Is Open Skies aviation reform

Is Open Skies aviation reform

An open Asia-Pacific aviation club is better than the
bilateral "open skies" agreements negotiated by the U.S. with
individual regional countries, says Christopher Findlay.

SINGAPORE: "Freedoms of the air" is a phrase often used in the
air transport industry. But, in fact, international trade in air
transport services is far from free. The rules of the
multilateral trading system do not apply. Instead, countries
exchange access to each other's markets through a web of
bilateral agreements. As a result, the capacity that can be
offered on the routes by airlines of third parties is restricted.

This structure has proved to be remarkably resilient - even
surviving the Uruguay Round of trade negotiations which saw the
rules of the world trading system applied to many service
sectors. But there is a new threat to the system, and the
interesting thing is that the threat has come from within
bilateralism itself.

The challenge comes from the United States, which has made a
series of strikes into the old bilateral system in East Asia. The
U.S. initiative demands a regional response. The strikes into the
region are in the form of so-called Open Skies Agreements. The
U.S. has used such agreements in Europe and across its northern
border. It has now started signing them in the Asia Pacific
region, beginning with Singapore, Malaysia, Brunei, Taiwan and
New Zealand.

Negotiations are continuing with Korea.

These agreements give U.S. carriers much more liberal access
to Asia-Pacific routes. To see why, suppose the U.S. signs up
with both Singapore and another ASEAN country. Then the U.S.
airlines and those of the signatory country have free access - in
terms of capacity and also points served - on all the routes
between the two countries.

Even more significant is that these Open Skies Agreements also
generally provide each party with automatic beyond rights. That
is, the U.S. airlines have the right to pick up traffic in a
signatory country and carry them to other destinations subject to
the agreement of those destinations.

In our example, the U.S. has signed with both Singapore and
another ASEAN country. The consequence is that U.S. carriers will
have unrestricted access to routes between Singapore and
its ASEAN partner. However, airlines of the two ASEAN countries
only have free access on their direct routes to the U.S., and not
between themselves (unless they too have a similar agreement to
that negotiated with the U.S.).

The U.S. carriers, therefore, have access to the whole network
as a consequence of these bilateral negotiations. The ASEAN
carriers do not. In order for airlines of ASEAN countries to have
the same access, the bilateral agreements between them would have
to be renegotiated as well.

Furthermore, the agreements do not cover domestic routes.
Therefore, the U.S. carriers have the advantage of being able to
draw on their extensive domestic networks to which Asian carriers
do not have direct access.

Some countries have not yet signed up. What will be the impact
on them? They risk a loss of traffic because of the diversion of
travelers to routes which are more competitive, where frequencies
are higher and where service is better. This risk must be of some
concern in Japan as carriers there contemplate the effects of an
even more liberal arrangement on the Korea-U.S. route. In this
way, the development of Open Skies agreements is expected to
create pressure for those who do not sign to join up.

The Open Skies strategy grows out of the bilateral system and
it retains the key feature of that system which is its
discrimination against third parties. The process of reform by
this route therefore creates some real advantages for those who
move first, and in particular for the U.S. carriers. East Asian
carriers run the risk of being caught out by these agreements,
unless they act quickly. To compete, they have to duplicate the
access available on the U.S. on routes between them. They should
also think more widely about how to duplicate within the region
the sort of feeder system that the U.S. carriers have within
their own economy.

Already Singapore and New Zealand have signed such an
agreement. Can this be extended to include all the ASEAN
countries and Australia as well? This could be an agenda item for
the ongoing discussions between these countries.

A new book published by the Institute of Southeast Asian
Studies on Asia Pacific Air Transport - Challenges and Policy
Reforms reviews the principles which might be used to
design a regional response. The pursuit of a more liberal trading
system for air transport services is a critical goal but the
question is what is the best route to get there. An important
suggestion is that the countries of the region, working within
existing trade agreements such as AFTA, or under APEC auspices,
develop an open aviation club.

Members of the club would exchange open skies agreements with
each other but with the additional key feature that other new
members would be welcome on the same terms. The U.S. should be a
founder member of the Asia Pacific club. It cannot be excluded
since it has already signed with some countries. And countries in
the region would want to include the U.S. both on commercial
grounds and grounds of principle. The Asia Pacific approach would
be to sign up a number of countries simultaneously, to encourage
other new members to join the group later if they wish but on the
same terms as the foundation members, and to put no cap on
membership. In this way, the Asia Pacific approach can be
described as an open arrangement, and preferable to the one-by-
one tactic of the U.S.

The writer is Associate Professor in the Department of
Economics at the University of Adelaide and co-editor of Asia
Pacific Air Transport: Challenges and Policy Reforms which is
about to be published by ISEAS.