U.S. international aviation policy statement
Open-skies agreements
What benefit is there in this for the United States
What are foreign governments supposed to do in response to this U.S.
open-skies initiative
How is U.S. policy relevant to Central Europe
Aeropolitical matters
Most of this conference has been devoted to infrastructure: objects of concrete, steel and
electronic technology. I, on the other hand, will discuss bilateral, aeropolitical
relations, which form the superstructure for the international air transportation system.
This superstructure has a direct impact on traffic levels and growth and on airport and
infrastructure needs and planning. In addition, U.S. bilateral agreements contain
provisions relating to safety and security, which impact directly on infrastructure needs.
A discussion of U.S. bilateral relations, whether it deals with Europe or Asia or any
other area of the world, must begin with a broader analysis of U.S. international aviation
policy, because it is critical to understand how, where and if the countries of a region
fit into broader U.S. policy.
1. Three years ago the USDOT issued a formal Statement of U.S.
International Aviation Policy, which attempts to explain the U.S. international aviation
policy.
The key objectives of this policy are:
- to pursue liberalized and open bilateral agreements with countries around the world
- to promote marketing alliances such as codesharing because they are good for consumers
and for competition
- most importantly, to create an industry that relies on the marketplace and competition,
and not on governments, to determine the variety, quality and price of air service.
In a speech a few years ago, USDOT Assistant Secretary Charles Hunnicutt stated that
the U.S. objective was "to melt the icy grip of overly restrictive government control
that has held the industry back for so many years."
Top of page
2. The most visible element of the U.S. strategy to implement this
policy has been to pursue open-skies agreements wherever it can.
The U.S. signed its first open-skies agreement with the Netherlands in 1992 and formally
announced a European "open-skies initiative." The U.S. has also announced broad
open skies initiatives in Central America and Asia.
As a result of these efforts, the U.S. has signed or at least initialed open skies
agreements with 31 countries, most recently Uzbekistan, Korea and Peru. In Europe and
Central Europe, the U.S. has open skies agreements with thirteen countries, including
Germany in 1996, Austria in 1995, and the Czech Republic in 1995. The U.S. and Romania
signed an open skies agreement earlier this year. The U.S. and Italy are meeting this week
in Rome to negotiate the terms of a possible open skies agreement.
Within the last two years, the U.S. has signed open-skies agreements with six countries in
Central America (Panama, Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua) and
with six countries in Asia (Singapore, Brunei, Malaysia, Taiwan, New Zealand and Korea).
The U.S. could, in fact, be accused of being promiscuous. It has open relationships with
democracies, such as Austria, and with kingdoms, such as Jordan. It has open relationships
with large countries, such as Germany, and with small countries, such as Aruba, and with
cold countries, such as Finland and warm countries such as Aruba.
Despite its broad efforts, the U.S. does not have open skies agreements with certain of
its major aviation partners. Earlier this year, the U.S. and Japan entered into an
agreement that provides many new traffic rights but is not an open skies agreement. A
similar sort of agreement was reached with France. And, of course, the U.S. does not have
an open skies agreement with the United Kingdom. Based on last month's unproductive
negotiations between the two governments and the active efforts of the European Commission
to be involved in U.S.-U.K. relations, you have to wonder whether the U.S. and the U.K.
will ever have a new agreement.
It is interesting to note that some of the countries with U.S. open skies agreements do
not even have flag carriers operating to the United States. The governments of these
countries must have concluded that the overall economic benefits of an open-skies regime
-- in areas such as tourism and trade -- justified a new agreement even if there would be
no immediate benefit to the airlines of those countries.
On the other hand, a few countries have taken steps to ensure that their carriers will
actually be able to use the opportunities that become available under open skies. For
example, Germany and Chile have strongly insisted that open skies agreements can go into
effect only if the U.S. authorizes specific alliances between carriers of those countries
and carriers of the U.S.
To me this position is perfectly sensible, since the U.S. takes the position that it will
not grant authorizations to alliances between U.S. and foreign airlines unless the foreign
country in question has either an open skies agreement or a very liberal agreement with
the U.S.
Top of page
3. What benefit is there in this for the United States? Some U.S.
officials will give you the impression that there is really very little in this for the
U.S. and that the U.S. is simply trying to foster free competition, without regard to how
it might affect U.S. carriers. I have participated in bilateral negotiations in which the
opening U.S. argument was that the U.S. really had everything it wanted under the existing
bilateral agreement and that the other country would gain far more from an open-skies
agreement than the U.S. ever could. In fact, the U.S. negotiator said he thought foreign
governments should be coming to the U.S. and asking the U.S. for open skies, instead of
the U.S. making proposals to foreign governments.
The reality, of course, is somewhat different. U.S. carriers have a great deal to gain
from unrestricted competition and open markets. They dwarf most of their foreign
competitors in terms of financial resources and fleet size. Their costs are substantially
lower. They have highly efficient hub and spoke systems, domestic feed systems and
frequent flyer programs that no foreign carrier can duplicate. They also enjoy a protected
domestic market that no foreign carrier may enter.
Top of page
4. What are foreign governments supposed to do in response to this
U.S. open-skies initiative? That depends on the country, of course. It seems to me,
however, that governments should use the process to promote the interests of their
carriers, just as the U.S. does. If there is no domestic economic pressure for open skies
or pressure from the flag carriers, one option is to do nothing. In the long run, however,
it is probably in most carriers' interests for their governments to establish liberalized
agreements -- not necessarily open-skies agreements -- with the U.S.
The chief reason for this is that the establishment of a codeshare relationship with a
strong U.S. carrier may be vital. The most expedient -- and generally the only -- way for
a foreign carrier to gain access to all those interior U.S. points is through codesharing.
Almost without exception, the U.S. is not going to allow codesharing operations unless it
has a liberal agreement and a codesharing provision with the country in question.
This does not mean that foreign governments should immediately accept U.S. offers of open
skies. To the contrary, foreign governments are well advised to negotiate arrangements
that ensure that their carriers will be able to survive in an open skies environment. Such
assurances may, in fact, be the only way of ensuring that an open-skies agreement will be
truly open for those carriers.
I say this because the U.S. reserves to itself the right to approve or disapprove
alliances on broad "public interest" grounds, despite the fact that it has an
open skies agreement with the country in question. This public interest test has the
potential to deprive foreign carriers of the benefits that their governments thought they
had gained in signing open skies agreements.
For example, in July 1996 American Airlines and the six Central American airlines known as
the TACA Group asked the USDOT to authorize codesharing operations between the U.S. and
their home countries. In May 1997, each of those countries signed an open skies agreement
with the U.S. I am sure that those governments were surprised and disappointed that the
codesharing authorizations did not quickly follow, especially since other U.S. carriers
immediately took advantage of the new agreements and increased service to those countries.
Unfortunately, when they signed the agreements those governments lost a significant degree
of aeropolitical leverage in their relations with the U.S. It was not until May 1998, a
year after the opens skies agreements were signed, that the USDOT finally granted the
codeshare authorizations to American and the TACA Group, and this did not occur until
after extensive and detailed reviews by both the USDOT and the U.S. Department of Justice
were completed.
In short, the "icy grip" of restrictive government control has not melted in the
United States. For this reason, it is completely reasonable for a foreign government to
take such steps as specifying it will sign an open skies agreement only if the U.S. grants
regulatory approvals to specific alliances. This is what the German Government did
successfully in 1996 and is also the position currently taken by the Government of Chile,
which initialed an open skies agreement one year ago but will not sign it until the U.S.
approves the alliance between Lan Chile and American Airlines.
Top of page
5. How is U.S. policy relevant to Central Europe?
This region seems to pose an interesting challenge to the U.S. In both Asia and Western
Europe, the U.S. has a single bilateral partner -- I am referring to Japan and the U.K. --
that is uniquely critical in terms of its market size and its geographic proximity to
other beyond markets. In both Asia and Europe, the U.S. has a single bilateral partner -
again Japan and the U.K. -- with which the U.S. has an extraordinary history of friction,
including charges and counter-charges of bilateral violations. In those regions, U.S.
strategies are necessarily profoundly influenced by U.S. objectives vis-a-vis those two
countries and U.S. policies in those regions have been aimed, at least in part, at putting
pressure on those countries to liberalize their markets.
In this region, there is currently no strategic equivalent of the U.K. or Japan for policy
purposes. Russia, of course, is a huge potential aviation partner for the United States
and is the only country that U.S. carriers could logically serve via both transatlantic
and transpacific routings. However, despite Russia's size and strategic location, the
U.S.-Russia aviation market is not large. Therefore, U.S. objectives and policy in the
region are not particularly influenced by Russia or any other single country.
Nevertheless, a U.S. open-skies agreement appears to be available to almost every country
in the region. The U.S. has open-skies agreements with Austria, the Czech Republic and
Romania and has offered open skies agreements to Poland, Hungary and certain of the
countries of the former Yugoslavia.
It appears that what the U.S. wants most from Central European countries is third-country
codeshare rights, so that U.S. carriers may codeshare with carriers from outside of the
region via points outside the region to points within the region, without operating their
own aircraft there. The agreements with the Czech Republic and Romania demonstrate the
value of these rights.
In December 1995, the United States and the Czech Republic signed the first open-skies
agreement in the region. At the time, this agreement was unique because it provided for a
phasing-in of certain important rights, instead of the immediate complete opening of all
markets. Of greatest importance, until November 1999 third-country codesharing operations
are restricted. Limitations apply to the number of carriers of both sides who may
codeshare with third-country carriers and to the number of frequencies that may be
operated. This restriction was designed to give Czech carriers some protection from full
competition from large codeshare alliances. In exchange, the agreement also temporarily
allows Czech carriers to serve only three U.S. points instead of an unlimited number of
U.S. points. This was the price paid by the Czechs for the restrictions on third country
codesharing.
The U.S. and Romania formally signed an open skies agreement in July of this year. Like
the agreement with the Czech Republic, this is a phased-in agreement that imposes
temporary restrictions on third-country codesharing in exchange for temporary restrictions
on service by Romanian carriers. In particular, until November 2001, restrictions apply to
the number of carriers that may engage in third-country codesharing between Romania and
the U.S. This, obviously, protects Romanian carriers. The price for this protection is
basically the same as in the Czech agreement: until 2001, limitations apply to the number
of U.S. points Romanian carriers may serve and the number of frequencies they may operate.
Top of page
6. Finally, in discussing aeropolitical matters, I must say that it
is possible that the most dramatic developments in U.S. aeropolitical relations over the
next few years will occur in Brussels and not in the U.S. Eight EU member countries -
including Austria - have open skies agreements with the U.S. The European Commission takes
the position that these agreements grant undue commercial advantages to U.S. carriers, do
not offer reciprocal rights to EU carriers and violate EU law because they lead to
distortions of competition and discrimination against EU carriers. The EC believes that
the EU should have a single unified approach to dealing with the U.S. and that the EC has
- or should have - exclusive authority to negotiate a comprehensive air transport
agreements with the U.S. that creates a so-called Transatlantic Common Aviation Area.
In support of its position, the EC has taken two major steps in recent months:
In July, the Commission recommended that conditions be imposed both on the
American-British Airways alliance, which is not yet in effect, and on the
United-Lufthansa-SAS alliance, which has been in effect for several years. In the case of
United-Lufthansa, the EC recommended that the airlines should reduce their frequencies on
certain routes and also give up an appropriate amount of airport slots in order to
alleviate perceived violations of EU competition laws. In response to this, United filed a
complaint against the EC with the USDOT (which puts the DOT in a rather delicate
position). United's position is that if any EU member country attempted to implement the
actions recommended by the EC, this would violate the country's open skies agreement with
the U.S., which is probably correct.
Last week the EC submitted a complaint to the Court of Justice of the European Union
against the eight EC member countries that have open skies agreements with the U.S. The
complaint charges that those agreements violate EU law. Regarding this complaint, Neil
Kinnock, the EC Commissioner for Transport, said "Of course, I am certain that the
European law is on our side." He would also, no doubt, prefer to achieve a negotiated
solution. Needless to say, it will be several years before this matter is resolved.
This completes my report. I hope that it has been useful. Thank you very much for your
attention.
|
