No. 5 — February 9, 1996


Weekly Review

--- by Christopher B. Johnstone

A meeting of aviation experts and officials from 13 Asian Pacific nations seeking to boost regional cooperation in the industry has raised eyebrows among the uninvited — in particular the United States. The closed-door inaugural meeting of the Regional Cooperation Forum for International Air Transport in Asia and Oceania took place January 31 and February 1 in Kyoto under the auspices of the Ministry of Transport. The event's sponsorship and its invitation list have prompted American suspicions that Tokyo is attempting to create with its neighbors a "bamboo curtain" against U.S. demands for greater liberalization in the region's rapidly growing aviation market. Also reawakened were long-standing American concerns over the possible emergence of an exclusive regional economic bloc in East Asia. Japanese officials deny any ulterior motives, and representatives from many participating countries pointed to the meeting's modest accomplishments as evidence that the new forum poses little threat to American interests. U.S.-Japan ties already were under strain due to a prolonged stalemate in negotiations aimed at revising the 1952 agreement that governs bilateral aviation rights. The Kyoto meeting undoubtedly will add to the tension even as it underscores the obstacles confronting U.S. efforts to promote "open skies" — free, unrestricted air service — in a part of the world that by 2010 is expected to represent 50 percent of global air passenger traffic.

The invitation list for the Kyoto meeting closely resembled the East Asian membership of the Asia Pacific Economic Cooperation forum, an 18-country grouping dedicated to achieving regional free trade and investment by 2020. Not all invitees attended, however. Declining the offer were APEC members Brunei, Indonesia and Papua New Guinea as well as Cambodia and Laos — none of which has a major air carrier. Attending delegates represented Australia, the People's Republic of China, Fiji, Japan, Malaysia, Mongolia, Myanmar, New Zealand, the Philippines, South Korea, Singapore, Thailand and Vietnam. (Three participants in the Kyoto talks — Fiji, Myanmar and Vietnam — currently are not members of APEC.)

With arguably the most competitive airline industry in the world, the United States not surprisingly has been a strong supporter of using APEC to press for greater openness in the air services market — with the ultimate goal of achieving a regional open-skies agreement. But APEC also includes several members noticeably absent from the Kyoto gathering — not only the United States but also Canada, Chile and Mexico as well as Taiwan and Hong Kong. As a result, many U.S. officials suspect that the new group is intended to circumvent the APEC process and to facilitate a unified front against American demands for regional liberalization in the air transportation market. Clinton administration economic policymakers point out, for example, that APEC already is addressing many of the topics apparently discussed in Kyoto. (An APEC aviation subcommittee is preparing a list of recommendations to increase regional competition; that list reportedly will be presented at an April meeting of the broader APEC transportation working group.) Adding to the sense of concern in Washington is the past record of Transport Ministry warnings of "the effects on Asian markets of free American use" (see JEI Report No. 47B, December 22, 1995).

Japanese officials have dismissed the American concerns as illusory, arguing that regional cooperation efforts need not be limited to APEC and that the new initiative is little different from other regional aviation arrangements in Latin America, Africa and the European Union. According to the Transport Ministry, invitations to the Kyoto talks were based solely on countries' membership in the Asia-Oceania subdivision of the International Air Transport Association. Other participants downplayed the prospect of achieving any significant degree of cooperation among members of the new group, given their diverse interests and the concerns that stem from the participants' varying levels of economic development. While Japan and Singapore boast state-of-the-art airport facilities, for example, Myanmar has yet to install its first modern radar system. Japanese officials also stressed that the contents of the meeting were relatively innocuous, focusing on information gathering and exchange as well as "building relationships." Other elements of the discussions reportedly included such items as: boosting efficiency by encouraging private partnerships and tie-ups; loosening restrictions in many Asian Pacific countries that limit the participation of foreign firms in cargo-handling services; expanding cooperative initiatives in tourism as a means of boosting demand for airline services; and protecting the interests of consumers and the environment.

Perhaps the most important result of the meeting, however, appeared somewhat less benign to observers in Washington. Although some participants — among them South Korea — reportedly supported an aggressive, multilateral approach to regional aviation liberalization, such views decidedly were in the minority. In a vaguely worded statement released at the end of the meeting the participants recognized the "possibility of the coexistence of multilateral and bilateral" approaches to liberalization. The group, however, also showed a preference for bilateral accords when it stressed the importance of seeking "fair and equitable opportunity for all countries" by pursuing a "gradual, progressive, orderly and safeguarded change in international air transport regulation under the present international aviation system." Also important, suggest some observers, is what the document did not say. No reference was made to moving toward a regional open-skies agreement, a goal to which many APEC members have given at least rhetorical support in that forum's discussions.

The language in the statement thus appears to move the Kyoto participants away from the multilateral, comprehensive approach to liberalization advocated by Washington. The group's go-slow philosophy also closely parallels the position that Japan has taken in aviation talks with the United States. Negotiators from the two countries currently are locked in another stalemated effort to revise the 1952 transpacific aviation accord. Last summer the issue reached the brink of sanctions after Tokyo refused to grant Federal Express Corp. new routes through Japan between a recently built FedEx hub in Subic Bay, the Philippines and beyond to other points in Asia. Although that crisis was averted when the United States and Japan agreed to renegotiate the sections of the bilateral aviation treaty governing air cargo, two ensuing rounds of talks have resulted in little progress. American and Japanese aviation negotiators met again in the first week of February. They have indicated a hope to complete the cargo talks by the end of March — at which point passenger traffic is expected to be placed on the negotiating agenda (see JEI Report No. 28B, July 28, 1995).

With the East Asian aviation market expected to grow at more than 8 percent annually for passengers and 9.5 percent for cargo well into the next century, the White House has made expanding access for American carriers a central component of its regional economic agenda. That strategy in many ways has proven to be successful. In 1995 the Clinton administration concluded expanded aviation agreements with China, Hong Kong, Macao and the Philippines and moved toward signing a similar deal with Thailand. The stalemate with Japan remains a significant blemish on the White House record, however. While the Kyoto meeting meeting hardly represents a definitive move toward greater protectionism in East Asian aviation, the gathering certainly brings home the difficulties Washington faces in attempting to achieve its goals.

The views expressed in this report are those of the author
and do not necessarily represent those of the Japan Economic Institute

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