U.S. - China Issues

29 January 2007

Opening Market with China Tops U.S. Civil Aviation Priorities

Bilateral agreement sought to match expanding trade, U.S. officials say

By Andrzej Zwaniecki
USINFO Staff Writer

Washington – Liberalization of air services between the United States and China is one of the U.S. administration’s top priorities in civil aviation as economic relations between the two countries continue to expand at a rapid pace, U.S. officials say.

“Ultimately the goal is to do everything in our power to fully liberalize our aviation relationship with China, thereby expanding service, destinations and frequencies,” Transportation Secretary Mary Peters said in late January.

A U.S. delegation is in Beijing January 30-31 to restart talks on an “open skies” agreement with China.

Bilateral open skies agreements give airlines in both countries the right to operate air services from any point in one country to any point in the other, as well as to connect those flights to points in third countries. These pacts eliminate restrictions on air services with regard to frequency of flights, the type of aircraft and other aspects.

The U.S.-China negotiations, which began in April 2006, were suspended when the Chinese cancelled a session scheduled for August 2006 due to an unrelated issue, U.S. sources told USINFO. Since then, that issue has been resolved and the Strategic Economic Dialogue meeting in Beijing in December 2006 gave new impetus to the negotiations. (See related article.)

“We are happy we are back at the table,” Andrew Steinberg, assistant secretary of transportation for international affairs, told USINFO.

Steinberg is part of the delegation, as is Thomas Engel, director of the State Department’s Office of Aviation Negotiations.

Engle said that ministers at the Strategic Economic Dialogue recognized the importance of civil aviation to broader economic development and to U.S.-China economic and trade relations, and urged negotiators to make progress toward a more liberal bilateral agreement.

“The U.S. side is ready to do its part to realize this ambition,” he said.

2004 AGREEMENT NO LONGER ADEQUATE, OFFICIALS SAY

In 2004, the two countries reached a bilateral agreement that provided for a gradual increase by 2011 in the number of airlines permitted to serve U.S.-China routes from four to nine and the number of flights per week from 54 to 249.  (See related article.)

U.S. carriers have been competing with each other for flight allotments related to that agreement and U.S. businesses and tourists have been clamoring for more connections.

This is an indication that the agreement, which just two years ago was called “historic,” is quite inadequate now, officials say.   

Although U.S. carriers currently operate 55 daily nonstop flights to Germany, a country with which the United States has an open skies agreement, they run only 11 daily nonstop passenger flights to China.

“That’s really a small fraction of what we need and what market potential would justify,” Steinberg said.

He said a bilateral open skies agreement would bring huge economic gains to both countries. According to Transportation Department estimates, a single daily flight by a wide-body jet from a U.S. airport to China generates about $213 million annually in economic activity in China alone.

“If the Chinese recognize this and other benefits from [an] open skies [deal] we should get there ultimately,” Steinberg said.

But Chinese carriers, which are mostly state-owned, pressure China’s leaders not to hurry with liberalization, according to a source close to the negotiations. Chinese airlines have a smaller market share of the two-way market than U.S. carriers and are afraid to lose more if the market is fully opened.

On the other hand, differences between relative competitive positions of U.S. and Chinese airlines are not dramatic, and both would benefit from an expansion under the open skies regime, the source said.

China’s domestic aviation market is experiencing rapid growth accompanied by severe growing pains that include air traffic congestion, lack of commercial capacity in the airspace and insufficient infrastructure. As China’s leaders try to address these problems, they seem to believe they need to focus on modernization and proceed only cautiously with the opening of their international aviation market, according to the source.

“In fact, gradual international liberalization is fully consistent with the kind of reforms and ventures they are undertaking domestically,” the source said.

U.S. officials say China would benefit from increased liberalization through increased investment, more jobs, greater consumer choice, technological advancements and improved levels of service. They also say that an “open skies” agreement could allow U.S. and Chinese carriers to collaborate much more closely, sharing revenues and passengers under a grant of antitrust immunity from the Transportation Department.

TRUE PARTNERS

Steinberg said the U.S. aviation relationship with China goes beyond commercial air services. Bilateral technical cooperation, which covers air traffic, aviation safety and airports, has intensified in recent years. For example, the U.S. Federal Aviation Administration in the Transportation Department has been providing Chinese civilian aviation authorities with significant support in their efforts to redesign China’s air traffic controls system and with the certification of the first regional jet developed and manufactured by Chinese companies.

“We want to be a true partner with the Chinese,” Steinberg said. “As world leaders in civil aviation technologies and services, we have a lot of expertise to share.”

For more information on U.S. policies, see The United States and China.

(USINFO is produced by the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)