U.S. International Aviation Policy and Challenges

December 9, 2008 at 3:16 pm | Posted in Aviation Law | Leave a comment

by P.J. Blount with the blog faculty

From the State Department:

U.S. International Aviation Policy and Challenges
John R. Byerly, Deputy Assistant Secretary for Transportation Affairs
Remarks at the 2008 ACI-NA International Aviation Issues Seminar
Washington, DC
December 4, 2008

Introduction

America’s airports have been instrumental in so much of what we’ve achieved in international aviation negotiations. For that reason but also because there are so many friends here, it’s an honor and a pleasure to join you. I’m proud of what we—and by that I mean all of us—have accomplished in recent years to open aviation markets. Big challenges remain, and your continued counsel and support will remain critical. What I’d like to do this morning is describe our negotiations policy, summarize the results of our efforts, and then spend some time on the challenges we face, leaving plenty of time for your comments and questions.

U.S. Negotiating Policy

As many of you are aware, the United States handles aviation negotiations in a way that’s quite different from most other countries:

First, rather than leave negotiations solely to a civil aviation bureau or department, we have a team approach. The State Department chairs U.S. delegations, but our negotiating teams always include DOT officials, often experts from other U.S. agencies with an interest, and—in all cases where they wish to participate—stakeholder representatives from our airports, airlines, and unions.

A second difference: our focus in air services negotiations is not limited to the interests of national flag carriers. Indeed, I don’t think that there is any country that accords “equal time” to its airports, its communities, its unions, and the broad interests of its consumers and shippers in a way that matches the U.S. approach.

A third difference in our approach: the United States stands almost alone in the world in having a single policy—Open Skies—that we pursue with every country. As you know, the traditional Open Skies template consists of:

* Unrestricted first through sixth freedom rights, with optional cargo sevenths;
* Market-based pricing freedom;
* Extensive doing business protections; and
* Strong safety and security articles.

For the United States Open Skies is a “one size fits all” approach— something I say with pride. I do so because the alternatives to a consistent Open Skies policy—whether labeled a case-by-case approach, a holistic view, or a philosophy of progressive liberalization—are often too focused on the bottom line of the national flag carrier and frequently represent a smokescreen for unjustified protectionism. With its universal Open Skies policy, the United States has articulated a crystal clear vision that free, fair, and vigorous competition—not a specified percentage of market share—is our negotiating objective.

Open Skies Policy in Practice

But enough about the conceptual foundations of our negotiating policy. What are the results?

Today, we can count over 90 Open Skies partners on every continent save Antarctica. Beginning with the 1992 Open Skies agreement with the Netherlands in the first Bush Administration, through over forty accords under President Clinton, to over forty additional Open Skies partners under President George W. Bush, we’ve truly changed the face of global aviation. From Canada to the European Union, to Nigeria and Kenya, to India, to Australia, to Chile and Peru: around the globe Open Skies agreements have allowed our consumers, our shippers, our workers, our airlines, and our airports to reap the benefits of growth in air service.

In commercially significant markets where full liberalization was not yet possible, we’ve also successfully pursued liberalization, including challenging, often multi-year negotiations with China, Hong Kong, Japan, Russia, Mexico, Argentina, Brazil, and Vietnam.

Open Skies and other major liberalization agreements have yielded new air service between an increasing array of airport pairs:

* These include previously barred flights from Dublin to Washington, San Francisco, and Orlando, and between London-Heathrow and Atlanta, Dallas, Denver, Houston, Raleigh, and Seattle.
* A huge expansion in transpacific flying, including new cargo service to Chinese cities, to Nagoya in Japan, and to Vietnam.
* Expanded service to Brazil, including previously unserved cities outside the traditional hubs of Sao Paulo and Rio.
* And new service to Africa—to Dakar, Addis Ababa, Nairobi, Lagos, and soon potentially to Monrovia, Malabo, and Luanda—a level of service that I don’t think any of us expected.

I could extend the list, but I won’t. What matters to you, I think, is that our negotiations have provided airports an unprecedented opportunity to solicit and secure new air service.

Open Skies and related liberalization agreements have also given U.S. airlines the flexibility to deploy their resources where it makes the most commercial sense by removing barriers both to entry and to exit. Likewise, our agreements have created huge new flying opportunities for U.S. airline employees.

You’ll note that I referred to “our negotiations” and “our agreements.” I say “our” because of the remarkable consensus between the U.S. private sector and the U.S. government in favor of Open Skies. America has succeeded with its Open Skies negotiating policy because it is “our” collective policy: one built on consensus among U.S. airports, airlines, and labor, between Congress and the Executive Branch, and across the aisle that often separates Democrats and Republicans. I’d add that if the United States is to go beyond Open Skies policy, this can be done only on the basis of a consensus that additional elements will deliver real value.

Aviation Relations with the European Union

Let me say a few words about our aviation relations with the European Union. You’ve heard earlier this morning from Daniel Calleja. What matters, from my perspective, is that we achieved with the first-stage agreement an extraordinary expansion of commercial opportunities coupled with a stable legal framework for cooperation. Both are absolutely essential in this, the largest international aviation market in the world. We’ve held two rounds of second-stage negotiations and will schedule a third in the spring, once the new Administration under President-elect Obama and the new U.S. Congress have had an opportunity to consider the important policy questions before us. Both the United States and the European Union are legally committed to pursue these negotiations and to do so in good faith. But it’s far more than a legal requirement: it’s an opportunity.

The issues in the second stage are not easy ones for either side. Night flight bans in Europe, symmetrical traffic rights, foreign ownership and control of airlines… these issues confront us with complex, sometimes political, and even uncomfortable questions. But it’s precisely because the issues are difficult that the second-stage negotiations are important.

U.S. objectives are focused on three areas:

* First, we want full seventh freedom cargo rights for U.S. carriers, so as to match the unlimited cargo sevenths that EU carriers enjoy under the first-stage agreement;
* Second, we seek stronger guarantees that EU Member States will respect the “balanced approach” when considering noise restrictions, including night curfews; and
* Third, we should use the second stage of negotiations to explore the issue of ownership and control. Such a close look is inevitable, given the emphasis the EU has already placed on the investment issue, and it must include an examination of the traditional nationality clause in bilateral air services agreements. We should take this opportunity to weigh the pros and cons of existing law and policy from the perspective of what’s in America’s long-term interest.

What does the EU want? The EU calls for an Open Aviation Area: unlimited cabotage, unlimited rights for each side’s citizens to own and control airlines of the other side, extensive regulatory convergence. That’s the broad vision. In truth, realization of an Open Aviation Area is not going to happen in the near term. For example, I don’t see any changes coming soon in the area of cabotage. And while I think we should work with the EU to avoid inconsistent regulatory requirements, it’s hard to see either the EU or the United States ceding the autonomy that each now enjoys in order to reach identical regulatory schemes in areas such as competition law, aviation security, and consumer protection.

So where does this leave us? The night flight issue is a very important one for us—one that we will pursue energetically. We may also confront another even more difficult environmental issue if the EU proceeds with its plan to impose an emissions trading scheme unlawfully on non-EU carriers in 2012.

For its part, the EU is likely to make the investment issue a priority and to press for changes in U.S. law. I see the United States asking a lot of questions, with a focus on the following issues:

* First, what benefits could changing our law bring for the United States?
* Second, what concerns would greater foreign investment and possible foreign control pose for the CRAF program and how might those concerns be addressed?
* Third, we need a reasoned discussion of any homeland security concerns that changes in the ownership and control limits might pose.
* Fourth, would U.S. investors enjoy reciprocal opportunity with respect to investments in EU carriers? The pronouncements of Prime Minister Berlusconi on the earlier proposal from Air France to acquire Alitalia raise some questions on this score.
* Finally, how would changing the rules on investment affect the relationship between airline management and airline labor? There are, I know, very big concerns. We need to analyze these in depth and see whether there are solutions.

In this connection, I commend Daniel Calleja and his colleagues in the European Commission for engaging on this issue in an open, constructive, and focused way by convening a two-day Labor Forum in Washington this week.

The changes sought by the European Union would require statutory amendment—that’s especially clear after the experience with DOT’s Notice of Proposed Rulemaking (NPRM) three years ago. But more important is that any such change would require a broad consensus of stakeholders and players: airports, labor, and airlines; the Administration and Congress; Republicans and Democrats.

Other Challenges

Although the EU negotiations are important, they are not the only challenges we face. Let me mention some others.

In October, we resumed talks with Japan, a year after reaching a modest but commercially valuable enhancement of our bilateral air transport agreement in September 2007. Our goal is Open Skies. We hope our colleagues in MLIT will join with us in finding a path to the goal of full liberalization that Japan and the United States agreed upon more than a decade ago. It’s time to think big, not small. We’re prepared to work hard and to show flexibility on the “how” of achieving full liberalization. We can look at transitional measures—for example, at Tokyo and with respect to fifth freedom rights. We can also look at the link between Open Skies and applications for antitrust immunity between Japanese and U.S. carriers, just as we did with Germany and France. What would not make sense in this mature market between two world-class trading partners is to focus only on changes at the margin, such as adding a handful of flights from Haneda airport.

Closer to home, we still have unfinished business in the Western Hemisphere. We have made incremental progress in the recent past—some of it enormously valuable—with Brazil, Mexico, Colombia, and Argentina. But these large and growing markets cry out for removal of artificial barriers to access.

Elsewhere around the globe—be it Hong Kong, South Africa, Egypt, or Israel—we have agreements in place that restrain competition. I’m not sure that we’ll see early progress, but the United States stands ready, willing, and able to move ahead and to do so quickly.

The reason is that stakeholders (and not only stakeholders in the United States) are calling for change: consumers want more and better travel options; shippers want faster, more efficient service; airports and communities want the enormous benefits that adding just a single international flight can deliver; and airlines, still in a period of crisis as lower fuel prices have been accompanied by a major decline in the world economy, need the flexibility to fly when and where it makes sense, not when and where governments dictate.

Some voices are again asking whether the time has come to consider multilateral approaches. I’d welcome your views. The United States has had some success going beyond the traditional bilateral template: With the MALIAT in 2001, where we joined with Chile, Singapore, New Zealand, and Brunei in a multilateral Open Skies agreement that relaxed traditional limits in the nationality clause on airline ownership.

The “mixed agreement” with the European Community and its 27 member states, which displays traits of both a multilateral and a bilateral accord and that expanded significantly on the MALIAT provisions on investment, including with the European carrier concept. We’re actively exploring how to add Norway and Iceland to the EU agreement and, conceivably, could look at accession by other countries that wish to join the “European side of the table.”

As many of you are aware, the United States has widely circulated a “discussion draft” of a multilateral convention focused on surmounting the barriers posed by the traditional nationality clause in bilateral air services agreements to cross-border investment in, and cooperation in the management of, airlines. The initial response to the discussion draft has been positive, and we’ll be thinking through how to proceed. Although the discussion draft is narrowly focused and the process has begun only within the past year, it could open the door to consideration later of broader multilateral liberalization among like-minded countries.

Finally, I should mention—and I want also to commend—the important work of IATA in convening a meeting of liberally minded governments in Istanbul just a few weeks ago that considered multilateral approaches for near-term liberalization of limits on traffic rights and investment barriers, such as the nationality clause. We look forward to working with IATA, other stakeholders, and other countries on the idea of a multilateral declaration of principles that could foster rapid progress.

In summary, we find ourselves in a period of enormous change, challenge, and intellectual ferment: the curse, as the Chinese proverb goes, of living in interesting times. But the fact is that challenges offer opportunity. I have the enormous good fortune to participate in exploring new ideas and to have such talented, forward-thinking, and creative colleagues in the endeavor. Thanks for inviting me to today’s seminar. I look forward to your comments.
Thanks for the opportunity to participate in this year’s seminar.

Released on December 9, 2008