U.S. and Hong Kong (2004)

U.S. Urges More Liberalization in Air Services with China, EU

Talks on cross-Atlantic air services to continue, officials says

Following is the text of his remarks as prepared for delivery:

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U.S. Department of Transportation

INTERNATIONAL AIR SERVICES LIBERALIZATION

Remarks of Jeffrey N. Shane
Under Secretary for Policy
U. S. Department of Transportation

Airports Council International [ACI]-North America International Air Services Seminar

Washington, DC
December 2, 2004

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Liberalizing Global Aviation Markets

Let me now turn to my assigned topic -- the very important issue of international aviation liberalization. This Administration has accomplished a great deal in its first term, and we look forward to expanding those successes over the next four years.

To put it simply, we have continued the U.S. Government's aggressive campaign to liberalize international aviation markets everywhere, pursuing the Open Skies model pioneered in the first Bush Administration back in 1992. In the last year alone we have signed four more Open Skies agreements. We have also achieved significant liberalization in our aviation relationship with China, expanding by five times the number of flights between our two countries. We have made significant strides toward a landmark agreement with the European Union. And we are actively pursuing more liberalized air services agreements with India, Canada, Hong Kong and Mexico.

I know I don't have to sell anyone in this room on the benefits to airports and the communities they serve of more open markets for international air services. These agreements mean more service to more cities around the country, creating jobs, enhancing efficiency, and providing travelers with a wider variety of new travel options. And lest you think we are merely adding footnotes to an old story, consider that our two recent bilateral agreements with China and Indonesia alone extended more liberalized aviation regimes to another 1.6 billion people, more than five times the U.S. population.

The landmark aviation agreement with China is worth a closer look, particularly now that DOT's proceeding for allocating the new opportunities created by that agreement is much in the news. The agreement will phase in an additional 200 flights each week between the U.S. and China through 2010, bringing huge economic benefits to both countries. Indeed, we estimate that a single new daily 777 roundtrip between the U.S. and China will produce a total annual benefit of about $158 million to the U.S. economy. More specifically, the agreement will allow 84 new passenger flights, 111 new all-cargo flights, and the entry of five more airlines for each side over the next six years. It's not surprising that there has been so much interest in the press in DOT's process for allocating the opportunities created by the new agreement. The proceeding has generated huge interest from carriers and communities all across the country.

The fact that we are conducting that proceeding --- a very expensive and time-consuming affair for the parties and DOT alike --- reflects an anomaly that shouldn't be overlooked in our celebration of the dramatic expansion of services facilitated by the U.S.-China agreement. It is that the agreement, for all of its benefits, still compels us to treat the opportunity to conduct commercial flights between the U.S. and China as a scarce resource, to be doled out through a regulatory process that will necessarily reward the few and disappoint the many. What is it about the economic relationship between the U.S. and China -- now our largest trading partner across the Pacific -- that requires us to calibrate through a government-to-government agreement the number of flights between our two vast territories? Why do we continue to restrict the number of airlines allowed to operate those flights? Yes, the agreement was a huge step forward, and a tremendous achievement by John Byerly and his team of State Department and DOT negotiators. But it still requires that we go through a tedious, anachronistic carrier selection process that I had hoped we would have dispensed with by now, and so it still leaves a lot to be desired. We need a more thoroughgoing liberalization of the U.S.-China aviation relationship --- one more in keeping with the maturity of the larger economic and trade relationship between our two countries --- and I hope that China will soon find its own reasons to embrace that aspiration.

Thanks in large measure to the major expansion of air services facilitated by the new U.S.-China agreement, we are seeing new levels of interest in liberalization among some of our other trading partners in Asia. For example, Hong Kong has agreed to meet and reevaluate our current air transport agreement, which was last revised only two years ago. We tentatively expect to hold consultations in Washington in the early spring. Another area where the China agreement has sparked some interest is in India, which represents another very large and growing market with strong potential for expanded air services. Last week we met with Indian officials to begin discussing the possibility of reaching an open skies agreement. While some hard work remains to reach an accord on elements central to an agreement, we are optimistic about our chances of success in the near future.

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