[Congressional Record Volume 141, Number 98 (Thursday, June 15, 1995)]
[Senate]
[Pages S8420-S8422]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                  UNITED STATES-JAPAN AVIATION DISPUTE

  Mr. PRESSLER. Mr. President, I rise today to discuss a matter of 
great importance to the Group of Seven summit meeting to be held this 
week in Canada. I refer to the current aviation dispute between the 
United States and Japan. The United States must stand firm in this 
dispute. It is vital to our long-term U.S. international aviation 
policy. It is critical to the future of our passenger and cargo 
carriers. The millions of consumers who use air passenger and cargo 
services in the Pacific rim deserve the best possible service at 
competitive prices set by the market.
  In recent months, many Senators have expressed views on the bilateral 
aviation negotiations between the United States and the United Kingdom. 
That interest was well-placed. In 1994, revenue for United States 
carriers between the United States and the United Kingdom was 
approximately $2.5 billion. To put the significance of the United 
States-Japan aviation dispute in perspective, in 1994 the total revenue 
value of passenger and freight traffic for United States carriers 
between the United States and Japan was approximately $6 billion.
  First, let me put to rest a misconception. The United States-Japan 
aviation dispute is a bona fide, stand alone trade issue. It 
unquestionably is a separate trade issue. Commentators who suggest our 
current aviation disagreement is inextricably linked to our automobile 
dispute with Japan are wrong. Others who cynically suggest it is more 
than coincidence that the aviation dispute has come to a head at the 
same time as the automobile dispute obviously do not know the recent 
history of the United States-Japan aviation relations.
  Plain and simple, this dispute arose as a result of actions by the 
Government of Japan to protect its less efficient air carriers from 
competing against more cost-efficient United States carriers for 
service beyond Japan to points throughout Asia. The issue is 
straightforward: Should the United States allow the Government of Japan 
to unilaterally deny United States carriers rights that are guaranteed 
to our carriers by the United States-Japan bilateral aviation 
agreement? As chairman of the Commerce, Science, and Transportation 
Committee, I believe the clear and unequivocal answer is ``no.''
  The dispute relates to our bilateral aviation agreement which has 
been in effect for more than 40 years. Over the years, that agreement 
has been modified and otherwise amended to reflect changes in the 
aviation relationship between our two countries. Pursuant to the United 
States-Japan bilateral agreement, three carriers have the right to fly 
to Japan, take on additional passengers and cargo in Japan, and then 
fly from Japan to cities throughout Asia. the U.S. carriers who are 
guaranteed fifth freedom rights, or so-called beyond rights, are United 
Airlines, Federal Express, and Northwest Airlines.
  Recently, Federal Express and United Airlines tried to exercise their 
beyond rights and notified the Government of Japan that they would 
start new service from Japan to numerous Asian cities. The Government 
of Japan refused to authorize these new routes. The bilateral agreement 
requires that such requests be expeditiously approved. In violation of 
the bilateral agreement, the Government of Japan has said it will not 
consider these route requests until the United States holds talks aimed 
at renegotiating the bilateral agreement.
  Mr. President, the consequences of the Government of Japan's 
unilateral denial of beyond rights have been significant. For example, 
Federal Express, relying on its rights under the bilateral agreement, 
invested millions of dollars in a new, Pacific rim cargo hub at Subic 
Bay in the Philippines. The Subic Bay hub is scheduled to be fully 
operational in several weeks. The Government of Japan's refusal to 
respect the terms of the bilateral agreement threatens Federal Express' 
multimillion-dollar investment. Similarly, United Airlines has already 
essentially lost the chance to provide service between Osaka and Seoul 
during the busy summer season.
  There is no doubt that the economic impact of Japan's refusal to 
recognize Federal Express and United Airlines' beyond rights has 
already been great for each of these carriers. The burden has also been 
shouldered by consumers who have been denied the benefits of a more 
competitive marketplace. As each day passes, the costs become more 
significant. Yesterday, Federal Express was forced to postpone for 30 
days its proposed July 3, 1995, opening of its Subic Bay cargo hubs.
  I point out to the Senate, that is a great loss not only for Federal 
Express but to the United States. It is our rights of moving our 
airplanes around the world, as we allow other countries to move them 
into our country.
  How did the United States and Japan get to the brink of an aviation 
trade war? Let me first dispel three myths.
  First, the aviation dispute has nothing to do with a bilateral 
aviation agreement that is fundamentally unfair to Japan. Nor does it 
really have anything to do with so-called imbalances in treaty rights 
that must be remedied. Yet, United States carriers do have an 
approximately 65 percent share of the transpacific between the United 
States and Japan. However, this is due to market forces. It has nothing 
to do with fundamental imbalances in the bilateral agreement.
  Since this goes to the heart of the issue, let me reiterate this 
point. The reason United States carriers have a larger share of the 
transpacific market than Japan carriers is due to market forces. Just 
10 years ago, under the very same bilateral agreement that the 
Government of Japan now criticizes, Japanese carriers had a larger 
market share on transpacific routes than United States competitors.
  Japanese carriers lost transpacific market share and they lost it 
fast. The reason why is simple economics. The root of this dispute also 
is simple economics. Japanese carriers have operating costs nearly 
double United States air carriers and they cannot compete with our 
carriers. For example, a passenger flying from New York to Tokyo on a 
Japanese carrier pays approximately 23 to 33 percent more for that 
service. Japanese carriers have priced themselves out of market share. 
Passengers have, so to speak, voted with their feet and selected U.S. 
carriers that have significantly lower air fares.
  Second, the aviation dispute has nothing to do with unequal beyond 
rights for Japanese carriers to serve beyond markets from the United 
States. Yes, Japan only has the right to serve on destination beyond 
the United States while United States carriers currently have the right 
to serve 10 points beyond Japan. This, however, is a statistic without 
any real significance. Higher operating costs would prevent Japanese 
carriers from competing for traffic beyond the United States even if 
Japanese carriers had a greater right to do so.
  The beyond markets the Government of Japan truly wants are the Asian 
markets. These markets, particularly service from Japan to China, are 
cash cows for Japanese carriers. There is nothing the Japanese want 
less on these routes than a good dose of American competition.
  U.S. air carriers are not the only victim of this protectionist 
effort to restrict competition in the Asian beyond markets. Consumers, 
including Japanese citizens, are big losers. For example, service on 
Japanese carriers between Hong Kong and Tokyo, a beyond route, is 
approximately 24 percent higher than on a United States carrier. Air 
fares on a Japanese carrier between Tokyo and Seoul are approximately 
20 percent higher. [[Page S8421]] 
  Third, the United States has not caused this dispute by refusing to 
renegotiate the bilateral agreement. Let me refute this myth loud and 
clear: Foreign nations who enter into agreements with the United States 
must abide by the terms of those agreements. There are no two ways 
about that.
  The Government of Japan is trying to force us to the negotiating 
table by unilaterally denying clear rights provided to United States 
carriers by the bilateral agreement. Let me add, the Japanese want 
these negotiations to increase restrictions on United States carriers 
to further protect Japanese carriers. This would be detrimental to 
United States carriers and consumers.
  That is the wrong direction negotiations should go. Aviation talks 
with the Government of Japan should focus on opening the Japanese 
market, not further restricting it.
  Also, it is the wrong way to get to the table for meaningful 
negotiations. The best way for the Government of Japan to open the door 
for negotiations of the United States-Japan bilateral agreement is to 
immediately honor and abide by the terms of the existing agreement. The 
approach the Government of Japan has taken by unilaterally denying 
rights guaranteed by the agreement is misguided, it violates 
international law, and it must not be tolerated.
  Mr. President, we are at the brink of an aviation trade war with 
Japan for one reason. Operating costs of Japanese carriers are nearly 
double those of United States carriers. Japanese carriers cannot 
compete against our more cost efficient carriers. In a June 1994 
report, Japan's Council for Civil Aviation, an advisory body to Japan's 
Transport Minister, warned that Japanese carriers need to become more 
competitive or they may not survive in international markets.
  Japan's Council for Civil Aviation is absolutely correct. The 
solution is for Japanese carriers to become more competitive. Instead, 
as reflected by this dispute, the Government of Japan has chosen to 
prescribe yet another dose of protectionism.
  Mr. President, on May 17, 1995, I urged President Clinton to take 
whatever steps deemed necessary and reasonable to assure that the 
Government of Japan abides by the terms of the United States-Japan 
bilateral aviation agreement. I ask that a copy of that letter be 
printed at the end of my statement in the Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See exhibit 1.)
  Mr. PRESSLER. Today, I again urged the administration to stand firm 
in our aviation dispute with Japan and to take whatever steps it deems 
necessary and reasonable to protect rights given to our carriers by the 
United States-Japan bilateral agreement.
  Mr. President, at the beginning of these remarks, I mentioned the 
importance of the aviation rights issue to the Group of Seven Summit 
meeting to take place this week. I believe the Group of Seven leaders 
are in a position to promote a new system for aviation rights to 
replace the confusing web of bilateral agreements we now have.
  That is something we have to do, and in the Commerce Committee one of 
my goals is to find a way that we can replace this bilateral aviation 
system with a new system for aviation rights.
  We have a confusing web of bilateral agreements. I hope up there in 
Halifax, the Group of 7, especially I hope President Clinton talks to 
the Japanese about this situation.
  Top-level leadership can bring about such a reform. I recommend to my 
colleagues an article I wrote for the June 7 edition of the Seattle 
Post-Intelligencer, ``Rules for World Air Transport Need Overhaul.''
  Mr. President, I ask unanimous consent the article be printed in the 
Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See exhibit 2).
                               Exhibit 1

         U.S. Senate, Committee on Commerce, Science, and 
           Transportation,
                                     Washington, DC, May 17, 1995.
     Hon. William J. Clinton,
     The President, The White House, Washington, DC.
       Dear Mr. President: As Chairman of the Senate Committee on 
     Commerce, Science, and Transportation, I am writing to urge 
     you to take whatever steps you deem necessary and reasonable 
     to assure the Government of Japan abides by the terms of the 
     United States/Japan bilateral aviation agreement.
       Since the early 1990s, the Government of Japan has 
     routinely ignored the clear language of the U.S./Japan 
     bilateral aviation agreement and in doing so has denied 
     several U.S. air carriers permission to serve points in Asia 
     from Japan. Recently, the Government of Japan failed to 
     approve Federal Express' request for a route between Osaka 
     and Subic Bay, the location of Federal Express' new cargo hub 
     in the Philippines. Similarly, the Government of Japan 
     rejected United Airlines' request to commence service between 
     Osaka and Seoul. These carriers are guaranteed ``beyond 
     rights'' by the bilateral agreement, each made economic 
     decisions based on these rights, and the Government of Japan 
     should honor its agreement.
       Mr. President, the United States must require foreign 
     nations to abide by the terms of international aviation 
     agreements with our country. International aviation 
     opportunities are critical to U.S. passenger and cargo 
     carriers, as well as the thousands of individuals they 
     employ, their customers and the communities they serve.
           Sincerely,
                                                   Larry Pressler,
                                                         Chairman.
                               Exhibit 2

          [From the Seattle Post-Intelligencer, June 7, 1995]

              Rules for World Air Transport Need Overhaul

                          (By Larry Pressler)

       Since the early 1990s, the Japanese government routinely 
     has violated its bilateral aviation agreement with the United 
     States. Japan currently is holding up approval of new routes 
     involving ``beyond rights'' for Federal Express and United 
     Airlines, even though those carriers explicitly enjoy such 
     rights in the U.S.-Japanese agreement.
       ``Beyond rights'' means that the Japanese government allows 
     a U.S. carrier to arrive in Japan from the United States, 
     unload and take on cargo or passengers and then fly to a 
     third country. Japan's denial of routes is an explicit 
     violation of the U.S.-Japan bilateral air agreement. 
     Meanwhile, a more fundamental inequity is that only three 
     U.S. carriers enjoy ``beyond rights'' with Japan, while Japan 
     has denied five other American carriers such transit rights.
       Japan apparently believes that by violating its air 
     agreement with the United States, it can induce the United 
     States to renegotiate the agreement on terms more favorable 
     to Japan. That is unacceptable. I have urged President 
     Clinton to take whatever measures he deems necessary and 
     reasonable to get Japan back into compliance with the 
     agreement.
       Meanwhile, I urge the U.S. and Japanese governments to use 
     their economic leverage and political skills to advance the 
     longer-range project of global reform of international air-
     transport agreements.
       The existing system of bilateral agreements is a bad 
     arrangement. An outmoded patchwork of rules has international 
     air transport stalled in a holding pattern. Instead of a 
     uniform global agreement such as the General Agreement on 
     Tariffs and Trade, there are about 3,500 different nation-to-
     nation air-transport agreements. That makes for babel of 
     confusion and inefficiency.
       Many countries have insisted upon agreements heavily 
     protectionist in favor of their own national airlines. Others 
     sharply limit the number of U.S. carriers allowed into their 
     markets, fomenting rivalries between carriers having access 
     vs. those that do not. Still other nations impose 
     discriminatory cargo processing and freight-fowarding delays 
     on the ground. All such arrangements put a drag on economic 
     growth in America and around the world.
       In Asia, the need for reform is especially important. The 
     world has high hopes for continuation of the ``Asian 
     miracle'' in economic growth. This phenomenon could be badly 
     dimmed, however, without aviation reform. American air 
     carriers' restricted access in Asia impairs our ability to 
     enhance and share in Pacific Rim growth.
       At Kimpo Airport in Seoul, for instance, U.S. and other 
     non-Korean airlines are banned from operating domestic 
     trucking companies. That increases costs and adds delay to 
     freight delivery. At Tokyo's Narita Airport and Hong Kong's 
     Kai Tak Airport, numerous other so-called ``doing business'' 
     problems hamper foreign carriers.
       Asia is not the only so-called source of friction for U.S. 
     air carriers. The United Kingdom and France, for example, 
     also have highly protectionist air access policies. Indeed, 
     while world economic growth naturally depends on efficient 
     transportation, transportation remains the most politically 
     restrictive area of commerce.
       The rules for world air-transport access need a complete 
     overhaul. To accomplish that, we need a sense of mission, a 
     model and top-level leadership.
       The mission should transcend protecting the status quo. We 
     need to keep our eyes on prizes for the next generation: 
     commercial air routes and markets less developed now but 
     clearly with great potential in years to come. China, India 
     and Southeast Asia are examples; Russia and East Europe are 
     others. Our policies need to keep opportunities open not just 
     for existing companies, but also for the enterprises of 
     tomorrow. [[Page S8422]] 
       In form, a model for air-transport liberalization is the 
     GATT: a multilateral, uniform, global agreement. In 
     substance, the global air agreement should provide ``open 
     skies.'' An example of this open arrangement is the U.S.-
     Netherlands agreement. It allows Dutch air service full 
     access into any U.S. city, with reciprocal rights for U.S. 
     carriers.
       Transforming a complicated web in international 
     protectionism can't be done without leadership at the highest 
     level. While I will use the chairmanship of the Senate 
     Commerce, Science and Transportation Committee as a ``bully 
     pulpit'' for reform, it is imperative that the cause have 
     leadership from world heads of state.
       I urge President Clinton to put world aviation reform on 
     the agenda for the next Group of Seven Summit of the major 
     industrialized nations. With attention at this level, we can 
     get done what needs to be done.
     

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