UK: Asian Liberalisation - In The Air?

Last Updated: 22 April 2009
Article by Peter Coles

Several years ago, the 10 Association of Southeast Asian Nations (ASEAN) members (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam) informally agreed that they would work towards full liberalisation of air services within their region by 2015.

On 6 November 2008, ministers signed three agreements: the ASEAN Multilateral Agreement on the Full Liberalisation of Air Freight Services, which aims to ensure an efficient and competitive international air freight service in a move to promote economic growth; the ASEAN Multilateral Agreement on Air Services which will lead to the gradual removal of restrictions for greater flexibility and capacity in air freight services in the region; and the ASEAN Framework Agreement on the Facilitation of Inter-State Transport, which will pave the way for the implementation of integrated air transport services. The agreement will also contribute to the creation of a transport network linking the 10 ASEAN member states which seek to build a unified aviation market by 2015.

The agreements grant unlimited third, fourth and fifth freedom air services within and between ASEAN sub-regions, and unlimited third and fourth freedom traffic rights between ASEAN capitals to be followed by the liberalisation of fifth freedom rights beyond capital cities from the end of 2010. Individual member nations will still need to ratify the agreements, however, meaning it may still be some time before they take full effect.

A few days later, it was reported that India and ASEAN countries had taken a step forward in their longstanding plans to forge an open-skies air services agreement and intend to open formal negotiations in the coming months. The agreement will allow for multiple airline designations, unlimited route, frequency and capacity schedules, and full exercise of third, fourth and fifth freedom traffic rights, for airlines from India and all ASEAN member states. India and ASEAN have been discussing such a proposal for many years. ASEAN has also started bloc negotiations with several neighbours, including Australia, China and New Zealand.

The agreement reached between China and Taiwan in July 2008 to allow regular flights between them was a remarkable breakthrough in air services liberalisation after nearly 59 years since the last official scheduled service across the 161 km Taiwan Strait. On 4 November 2008, the two sides signed the Cross Strait Air Transport Agreement which provides for 108 direct daily passenger flights a week from December 2008, compared with just 36 previously, and 60 new cargo flights a month. Less than a year ago there were only charter flights during the key holiday periods and these flights required detours through Hong Kong, Macau or Japanese airspace.

These developments might suggest that liberalisation is at last underway in the most significant economic region in the world. However, much stands in the path of true liberalisation.

First, there is no single regional body dedicated to air transportation liberalisation. The Association of Asia-Pacific Economic Cooperation (APEC) talks a good talk when it wants to. In November 2000, the United States, Brunei, Chile, New Zealand and Singapore completed a multilateral open-skies agreement under the auspices of APEC.

This promised an open route schedule, open traffic rights including seventh freedom cargo services, open capacity, airline investment provisions which focussed on effective control and principal place of business, but protected against flag of convenience carriers; multiple airline designation; third-country code-sharing; and a minimal tariff filing regime. However, little has happened since then. ASEAN comprises only 10 nations. Significantly, Australia, China, Japan and South Korea are absent from these multilateral talks since they are not members of ASEAN. Then there are nations like Bangladesh, Maldives, Mongolia, North Korea, Pakistan, Papua New Guinea, Russia, Sri Lanka and Timor that have yet to participate in meaningful open skies discussions with ASEAN countries.

Second, restrictive clauses exist in the many bilateral agreements that Asian nations sign. The presence of nationality clauses infringes the right of airlines to non-discriminatory market access to routes between Asian countries and third countries.

Then there is economic gloom and the parallel problems with lower demand and poor yields, forcing airlines to cut back on services. The long term viability of airlines in the region is then distorted by government financial assistance encouraging the maintenance of unprofitable state owned or poorly managed private airlines which increases protectionism and moves away from open skies.

True liberalisation is a long way off meaning that cash strapped governments, airlines, consumers and freight interests alike will continue to suffer.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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