Why? The state which is being overflown has just as much entitlement to licence a pilot to fly in it's airspace.
It does but the FAA state that you can only fly an N reg in foreign airspace on the foreign license if it the licence matches the airspace being flown in - So you can fly an N reg in UK airspace on a UK issued license. BUT the FAA don't recognise the "JAA" as one entity meaning that if you want to fly an N reg in French airpace on a non-FAA license you must have a French issued licence.
This is why I believe the CI's are ok.
(PS I can never work out if it is license or licence
)