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Volume 14,Issue 3 Autumn 2012

US and China agree on a new air services agreement but problems need to be resolved before an open skies agreement is reached


中美签署新航空协议但仍存有争议US and China agree on a new air services agreement but problems need to be resolved before an open skies agreement is reached The United States was hoping for an open skies agreement with China, but this did not materialize during the Second US-China Strategic Economic Dialogue held in Washington in May. As the dialogue wrapped up on May 23, US Transportation Secretary Mary Peters and Minister Yang Yuanyuan of the Civil Aviation Administration of China (CAAC) instead announced that the daily passenger flights between their countries will double by 2012. “Piece by piece, we are making it easier, cheaper, and more convenient to fly people and ship goods between our two countries,” Peters said. “We both understand that the path to friendship and cooperation is paved with easy access and close connections.” She said that, under the new agreement, 13 new daily flights operated by US airlines to and from China will be added in the next five years. One new daily flight will be added in 2007 and 2008, four new daily flights in 2009, three more daily flights in 2010, and two new daily flights in 2011 and 2012, for a total of 23 per day. Under the 2004 agreement, US airlines today can operate only 10 daily flights to Beijing, Shanghai, and Guangzhou. The new agreement also allows the US to designate three additional US carriers to operate to China--one in 2007 and two in 2009. A major aspect of the deal involves the lifting of all restrictions on cargo flights to China. It allows an unlimited number of US cargo flights to any point in China, and further allows an unlimited number of US cargo carriers to serve the Chinese market by 2011. The US and China have agreed to resume negotiations for an open skies agreement in 2010, a proposal that the US is pushing for and that China would agree to. The new agreement was praised by the Air Transport Association, the trade association of leading US airlines that transport more than 90 percent of all US airline passengers and cargo. “We applaud the efforts by the United States and Chinese governments in reaching an agreement that expands cargo and passenger services between both nations,” said James May, ATA president and CEO. “While this is an important first step, we look forward to the countries ultimately establishing an open skies agreement.” In a press conference, Peters said the new agreement “will strengthen both of our economies. It will open opportunities for business, travel and tourism, and cultural exchanges across the Pacific.” The agreement was more than enough for Peters, calling it a “breakthrough” after months of negotiations. “Over the next several years, we estimate that this agreement will stimulate some $5 billion in new business for our airlines as they take advantage of the growing demand for travel between our two countries,” Peters said. She said as much as 16 percent of US-China passenger traffic is lost to airlines from a third country. She said that by 2012, US airlines will be able to operate 23 daily flights to China, compared to10 today. “In a market where every filled seat and every piece of cargo shipped can mean a difference between success and failure, this agreement will go far in guaranteeing the success of our airlines in both of our countries,” Peters explained. The US government recently inked an open skies agreement with the European Union. It hopes to do the same with China, which is now the second-largest aviation market in the world. Last year, Chinese airports handled 332 million passengers, an increase of 16.7 percent compared to 2005. Peters commended Minister Yang, whom she called a “true visionary, and without whom this agreement would not have been possible.” Issues But while US airlines are ecstatic over the new air services agreement, this is not the case for Chinese airlines. The American Chamber of Commerce (AmCham) in China has just issued a white paper detailing the problems that the US and China should solve first in order to level the playing field in aviation. For China, AmCham lists the limited airspace, navigation and air traffic control systems, and taxes and duties as factors which pose a roadblock to aviation growth. For the US, AmCham believes that the US government’s rigid export and licensing policies prevent American companies from doing business in China. Chinese airlines complain that Chinese residents are having difficulty getting US visas, which is “the single most important issue preventing them from increasing the frequency of air services to the United States.” The group added that Chinese businessmen and government officials are made to undergo background checks, such as the so-called Security Advisory Opinions, before they are issued US visas. AmCham complains that airspace for civil aviation in China is very limited as the military “controls 70 to 80 percent of the airspace.” It says airports like the Beijing Capital and Shanghai Pudong are operating at maximum capacity. “The limited number of narrow corridors currently allocated as civilian airspace and the scarcity of access points create lengthy airport backups, en route congestion and unnecessarily long routes for air traffic, and serve as a general deterrent for local airport expansion,” the AmCham said. For its part, the CAAC is implementing several measures in time for the Beijing Olympics in order to maximize the use of airspace. It is employing several technologies, including the RNP/RNAV. Additional air routes are also being opened for the Olympics, and coordination between the CAAC and the Chinese military is being improved for the smooth use of airspace. “However, only 46 out of the current 156 airports served by scheduled flights in China are covered by the Aeronautical Information Publication (AIP) published by the Air Traffic Management Bureau. This means more than 100 domestic airports do not have the necessary navigation databases to take advantage of modern technologies, which results in less than optimal usage of the entire airspace,” AmCham noted. AmCham adds that China needs to overhaul its regulations to promote development of regional and general aviation. It cites the high importation cost of regional and general aircraft. “For example, the combined import duty and value-added tax for the importation of regional and general aircraft and equipment is 22.5 percent, while that for commercial air transport and equipment is 6 percent,” it says. It recommends that China should “establish a favorable policy and provide financial incentives.” In particular, AmCham said China should open general aviation to serve small cities in the northwest and west. “Opening the general aviation market will help meet this demand, while also creating over time a ready supply of experienced aircraft pilots and maintenance personnel for the commercial aviation market,” it said. High operating costs for foreign airlines are also a hindrance to the development of aviation in China. AmCham said foreign airlines pay high landing and parking fees at major airports. It said, “airport fees paid by airlines in Beijing and Pudong are two to three times that in Singapore.” “The high cost of aviation fuel imposed at the airports in Beijing, Pudong and Guangzhou are not transparent and consist of a base differential that is not linked to market rate,” it said. AmCham recommends that the US government should “allow increased exports of American aviation products to legitimize end-users in China by revising export control levels consistent with documented foreign availability and domestic capability in this sector.” On US visas, it says, the US government should “develop special aviation-related visa procedures that minimize the negative commercial impact of the current system.” For the Chinese government, AmCham says, it should “move expeditiously to create significantly more civil airspace available for civilian and commercial use,” and level the Customs duties and VAT rates for commercial, regional and general aircraft. China should also reduce airport charges and allow foreign airlines to hire local staff directly through employment agencies, the AmCham says.

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