be able to compete fairly in the marketplace, more broadly offering their services in worldwide markets, and gaining a valuable chance to benefit from the new commercial opportunities," it added.
A dispute arose after the EU separately in 2008 imposed a seven-month duration limit, renewable once, on European airlines wet leasing from non-EU carriers, prompting retaliatory action from Washington.
Following imposition of the EU time limit, the United States began imposing similar duration restrictions on EU carriers wet leasing from other EU carriers on their routes to and from the United States, making it hard for European airlines to plan routes, Reuters reported in 2017.
The prospect of an unrestricted deal with the United States had worried some countries and pilot associations that airlines could use wet leasing as a way to operate regular services with cheaper crews, or that it could set a precedent for similar deals with other countries.
Low-cost airline Norwegian Air Shuttle previously faced criticism from the European Cockpit Association, which represents pilots, for employing crew members from Thailand. (Reporting by David Shepardson and Lesley Wroughton; editing by Bill Berkrot)