What Comes Next for U.S. International Aviation Policy After 100 Liberalized Air Services Agreements?

Remarks
Krishna R. Urs
Deputy Assistant Secretary for Transportation, Bureau of Economic and Business Affairs
Conference on Key Issues in International Aviation Law
Beijing, China
May 25, 2011


Remarks as prepared

Introduction

  • Thank you for inviting me to participate in this timely conference. It is a great pleasure being in Beijing once again – one of the world’s great cities.
  • Last year at this time, my predecessor John Byerly spoke to this group. John, who is here again today in a different capacity, achieved almost mythic status as the Department of State’s Deputy Assistant Secretary for Transportation Affairs and the United States Government’s chief aviation negotiator for nearly a decade.
  • I see some in this room who attended John’s October 21 address to the International Aviation Club, his last as Deputy Assistant Secretary. John regaled his audience with tales from his 31 years in government service, including dips in the freezing Aare River in Switzerland, stays at the Ukraine Hotel in Moscow, and years of working alongside dedicated public servants from the U.S. Government and our aviation partners.
  • What will be of more interest to you all today, however, was the bottom line from Aviation Week’s “Things with Wings” blog reporting on the October 21 IAC event. “Things with Wings” concluded: “Byerly leaves incoming Deputy Assistant Secretary Kris Urs with a tough task on November 1 – finding a speech writer who could ever top all of that.” Alas it is my sad duty to admit to you that, after searching diligently, I have not discovered a speech writer who can top John. That, I am afraid, is your loss as you must now listen to me.
  • I’d like to discuss four things today.
  1. First, I’d like to talk about U.S. international aviation policy and the status of our aviation agenda;
  2. Second, I want to describe our most recent liberalized air transport agreements, including recent agreements with Colombia, Brazil and Saudi Arabia.
  3. Third, I’d like to talk about what comes next in our open skies agenda.
  4. Fourth, I would like to discuss briefly some “beyond open skies” issues.

U.S. Agenda

  • When the United States Congress passed the Airline Deregulation Act in 1978 it was a journey into uncharted waters for us as a nation and as an industry. The deregulation act required that we move immediately to remove regulatory restrictions in our domestic markets. However, as the U.S. began to contemplate a deregulated environment in an international arena, we realized there was no template.
  • It should be noted that the U.S. did not come to the concept of open skies immediately after domestic deregulation. Initially we were constrained in our efforts to liberalize internationally by our own inability to think beyond city-pair markets as the standard for equivalency in aviation negotiation.
  • But we came to realize that this market by market approach failed to unleash the full potential to increase options for travelers and make fares more affordable, thereby increasing traffic. We became increasingly convinced that only through open skies agreements could we achieve the full benefits of liberalization for our airlines and those of our partners, our consumers and our economies.
  • We completed our first open skies agreement in 1992 with the Netherlands, then a group of nine more European countries followed. In Asia, we reached landmark agreements with Korea and Singapore not long after.
  • In 1999, we signed an open skies agreement with Peru, an agreement that is especially dear to me. Peru thus became the first country in South America to sign an open skies agreement with the U.S. (although we actually initialed an open skies accord with Chile about a year earlier). I served as Counselor for Economic Affairs at our Embassy in Lima when we negotiated the deal. In the decade following the negotiation of our open skies accord with Peru, inbound passenger traffic from Peru to the U.S. grew at double the global average inbound growth rate.
  • These early agreements quickly demonstrated that open markets equaled greater consumer choice and lower fares. And for airlines it means being better able to leverage their inherent network strengths. Today, these networks have multiplied many times as carriers can serve thousands of destinations worldwide through their broad and deep alliance partnerships.

What Exactly Is Open Skies?

  • Now some of you may be wondering: what exactly is an open skies agreement? In technical terms it means an agreement that contains all the elements described in an administrative “Final Order” that our Department of Transportation issued in 1992, prior to the conclusion of the very first open skies agreement with the Netherlands.
  • These elements include:
    1. Unlimited first, second, third, fourth, fifth and six freedom traffic rights;
    2. No limit on the number of designated airlines, capacity, frequencies, or types of aircraft;
    3. Pricing determined by airlines, based on their assessment of the market;
    4. The right to enter into codesharing and other cooperative arrangements, including third-country codesharing;
    5. Liberal provisions on charters;
    6. Important doing business protections for airlines, including rights to self-handle, to establish sales offices, to convert and remit earnings without restriction, and to be protected from user charges that are discriminatory or not based on cost; and
    7. Robust safety and security provisions.
  • Let me mention what an open skies agreement, as defined by the United States, does not include:
    1. First, our domestic laws prohibit cabotage, and our open skies agreements do not authorize it in any form;
    2. Second, our open skies agreements do not eliminate the traditional requirement that airlines of each party be substantially owned and effectively controlled by citizens of the country designating or supervising the relevant airlines. Our Department of Transportation has waived this requirement in some cases, but it is generally done as a matter of legal discretion.
    3. Third, an open skies agreement does not guarantee either side’s airlines unlimited numbers of slots at an airport. Indeed it would defy the laws of physics to provide such a guarantee. What we do insist upon, in open skies and all our other air transport agreements, is the right for each side’s airlines to enjoy a “fair and equal opportunity” to compete. This decades-old concept looks to principles of non-discrimination, transparency, and common-sense fairness to determine whether restrictions on access or differences in treatment can be justified.
    4. Finally an open skies agreement does not exempt one side’s airlines from the requirement to comply with safety and security, , and other requirements set by the other side.

102 Partners

  • In the almost two decades since our first open skies agreement with the Netherlands, we have reached open skies with 102 aviation partners. In the past year alone, we have negotiated open skies agreements with Barbados, Israel, Colombia, Brazil and Saudi Arabia.
  • Secretary Clinton, speaking at a March 30 event at the State Department to celebrate our 100 open skies partners recently talked about the benefits of open skies.

“In each case, an open skies agreement has powerful benefits – fewer government restrictions, more competition, more jobs in the air and on the ground; more people trading, exchanging and interacting, cheaper flights, more tourists, new routes to new cities – so that we now have passengers and shippers enjoying direct services between cities like Las Vegas and Seoul, or Richmond and Toronto.”

“Now, open skies agreements have another big plus: they deepen relationships between people in very personal ways. I’m a big believer in people-to-people diplomacy, and this is actually a means towards achieving that. It’s what I call citizen diplomacy, and it’s one of the ways we can meet the challenges of the 21st century. Building a continuous airborne corridor of prosperity around the world is one of our goals.”

New Agreements

  • A few words about our most recent agreements with Colombia, Brazil and Saudi Arabia.
  • Colombia: Our open skies agreement with Colombia, initialed on November 11, 2010, was signed May 10, 2011 in Bogota. The agreement is a full open skies agreement with a phase in period ending December 31, 2012.
  • Brazil: We initialed a full open skies agreement with Brazil on December 3, 2010; the agreement was signed during President Obama’s visit to Brasilia on March 20, 2011. The agreement and accompanying Memorandum of Consultation provides for a five year phase-in period, ending October 1, 2015. The agreement was structured in this way to ensure adequate air services during the 2014 World Cup and 2016 Rio Olympics and to accommodate efforts to deal with congestion at the Sao Paolo airport.
  • Saudi Arabia: We initialed a full open skies agreement with Saudi Arabia on April 18, 2011. The agreement is being applied provisionally, pending Saudi ratification procedures.

Who is Next?

  • Today over seven out of every ten passengers departing the United States are destined for an open skies partner country. These passengers benefit directly from lower fares, more flights, and service at the most convenient times.
  • But naturally that leaves three out of ten passengers departing the United States who are destined for non-open skies countries. We continue to seek open skies agreements with countries where we do not yet have them.
  • China is the largest of our non-open skies partner economies.
  • U.S./China aviation ties have grown enormously in recent years and citizens and businesses on both sides of the Pacific are reaping enormous benefits from the expansion of both passenger and freight service.
  • Total air freight between the U.S. and China increased by 275% between 2001 and 2008. On the passenger side, total arrivals from the United States to China were at 1.2 million in 2008, representing a 76% increase over 2001. Almost one half million Chinese travelers arrived in the United States in 2008, representing a 112% increase over 2001.
  • Our aviation agreements in 2004 and 2007 helped spur this growth. But we still have a ways to go before reaching full liberalization.
  • We last met formally with Chinese aviation authorities in June 2010. We have scheduled follow-on talks for August 2011. We hope that we are able to add China to the list of our open skies partners soon.
  • In addition to formal discussions, we also have a robust informal dialogue with our Chinese partners. Most recently Assistant Secretary of Transportation Susan Kurland travelled to China and spoke at CAAC’s China Civil Aviation Development Forum. As Susan said in her remarks “Success for us… for both of us… is found only in close cooperation between governments and industry leaders. We can identify solutions, and we can reach those solutions if we reach them together.”
  • Other countries of open skies interest to the United States include Mexico, the Dominican Republic, South Africa, Vietnam, Russia and Argentina. We know we will have some challenging negotiations ahead.

Beyond Open Skies

  • Often I hear the question – what is next, now that the United States has open skies agreements with more than 100 aviation partners?
  • Certainly, together with our partners, we have come a long way since concluding our first agreement with the Netherlands. Open Skies agreements have facilitated a transformation in the international aviation system, to a world in which three robust aviation alliances -- Star Alliance, Skyteam, and oneworld – as well as a plethora of strong independent airlines, compete intensely to the benefit of passengers, shippers, and communities.
  • But the conclusion of an open skies agreement is not the last word in our civil aviation relationship with any country. These agreements mark important but by no means final milestones.
  • Some trade economists are fond of describing trade liberalization using the analogy of a bicycle. As long as the bicycle is moving forward, it is not difficult to keep it upright. But once the bicycle stops it often topples over.
  • The same paradigm would seem to apply to aviation liberalization. We and our aviation partners around the world must work to ensure that potential new barriers like slots availability, airspace congestion, noise restrictions, and environmental levies do not undermine the hard won liberalization achieved through our open skies agreements.
  • We also open to building regional arrangements in some specific circumstances. We began this process in Europe, where we recognized the “community carrier” concept in the U.S./EU open skies agreement. We have now reached open skies agreements with a number of Caribbean partners; at some point in the future, it may be appropriate to recognize carriers with cross-national ownership and control or the concept of a “community carrier” as part of a regional open skies agreement covering Caribbean countries.
  • Finally, there has been some discussion in recent years about relaxed rules governing foreign investment in airlines. Certainly, this was a topic of discussion during “Second Stage” open skies negotiations with the European Union, which concluded in March 2010. Any changes of course in these rules would require action by Congress; U.S. legislation requires that foreign investors own less than 25 percent of any voting shares.
  • The investment issue was also discussed in our negotiations with Colombia. The government of Colombia has recognized the importance of a robust aviation sector to that mountainous country, and as such encourages foreign investment into the Colombian aviation sector. That helps Colombia domestically, and, in response to Colombian concerns, we explained the U.S. policy of waiving ownership and control provisions in appropriate circumstances.
  • At the last ICAO Assembly, an innovative Multilateral Convention on Foreign Investment in Airlines (MCFIA) was proposed. Countries adhering to the convention would agree to waive ownership and control rules for airlines based in other member countries. ICAO is currently studying the idea. If adopted widely, it could open up opportunities for significant foreign investment in airlines if their authorities wish to allow it – but it would not require the U.S. or any other country to change ownership and control rules for their own airlines.

Conclusion

  • Thank you for your attention and time. It is an honor to be here with you in Beijing. I look forward to the remainder of the conference.