Washington has changed tactics on Japan. When President Clinton wrote to Prime Minister Hashimoto last September to urge that Japan and the US replace their contentious bilateral with a new open skies agreement, that represented a change of thinking in Washington. For eight years the administrations had insisted on Tokyo's adherence to the current bilateral before any talk of changing it.
Replacing that insistence with a push for open skies opens up negotiations to other issues. The question now is whether this new approach will work.
There is no way of knowing until a new agreement emerges. But what is certain is that the two sides are talking more often; their meetings no longer typically end with each side lobbing verbal hand grenades; and they are engaged in a more courteous and open dialogue. By most measures, this is real progress.
Washington decided on this course for several reasons. First, its past refusal to discuss changes only produced stalemates. The only possible deals were mini-deals: horse-trading over current route disputes. No one was making any headway.
Since the US was already ahead, that would not have mattered so much in Washington if Tokyo had not kept finding ways to withhold the rights US airlines thought they already had. As things became more ensnared, Washington became more enamoured with open skies. But senior officials realised the subject could never be discussed if the agenda was always dominated by sanction threats and mini-deals. Advancing open skies required a new approach. Washington still wants to resolve existing disputes, one official there explains, but now believes they can be dealt with in broader talks. 'We are not interested in more mini-deals,' says another. 'We'll only talk about open skies.'
This new approach has produced the first real chance in years for the parties to address some of their fundamental differences. Last year's cargo accord was an attempt to do this on a limited and less contentious basis but, as demonstrated by the current disputes between FedEx and Tokyo, it failed to provide many solutions because it skirted the toughest question of beyond rights.
Underlying this change is Washington's obvious belief in open skies. John Byerly, US State Department special negotiator on transportation affairs, told a recent Washington conference: 'Open skies is becoming the global norm.' He and other administration officials wax eloquent about the benefits of open skies to passengers, trade, and 'the global marketplace.'
Washington believes open skies in Europe produced tangible results, and that Asia is ripe for a similar campaign. Mark Gerchick, US Department of Transportation deputy assistant secretary for aviation and international affairs, has described the Asian open skies initiative as a way for the US and its aviation partners to counter 'protectionist regimes' that could become 'a choke point' in the Asia-Pacific region. It is hard to imagine where he had in mind except Japan. Yet his boss, Charles Hunnicutt, says Washington is pushing open skies in Asia for its own values, not as a means of promoting US airlines or as a device to pressure Japan. 'Open skies is not intended as a stick,' he insists.
Perhaps not, but some think it could have that effect. Richard Hirst, senior vice president corporate affairs at Northwest Airlines, thinks Japan is vulnerable to open skies pressure. Unlike Europe, where he thinks Washington's divide and conquer strategy put genuine pressure on pockets of resistance like Germany, he sees the pressure in Asia as more psychological. As more Asian neighbours sign up for open skies, Hirst predicts that 'it will be harder for the Japanese to resist.'
What would Washington envisage under an agreement with Japan? In a letter to Japan's transport minister last year, former US transportation secretary Federico Peña defined open skies as a regime where 'all carriers of both our nations would have the same unrestricted freedom to operate to and beyond each other with no regulations or restrictions on designations, routings, capacity, frequency, pricing or other matters.' In other words, he wanted unlimited third, fourth and fifth freedom rights.
It is hard to imagine how such a regime could work with Japan's slot-restricted airports. US airlines already use one third of Tokyo/Narita's slots, and Japan is certainly not going to give them more. Osaka/Kansai still has slots, but Japan guards them like pearls, as Kansai is the country's only gateway for growth.
Beyond such practical constraints, Tokyo is unlikely to embrace anything that enshrines or perpetuates the advantages it feels US carriers already enjoy. Although Japan is not interested in US cabotage as such, it sees a lack of symmetry in Washington's call to open skies overseas while US carriers enjoy exclusive access to a domestic market that accounts for some 30 per cent of the world's traffic. Profits from this domestic market, say some Japanese, subsidise US flights to and within Asia.
Prime Minister Hashimoto has declared several times that the US version of open skies is unacceptable. When Washington scheduled three days for aviation talks in early March, a senior Japanese official said he welcomed this sign that the US might be ready to hold 'substantial discussions,' but if the only subject it wanted to discuss was open skies 'one day would be sufficient.' The talks lasted three days, suggesting that Washington was willing to discuss a broader agenda.
Negotiating changes to an agreement that one side considers imbalanced is tough. The tendency is to want to equalise the accord before conceding any more. The other side wants to preserve its advantages, and is reluctant to trade any of them away. If it makes concessions, it wants something more in return. The greater the perceived imbalance, the tougher the negotiations.
Tokyo sees Japan as the disadvantaged party. Its negotiators have a list of grievances they want to correct but have little scope to offer much in return. Tokyo's current Two-Plus-Two proposal is an attempt to package its requests with some limited concessions. Japan calls this 'equalisation,' but it has come to be known as Two-Plus-Two because of its ingredients. Tokyo proposes to replace the current bilateral with one that would give two Japanese and two US carriers essentially the same unlimited rights as the incumbent airlines - Northwest, United, FedEx, and Japan Airlines - now enjoy. This would take FedEx out of incumbent status because, Tokyo reasons, it is now covered under a separate cargo accord. It would add All Nippon Airways to that privileged class.
The Plus-Two part of this proposal would give two other Japanese carriers and two other US carriers broader rights than they now enjoy as so-called memorandum of understanding (MoU) carriers. Mostly these would be new third and fourth freedom routes, but Tokyo holds out the option of some fifth freedom routes as Japan-Asia traffic grows. Tokyo does not specify the carrier identities, but Japan Air System would surely be one of the Japanese carriers. If the US were limited to two, American, Delta and Continental would face a grim game of odd man out.
Washington's reaction to Two-Plus-Two has been no better than Tokyo's reaction to open skies. Viewing it as a wedge aimed at widening the schism between incumbent and MOU carriers, a US official dismisses it simply with: 'It won't work.'
Thus, each side has already rejected the other's proposal. Once the posturing and rhetoric are done with, this is where the talks really start.
The parties' options now are (a) another mini-deal (b) a compromise around the margins of their respective proposals or (c) renouncing the bilateral and starting again from scratch.
A mini-deal would try to clean up the route issues now awaiting approval. These include: routes by United and Northwest from Kansai to Jakarta; a Northwest route from Kansai to Kuala Lumpur; FedEx routes to Manila, Cebu and Jakarta (via Subic); and a switch by FedEx of some Beijing and Shanghai flights from Narita to Kansai.
On the other side, JAL has a frequency increase pending on Narita-Kona, as well as an all-cargo request for Tokyo-Atlanta, an upgrade from charter to scheduled service on Hiroshima-Honolulu, and a longer operating permit on Sendai-Honolulu. Topping All Nippon's list is approval of its codesharing alliance with Delta Air Lines. Some of these are stalled by conflicting interpretations of the bilateral; others are outright hostages to the impasse.
In view of Washington's 'no more mini-deals' stance, any accord would need to cover more than these. How much more will depend on each side's willingness to compromise. The possibilities, in roughly ascending order of difficulty, include these:
1 Expanded codesharing. Both sides recognise the value of alliances. Tokyo is willing to allow codeshares on third, fourth, and fifth freedom sectors as well as domestic flights.
2 More transpacific routes. JAL covets Kansai-Chicago, more Tokyo-Chicago frequencies, and a new Maui route. US MoU carriers salivate at the prospect of serving Kansai. This is standard stuff for horsetrading.
3 Limited cabotage. JAL wants the right to carry international traffic point-to-point within the US on its own flights, by codeshare, wet lease, or whatever. Northwest has explored a similar arrangement within Japan.
4 Clarification on fifth freedoms. The bilateral says its 'primary objective' is to provide for third and fourth freedom traffic. Fifth freedom traffic, while permitted, must take account of several factors, including local and regional services. This clause has sparked what one US official aptly calls 'a disparity of interpretation.'
From years of argument, Washington seems to have acceded to some of Tokyo's views. Whether it would confirm these in writing is unclear: it is one thing to defer an argument and quite another to concede it.
The fifth freedom issues most susceptible to agreement are those involving traffic on particular routes. For example it could be agreed that Article 12 of the bilateral means fifth freedom traffic should not exceed 50 per cent on each route rather than systemwide. Agreement is less likely on whether carriers must show how they will comply with this on new routes before they start them. This is tied to the question of whether US carriers can launch new fifth freedom routes with no more notice than for a schedule change, making them incontestable for six months. Tokyo claims it must approve such routes before they start.
Then there is the question of whether last year's cargo accord replaced or supplemented the fifth freedom rights of FedEx under the bilateral. This is likely to be addressed at the mini-deal stage when FedEx seeks clearance for new routes not covered in the cargo accord, but which it asserts it may operate under the bilateral.
5 New beyond rights extended to MoU carriers, but linked to traffic growth. This is a part of Tokyo's broader package that Washington has already rejected. It is uncertain whether this part could be salvaged. The US MoU carriers might be more interested in beyond rights linked to traffic growth than in no beyond rights at all.
Washington's problem is that this pits US MoU carriers against US incumbents, since Northwest and United would argue they should be free to add capacity as traffic grows on fifth freedom sectors, rather than having to share it with US rivals. The US would be quick to reject any attempt by Tokyo to tie new fifth freedom sectors or capacity for the US incumbents to traffic growth.
6 ANA's status as an incumbent. The going becomes much tougher here. Elevating ANA to incumbent status is part of Japan's Two-Plus-Two plan, and the most important part from Tokyo's perspective. To the Japanese, it is a key step in redressing the bilateral's imbalance. Washington's failure to yield on this could jeopardise the talks. But conversely, Japan wants this so badly that an adroit Washington could parlay this to its advantage.
There are limits to what the Japanese would accept in return. Elevating American, Delta or Continental to incumbent status as a tradeoff for promoting ANA would not work, since it would perpetuate rather than neutralise the perceived US advantage. If that happened, one Japanese official predicts, 'The balance we have sought to correct for the past two decades would be worse.' ANA's status is symbolic of this basic concern about the bilateral's imbalance.
Tokyo has refused to say whether it would accept a modified version of open skies. However one MOT official promises that if ANA is elevated to incumbent status, 'Japan will be flexible about beyond rights for US carriers.' In short, more rights for ANA could mean more liberal US fifth freedoms. Whether Washington would find this an acceptable interim solution en route to open skies could be the key to any settlement.
Renouncing the bilateral and starting over is Tokyo's last option. Japan Airlines has been its loudest advocate, but occasionally MOT officials acknowledge this is a possible avenue. Thailand did it seven years ago, but the Japanese have closer links to the US and would be uncomfortable about such a confrontational step. Ryutaro Hashimoto's election as Prime Minister sparked speculation that he would take a harder line with the US, but so far he has not. And Makoto Koga, Japan's new transport minister, avoids bellicose remarks and speaks of Japan's willingness to be 'flexible.' Relations would have to grow much worse before Japan renounced the bilateral.
In May of last year Shinsuke Endoh, senior officer for air talks in the MOT's civil aviation bureau, was asked to predict how long it would take to resolve Japan's aviation dispute with the US. He told reporters: 'This issue has lasted over 40 years so it's rather naive to solve this [quickly]. It will take one year or so to solve the passenger issues.' His year is up already and the end is nowhere in sight.
In May of last year Shinsuke Endoh, senior officer for air talks in the MOT's civil aviation bureau, was asked to predict how long it would take to resolve Japan's aviation dispute with the US. He told reporters: 'This issue has lasted over 40 years so it's rather naive to solve this [quickly]. It will take one year or so to solve the passenger issues.' His year is up already and the end is nowhere in sight.
Source: Airline Business
