U.S and China Reach New Air Services Pact

Air Line Pilot, August 2004, p.29

On June 13, the United States and China agreed to amend their air services agreement. The amendments are extensive and provide a wide range of new opportunities for the airlines of each country.

Currently, four U.S. carriers—FedEx, Northwest, United, and UPS—are permitted to provide direct air services to China. Under the new agreement, the United States may designate an additional cargo carrier that can begin services to any point in China on Aug. 1, 2004, an additional combination carrier that can begin services to any point in China as of March 25, 2005, and an additional carrier, either cargo or combination, to operate to any point in China in each of 2006, 2008, and 2010.

The frequencies that these carriers can serve were also raised from the current 54 per week. Between Aug. 1, 2004, and March 2010, U.S. carriers may operate an additional 56 combination frequencies and 111 all-cargo frequencies to any point in China. Between March 2007 and March 2010, seven additional frequencies each year will be available for services to a group of provinces and cities other than Beijing, Shanghai, and Guangzhou. Finally, beginning immediately, any U.S. carrier can serve, without frequency limitation, a number of less-developed areas of China.

The agreement lifts the frequency and capacity limits on the carriers of each side that establish a cargo hub in the territory of the other party as of 2007. In addition, a hubbing carrier is provided with substantial operational flexibility and the ability to conduct "7th freedom" operations from the hub. The agreement also provides greater "doing business" rights and pricing freedoms, and new opportunities for charter, codeshare, and cargo intermodal services. The two sides agreed to return to the bargaining table in 2006 "with the ultimate objective of fully liberalizing" their civil aviation relationship.

EU Rejects U.S. Proposal On Air Services Agreement

Also on June 13, the European transport ministers rejected the air transport services agreement that the United States offered following nearly a year of negotiations between the United States and the European Union. The rejection came at the end of a month of intensive bargaining that included face-to-face negotiations between U.S. Transportation Secretary Norman Mineta and European Commission Vice-President Loyola de Palacio.

The EU set forth an ambitious proposal during the initial round of bargaining in October 2003. Stating that it sought the establishment of an "open aviation area," the European Commission wanted to eliminate restrictions on the right of foreign ownership of airlines, on the right of foreign airlines to carry cabotage (i.e., domestic) traffic, on wet leasing of aircraft, and on foreign participation in the civil reserve air fleet (CRAF) and Fly America programs. The Commission also indicated that it was seeking harmonization or convergence in a number of areas, including safety, security, and competition.

The United States, for its part, noted the "historic opportunity" that the negotiations presented for liberalizing the international regulatory regime. The United States stated, however, that in the negotiations it would be seeking "value for stakeholders" and that any proposals should be measured against the standards of "will new rights be useable?" and "what will be the effect on the oversight of safety and security?" The United States expressed no interest in becoming part of a common aviation area with Europe. In addition, the United States explained that the concerns of airline workers would have to be taken into account when evaluating specific proposals.

During the December 2003 round, both sides put substantial written proposals on the table, and a working text was developed. From ALPA’s point of view, four EU proposals posed the most concern for airline employees: (1) the proposal that allowed any European airline to serve any route under the agreement; (2) the proposal to lift the foreign ownership limitations; (3) the proposal to allow the carriers of one party to operate in the domestic market of the other party; and (4) the proposal to allow European carriers to wet-lease aircraft to U.S. airlines.

Although ALPA representatives met numerous times with European negotiators and Commission staff to explain labor’s concerns, the EU persisted in advancing proposals that ALPA and the other labor representatives believed would have adverse consequences for airline workers.

The U.S. negotiators were willing to move somewhat on several of these points, despite AFL-CIO objections, but the European transport ministers, wanting even more, rejected the U.S. proposals.