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.