International Aviation: DOT's Efforts to Promote U.S. Air Cargo Carriers'
Interests (Chapter Report, 10/18/96, GAO/RCED-97-13).
Pursuant to a congressional request, GAO reviewed U.S. air cargo
airlines' reported problems in doing business abroad, focusing on the:
(1) nature of the airlines' problems; (2) actions the affected airlines
and the Departments of Transportation (DOT) and State have taken to
resolve these problems; (3) extent to which the U.S. government has
addressed air cargo issues in policymaking and during bilateral aviation
negotiations; and (4) possibilities for separating negotiations of air
cargo services from broader negotiations that include passenger
services.
GAO found that: (1) the 22 U.S. all-cargo airlines surveyed reported
various restrictions that significantly affect their business at 81
airports abroad, particularly foreign regulation in Latin America and
the Asia-Pacific region; (2) problems involve permits, air routes,
customs, airport policies and fees, ground transportation,
ground-handling activities, and marketing and distribution; (3) 18 of
the carriers have tried to resolve most of these problems themselves,
partly because they consider the problems as being beyond U.S.
government control and a cost of providing services at these airports;
(4) 7 of the 10 carriers that requested DOT or State assistance in
resolving their problems were generally satisfied with the aid they
received, but 2 airlines were unaware that assistance was available; (5)
DOT and State have not systematically disseminated information on
available assistance, but DOT has established a database to monitor U.S.
airlines' problems in doing business abroad so that it could better
establish priorities and strategies to address the most serious
problems; (6) U.S. delegations have raised air cargo issues in more than
three-quarters of the bilateral talks they have engaged in since 1989,
but restrictions persist despite expansion of U.S. all-cargo carriers'
opportunities; and (7) interested parties have suggested separating
air-cargo negotiations from those that address passenger services,
holding multilateral negotiations, and allowing direct participation of
affected airlines in negotiations to promote liberalization of air cargo
services, but these approaches may not be practical or appropriate and
could increase negotiating costs.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-97-13
TITLE: International Aviation: DOT's Efforts to Promote U.S. Air
Cargo Carriers' Interests
DATE: 10/18/96
SUBJECT: International agreements
Air transportation operations
Freight transportation operations
Restrictive trade practices
Commercial aviation
Airports
Airline regulation
Competition limitation
International economic relations
Foreign governments
IDENTIFIER: DOT U.S. International Air Transportation Policy Statement
Asia
Europe
Latin America
Pacific Region
Canada
Japan
Philippines
United Kingdom
Brazil
Mexico
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Cover
================================================================ COVER
Report to Congressional Requesters
October 1996
INTERNATIONAL AVIATION - DOT'S
EFFORTS TO PROMOTE U.S. AIR CARGO
CARRIERS' INTERESTS
GAO/RCED-97-13
International Aviation
(341421)
Abbreviations
=============================================================== ABBREV
AFA - Air Freight Association
ATA - Air Transport Association of America
DOT - Department of Transportation
EU - European Union
GAO - General Accounting Office
IATA - International Air Transport Association
ICAO - International Civil Aviation Organization
NACA - National Air Carrier Association
TAMPA - Transportes Aereos Mercantiles Panamericanos
USTR - Office of the U.S. Trade Representative
Letter
=============================================================== LETTER
B-261964
October 18, 1996
The Honorable Larry Pressler
Chairman, Committee on Commerce,
Science, and Transportation
United States Senate
The Honorable John McCain
Chairman
The Honorable Wendell H. Ford
Ranking Minority Member
Subcommittee on Aviation
Committee on Commerce, Science,
and Transportation
United States Senate
As you requested, this report summarizes U.S. air cargo airlines'
reported problems in doing business abroad and examines the efforts
of the departments of Transportation and State to address these
airlines' interests and concerns in the international marketplace.
We are sending copies of this report to the Secretary of
Transportation; the Secretary of State; the Director, Office of
Management and Budget; and other interested parties. We will also
send copies to others upon request.
If you have any questions, please call me at (202) 512-3650. Major
contributors to this report are listed in appendix V.
Sincerely yours,
Gerald L. Dillingham
Associate Director,
Transportation Issues
EXECUTIVE SUMMARY
============================================================ Chapter 0
PURPOSE
---------------------------------------------------------- Chapter 0:1
In 1995, the value of U.S. exports and imports moving by air was
$355 billion, accounting for 27 percent of all U.S. trade. U.S.
all-cargo airlines carried about 60 percent of the freight hauled by
U.S. airlines. But all-cargo airlines often face obstacles in
operating abroad that lessen their efficiency and competitiveness.
Concerned about the international interests of U.S. all-cargo
airlines, the Chairman of the Senate Committee on Commerce, Science,
and Transportation and the Chairman and Ranking Minority Member of
its Subcommittee on Aviation asked GAO to address the following
questions:
-- What are the problems that all-cargo airlines face in doing
business abroad, and what actions have the affected airlines and
the U.S. government taken to resolve these problems?
-- To what extent has the U.S. government addressed air cargo
issues in policymaking and during bilateral aviation
negotiations, and what are the possibilities for separating
negotiations of air cargo services from broader negotiations
that include passenger services?
BACKGROUND
---------------------------------------------------------- Chapter 0:2
International aviation is governed by bilateral agreements that grant
airlines specific traffic rights to serve a market, such as the
routes to be flown, the number of airlines that fly the routes, and
the number of flights that can be operated. The United States has
traditionally negotiated these agreements with other countries as
part of a comprehensive exchange of rights covering both passenger
and cargo services. However, all-cargo airlines also need ancillary
rights that differ significantly from those required for passenger
services, such as the right to operate pickup and delivery services
on the ground. When these ancillary rights are in dispute, the
results are commonly termed "doing-business problems."\1
The Department of Transportation (DOT), in coordination with the
State Department, is responsible for developing U.S. international
aviation policy and takes the lead in formulating measures to
resolve, to the extent possible, U.S. airlines' problems in doing
business abroad. While foreign airlines complain of problems in
doing business in the United States, including excessive costs and
inadequate facilities and services, they have reported fewer such
problems than U.S. airlines have reported in doing business
overseas.
The State Department promotes U.S. aviation interests abroad and
chairs bilateral negotiations and coordinates DOT's actions with U.S.
foreign policy. In 1995, DOT's U.S. International Air
Transportation Policy Statement affirmed the U.S. government's
approach of conducting comprehensive bilateral negotiations that
cover both passenger and cargo services but stated the government's
willingness to consider negotiating agreements dealing exclusively
with cargo services. In the first such instance to occur since then,
in March 1996 the United States and Japan concluded an agreement on
air cargo services.
For this report, GAO surveyed the 26 U.S. airlines authorized by DOT
and operating international all-cargo services as of September 1995.
Twenty-two responded, including three major airlines, nine national
airlines, and nine regional airlines.\2 These airlines carried about
60 percent of the freight hauled by U.S. airlines in 1994.\3
--------------------
\1 See International Aviation: DOT Needs More Information to Address
U.S. Airlines' Problems in Doing Business Abroad (GAO/RCED-95-24,
Nov. 29, 1994).
\2 DOT classifies airlines as major, with annual revenues over $1
billion; national, with annual revenues of $100 million to $1
billion; and regional, with annual revenues under $100 million. One
airline that responded to GAO's survey is not required to report
financial data to DOT and, thus, is not classified.
\3 Two airlines that responded to GAO's survey are not required to
report traffic data to DOT.
RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3
The 22 U.S. all-cargo airlines that responded to GAO's survey
described a range of obstacles to doing business abroad that impairs
their competitiveness. These airlines reported experiencing
significant problems at 81 foreign airports.\4 The most pervasive
problems were related to regulation by foreign governments and
foreign aviation authorities, such as difficulty getting cargo
cleared through customs. The vast majority of these problems were
reported at airports in Latin America and the Asia/Pacific region.
Faced with these problems, 18 of the 22 all-cargo carriers have
attempted to resolve the majority of these problems themselves,
indicating in several instances that they consider any added expense
as a cost of providing service at the airports. Seven of the 10
airlines that have requested assistance from either DOT or the State
Department in resolving their problems have reported being generally
satisfied with the aid they received. But two all-cargo airlines
said they were unaware of the assistance that was available.
U.S. delegations have raised air cargo issues to some extent in
their negotiations with more than three-quarters of the countries
with which bilateral talks have been held since 1989. The resulting
agreements have generally expanded the opportunities for U.S.
all-cargo carriers, but restrictions persist. As a remedy, 13 of the
22 U.S. all-cargo airlines advocate separating negotiations of air
cargo rights from broader negotiations that also address passenger
rights. While in some cases this approach could foster the
liberalization of international air cargo services, it may not be
practical or appropriate on a regular basis, according to some
industry analysts and DOT and State Department officials.
--------------------
\4 The 22 U.S. airlines responding to GAO's survey indicated that
they provided scheduled and charter all-cargo services at 197 foreign
airports in 1995. However, the problems that they reported in doing
business abroad were not limited to those affecting only services
they provided that year.
PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4
U.S. ALL-CARGO AIRLINES
REPORT PROBLEMS IN DOING
BUSINESS ABROAD
-------------------------------------------------------- Chapter 0:4.1
Like U.S. passenger/cargo airlines, U.S. all-cargo airlines report
a variety of operating and marketing restrictions abroad that limit
their ability to serve their customers, raise their costs, reduce
their operating efficiency, and generally impair the competitiveness
of their services. All-cargo carriers reported experiencing such
problems at 107 foreign airports, characterizing the problems at 81
of these airports as having a significant impact on their operations.
The most pervasive problems--which derive from foreign governments'
regulation--were cited at 50 of the 81 airports. At 25 of these
airports, airlines complained about burdensome legal and
administrative requirements imposed by foreign government agencies,
such as a requirement for the airlines to complete what they perceive
as excessive paperwork before being allowed to serve the airports.
Other regulatory problems included these agencies' (1) denying
all-cargo airlines the right to fly on authorized routes and (2) when
granting authorization, delaying the issuance of the necessary flight
permits.
At almost half of the airports where the reported problems were
characterized as having a significant impact on U.S. airlines'
operations and were linked to foreign governments' regulation, the
problems stem from the actions of agencies that have no direct
jurisdiction over aviation, such as customs ministries. Such
problems, cited at 22 airports, include difficulty in getting cargo
cleared through customs and restrictions on airlines' ability to
truck cargo off airport property. GAO found in its November 1994
report that these types of problems can often arise from a country's
overall trade policies.
All-cargo airlines also reported problems with foreign airports'
policies and fees (cited at 48 airports); restrictions on
"ground-handling," which includes a range of activities, such as
refueling aircraft and handling cargo (cited at 31 airports); and
restrictions on marketing and distribution, such as constraints on
local advertising and requirements to use particular freight
forwarders (cited at 13 airports). DOT officials said, however, that
many of the problems cited by the airlines did not reflect
discrimination against U.S. airlines but affected all airlines
operating at the airports.
In addressing these problems, 18 of the 22 U.S. all-cargo airlines
that responded to GAO's survey explained that they generally have not
requested assistance from DOT or the State Department; rather, they
have attempted to develop their own solutions to the problems or have
just lived with them in an effort to preserve good relations with the
host country. Ten airlines turned to the U.S. government for help
in several instances, and seven of them reported that they were
generally satisfied with the assistance provided, even if it did not
resolve the problems.
Two airlines reported that they were unaware of the services that DOT
and the State Department could offer in resolving their problems.
Neither agency has systematically provided the airlines with guidance
on the assistance it can provide or on how to obtain its assistance.
However, in response to a recommendation in GAO's November 1994
report, DOT established a database to monitor the status of U.S.
airlines' problems so that it could better establish priorities and
strategies to address the most serious problems. DOT asked two
industry associations (the Air Transport Association and the National
Air Carrier Association) to notify their members of the database and
to request relevant information. But only 9 of the 22 all-cargo
airlines are members of either association. Consequently, the
airlines that are not members--mostly regional carriers--were unaware
of DOT's efforts to collect such data and have provided no
information to assist DOT in establishing priorities.
AGREEMENTS HAVE EXPANDED
OPPORTUNITIES, BUT MOST
ALL-CARGO CARRIERS FAVOR
DEDICATED NEGOTIATIONS
-------------------------------------------------------- Chapter 0:4.2
From a review of the records of U.S. aviation negotiations (about
three-quarters of which addressed cargo issues to some extent) and
the resulting agreements concluded between January 1989 and March
1996, GAO found that 32 of the 74 accords contained provisions
governing all-cargo services. These agreements have generally
expanded the opportunities for U.S. all-cargo airlines.
Nevertheless, three-quarters of the agreements also include various
restrictions on services, including limits on the number of airlines
allowed to operate and restrictions on their ability to operate
flights from host-country airports to other foreign destinations.
Thirteen of the all-cargo airlines that GAO surveyed advocate
independently negotiating for all-cargo rights as a way to better
address their needs. According to some of these airlines, DOT and
State Department officials, and other industry observers, this
approach could foster the liberalization of air cargo services by
allowing negotiators to focus on cargo issues. However, several of
these experts also expressed the opinion that such an approach faces
several obstacles. Most foreign countries do not have major
all-cargo airlines; instead, they have passenger airlines that carry
cargo as well as passengers. In these countries, the governments
might be unable to conduct separate negotiations of air cargo and
passenger rights. Furthermore, U.S. negotiators would be unable to
reciprocally exchange cargo for passenger rights, and their
flexibility in negotiations could thus be lessened. Finally,
separate talks could increase the costs for staff and travel at the
U.S. offices involved.
The all-cargo negotiations with Japan demonstrate both the advantages
and disadvantages of a dedicated approach. While the final agreement
with Japan expands opportunities for U.S. all-cargo airlines, U.S.
negotiators point out that both sides were concerned about any
precedent that might be set for subsequent negotiations of passenger
services, so the agreement did not eliminate as many restrictions as
anticipated. Also, concluding the agreement on air cargo services
has not accelerated negotiations of passenger service issues.
RECOMMENDATIONS
---------------------------------------------------------- Chapter 0:5
GAO recommends that the Secretary of Transportation
-- develop and distribute to all U.S. airlines information on the
assistance available and guidance on the procedures to be
followed in requesting aid from the U.S. government for
resolving problems in doing business abroad and
-- extend DOT's current effort to collect information on the status
and severity of U.S. airlines' problems in doing business
abroad to include all U.S. all-cargo airlines that operate
internationally.
AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:6
GAO provided a draft of this report to the departments of
Transportation and State for their review and comment. DOT and State
Department officials generally agreed with the report's conclusions
and recommendations and offered some technical and clarifying
comments, which have been incorporated in the report.
INTRODUCTION
============================================================ Chapter 1
The importance of airborne trade to the U.S. economy has steadily
increased over the last 20 years, and the international movement of
goods by air is critical to many U.S. export industries. The
international aviation market is, however, heavily regulated by
bilateral agreements between countries, which often limit airlines'
traffic rights--the routes they can fly and the frequency with which
they can fly those routes. The departments of Transportation (DOT)
and State have traditionally negotiated these agreements as part of a
comprehensive exchange covering both passenger and air cargo
services. However, air cargo services have characteristics and needs
that differ significantly from those of passenger services--most
prominently the need to move and store cargo on the ground. When
these needs are not met, the competitiveness of these services is
compromised.
INTERNATIONAL AIR CARGO
SERVICES ARE VITAL TO U.S.
TRADE
---------------------------------------------------------- Chapter 1:1
International air cargo services play a vital role in facilitating
U.S. trade.\1 As shown in figure 1.1, since 1975 the airborne share
of the value of U.S. exports has more than doubled, and the airborne
share of imports has almost tripled. In 1995, the value of U.S.
airborne trade reached $355 billion, accounting for 31 percent of
U.S. exports and 23 percent of imports--or 27 percent of all U.S.
trade. U.S. airlines generated about $3.9 billion in revenues from
international freight operations that year, according to DOT's data.
Figure 1.1: Airborne Trade as
a Percentage of the Value of
U.S. Exports and Imports,
1975, 1985, 1990-95
(See figure in printed
edition.)
Source: Department of Commerce, Bureau of the Census.
The development of global systems for producing and distributing
goods and an attendant increase in the use of "just-in-time"
inventory systems, which reduce the need to warehouse spare parts and
finished products, have contributed, in part, to the growth of
international air cargo services. Some analysts consider the
efficiency of such supply chains to be an increasingly important
competitive advantage in numerous industries. International air
transport is critical to shippers who need speed and reliability.
This means of transport is particularly appropriate for moving goods
that (1) have high value-to-weight ratios, (2) are fragile, (3) are
physically or economically perishable, and/or (4) are subject to
unpredictable demand patterns. Almost 70 percent of the exports of
U.S. computers and office equipment and over half of the exports of
U.S. communications equipment moved by air in 1994.
From 1990 to 1995, airfreight traffic between the United States and
foreign countries grew by 50 percent. This traffic accounted for
approximately 38 percent of the world's estimated total airfreight
traffic in 1994, the last year for which data are available. The
trade to and from Latin America almost doubled. Europe and the
Asia/Pacific region are the largest air trade markets for the United
States, accounting for about 70 percent of the country's air trade by
weight in 1995. Furthermore, according to the Boeing Commercial
Airplane Group's forecast for airfreight traffic,\2 international
markets offer the greatest opportunities for U.S. airlines to expand
their freight operations--the rate of growth in almost all
international airfreight markets is forecast to exceed that of the
U.S. domestic market.
--------------------
\1 Throughout this report, air cargo and airfreight will be used
interchangeably to mean property, but not mail.
\2 1995 World Air Cargo Forecast (Aug. 1995).
AIR CARGO INDUSTRY HAS UNIQUE
OPERATING REQUIREMENTS
---------------------------------------------------------- Chapter 1:2
The international air cargo industry comprises three types of
carriers: (1) integrated all-cargo carriers, such as Federal
Express, that operate cargo-only aircraft and primarily offer express
door-to-door delivery of shipments; (2) scheduled and charter
all-cargo carriers that operate cargo-only aircraft and primarily
offer airport-to-airport service; and (3) passenger/cargo carriers
that carry cargo on board passenger aircraft but also may operate
cargo-only aircraft, and primarily offer airport-to-airport delivery.
Air cargo services have significantly different operating
requirements from passenger services. First, unlike most passengers,
air cargo moves in one direction only. This frequently results in
directional imbalances in the flow of cargo traffic. To operate
economically, a cargo carrier must have the flexibility to alter
routings to take advantage of changes in traffic flows. Because most
cargo is inanimate, it is also less sensitive than passengers to the
number of stops made en route, to the directness of routing, or to
changes in aircraft. Nevertheless, speed is usually critical to
competitive air cargo services. According to DOT, rights to serve
destinations without restrictions, along with the ability to route
services flexibly, are even more important for efficiency in cargo
operations than in passenger operations. Finally, the movement and
storage of air cargo on the ground are vital for cargo services. For
express carriers offering door-to-door service, the ability to
operate pickup and delivery service--that is, to have intermodal
rights--is essential for competitiveness.
All-cargo carriers hauled almost 60 percent of the international
freight carried by U.S. airlines--over 1.3 million tons in 1994.\3
As shown in table 1.1, services by U.S. all-cargo airlines are
particularly important in Latin America and the Asia/Pacific region,
where they carried over 70 percent of the freight transported by U.S.
airlines in 1994.
Table 1.1
U.S. All-Cargo Airlines' Share of
Freight Transported by U.S. Airlines, by
Region, 1994
Tons All-cargo
transported airlines'
by U.S. all- share of
Total U.S. cargo U.S. total
Region tons airlines (percent)
---------------------------- ------------ ------------ ------------
Africa 4,340 701 15.9
Asia/Pacific 769,669 545,762 70.9
Canada 41,451 23,494 56.7
Europe 668,863 181,485 27.1
Latin America 759,746 569,060 74.9
Middle East 14,694 8,102 55.1
======================================================================
Total 2,258,763 1,328,604 58.8
----------------------------------------------------------------------
Source: DOT.
--------------------
\3 This figure includes the freight carried by Northwest Airlines, a
passenger/cargo airline that also operates cargo-only aircraft.
U.S. AIRLINES ENJOY LESS
SUCCESS IN INTERNATIONAL
FREIGHT MARKETS THAN IN
PASSENGER MARKETS
---------------------------------------------------------- Chapter 1:3
In 1994, U.S. airlines flew more scheduled international freight
ton-miles--about 16 percent of the world total--than the airlines of
any other country.\4 Nonetheless, U.S. carriers have not competed as
successfully in international freight markets as they have in
international passenger markets. From 1990 through April 1995, U.S.
airlines achieved a 40.7-percent share of the U.S. international
freight market, on average. By comparison, U.S. passenger/cargo
airlines averaged a 53.3-percent share of the U.S. international
passenger market during the same period. Notably, according to DOT's
data for 1994, airlines from foreign countries other than those where
the freight originated or was destined--so-called third-country
carriers--obtained a 21-percent share of the traffic in the 20
leading U.S. international freight markets.
Most international airfreight is carried by major foreign
passenger/cargo airlines. In contrast to the U.S. domestic market,
where integrated all-cargo carriers carry about 60 percent of the
freight traffic, the majority of the world's scheduled freight
traffic is carried by passenger/cargo airlines--almost 60 percent in
1994, according to the Air Cargo Management Group, an air cargo
consulting firm. The comparatively small U.S. share of
international freight traffic is due, in part, to the greater
emphasis foreign passenger/cargo airlines have traditionally placed
on freight operations compared with U.S. passenger airlines. U.S.
passenger/cargo airlines have historically viewed cargo services as a
by-product of their passenger services, and all but one of these
airlines had ceased operating cargo-only aircraft until this year.
Northwest Airlines was the only major U.S. airline operating such
aircraft in 1995, though both United Airlines and Continental
Airline's subsidiary, Continental Micronesia, recently announced
plans to begin all-cargo services in the Asia/Pacific region. By
contrast, many major foreign passenger/cargo airlines, such as KLM
Royal Dutch Airlines, Air France, and Lufthansa, operate all-cargo
aircraft or so-called "combi" aircraft, on which cargo is carried in
the main compartment of the passenger aircraft in addition to the
bellyholds.
Appendix I contains additional information on the status of the
international airfreight industry.
--------------------
\4 A freight ton-mile, the standard measure of airfreight activity,
is 1 ton of freight flown 1 mile.
DOT AND THE STATE DEPARTMENT
NEGOTIATE BILATERAL AGREEMENTS
AND TRY TO RESOLVE PROBLEMS
---------------------------------------------------------- Chapter 1:4
Under a framework established by the Chicago Convention in 1944,
international aviation is largely governed by bilateral agreements.
Two countries negotiate the air transport services between them and
award airlines traffic rights. In general, traffic rights determine
(1) which routes can be served between the countries and between them
and third countries; (2) what services airlines can provide (e.g.
scheduled or charter); (3) how many airlines from each country can
fly the routes; and, in some case (4) how frequently flights can be
offered.
For the United States, the responsibility for developing
international aviation policy and negotiating bilateral agreements
resides with DOT and the State Department. Traditionally, these
agencies have negotiated bilateral agreements as part of a
comprehensive exchange of rights covering both passenger and cargo
services. In 1989, DOT issued a statement of U.S. air cargo policy
that established specific negotiating objectives designed to ensure
the least restrictive operating environment for U.S. air cargo
services.\5 The 1989 statement reiterated DOT's traditional policy of
conducting comprehensive negotiations as the best means to
accommodate the international interests of all-cargo airlines. DOT's
1995 international aviation policy added the agency's willingness to
consider negotiating bilateral agreements that cover only cargo
services.\6
The State Department also helps develop aviation policy and is
responsible for chairing negotiations with foreign governments and
coordinating DOT's actions with overall U.S. foreign policy.
Under 49 U.S.C., section 41310, the Secretaries of State and
Transportation, as well as the heads of other agencies, are required
to take all appropriate action to eliminate any discrimination or
unfair competitive practices faced by U.S. airlines overseas. U.S.
carriers can file formal complaints with DOT about such practices.
DOT takes the lead in formulating policies and countermeasures to
resolve such problems, which are regulatory obstacles, administrative
inefficiencies, or restrictive practices that inhibit airlines from
fully exercising the rights available to them under bilateral
aviation agreements or that reduce the competitiveness of their
services.
--------------------
\5 Statement of U.S. International Air Cargo Policy, DOT Order
89-5-29 (May 1989).
\6 U.S. International Air Transportation Policy Statement (Apr.
1995).
OBJECTIVES, SCOPE, AND
METHODOLOGY
---------------------------------------------------------- Chapter 1:5
Concerned about the international interests of U.S. all-cargo
airlines, the Chairman of the Senate Committee on Commerce, Science,
and Transportation and the Chairman and Ranking Minority Member of
its Subcommittee on Aviation asked us to address the following
questions:
-- What are the problems that all-cargo airlines face in doing
business abroad, and what actions have the affected airlines and
the U.S. government taken to resolve these problems?
-- To what extent has the U.S. government addressed air cargo
issues in policymaking and during bilateral aviation
negotiations, and what are the possibilities for separating
negotiations of air cargo services from broader negotiations
that include passenger services?
To identify the problems that U.S. all-cargo airlines face when
operating abroad, we designed a questionnaire asking the airlines to
catalog any such problems and assess their impact. The questionnaire
was pretested with representatives of five all-cargo airlines. We
then surveyed the 26 U.S. air carriers that, as of September 1995,
operated cargo-only aircraft and were authorized by DOT to offer
scheduled or charter international all-cargo services. We did not
attempt to verify the existence of problems or their impact. As
agreed with the requesters' offices, we pledged that the airlines'
responses would be kept confidential. We received responses from 22
of the airlines, for a response rate of about 85 percent. The 22
airlines included 3 major airlines, 9 national airlines, and 9
regional airlines. These airlines carried about 60 percent of the
freight carried by U.S. airlines in 1994. A copy of the
questionnaire can be found in appendix IV.
To examine the actions taken by U.S. all-cargo airlines and the U.S.
government to resolve the airlines' problems abroad, the
questionnaire asked respondents to describe their efforts to settle
the problems and evaluate the assistance they received from DOT and
the State Department, if any was requested. We also interviewed
officials from DOT's Office of International Aviation and the State
Department's offices of Aviation Programs and Policy and Aviation
Negotiations.
To describe the disposition of cargo issues during policymaking and
bilateral aviation negotiations, we reviewed relevant documents from
DOT and the State Department, including DOT's May 1989 statement of
air cargo policy and April 1995 statement of international aviation
policy, and spoke with DOT and State Department officials. We also
reviewed applicable laws and reviewed U.S. aviation agreements
concluded between January 1989 and March 1996. In addition, we
reviewed the detailed notes of aviation negotiations recorded by
representatives of the Air Transport Association (ATA) who were
present at the discussions.\7 We also interviewed DOT and State
Department officials about aviation policymaking and bilateral
negotiations. Our questionnaire asked survey respondents to evaluate
the performance of these agencies in meeting their needs. Finally,
we interviewed representatives of individual U.S. all-cargo and
passenger/cargo airlines, the Air Freight Association (AFA), ATA, and
the National Air Carrier Association (NACA).
To examine the possibilities for negotiating air cargo services
separately from broader negotiations that include passenger services,
our questionnaire asked respondents for their views. For this issue,
we also interviewed officials representing the U.S. government, U.S.
airlines, foreign governments, the European Union, and aviation trade
associations.
We also provided copies of a draft of this report to the departments
of Transportation and State for their review and comment.
Our work was conducted from August 1995 through September 1996 in
accordance with generally accepted government auditing standards.
--------------------
\7 ATA is the trade organization representing the largest U.S.
international airlines. ATA representatives are members of official
U.S. delegations during aviation negotiations and maintain detailed
records of discussions.
U.S. ALL-CARGO AIRLINES REPORT
PROBLEMS IN DOING BUSINESS ABROAD
============================================================ Chapter 2
U.S. all-cargo airlines reported that they encounter many of the
same types of problems in doing business at overseas airports that we
identified in a prior study.\1 The most significant problems, such as
delays in clearing cargo through customs, are related to the
regulation of aviation and international trade by foreign government
agencies. The vast majority of these problems, which make U.S.
carriers less effective competitors in the international marketplace,
occur at airports located in Latin America and the Asia/Pacific
region. The U.S. all-cargo carriers noted that they often accept
these problems as a cost of operating at the airports involved or
attempt to resolve them without the U.S. government's assistance in
an effort to preserve good relations with the host country. Foreign
airlines also face problems in doing business in the United States.
However, foreign airlines have reported fewer problems doing business
here than U.S. airlines have reported having abroad. In cases in
which DOT's or the State Department's assistance was requested, most
all-cargo airlines indicated that they were generally satisfied with
the agencies' efforts. Nevertheless, some all-cargo airlines
indicated that they were not aware of DOT's or the State Department's
ability to provide assistance. Finally, DOT's gathering of
information on doing-business problems has not been comprehensive
because the agency has not notified all all-cargo airlines of its
efforts.
--------------------
\1 Although our November 1994 review focused on the operations of
U.S. passenger/cargo airlines, we also examined the problems faced
by Federal Express and United Parcel Service. See International
Aviation: DOT Needs More Information to Address U.S. Airlines'
Problems in Doing Business Abroad (GAO/RCED-95-24, Nov. 29, 1994).
CARRIERS REPORT A WIDE RANGE OF
OBSTACLES
---------------------------------------------------------- Chapter 2:1
As we earlier found with major U.S. passenger/cargo airlines, U.S.
all-cargo airlines report a variety of obstacles in doing business
abroad that raise their costs and impair their operating efficiency.
The 22 airlines that responded to our survey of U.S. international
all-cargo carriers reported experiencing such problems at 107 foreign
airports.\2 The respondents indicated that these problems
significantly affected their operations at 81 of these airports, many
of which are located in 9 of the top 10 U.S. international
airfreight markets for 1994.\3 These problems include (1) regulation
by foreign governments, such as delays in clearing cargo through
customs; (2) restrictive policies and inadequate services at foreign
airports; (3) restrictions on ground-handling operations, such as
limitations on loading and unloading cargo; and (4) limitations on
how airlines can market their services in local markets. These
problems affect airlines of all sizes providing both scheduled and
charter services, although they may have a greater economic impact on
small airlines. According to DOT officials, however, many of the
problems cited by the survey respondents did not reflect
discrimination against U.S. airlines but affected all airlines
operating at the airport.
Appendix II summarizes the 22 U.S. all-cargo airlines' reports of
significant problems in doing business and the number of airports at
which they occur.
--------------------
\2 Our survey went to 26 all-cargo airlines. (See table II.1.) The
22 U.S. airlines responding to our questionnaire indicated that they
provided scheduled and charter all-cargo services at 197 foreign
airports in 1995. However, the problems in doing business that they
reported were not limited to those affecting the services they
provided in 1995.
\3 We are reporting only the "significant" problems identified by
U.S. all-cargo airlines, defined as those problems that the airlines
said negatively affected their operations to a "great" or "very
great" extent.
REGULATION BY FOREIGN
GOVERNMENTS LIMITS MARKET
ACCESS AND RAISES OPERATING
COSTS
-------------------------------------------------------- Chapter 2:1.1
The problems cited most often by airlines involve regulation by
foreign aviation authorities and regulation by government agencies
that have no direct jurisdiction over aviation but do have rules
affecting all-cargo airlines' operations. These regulatory
impediments, cited by 13 airlines at 50 of the 81 airports at which
airlines reported significant problems, were identified as occurring
more frequently in Latin America and the Asia/Pacific region than in
other regions. Problems involving regulation by aviation authorities
include burdensome administrative requirements and delays in
obtaining flight permits. Problems stemming from the actions of
agencies with no direct jurisdiction over aviation include delays in
clearing cargo through customs and restrictions on the ability of
U.S. airlines to operate trucks for pickup and delivery services.
REGULATION BY FOREIGN
AVIATION AUTHORITIES
------------------------------------------------------ Chapter 2:1.1.1
Burdensome legal and administrative requirements were deemed a
significant problem by six airlines. These airlines contend that
these requirements limit their flexibility to serve their customers
and raise their operating costs at 25 foreign airports, increasing
the costs that they then must pass on to their customers. For
example, one airline complained that the aviation authorities of one
Latin American country required it to purchase liability insurance
from one of the country's national insurance companies for its
aircraft operating on routes to that country, even though the
aircraft was already insured by a U.S. company. Likewise, two of
these airlines maintain that foreign governments in Latin America and
the Asia/Pacific region require excessive documentation from carriers
before allowing them to inaugurate service at their airports,
imposing a burden in terms of both personnel costs and management
oversight. In addition, these requirements, airlines report, can be
applied in a discriminatory manner by foreign government agencies to
reduce the competitiveness of the U.S. airlines' services.
According to 10 of the airlines, foreign governments also frequently
limit access to their markets by refusing to grant the U.S. airlines
the authority to operate on routes authorized by bilateral agreements
(cited as affecting operations at 17 airports) and by delaying the
issuance of permits to overfly their territory or serve their
airports (cited as affecting operations at 15 airports). These
problems were cited at airports in 5 of the 10 largest U.S.
international airfreight markets in 1994. U.S. airlines contend
that foreign governments take such actions to protect their national
airlines from competition from U.S. carriers. According to some
all-cargo airlines, difficulty in obtaining flight permits, although
also a problem for scheduled airlines, is particularly troublesome
for all-cargo airlines offering charter services because they often
must operate flights on short notice to meet the needs of their
customers. According to the charter airlines we surveyed, some
countries in Latin America require notice of proposed charters far in
advance of when the airlines typically receive requests for flights.
The airlines said that if they cannot obtain the appropriate
authorization in sufficient time before a proposed flight, they
frequently lose the business to competing, often local airlines,
thereby losing revenues and dissatisfying customers.
Seven all-cargo carriers also report that curfews banning airlines
from operating during night hours at 10 key airports in Latin
America, Europe, Canada, and the Asia/Pacific region limit their
ability to provide their customers with adequate levels of service.
According to two of these airlines, curfews disproportionately affect
all-cargo carriers because these airlines typically operate during
night hours in order to meet delivery deadlines. Prohibitions
against night operations, according to these airlines, reduce
all-cargo airlines' flexibility to schedule their flights. These
curfews affect all the airlines operating at the airports, including
the national carriers of the host countries. DOT officials noted,
however, that U.S. and foreign airlines complain about similar
curfews at airports in the United States.
REGULATION BY OTHER
GOVERNMENT AGENCIES
------------------------------------------------------ Chapter 2:1.1.2
Eight airlines characterized problems stemming from the actions of
government agencies at 22 airports, mostly in Latin America and the
Asia/Pacific region, that have no direct jurisdiction over aviation
as adversely affecting their operations to a significant extent.
Most of these agencies are responsible for regulating trucking or
administering international trade.
Chief among the problems cited are restrictions on U.S. carriers'
ability to operate trucks for pickup and delivery services and delays
in clearing cargo through customs. According to three U.S.
all-cargo airlines, several countries require that locally owned
companies pick up and deliver or transport freight shipments. Such
restrictions, according to the airlines, limit their ability to
provide time-sensitive delivery of packages, or deliver packages at
all, at 12 foreign airports. For example, one airline reported that
one Latin American government prohibits foreign companies from
operating trucks with a capacity of more than 4 1/2 tons, reserving
that sector of the market for its nationals. Because the airline
cannot use a larger vehicle to transport shipments, its delivery of
time-sensitive shipments slows and the airline's cost of operations
increases. Five airlines also reported difficulties and delays in
clearing customs at 10 airports. For example, one airline attributed
the slow handling of time-sensitive shipments and excessive costs to
the airports' having too few customs inspectors and cumbersome
clearance processes. Such delays frustrate one of the primary
purposes of air cargo transportation--speedy delivery. DOT officials
noted that problems in clearing customs tend to be nondiscriminatory
and also affect local airlines.
According to U.S. airlines, the cumulative effect of such problems
is to reduce their operating efficiency and make their services less
competitive with those of foreign airlines. In November 1994, we
reported that many of the problems deriving from regulation by
foreign government agencies with no direct jurisdiction over aviation
often arise from the country's overall trade policies.\4
--------------------
\4 See International Aviation: DOT Needs More Information to Address
U.S. Airlines' Problems in Doing Business Abroad (GAO/RCED-95-24,
Nov. 29, 1994).
HIGH AIRPORT FEES RAISE
AIRLINES' OPERATING COSTS
-------------------------------------------------------- Chapter 2:1.2
Fourteen airlines reported problems linked to airports' policies and
services. These included problems such as discriminatory or
excessive landing fees, discriminatory payment terms for airports'
services, and discriminatory or excessive fuel prices. For example,
two airlines reported paying landing fees they considered excessive
or discriminatory at the airports of one Latin American country. One
airline complained that it must pay about $3,000 for landing services
at these airports, while fees for equivalent services for the same
type of aircraft at airports in nearby countries range between $750
to $1,500. In addition, the other airline contends that these high
fees are discriminatory because that country's national carriers pay
about $2,000 less in fees than U.S. and other foreign airlines pay.
Both airlines stated that the high fees impose a financial burden on
their operations and render their services less competitive than the
national airlines'. Survey respondents alleged similar problems at a
total of 48 foreign airports, mostly in Latin America and the
Asia/Pacific region.
GROUND-HANDLING RESTRICTIONS
DEGRADE THE QUALITY OF
AIRLINES' SERVICES
-------------------------------------------------------- Chapter 2:1.3
Thirteen U.S. airlines responding to our survey reported problems
with ground-handling at 31 foreign airports, most of which are
located in Latin America and the Asia/Pacific region.\5
Ground-handling is a significant element of operations, affecting
airlines' costs and ability to compete effectively and to serve
customers. U.S. airline representatives stated that such
restrictions raise operating costs, lower the quality of airlines'
services, and reduce efficiency.
Problems with cargo-handling include restrictions on airlines'
ability to load or unload cargo themselves, discriminatory or
excessive cargo-handling fees at those airports where airlines are
prohibited from performing this task themselves, and inadequate
warehouse facilities. U.S. carriers particularly object to being
forced to use monopoly handling agents--frequently the local carrier
against whom they compete--because they contend that such agents
provide less efficient, reliable, and responsive service than they
could provide themselves. For example, one airline complained that
the government-owned monopoly ground-handling agent at the airports
of one Asian country it served gives priority services to national
aircraft at all times and that the workers providing the services do
not work as efficiently for foreign airlines as for national
airlines. Cargo carriers want the freedom to perform their own
ground-handling services or to contract for them among several
competing agents.
Inadequate warehouse facilities at foreign airports also pose
problems, according to two U.S. all-cargo airlines. One U.S.
airline reported that the government's warehouses at a Latin American
airport are very disorganized because they lack space, equipment, and
trained personnel. The problems include not separating stored cargo
according to the airline, not designating an area for dangerous
goods, not having proper weighing equipment, and not designating a
storage area for live animals. Because of these problems, the
airline reported that it had to pay numerous claims for lost and
damaged cargo and that various delays in departures had occurred.
This airline further stated that all foreign airlines are affected by
this problem.
--------------------
\5 Ground-handling comprises a wide range of services needed by
airlines for their passengers, cargo, and aircraft. Ramp-handling
and cargo-handling are the elements of ground-handling important for
freight services. Ramp-handling involves activities that take place
on the runway apron, such as cleaning aircraft and equipment,
refueling, and pushing back and towing aircraft. Cargo-handling
includes "building-up" and "breaking down" cargo shipments, loading
and unloading cargo, and storing cargo in warehouses.
RESTRICTIONS ON LOCAL
MARKETING AND DISTRIBUTION
HAMPER COMPETITIVENESS
-------------------------------------------------------- Chapter 2:1.4
Restrictions on how all-cargo airlines can market their services and
distribute their freight within local markets also affect the
airlines' ability to operate efficiently. Four U.S. cargo airlines
characterized such problems at 13 airports as significantly affecting
their operations. These problems include restrictions on local
advertising and the number of sales offices and on the number and
type of personnel the airlines can employ. For example, one airline
complained that it could not obtain adequate office space at the
airports it serves in one Latin American country. According to this
airline, the airports lack infrastructure, so the airport authorities
lease only a very limited amount of space to the airlines, on a
"first-come, first-served" basis. As a result, the airline reported,
it cannot establish adequate sales offices at the airports and is
impeded in its ability to solicit business. In an Asian country, a
U.S. airline reported that the government required it to use the
government-owned forwarders to distribute its freight at the two
airports it served. According to the affected airline, both
forwarders provided poor service, charged high fees, and required the
airline to pay a commission of 5 percent on its revenue at both
airports. This created a financial burden for the airline, and it
eventually sold its operating authority to this country.
FOREIGN AIRLINES ALSO FACE
PROBLEMS IN DOING BUSINESS
IN THE UNITED STATES
-------------------------------------------------------- Chapter 2:1.5
Foreign airlines also complain of problems in doing business in the
United States. The most common problems cited by foreign airlines in
our November 1994 report were excessive costs and inadequate
facilities and services at U.S. airports. Officials from another
foreign airline noted that foreign carriers are subject to a number
of U.S. local sales and income taxes, while U.S. airlines are
exempt from such taxes in several foreign countries. Two foreign
airlines that we spoke with believe that the U.S. Customs Service
lacks the personnel to expeditiously process cargo at Miami
International Airport, the primary U.S. gateway for trade with Latin
America. These airlines also complained about inadequate security at
the Miami airport's warehouses. However, foreign airlines have
reported experiencing fewer problems in the United States than U.S.
airlines have reported experiencing overseas.
MOST U.S. ALL-CARGO AIRLINES
DO NOT SEEK THE GOVERNMENT'S
HELP IN RESOLVING PROBLEMS
---------------------------------------------------------- Chapter 2:2
Like U.S. passenger/cargo airlines, U.S. all-cargo airlines that
have problems doing business abroad can request assistance from both
DOT and the State Department to resolve them. However, 18 of the 22
all-cargo carriers responding to our survey explained that they
generally have not requested the U.S. government's assistance;
rather, they have attempted to develop their own solutions to the
problems or treated any additional expense caused by the problems as
a cost of providing service at those locations. Most of the 10
airlines that did request assistance from either DOT or the State
Department indicated that they were generally satisfied with the aid
they received. Some airlines reported that they were unaware of the
assistance that DOT and the State Department could offer but would
like guidance on how to request such assistance in the future.
Recently, DOT established a database to monitor the problems U.S.
airlines experience in doing business abroad. However, because DOT
relied on two industry associations to notify their members of its
efforts, many carriers that were not members of these associations
were unaware of the initiative and have therefore provided no
information.
U.S. ALL-CARGO AIRLINES
ATTEMPT TO RESOLVE PROBLEMS
THEMSELVES
-------------------------------------------------------- Chapter 2:2.1
U.S. all-cargo airlines reported they were more likely to try to
resolve their problems in doing business themselves or to take no
action rather than ask the U.S. government to intervene. The U.S.
all-cargo airlines that have attempted to resolve their problems
themselves have been only slightly successful, resolving 20 of 117
such cases. However, the settlements achieved were not always
optimal from the airlines' viewpoint. For example, one airline
operating at a European airport negotiated a reduction in some
landing fees that the carrier considered excessive, but other landing
fees at the same airport remain high. Other attempts to resolve
problems have been unsuccessful. One airline reported that after
trying unsuccessfully to resolve its problems in obtaining flight
permits, clearing cargo through customs, and complying with
burdensome legal requirements at a Latin American airport, it decided
to stop operating at that airport. Another airline, which was unable
to resolve significant operating and marketing problems at two
airports in an Asian country, sold its rights to fly to those
airports.
SOME AIRLINES VIEW PROBLEMS
AS BEYOND THE SCOPE OF THE
U.S. GOVERNMENT
-------------------------------------------------------- Chapter 2:2.2
Some U.S. all-cargo airlines have not requested DOT's or the State
Department's intervention because (1) they view the U.S.
government's role as limited to intervening in matters involving
violations of bilateral agreements only; (2) they believe requesting
the U.S. government's intervention would be too costly or
time-consuming; or (3) they have been unaware that the assistance is
available. Like several U.S. passenger/cargo airlines, many U.S.
all-cargo airlines do not believe it is practical for airlines to
rely on the U.S. government to resolve the daily difficulties of
operating in foreign countries. In addition, according to DOT and
State Department officials, many U.S. airlines do not seek the U.S.
government's assistance because they believe such government
involvement might harm relations with the host country.
Some airlines do not request the U.S. government's assistance to
resolve problems because they usually view the problems as local or
unique to the airports in question. These airlines prefer not to
involve DOT or the State Department in problems they view as not
involving a breach of obligations under a bilateral agreement. One
airline explained that it generally attempts to work with local
airport officials, the International Air Transport Association
(IATA), the International Civil Aviation Organization (ICAO), and
other carriers to remove many of these impediments to doing business.
This carrier believes that the bilateral process is not an
appropriate forum for resolving many of the problems that are
specific to all-cargo airlines' operations because the process is
structured to address the needs of passenger services.
Like U.S. passenger/cargo airlines, many all-cargo airlines do not
view the formal process for filing complaints about operating
problems as a cost-effective way to resolve them. They consider the
formal process of requesting the U.S. government's intervention to
be too costly or time-consuming. This view is especially common
among the small and mid-size airlines that have limited resources to
devote to filing complaints under 49 U.S.C., section 41310, the
statute under which airlines file formal complaints with DOT about
their problems in doing business abroad.\6 Of the 28 complaints filed
under the statute since 1989, only 6 were filed by all-cargo
carriers. According to one airline, it is also costly to request
DOT's assistance because the agency asks the airline to collect and
present to it all the necessary evidence concerning a problem before
the agency will attempt to address the problem. DOT officials
responded that they must have reasonable assurance of a problem's
validity, as well as detailed facts, before intervening with a
foreign government on a formal basis. DOT officials told us that
although the number of formal complaints is small, DOT spends a great
deal of time attempting to resolve complaints informally.
Some airline officials were also unaware of the processes for
requesting DOT's or the State Department's assistance to help solve
problems in doing business abroad. Officials of three airlines--one
small charter, one large regional, and one national airline--stated
that they were unfamiliar with how to request the U.S. government's
aid but would appreciate any information on how to do so. Officials
at two of these airlines were not even aware that such assistance was
available from the U.S. government. Neither DOT nor the State
Department systematically provides the airlines with information on
the assistance it provides or guidance on the procedures to be
followed in obtaining the assistance.
Finally, DOT and State Department officials, including DOT's
Assistant Director for Negotiations and the State Department's
Director of the Office of Aviation Negotiations, believe that many
U.S. airlines are reluctant to request their aid in resolving
problems because the airlines think that the U.S. government's
involvement will be perceived by the host country as confrontational.
According to DOT officials, most U.S. airlines prefer using
cooperative methods to resolve problems out of fear that a foreign
government will retaliate or a desire to preserve good relations with
the host country.
Recently, in response to a recommendation we made in our 1994 report,
DOT began to collect information on the status, nature, and severity
of U.S. airlines' problems in doing business abroad and established
a consolidated database on such problems to ensure that they are
prioritized and given attention. However, DOT did not notify all
U.S. all-cargo airlines of the system. Instead, DOT worked through
the Air Transport Association (ATA) and the National Air Carrier
Association (NACA) to notify their members of the database and to
request information on current doing-business problems. Only 9 of
the 22 air cargo carriers that responded to our survey, however, are
members of either association. As a result, the airlines that are
not members--mostly regional airlines--were unaware of DOT's efforts
and have provided no information. Consequently, DOT's gathering of
information about and monitoring of doing-business problems have not
been as comprehensive as they could have been.
--------------------
\6 Under 49 U.S.C., section 41310, U.S. carriers can file complaints
about discrimination or unfair competitive practices that they face
abroad. DOT must approve, deny, dismiss, or set such a complaint for
hearing or investigation or institute a proceeding proposing some
other remedial action within 60 days of receiving the complaint. DOT
can extend the deadline in 30-day increments to a maximum of 180 days
if (1) officials believe negotiations are leading to an imminent
resolution and more time is required in the public interest and (2)
the affected carrier has not suffered economic harm as a result of
filing the complaint.
U.S. GOVERNMENT HAS
RESOLVED SOME PROBLEMS, BUT
MOST ARE UNRESOLVED
-------------------------------------------------------- Chapter 2:2.3
For those problems for which all-cargo airlines requested the U.S.
government's assistance, DOT and the State Department had some
success, according to survey respondents. The 10 all-cargo airlines
that reported turning to the U.S. government for help told us of 14
cases in which the government completely or partially resolved the
doing-business problem in question. However, the airlines also
reported 32 cases in which the situation remained unchanged after the
U.S. government intervened. Nonetheless, 7 of the 10 airlines were
generally satisfied with the assistance they received from DOT or the
State Department, even if the assistance provided did not resolve the
problem.
As we reported in November 1994, DOT and the State Department are
more successful in resolving issues that come under bilateral
agreements or issues that DOT has determined denied U.S. airlines a
fair and equal opportunity to compete. For example, one cargo
airline reported that during recent bilateral negotiations with a
European country, U.S. negotiators were successful in including in
the bilateral agreement a statement that prevents that country from
arbitrarily assessing landing fees. The U.S. government also
intervened successfully on behalf of an all-cargo airline that
reported experiencing cargo-handling restrictions and discriminatory
cargo-handling fees at airports in an Asian country. In response to
a formal complaint, the U.S. government imposed sanctions on the
foreign government, and the foreign government ceased its
discriminatory practices.
According to carriers responding to our questionnaire, DOT and the
State Department have had less success in resolving problems that are
not covered by specific, detailed provisions in bilateral agreements
or that do not represent discrimination against U.S. airlines. For
example, according to one U.S. airline, the departments were not
able to resolve restrictions that limited the airline's operations to
the less commercially desirable of a foreign city's two airports.
According to another airline, DOT and the State Department have been
negotiating for 2 years with a Latin American country to drop a
restriction that reserves for national companies and denies to others
the right to transport international freight shipments in vehicles
with a capacity of more than 4-1/2 tons. Some survey respondents
said that their problems remain unresolved: Charter airlines, for
example, continue to have difficulty obtaining flight permits at
Latin American airports.
DOT AND THE STATE DEPARTMENT
FACE CONSTRAINTS IN
RESOLVING PROBLEMS
-------------------------------------------------------- Chapter 2:2.4
As we previously reported, DOT and the State Department must consider
numerous factors, including the severity of the problem and the
United States' aviation trade relationship with the country involved,
in attempting to resolve U.S. airlines' doing-business problems.\7
At these agencies' disposal are several statutory and regulatory
tools that authorize retaliatory measures. For example, the United
States may deny the schedule of flights to the United States proposed
by a country's carriers or may impose other sanctions. Such stern
measures have limited application, however, in addressing practices
that do not clearly violate bilateral accords or discriminate against
U.S. carriers. DOT interprets its authority under 49 U.S.C.,
section 41310, as requiring a finding of a violation of a bilateral
accord or other instance of unfair or discriminatory treatment before
it may impose sanctions. We found in our November 1994 report that
efforts by DOT and the State Department to resolve the range of
doing-business problems that do not overtly discriminate against U.S.
carriers are complicated by several constraints, such as the need to
negotiate with foreign governments that are often protecting their
own carriers from increasing U.S. competition.
--------------------
\7 Our November 1994 report included a more complete discussion of
the roles and responsibilities of DOT and the State Department in
resolving doing-business problems.
CONCLUSIONS
---------------------------------------------------------- Chapter 2:3
According to U.S. all-cargo airlines, their success is limited by a
range of problems in doing business at key airports in Latin America
and the Asia/Pacific region. Such obstacles increase carriers'
operating costs and can erode the competitiveness of their services.
Although most U.S. all-cargo airlines are satisfied with the
assistance they have received from DOT and the State Department in
resolving their problems, two airlines were unaware of the assistance
that the agencies could offer. Neither agency has systematically
provided the airlines with information on the assistance available or
guidance on obtaining access to it. In response to a recommendation
in our prior report, DOT began to collect and analyze information on
U.S. airlines' problems in an effort to monitor the status, nature,
and severity of such problems. However, because DOT has not
collected information directly from the airlines, many U.S.
all-cargo carriers are unaware of its efforts and have not provided
any information. As a result, DOT still cannot effectively establish
priorities and strategies to address the most serious and pervasive
problems.
RECOMMENDATIONS
---------------------------------------------------------- Chapter 2:4
We recommend that the Secretary of Transportation
-- develop and distribute to all U.S. airlines information on the
assistance available and guidance on the procedures to be
followed in requesting aid from the U.S. government in
resolving problems in doing business abroad and
-- extend DOT's current effort to collect information on the status
and severity of U.S. airlines' problems in doing business
abroad to include all U.S. all-cargo airlines that operate
internationally.
AGENCY COMMENTS
---------------------------------------------------------- Chapter 2:5
We provided a draft of this report to the departments of
Transportation and State for their review and comment, and they
generally agreed with our conclusions and recommendations.
DOT AND THE STATE DEPARTMENT HAVE
ADVANCED AIR CARGO ISSUES, BUT
ALL-CARGO CARRIERS ADVOCATE
DEDICATED NEGOTIATIONS
============================================================ Chapter 3
U.S. delegations have discussed air cargo issues to some extent in
their negotiations with more than three-quarters of the countries
with which bilateral talks have been held since 1989. Aviation
agreements reached during this period have generally expanded the
opportunities for U.S. all-cargo carriers and, in some cases, have
liberalized cargo services before passenger services. Nevertheless,
restrictions persist. As a remedy, most U.S. all-cargo airlines
advocate separating negotiations of cargo rights from broader
negotiations that include passenger services.
Separate discussions about air cargo services could allow negotiators
to focus on all-cargo airlines' unique operating requirements,
according to airline representatives and DOT and State Department
officials. Some all-cargo airlines also believe that such
discussions could ensure that progress on cargo services is not
delayed because of disputes about passenger issues. In addition,
several industry observers believe that successful negotiations on
cargo issues could create momentum to achieve progress on contentious
passenger issues in several U.S. aviation relationships. Airline
representatives and DOT and State Department officials also point out
several obstacles to such an approach. Most foreign countries do not
have major international all-cargo airlines. Instead, they have
passenger/cargo airlines. In these countries, the governments might
be unable to separate negotiations of air cargo and passenger
services. Furthermore, U.S. negotiators would be unable to
reciprocally exchange cargo rights for passenger rights, which could
lessen their flexibility in negotiations and make it difficult for
them to obtain the maximum benefits for U.S. all-cargo airlines.
Finally, DOT and State Department officials caution that routinely
holding separate cargo negotiations could impose a financial burden
on the offices responsible for conducting them.
CARGO ISSUES HAVE BEEN
ADDRESSED WITH MOST COUNTRIES
SINCE 1989, BUT RESTRICTIONS
PERSIST
---------------------------------------------------------- Chapter 3:1
DOT and State Department officials acknowledge that passenger issues
historically have received more attention than cargo issues during
bilateral aviation negotiations, primarily because, according to the
DOT officials, passenger issues are more numerous and arise more
frequently. However, these officials assert that the U.S.
government has addressed cargo issues as they have arisen and has
paid markedly greater attention to the interests of all-cargo
airlines over the past several years, citing their success in
liberalizing cargo services with several countries. State Department
officials attributed this increased attention, in part, to (1) the
growing importance of U.S. air trade with the countries of Latin
America and the Asia/Pacific region and (2) the emergence of Federal
Express and United Parcel Service alongside U.S. passenger/cargo
carriers as major competitors in the international market.
Our analysis of DOT's and the Air Transport Association's (ATA)
records showed that the United States conducted formal aviation
negotiations with 56 foreign governments between January 1989, the
year that DOT issued its air cargo policy statement, and March 1996.
U.S. officials discussed air cargo issues in at least one
negotiating session in talks with 44 of these governments. However,
most negotiating sessions focused on passenger issues; about
one-third of the more than 300 individual sessions dealt with air
cargo issues. According to DOT officials, passenger issues receive
more attention than cargo issues during negotiations because they
arise more frequently. The officials said that foreign countries
frequently focus on passenger issues and such issues are the
principal reason talks are held. They noted that certain kinds of
disagreements that continue to arise in the passenger context, such
as pricing issues, have not been raised with respect to cargo for
many years.
During this period, the United States amended or inaugurated 74
aviation agreements. Thirty-two of these agreements contained
specific provisions governing all-cargo services. Of these, 18
agreements specify separate routes for all-cargo services and 21
agreements define the intermodal rights available to airlines.\1 The
United States has also signed "open skies" agreements with 12
European countries,\2
under which most bilateral restrictions are eliminated, and an
agreement with Canada substantially liberalizing the transborder
aviation market. Finally, in March 1996, the United States
successfully completed negotiations with Japan that dealt exclusively
with air cargo services.
Our analysis showed that air cargo issues were addressed in the
majority of the negotiating rounds with 20 countries: Argentina,
Brazil, China, Fiji, Greece, Guatemala, Hong Kong, India, Indonesia,
Korea, Macau, Malaysia, Mexico, Nicaragua, Peru, the Philippines,
Saudi Arabia, Singapore, Spain, and Thailand. U.S. negotiators
reached agreements with most of these countries that generally
expanded service opportunities for U.S. all-cargo airlines. For
example, the agreement concluded with the Philippines in 1995 (1)
increased the number of routes for all-cargo services and the number
of U.S. airlines allowed to operate on those routes, (2) granted
U.S. carriers the unrestricted right to change the type of aircraft
for flights beyond the Philippines, and (3) ensured that U.S.
airlines could operate pickup and delivery services in the
Philippines. These service enhancements gave Federal Express the
operating freedom necessary to establish a viable hub at Subic Bay.
Still, 24 of the 32 U.S. agreements or amendments negotiated since
1989 that incorporated provisions on cargo services contained various
restrictions on these services. Currently, aviation agreements
governing cargo services in 7 of the 20 leading international
airfreight markets for the United States--including the two largest
markets, Japan and the United Kingdom--directly restrict the
operations of U.S. all-cargo carriers. These seven restricted
markets accounted for about one-third of the U.S. international
freight traffic in 1994. Restrictions include limits on (1) the
number of airlines allowed to operate on all-cargo routes, (2) the
ability of U.S. airlines to carry freight to and beyond the other
country, and (3) the frequency of all-cargo airlines' flights.
Agreements with some countries do not guarantee the right of U.S.
airlines to perform their own ground-handling services or to truck
cargo off airport property for final delivery. State Department and
DOT officials note, however, that bilateral aviation agreements that
restrict cargo services also tend to restrict passenger services.
For example, the U.S. agreements with Japan and the United Kingdom
restrict both types of service. A State Department official also
said that these agreements are considerably more liberal than the
agreements they amended or replaced.
Appendix III contains a list of the countries with which the United
States has negotiated since 1989 and a table describing specific
provisions of the agreements governing air cargo services.
--------------------
\1 The United States concluded multiple agreements with several
individual countries since 1989. For example, the U.S.-Brazil
aviation agreement was amended twice during this period.
\2 These European countries are Austria, Belgium, the Czech Republic,
Denmark, Finland, Germany, Iceland, Luxembourg, the Netherlands,
Norway, Sweden, and Switzerland. Under an "open skies" agreement,
there are no restrictions on routes, the frequency of flights, or the
number of airlines that can operate. The agreement with the Czech
Republic eliminates such restrictions in phases, providing for an
open market by Nov. 1999.
MOST ALL-CARGO AIRLINES
ADVOCATE SEPARATE NEGOTIATIONS
OF AIR CARGO RIGHTS, BUT
PASSENGER/CARGO AIRLINES ARE
OPPOSED
---------------------------------------------------------- Chapter 3:2
Most U.S. air cargo carriers that we surveyed believe that the
stated U.S. international aviation policy--embodied in DOT's 1989
and 1995 policy statements--addresses their interests in liberalizing
and expanding international air cargo services. Eleven of the 19
airlines that stated their views on this issue believe that, overall,
DOT's policy addresses their principal concerns to a moderate or
great extent. However, only 7 of 20 respondents believe that DOT has
been similarly effective in representing their interests during
bilateral aviation negotiations, while 4 respondents believe that DOT
has done little or nothing to represent their interests. Respondents
were split as to whether the State Department has represented them
well or poorly. Seven of the 12 airlines stating their views on this
issue believe the State Department has represented them to a little
or some extent, while 5 respondents believe the State Department has
represented their interests to a moderate or great extent.
Thirteen of the 19 airlines that stated their views advocate that the
United States routinely hold bilateral talks dedicated exclusively to
negotiating cargo rights, while only 4 support the continuation of
comprehensive negotiations. DOT's policy enunciated in the 1995
statement considers such an approach to negotiations appropriate when
it can foster the comprehensive liberalization of aviation relations.
While acknowledging that DOT and the State Department have been more
responsive to the needs of all-cargo carriers when negotiating
aviation agreements over the past several years, several of these
airlines assert that under the current framework of comprehensive
talks, negotiators primarily focus on the needs of passenger/cargo
carriers, often to the detriment of all-cargo carriers' interests.
In addition, some of these airlines believe that the traffic needs of
all-cargo operations are sufficiently different from those of
passenger/cargo airlines to justify separate negotiations. Some
carrier representatives also contend that when substantial consensus
on cargo issues is reached during negotiations, progress on an
agreement can be delayed because of disputes about passenger
services.
According to some U.S. all-cargo charter airline representatives,
separate negotiations could facilitate agreement on specific
provisions guaranteeing the airlines liberal operating rights. Many
U.S. aviation agreements either do not contain a formal provision
governing charter services or require that charter services be
performed according to the rules of the country in which the traffic
originates. According to DOT and airline officials, the regulation
of charter services by foreign governments can reduce the viability
of such services. For example, Argentina requires that its national
airlines have the first opportunity to carry charter freight
originating in Argentina.
Finally, the two major international all-cargo carriers believe that
separately negotiating cargo services would recognize the intrinsic
link between the growth of international trade and liberalized air
cargo services. Because of this connection, these airlines think air
cargo services should be considered as a trade issue rather than as a
transportation issue and that the Office of the U.S. Trade
Representative (USTR) should play a more active role in negotiating
cargo rights. One of these airlines holds that the best way to
promote the liberalization of international air cargo services is by
convincing U.S. negotiating partners of the benefits of increased
air trade to their economies. Similarly, a State Department official
pointed to the U.S. talks with Brazil in 1995 as an example of the
influence that a country's broader trade interests may have on the
outcome of negotiations. The United States and Brazil amended the
aviation agreement to increase the number of scheduled and charter
all-cargo flights permitted, as well as to expand passenger service
opportunities. Brazil's growing air export trade to the United
States, which includes shipments of automotive parts and other
finished industrial products, was among the incentives for Brazil to
liberalize air cargo services, he explained. DOT officials, on the
other hand, believe that it was Brazil's desire for enhanced
passenger services to the United States that allowed the United
States to obtain cargo rights in return.
The six major U.S. passenger/cargo airlines with significant
international operations are opposed to any negotiating policy that
would routinely exclude them from air cargo talks with foreign
countries. Two of these airlines expressed concern that separate
talks for air cargo rights would place their own cargo operations at
a competitive disadvantage. Several U.S. passenger/cargo airlines
are dedicating increasing resources to transporting freight in
international markets. While most passenger/cargo carriers do not
compete directly with integrated carriers in the door-to-door,
express delivery market, they do compete for traditional
airport-to-airport freight traffic, according to industry analysts.
Two passenger/cargo airline executives conveyed their companies'
concern that the results of air cargo talks could have profound
implications for passenger services by setting unfavorable precedents
for issues of common interest, such as the right of U.S. airlines to
serve destinations beyond a foreign country.
DOT officials stated that retaining the flexibility inherent in
comprehensive discussions is entirely consistent with the U.S.
government's formal policy on negotiating bilateral aviation
agreements. They explained that while the 1995 U.S. International
Air Transportation Policy Statement commits DOT not to forgo
agreements covering only air cargo services when circumstances
warrant, the 1989 air cargo policy obligates the agency generally to
retain flexibility in the interest of obtaining agreements that
comport with the United States' overall economic interests.
According to another DOT official, DOT has no institutional interest
in holding only comprehensive negotiations. Nevertheless, DOT
officials said that comprehensive negotiations have usually proved to
be the most effective way to adapt to evolving conditions during
negotiations with most countries.
SEPARATE NEGOTIATIONS COULD
LIBERALIZE BILATERAL
AGREEMENTS, BUT MAY NOT BE
ROUTINELY PRACTICAL OR
APPROPRIATE
---------------------------------------------------------- Chapter 3:3
According to airline representatives and DOT and State Department
officials, in some cases conducting negotiations dedicated solely to
air cargo issues could foster the liberalization of air cargo
services by allowing negotiators to focus on these issues. Some
all-cargo airline representatives also believe that separate
negotiations could prevent negotiators from forgoing agreement on
cargo services because of disputes about passenger services.
Finally, by negotiating cargo issues in advance of passenger issues,
negotiators might develop broad areas of agreement and understanding
in an otherwise restrictive relationship, creating a model for
subsequent discussions of passenger issues. Despite the potential
advantages, these experts point out that significant obstacles to the
successful implementation of air cargo-only negotiations exist.
SEPARATE DISCUSSIONS COULD
FOCUS ATTENTION ON CARGO
ISSUES AND PROMOTE AGREEMENT
ON PASSENGER ISSUES
-------------------------------------------------------- Chapter 3:3.1
According to several U.S. aviation officials and all-cargo airline
representatives, conducting separate all-cargo negotiations could
focus officials' attention on the operating requirements of air cargo
services, such as traffic rights granting carriers maximum operating
flexibility to enable them to take advantage of shifting trade flows.
These include rights to carry freight to and beyond foreign countries
and to alter flight routings according to market demand. They also
include intermodal rights and the freedom to transfer freight between
aircraft at foreign airports without restriction as to the size,
number, or type of aircraft involved--so-called change-of-gauge
rights. Finally, negotiators could give increased attention to the
doing-business problems of air cargo carriers if discussions were
separated. According to one airline representative, these problems
often cannot be adequately addressed during comprehensive talks
because of crowded negotiating agendas and limited time.
Addressing cargo issues in advance of--and in isolation
from--passenger issues could sometimes help create the momentum
necessary to liberalize several bilateral relationships, according to
some industry observers. Holding successful all-cargo talks in
advance of more contentious discussions about passenger services,
some observers explain, could create a climate of goodwill and an
understanding that differences over passenger services could be
resolved. These observers believe that this approach would foster
liberalization much as did the deregulation of the domestic U.S.
airline industry during the 1970s. The deregulation of domestic
cargo services in 1977 led to the development of new service options
for shippers, most prominently overnight express delivery, and
stimulated dramatic growth in domestic cargo traffic. This growth
partially contributed to the confidence that passenger markets could
be deregulated the following year, according to these observers.
Similarly, according to this point of view, a working demonstration
of successfully liberalized international air cargo markets may
encourage many of the United States' foreign trading partners to
negotiate for the same benefits in international passenger markets.
This view, however, has yet to be proved.
SEPARATE ALL-CARGO
NEGOTIATIONS FACE SEVERAL
OBSTACLES
-------------------------------------------------------- Chapter 3:3.2
In contrast to such arguments for separate negotiations are obstacles
suggesting that this approach may not be routinely practical or
appropriate. First, most foreign governments have little incentive
to conduct all-cargo negotiations because their countries do not have
major international all-cargo carriers. Even though many scheduled
foreign passenger/cargo airlines also operate cargo-only aircraft,
many of these airlines still carry a significant amount of cargo in
the holds of passenger aircraft. As a result, their market needs are
defined primarily in terms of initiating or expanding passenger
services, which are their primary source of revenue, according to DOT
and State Department officials. When foreign officials negotiate,
they often do so with the acknowledged goal of expanding their
national carriers' passenger services.
In 1995, 75 foreign carriers from 44 countries operated all-cargo
services to the United States. However, many of these carriers are
small and their interests are considered secondary by foreign
aviation officials, according to DOT officials and industry analysts.
Only three foreign all-cargo airlines serving the United
States--Cargolux, Nippon Cargo Airlines, and TAMPA--rank in the top
25 international airfreight carriers. Foreign negotiators,
therefore, may find it difficult to bargain exclusively on behalf of
small all-cargo carriers, seeking instead to gain cargo rights from
the United States in the general course of comprehensive discussions.
For example, a British government representative told us that while
his country's largest passenger/cargo airline, British Airways,
carries significant amounts of cargo across the North Atlantic on
board its passenger aircraft, its income from cargo revenue on these
routes is largely a function of the frequency of its passenger
flights between the United Kingdom and the United States.
A second obstacle to separate all-cargo talks is the possibility that
they could reduce the flexibility of U.S. negotiators to obtain new
rights for all-cargo and passenger/cargo airlines. In particular,
DOT and State Department officials and passenger/cargo airline
representatives believe that separating talks diminishes
opportunities to exchange cargo rights for passenger rights, and
vice-versa. With comprehensive discussions, negotiators can seek the
best overall deal, which might mean allowing more passenger flights
for foreign carriers in exchange for increased flights by U.S.
all-cargo carriers, according to these officials. DOT and State
Department officials with whom we spoke urged adherence, in most
cases, to the current framework for negotiating, which relies on
comprehensive talks, with separate negotiations available as an
alternative. According to these officials, the service gains
available to U.S. all-cargo carriers will usually be greater when
agreements arise from flexible, comprehensive talks. They cited as
examples the agreements reached with Canada, Mexico, and several of
the European countries with which the United States now has an "open
skies" agreement. Moreover, according to the officials, the
interests of large integrated all-cargo airlines are often dissimilar
to those of smaller, traditional freight carriers. This diversity of
interests suggests that cargo-only talks may not, in many cases, be
more effective than comprehensive negotiations in meeting the needs
of all members of the community of all-cargo airlines. Indeed, two
of the all-cargo airlines that responded to our survey supported this
assessment. These carriers expressed the fear that the specific
interests of the large integrated all-cargo airlines--Federal Express
and United Parcel Service--are likely to receive favored treatment in
cargo-only negotiations.
Finally, according to DOT and State Department officials, the U.S.
government would incur additional costs by negotiating passenger and
cargo rights separately. Each round of negotiations requires advance
preparation to identify goals and develop strategies to achieve them.
Importantly, preparation also includes consultation with the affected
parties, including carriers, airports, and local communities.
Aviation negotiations can involve multiple rounds of talks conducted
over several months and demand negotiators' attention before, during,
and after the actual talks. Finally, when the foreign government
hosts the discussions, typically for every other round, both DOT and
the State Department also incur often significant travel costs. The
U.S. negotiators that we spoke with are hesitant to pursue a policy
of routinely separating passenger and cargo negotiations. They
expressed concern that they would have insufficient time and funding
to split each round of talks so that cargo issues and passenger
issues would receive equal amounts of attention.
TALKS WITH JAPAN ILLUSTRATE
ADVANTAGES AND DISADVANTAGES OF
SEPARATE NEGOTIATIONS
---------------------------------------------------------- Chapter 3:4
Air cargo talks with Japan, concluded in March 1996, illustrate both
the advantages and disadvantages of negotiating exclusively for the
expansion of cargo services. One major advantage, according to DOT
and State Department officials, is that the negotiations addressed
cargo issues on their own merits and were not overshadowed by the
contentious passenger issues in the relationship. Under the terms of
the U.S.-Japan agreement, the United States received Japan's consent
for an additional U.S. airline to begin all-cargo services to Japan;
for United Parcel Service to expand its service to and beyond Japan;
and for Federal Express, United Airlines, and Northwest Airlines to
route their flights more flexibly.
However, the agreement also focuses attention on the difficulties
inherent in concluding similar agreements with other countries.
First, the United States and Japan were able to hold cargo
negotiations because their relationship--unlike U.S. relationships
with other countries--allows the cargo needs of each to be considered
separately and distinctly from the passenger needs, according to DOT.
Each country has at least one major all-cargo carrier, and each has
passenger/cargo carriers that operate cargo-only aircraft on
bilateral routes.
Second, both the U.S. and the Japanese governments had concerns over
the precedent that an agreement on cargo services could set for
subsequent passenger talks. Japanese negotiators, in particular, did
not wish to set a precedent in which the United States could regard
expanded cargo rights as a precursor to similarly expanded passenger
rights, according to State Department officials. Foreign negotiators
representing other major U.S. trading partners are likely to express
similar reservations.
With Japan, the United States originally sought an agreement that
would allow all-cargo carriers the maximum flexibility to respond to
business opportunities with little regulatory interference. During
the discussions, U.S. negotiators argued that granting the right to
carry freight to destinations beyond Japan to U.S. all-cargo
carriers is essentially a trade issue and that significant economic
benefits would accrue to Japan from unreservedly allowing such
flights. However, Japan has not accepted this reasoning, and it
limited the ability of U.S. all-cargo airlines to carry cargo
originating in Japan from Japanese points to points beyond Japan.
One U.S. airline representative expressed concern that continuing
such limits on U.S. carriers' right to serve destinations beyond
Japan may have set an unwelcome precedent for passenger services.
Finally, concluding the U.S.-Japan agreement on all-cargo services
has not proved to be a catalyst for accelerating progress on
passenger service issues. In fact, the recent agreement on air cargo
services has not prevented conflict over the pre-existing traffic
rights of U.S. all-cargo airlines. The two countries resumed
negotiations on passenger issues on April 29, 1996, but the talks
have been at an impasse since then because of a dispute over Japan's
refusal to approve flights by two U.S. passenger/cargo
airlines--United and Northwest--and Federal Express through Japan to
other destinations in Asia. The United States believes these flights
are authorized under current U.S.-Japan agreements. On July 16,
1996, DOT proposed to prohibit Japan Air Lines from carrying cargo
from points elsewhere in Asia on its scheduled all-cargo services
through Japan into the United States unless the Japanese government
approved Federal Express's request. As of September 25, 1996, the
negotiations had achieved little progress on these issues and DOT had
reaffirmed the U.S. intent to resolve outstanding disputes over the
rights of U.S. carriers to operate flights beyond Japan before
undertaking passenger negotiations over new opportunities.
MODIFIED APPROACHES COULD
CREATE NEGOTIATING EFFICIENCIES
AND PROMOTE LIBERALIZATION, BUT
OFFER NO PANACEA
---------------------------------------------------------- Chapter 3:5
Two modifications to the U.S. strategy have been under discussion
within government and the industry. First, conducting multilateral
negotiations has been offered as an approach that could create broad
areas of agreement among countries and provide an incentive for
countries with relatively restrictive aviation policies to liberalize
them as part of a regional agreement. Second, continuing to allow
carriers and other affected parties to directly observe discussions
has been advocated as a means to help ensure that all parties have an
opportunity to communicate their interests to U.S. negotiators.
While each modification offers promise, each also raises problems.
MULTILATERAL NEGOTIATIONS
COULD PROMOTE
LIBERALIZATION, BUT MAY NOT
BE PRACTICAL
-------------------------------------------------------- Chapter 3:5.1
According to DOT officials, conducting multilateral talks could, in
principle, help create negotiating efficiencies by focusing federal
negotiating resources on talks with several like-minded countries at
one time and could promote liberalization on a large scale. DOT's
1995 U.S. International Air Transportation Policy Statement
identified the negotiation of such multilateral agreements as an
option in obtaining further liberalization of U.S. aviation
relations. Some DOT officials and industry experts believe that
concluding a liberal multilateral agreement on cargo services might
heighten foreign governments' interest in liberalizing passenger
services. By offering significantly expanded access to the vast U.S.
market, such an approach could motivate countries with restrictive
aviation policies to join their neighbors in concluding a relatively
liberal agreement with the United States.
U.S. officials have attempted to gauge foreign interest in holding
multilateral negotiations. In 1991, in 1994, and again in 1996, DOT
and State Department negotiators held exploratory talks with
representatives of the European Commission, the executive arm of the
European Union (EU). During the earlier talks, U.S. and EU
officials reached an understanding on a broad array of cargo issues,
which included deregulating pricing, eliminating numerical
restrictions on the number of all-cargo airlines allowed to operate,
allowing for an unrestricted amount of cargo to be transported
between the United States and the EU, and a host of doing-business
issues.
Nonetheless, the Commission no longer supports holding multilateral
talks on cargo services in advance of and in isolation from
discussions on passenger issues, believing this approach to be
counterproductive to its ultimate goal of negotiating air services
between the United States and EU member states. The Commission
embraces the concept of multilateral negotiations and has obtained
approval from a majority of its member states to proceed with phased,
exploratory talks with the United States. However, according to DOT
officials, the Commission does not have the authority to negotiate
traffic rights--a disabling limitation in their view. DOT officials
believe that there is interest in seeking air transport
liberalization through regional associations, including those in Asia
and Latin America. However, both U.S. and foreign officials said
that none of these groups has yet achieved a consensus favoring such
an approach.
DIRECT PARTICIPATION MIGHT
BENEFIT SOME CARRIERS, BUT
COULD POSE PROBLEMS
-------------------------------------------------------- Chapter 3:5.2
Formalizing and continuing a recent U.S. policy that allows "direct
participation" by carriers in comprehensive negotiations could help
ensure that agreements reflect all carriers' needs and interests.
While observers do not play a formal role in the negotiations, their
presence allows them to state their case directly to DOT and State
Department negotiators and to react immediately to any foreign
country's positions that might adversely affect their ability to
serve markets in and beyond the country in question. According to a
State Department official, one advantage to formalizing direct
participation would be that "carriers couldn't complain later that
they were not part of the process."
However, DOT and State Department officials have three primary
concerns. First, smaller affected parties could be disadvantaged in
articulating their needs because they often would be unable to send a
representative to negotiations. Large, resource-rich carriers could
conceivably send a representative to every negotiation, while smaller
carriers could not afford the considerable travel and other staff
costs of doing so. Second, U.S. delegations composed of large
numbers of U.S. airlines interested in serving the relevant market
may intimidate foreign negotiating teams representing weak foreign
airlines. Finally, large numbers of observers may discourage
negotiators from openly discussing substantive matters, increasing
the frequency of so-called chairmen's meetings to resolve key issues.
Such closed meetings could create an atmosphere of mistrust between
the U.S. chairman and the observing parties.
ADDITIONAL INFORMATION ABOUT THE
INTERNATIONAL AIRFREIGHT INDUSTRY
=========================================================== Appendix I
This appendix contains information on the status of the air cargo
market in 1994 and 1995. Table I.1 shows the 10 U.S. industries
leading in air exports in 1994. Figure I.1 shows the distribution of
U.S. airborne trade by weight in 1995. Table I.2 shows countries'
share of the international freight traffic in 1990 and 1994. Figure
I.2 shows the U.S. share of the freight transported between the
United States and world regions for 1995. Tables I.3 and I.4 show
international airlines ranked by freight ton-miles flown and tons
carried in 1994, respectively. Figures I.3 and I.4 compare selected
U.S. and foreign airlines' freight traffic and revenues in 1994,
respectively.
Table I.1
The 10 U.S. Industries With the Largest
Air Exports, 1994
Pounds of freight
exported by air
Rank Industry (millions)
-------------------- ---------------------------- ------------------
1 Computers and office 384.0
equipment
2 Electronic component and 134.0
accessories
3 Motor vehicles, parts and 133.8
equipment
4 Construction machinery 123.5
5 General industrial machinery 117.5
6 Communications equipment 112.9
7 Measuring and controlling 103.6
devices
8 Aircraft engines and parts 103.2
9 Medical instruments and 92.8
supplies
10 Drugs and pharmaceuticals 89.3
----------------------------------------------------------------------
Note: Commercial aircraft--the largest air export industry in terms
of value in 1994--is not reflected in these numbers. Thus, the
"aircraft and engines" category represents spare engines and parts,
rather than complete airframes.
Source: MergeGlobal, Inc.
Figure I.1: Distribution of
U.S. Airborne Trade by Weight,
1995
(See figure in printed
edition.)
Note: The percentages do not add to 100 because of rounding.
Source: The Department of Transportation (DOT).
Table I.2
Scheduled International Freight Traffic,
World Share of National Carriers, 1990
and 1994
Percentage
National carriers' increase,
country 1990 1994 1994/1990 1990 1994
------------------- ------------ ------------ ------------ ------------ ------------
United States 5,136 7,246 41.1 16.2 16.4
United Kingdom\a 2,614 4,383 67.7 8.2 9.9
Germany 2,718 3,668 35.0 8.6 8.3
Japan 3,061 3,657 19.5 9.6 8.3
Korea 1,647 3,103 88.4 5.2 7.0
France 2,610 2,851 9.2 8.2 6.4
Singapore 1,132 2,223 96.4 3.6 5.0
Netherlands 1,458 2,194 50.5 4.6 5.0
Australia 765 988 29.2 2.4 2.2
Switzerland 631 961 52.3 2.0 2.2
Italy 780 920 18.0 2.5 2.1
Thailand 447 829 85.4 1.4 1.9
Canada 708 810 14.3 2.2 1.8
Brazil 472 691 46.3 1.5 1.6
China 300 687 128.8 0.9 1.6
Subtotal 24,478 35,210 43.8 77.1 79.6
Others 7,265 9,030 24.3 22.9 20.4
=========================================================================================
World total 31,743 44,240 39.4 100.0 100.0
-----------------------------------------------------------------------------------------
\a Includes Hong Kong.
Source: International Civil Aviation Organization (ICAO).
Figure I.2: U.S. Carriers'
Share of Freight-Tons Between
the United States and World
Regions, 1995
(See figure in printed
edition.)
Source: DOT.
Table I.3
World Ranking of IATA Member Airlines
Based on Scheduled International Freight
Ton-Miles Flown, 1994
Scheduled
international
freight ton-miles
Rank Airline flown (thousands)
------------------------------ ------------------ ------------------
1 Lufthansa 3,668
2 Air France 2,836
3 Korean Air Lines 2,599
4 KLM 2,490
5 Japan Airlines 2,289
6 Singapore Airlines 2,254
7 British Airways 2,087
8 Federal Express 1,629
9 Cathay Pacific 1,627
10 Northwest Airlines 1,313
11 United Airlines 1,092
12 American Airlines 1,042
13 Qantas 991
14 Swissair 959
15 Nippon Cargo 955
Airlines
16 Alitalia 920
17 Thai Airways 829
18 Delta Air Lines 693
19 El Al 654
20 Varig 582
----------------------------------------------------------------------
Note: Names of U.S. carriers are in bold. IATA member airlines
account for about 95 percent of the total airline passenger and
freight traffic worldwide.
Source: International Air Transport Association (IATA), World Air
Transport Statistics (June 1995).
Table I.4
World Ranking of IATA Member Airlines
Based on Scheduled International
Freight-Tons Carried, 1994
Scheduled
international
freight-tons
carried
Rank Airline (thousands)
------------------------------ ------------------ ------------------
1 Lufthansa 945
2 Federal Express 704
3 Air France 688
4 Korean Air Lines 624
5 KLM 622
6 Singapore Airlines 589
7 British Airways 542
8 Japan Airlines 521
9 Cathay Pacific 510
10 Northwest Airlines 434
11 American Airlines 346
12 Thai Airways 326
13 Swissair 293
14 United Airlines 261
15 Alitalia 237
16 Qantas 223
17 El Al 217
18 Malaysian Airlines 216
19 Air Canada 214
20 United Parcel 201
Service
----------------------------------------------------------------------
Note: Names of U.S. carriers are in bold. IATA member airlines
account for about 95 percent of the total airline passenger and
freight traffic worldwide.
Source: IATA, World Air Transport Statistics (June 1995).
Figure I.3: Selected Scheduled
Passenger/Cargo Airlines'
International Freight Traffic
as a Percentage of Total
International Traffic, 1994
(See figure in printed
edition.)
Source: GAO's analysis of IATA's data.
Figure I.4: Selected Scheduled
Passenger/Cargo Airlines'
International Freight Revenue
as a Percentage of
International Operating
Revenue, 1994
(See figure in printed
edition.)
Source: Association of European Airlines and DOT.
SIGNIFICANT PROBLEMS IN DOING
BUSINESS AT FOREIGN AIRPORTS
REPORTED BY U.S. ALL-CARGO
AIRLINES
========================================================== Appendix II
This appendix summarizes the significant problems in doing business
abroad reported by the 22 U.S. all-cargo airlines that responded to
our survey and identifies the number of airports at which the
problems occur. These 22 airlines carried 62 percent of the freight
hauled by U.S. airlines in 1994. Table II.1 lists the airlines to
which we sent our questionnaire and identifies those that responded.
Table II.2 summarizes the reported problems arising from government
regulation. Table II.3 lists the reported problems with airport
policies and services. Table II.4 summarizes the reported problems
with ground-handling. Table II.5 summarizes the reported
restrictions on local marketing and distribution.
Table II.1
U.S. All-Cargo Airlines Participating in
GAO's Survey of Problems in Doing
Business at Foreign Airports
Airlines to which we sent questionnaire Response
---------------------------------------- ----------------------------
Airborne Express, Inc. Yes
Air Transport International No
American International Airways, Inc. Yes
Amerijet International, Inc. No
Arrow Air, Inc. Yes
Atlas Air, Inc. No
Challenge Air Cargo, Inc. Yes
DHL Airways, Inc. Yes
Emery Worldwide Airlines, Inc. Yes
Evergreen International Airlines, Inc. Yes
Federal Express Corporation Yes
Fine Airlines, Inc. Yes
Florida West Airlines, Inc. Yes
Kitty Hawk Air Cargo, Inc. Yes
Millon Air, Inc. Yes
Northern Air Cargo, Inc. Yes
Northwest Airlines, Inc. Yes
Omni Air Express, Inc. Yes
Polar Air Cargo, Inc. Yes
Southern Air Transport, Inc. Yes
Tower Air, Inc. Yes
Trans-Air Link Corporation Yes
Trans-Continental Airlines Yes
United Parcel Service Co. Yes
USA Jet Airlines, Inc. No
World Airways, Inc. Yes
----------------------------------------------------------------------
Table II.2
Significant Problems Associated With
Government Regulation at Foreign
Airports, as Reported by U.S. All-Cargo
Airlines, by Region
Number
of
airline Middle Asia/
responde Latin East/ Pacific
Problem nts Total America Europe Africa Region Canada
------------------- -------- -------- -------- -------- -------- -------- --------
Burdensome legal
and administrative 6 25 13 0 1 11 0
requirements\a
Denial of traffic 4 17 8 1 0 3 5
rights\b
Difficulty
obtaining flight 8 15 6 2 1 6 0
authorization/
permits
Restricted 3 12 3 0 0 8 1
intermodal
rights\c
Difficulties or
delays clearing 5 10 6 1 1 2 0
cargo through
customs
Prohibitions
against flying 7 10 2 3 0 4 1
during certain
hours
Insufficient take-
off or landing 7 7 1 1 0 5 0
slots at congested
airports
Operations
restricted to less 4 7 2 1 0 2 2
desirable airport
Discriminatory 2 5 1 1 0 3 0
taxes\
Excessive fines for
violations of 1 3 3 0 0 0 0
regulations
Problems converting
or remitting 2 3 3 0 0 0 0
currency\d
Excessive taxes 2 3 1 0 0 2 0
Excessive customs 1 1 0 0 0 1 0
duties
Other problems\e 1 1 0 0 0 1 0
=========================================================================================
Total 13 50 19 6 3 16 6
-----------------------------------------------------------------------------------------
Note: Our survey defined discriminatory charges as different charges
for or taxes on the same goods or services and excessive charges as
ones substantially exceeding the cost of the goods, services, or use
of facilities after providing for a reasonable return on assets.
\a Requirements that place a significant burden on airlines in terms
of costs or management oversight.
\b Prohibition against operating on routes authorized under bilateral
agreements.
\c Restrictions on the ability to operate trucks to provide pickup
and delivery services.
\d Difficulty converting revenue earned in local currency into
dollars or sending revenue to the United States.
\e Includes fees for operations above specified levels of aircraft
noise or emissions.
Source: U.S. all-cargo airlines' responses to GAO's questionnaire.
Table II.3
Significant Problems Associated With
Policies and Services at Foreign
Airports, as Reported by U.S. All-Cargo
Airlines, by Region
Number
of
airline Middle Asia/
responde Latin East/ Pacific
Problem nts Total America Europe Africa Region Canada
---------- -------- -------- -------- -------- -------- -------- --------
Excessive 8 15 4 2 0 8 1
landing
fees
Discrimina 5 13 5 0 0 8 0
tory
landing
fees
Discrimina 5 12 5 6 0 1 0
tory
payment
terms\a
Excessive 7 11 7 1 0 3 0
fuel
prices
Other 3 9 4 2 0 3 0
problems
with user
fees\b
Discrimina 4 7 6 0 1 0 0
tory fuel
prices
Problems
with 3 6 3 1 0 2 0
maintenan
ce and
technical
support\c
Other
problems 2 5 0 0 0 5 0
with
airport
and
aircraft
services\
d
================================================================================
Total 14 48 20 10 1 16 1
--------------------------------------------------------------------------------
Note: Our survey defined discriminatory charges as different charges
for or taxes on the same goods or service and excessive charges as
ones substantially exceeding the cost of the goods, services, or use
of facilities after providing for a reasonable return on assets.
\a For example, foreign airlines must pay for services in U.S.
dollars, while national carriers can pay for services in local
currency.
\b Other problems with user fees cited by respondents included the
assessment of charges with little or no associated service provided.
\c Inability to secure the maintenance and technical support
necessary to operate efficiently or restrictions on an airline's
ability to perform its own maintenance and technical support.
\d Includes discriminatory value-added taxes and en-route fees.
Source: U.S. all-cargo airlines' responses to GAO's questionnaire.
Table II.4
Significant Problems Associated With
Ground-Handling at Foreign Airports, as
Reported by U.S. All-Cargo Airlines, by
Region
Number
of
airline Middle Asia/
responde Latin East/ Pacific
Problem nts Total America Europe Africa Region Canada
------------------- -------- -------- -------- -------- -------- -------- --------
Cargo-handling 6 16 4 2 0 10 0
restrictions
Excessive cargo- 8 14 7 3 0 4 0
handling fees
Inadequate 2 12 1 2 0 9 0
warehouse
facilities
Ramp-handling 5 11 3 1 0 7 0
restrictions
Discriminatory 4 8 3 0 0 5 0
cargo-handling
fees
Excessive ramp- 4 8 3 3 0 2 0
handling fees
Other problems with
ground-handling\a 2 7 0 0 0 4 3
Discriminatory 2 7 2 0 0 5 0
ramp-handling fees
=========================================================================================
Total 13 31 9 7 0 12 3
-----------------------------------------------------------------------------------------
Note: Our survey defined discriminatory charges as different charges
for or taxes on the same goods or services and excessive charges as
ones substantially exceeding the cost of the goods, services, or use
of facilities after providing for a reasonable return on assets.
\a Other such problems cited by respondents included inadequate cargo
apron space.
Source: U.S. all-cargo airlines' responses to GAO's questionnaire.
Table II.5
Significant Problems Associated With
Restrictions on Local Marketing and
Distribution at Foreign Airports, as
Reported by U.S. All-Cargo Airlines, by
Region
Number
of
airline Middle Asia/
responde Latin East/ Pacific
Problem nts Total America Europe Africa Region Canada
---------- -------- -------- -------- -------- -------- -------- --------
Restrictio
ns of 3 12 3 0 0 9 0
local
distribut
ion
networks\
a
Restrictio
ns on
number of 2 2 1 0 0 1 0
sales
offices,
personnel
, and
types of
personnel
Restrictio 1 2 0 0 0 2 0
ns on
local
advertisi
ng
================================================================================
Total 4 13 4 0 0 9 0
--------------------------------------------------------------------------------
\a Local distribution networks are the methods by which an airline
distributes cargo to its final destination after it is unloaded from
the aircraft.
Source: U.S. all-cargo airlines' responses to GAO's questionnaire.
DESCRIPTION OF CARGO PROVISIONS OF
CURRENT U.S. AVIATION AGREEMENTS
NEGOTIATED BETWEEN JANUARY 1989
AND MARCH 1996
========================================================= Appendix III
This appendix contains information about the aviation negotiations
and agreements concluded by the United States between January 1989
and March 1996. Table III.1 describes the provisions of the 24 most
recent aviation agreements governing air cargo services that were
negotiated by the United States during that period.\1 (A list of the
foreign governments with which the United States conducted aviation
negotiations during the same period follows the table.) The
descriptions in the table compare individual provisions in the
agreements with those in the model liberal agreement that DOT
developed for use in negotiations. The following provisions
governing air cargo services are described:
Designations: This provision governs the number of airlines that may
operate over the agreed-upon routes. The U.S. model liberal
agreement contains no limit on the number of airlines that may be
designated (multiple designation), while the most restrictive
agreements allow only one airline from each country to provide
service (single designation). Other restrictive agreements contain
various limits on the number of airlines that may be designated.
Capacity: Capacity refers to the level of service that may be
provided--usually expressed as the frequency of flights or type of
aircraft used--in operating over the agreed-upon routes. The model
liberal agreement contains no restrictions and allows airlines to
determine capacity on the basis of their assessments of market needs.
Other agreements do not limit capacity but provide for consultations
if either country believes there is an excess level of service on a
route. By contrast, restrictive agreements predetermine capacity,
often by limiting the weekly number of flights.
Routes: The route schedule of an agreement determines the points
that may be served in carrying traffic between the bilateral
partners' countries and between these countries and third countries.
The most liberal route--called an open route--permits airlines to
operate from points "behind" their homelands via their homelands and
intermediate points to points in the bilateral partner's country and
beyond. Restrictive agreements contain "narrow" route schedules that
specify limited, named points that may be served and frequently limit
the destinations that may be served intermediate to and beyond the
bilateral partner's country.
Pricing: This provision specifies the requirements for setting the
prices to be charged by designated airlines for services over the
agreed-upon routes. There are primarily three regulatory procedures
for setting prices: (1) Double approval--the most
restrictive--requires that countries at both end points of a route
approve a price before it can be implemented; (2) under
country-of-origin pricing, a country may unilaterally veto prices for
flights originating from its own territory; and (3) double
disapproval--the most liberal--requires that both countries reject a
price to prevent it from coming into effect. The model liberal
agreement provides for double disapproval pricing. DOT, however, no
longer requires airlines to file individual cargo prices and,
according to a DOT official, most foreign countries routinely approve
airline cargo prices.
Ground-handling: This provision states the conditions under which
airlines secure necessary ground services. The U.S. model agreement
provides for airlines to perform their own ground-handling in the
other country (self-handling), or, at their option, to select among
competing agents for such services, subject only to physical
constraints related to safety. Under the model agreement, when
self-handling is precluded, ground-handling services must be
available on an equal basis to all airlines and the costs of such
services must be reasonable. Restrictive agreements may not contain
a provision governing ground-handling.
Intermodal services: This provision states the conditions under
which airlines can transport cargo once it is on the ground. The
U.S. model agreement allows airlines to perform their own surface
transportation and have access to customs facilities. Restrictive
agreements usually do not contain a provision governing intermodal
services.
Change-of-gauge: This provision regulates the ability of airlines to
transfer passengers or cargo between aircraft for "onward" flights.
Liberal agreements give airlines complete freedom to do so at any
point on a route without restricting the size, number, or type of
aircraft involved. Restrictive agreements may limit the size,
number, or type of the aircraft involved in the procedure or may not
address change-of-gauge at all.
Operational flexibility: This term refers to the ability of airlines
to change routings by adding or omitting points to be served or
changing the combination or order of the points served. The U.S.
model agreement permits maximum operating flexibility for flights
serving the homeland of the airline, including the right to serve
points on routes behind, intermediate to, and beyond both countries.
More restrictive agreements limit such flexibility to varying degrees
or do not contain such provisions.
Charters: This provision determines the arrangements under which
charter services are to be operated. There are three basic types of
charter arrangements: (1) country-of-origin rules, which require
that charter services be performed according to the charterworthiness
rules of the country in which the traffic originates; (2) so-called
"Belgian rules," under which charter services may be performed
according to the rules of either country, at the airline's choice;
and (3) special rules agreed to by the parties. The U.S. model
agreement establishes Belgian rules for charter services, while many
restrictive agreements do not contain a provision on charter
services.
Table III.1
Cargo Provisions of U.S. Aviation
Agreements Negotiated Between January
1989 and May 1996
Country Date Provisions governing U.S. all-cargo services
------------- -------------- ----------------------------------------------------------
Argentina 1994 Designations: no limit
Capacity: restriction on the number of weekly flights
Routes: limit on the destinations that U.S. airlines may
serve in Argentina and intermediate to and beyond
Argentina
Pricing: no provision
Ground-handling: no provision
Intermodal services: no provision
Change-of-gauge: model liberal provision
Operational flexibility: basic freedom to omit service to
points on a route
Charters: country-of-origin rules
Barbados 1991 Designations: no limit
Capacity: no restrictions
Routes: open routes
Pricing: double disapproval pricing
Ground-handling: model liberal provision
Intermodal services: no provision
Change-of-gauge: model liberal provision
Operational flexibility: substantially the model liberal
provision
Charters: model liberal provision
Brazil 1995 Designations: four U.S. airlines allowed to operate
Capacity: restriction on the number of weekly flights
Routes: limit on the destinations that U.S. airlines may
serve in and beyond Brazil
Pricing: country-of-origin pricing
Ground-handling: model liberal provision
Intermodal services: no provision
Change-of-gauge: model liberal provision
Operational flexibility: substantially the model liberal
provision
Charters: limit on the number of annual charter flights;
country-of-origin rules
China 1995 Designations: three U.S. airlines allowed to operate
Capacity: restriction on the number of weekly flights
Routes: open routes for all-cargo services but limited to
one airline from each country
Pricing: double approval pricing
Ground-handling: arrangements subject to government
approval
Intermodal services: no provision
Change-of-gauge: limit on the capacity of the aircraft
involved
Operational flexibility: basic freedom to omit service to
points on a route
Charters: specialized procedure for approving charter
flights
Fiji\a 1996 Designations: no limit
Capacity: no restrictions
Routes: limit on the destinations U.S. airlines may serve
beyond Fiji
Pricing: double disapproval pricing
Ground-handling: substantially the model liberal
provision
Intermodal services: model liberal provision
Change-of-gauge: model liberal provision
Operational flexibility: basic freedom to omit service to
points on a route
Charters: model liberal provision
Germany 1994\b Designation: no limit
Capacity: no restrictions
Routes: open routes
Pricing: double disapproval pricing
Ground-handling: U.S. airlines self-handling as of Nov.
1993 may do so; other airlines must use approved agents
until 1997
Intermodal services: model liberal provision
Change-of-gauge: model liberal provision
Operational flexibility: model liberal provision
Charters: model liberal provision
Greece 1991 Designations: no limit
Capacity: no restrictions
Routes: limit on the destinations U.S. airlines may serve
intermediate to and beyond Greece
Pricing: country-of-origin pricing
Ground-handling: model liberal provision
Intermodal services: model liberal provision
Change-of-gauge: limit on the number of flights
Operational flexibility: basic freedom to omit service to
points on a route
Charters: no provision
Guatemala\c 1994 Designations: no limit
Capacity: no restrictions
Routes: open routes
Pricing: double disapproval pricing
Ground-handling: model liberal provision
Intermodal services: no provision
Change-of-gauge: model liberal provision
Operational flexibility: substantially the model liberal
provision
Charters: model liberal provision
Hong Kong 1995 Designations: no limit, but designation of additional U.S.
airlines subject to review at Hong Kong government's
request
Capacity: restriction on the number of weekly flights
from Hong Kong to destinations in third countries
Routes: limit on the destinations that U.S. airlines may
serve beyond Hong Kong with local traffic rights
Pricing: double approval pricing
Ground-handling: U.S. airlines to receive no less
favorable treatment than other airlines
Intermodal services: no provision
Change-of-gauge: limits on the capacity and number of the
aircraft involved
Operational flexibility: substantially the model liberal
provision
Charters: no provision
Italy 1991 Designations: one U.S. airline allowed to operate
Capacity: no restrictions, but subject to review at the
request of either country
Routes: limit on the destinations that U.S. airlines may
serve beyond Italy
Pricing: country-of-origin pricing
Ground-handling: no provision
Intermodal services: no provision
Change-of-gauge: limit on the capacity of the aircraft
involved
Operational flexibility: liberal provision but no
flexibility for flights beginning at points behind the
United States
Charters: no provision
Japan 1996 Designations: limit on the number of U.S. airlines allowed
to operate
Capacity: no restrictions on some airlines but
restrictions on the number of weekly flights for others
Routes: limit on the destinations beyond Japan that can
be served by certain U.S. airlines
Pricing: double approval pricing
Ground-handling: no provision
Intermodal services: no provision
Change-of-gauge: no provision
Operational flexibility: basic freedom to omit service to
points on a route
Charters: limits on the number of charter flights;
country-of-origin rules
Republic of 1991 Designations: no limit
Korea Capacity: no restrictions
Routes: open routes
Pricing: double disapproval pricing
Ground-handling: substantially the model liberal
provision
Intermodal services: no provision
Change-of-gauge: model liberal provision
Operational flexibility: model liberal provision
Charters: substantially the model liberal provision
Macau 1995 Designations: no limit
Capacity: restriction only on the number of weekly
flights to destinations beyond Macau for flights not
beginning or ending in the United States
Routes: limit only on destinations that U.S. airlines may
serve beyond Macau for flights not beginning or ending in
the United States
Pricing: double disapproval pricing
Ground-handling: special provision guaranteeing U.S.
airlines the same treatment accorded national airlines
Intermodal services: model liberal provision
Change-of-gauge: model liberal provision
Operational flexibility: model liberal provision
Charters: model liberal provision
Malaysia 1992 Designations: no limit
Capacity: restriction on the number of weekly flights to
one country beyond Malaysia
Routes: open routes
Pricing: double disapproval pricing
Ground-handling: model liberal provision
Intermodal services: model liberal provision
Change-of-gauge: model liberal provision
Operational flexibility: substantially the model liberal
provision
Charters: model liberal provision
Mexico 1991 Designations: five U.S. airlines allowed to operate in
total, one on any city-pair segment
Capacity: no restrictions, but subject to review at the
request of either country
Routes: open routes
Pricing: double approval pricing
Ground-handling: no provision
Intermodal services: no provision
Change-of-gauge: cargo transfers allowed, subject to
government review
Operational flexibility: substantially the model liberal
provision
Charters: modified country-of-origin rules
Peru 1995 Designations: no limit
Capacity: limit on the number of weekly flights
Routes: limit on the destinations U.S. airlines may serve
in the United States and Peru, and intermediate to and
beyond Peru
Pricing: country-of-origin pricing
Ground-handling: no provision
Intermodal services: no provision
Change-of-gauge: no provision
Operational flexibility: changes to routes subject to
government approval
Charters: no provision
Philippines 1995 Designations: limit on the number of U.S. airlines allowed
to operate
Capacity: no restrictions
Routes: open routes
Pricing: modified double disapproval pricing
Ground-handling: special provision granting self-
handling rights
Intermodal services: substantially the model liberal
provision
Change-of-gauge: model liberal provision
Operational flexibility: substantially the model liberal
provision
Charters: substantially the model liberal provision
Poland 1996 Designations: no limit
Capacity: no restrictions
Routes: limit on destinations that U.S. airlines may
serve intermediate to and beyond Poland
Pricing: country-of-origin pricing
Ground-handling: U.S. airlines to receive same treatment
accorded national airlines
Intermodal services: no provision
Change-of-gauge: no provision
Operational flexibility: basic freedom to omit service to
points on a route
Charters: Belgian rules
Russia 1993 Designations: three U.S. airlines allowed to operate in
total, but only two on any city-pair
Capacity: restriction on the number of weekly flights
Routes: limit on destinations that U.S. airlines may
serve in and beyond Russia
Pricing: double disapproval pricing
Ground-handling: model liberal provision
Intermodal services: model liberal provision
Change-of-gauge: limit on the number of flights
Operational flexibility: substantially the model liberal
provision
Charters: limit on the number of charter flights
Saudi Arabia 1992 Designations: two U.S. airlines allowed to operate
Capacity: restriction on the number of weekly flights
Routes: limit on the destinations that U.S. airlines may
serve intermediate to and beyond Saudi Arabia
Pricing: no provision
Ground-handling: model liberal provision
Intermodal services: no provision
Change-of-gauge: model liberal provision
Operational flexibility: substantially the model liberal
provision
Charters: country-of-origin rules subject to prior
approval
South Africa 1996 Designations: no limit
Capacity: restrictions on the number of weekly flights
Routes: limit on the destinations that U.S. airlines may
serve intermediate to and beyond South Africa
Pricing: country-of-origin pricing until 1999, double
disapproval pricing thereafter
Ground-handling: model liberal provision
Intermodal services: model liberal provision
Change-of-gauge: model liberal provision
Operational flexibility: model liberal provision
Charters: limit on the number of annual charter flights
Spain 1991 Designations: no limit
Capacity: no restrictions, but subject to review at the
request of either country
Routes: open routes
Pricing: double approval pricing
Ground-handling: no provision
Intermodal services: no provision
Change-of-gauge: limit on the capacity of the aircraft
involved
Operational flexibility: liberal provision but no
flexibility for flights beginning at points behind the
United States
Charters: no provision
Thailand 1996 Designations: no limit
Capacity: limit on the number of weekly flights to
destinations beyond Thailand
Routes: open routes except for service beyond Thailand to
London, England
Pricing: modified country-of-origin
Ground-handling: model liberal provision
Intermodal services: no provision
Change-of-gauge: limit on the capacity of the aircraft
involved
Operational flexibility: basic freedom to omit service to
points on a route
Charters: no provision
Turkey 1990 Designations: no limit
Capacity: no restrictions, but subject to review at the
request of either country
Routes: limit on destinations that U.S. airlines may
serve intermediate to and beyond Turkey
Pricing: no provision
Ground-handling: substantially the model liberal
provision
Intermodal services: no provision
Change-of-gauge: limit on the number of flights
Operational flexibility: substantially the model liberal
provision
Charters: country-of-origin rules
-----------------------------------------------------------------------------------------
Note: This table does not include the "open skies" agreements
negotiated by the United States during this period with 12 European
countries or the agreement with Canada liberalizing the transborder
aviation market.
\a The U.S.-Fiji Air Transport Agreement has not yet entered into
force.
\b This agreement was superseded in 1995 by an "open skies" agreement
between the United States and Germany.
\c The U.S.-Guatemala Air Transport Agreement has not yet been
ratified, but has entered into effect on a provisional basis.
Source: GAO's analysis of air transport agreements and documents
from the Air Transport Association.
--------------------
\1 The United States negotiated two aviation agreements addressing
cargo issues with each of the following countries: Brazil, China,
Germany, Japan, Poland, and Saudi Arabia.
FOREIGN GOVERNMENTS WITH
WHICH THE UNITED STATES HELD
AVIATION NEGOTIATIONS,
JANUARY 1989 THROUGH MAY
1996
----------------------------------------------------- Appendix III:0.1
Argentina
Australia
Austria
Barbados
Belgium
Bolivia
Brazil
Canada
Chile
China
Costa Rica
Czech Republic/Czechoslovakia
Denmark
Dominican Republic
El Salvador
Fiji
Finland
France
Germany
Greece
Guatemala
Hong Kong (U.K.)
Hungary
Iceland
India
Indonesia
Ireland
Israel
Italy
Jamaica
Japan
Luxembourg
Macau
Malaysia
Mexico
Netherlands
Nicaragua
Norway
Peru
Philippines
Poland
Republic of Korea
Russia/Union of Soviet Socialist
Republics
Saudi Arabia
Singapore
South Africa
Spain
Sweden
Switzerland
Thailand
Trinidad and Tobago
Turkey
Ukraine
United Kingdom (U.K.)
Venezuela
Yugoslavia
(See figure in printed edition.)Appendix IV
SURVEY OF ALL-CARGO CARRIERS
OPERATING IN FOREIGN COUNTRIES
========================================================= Appendix III
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix V
RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION, WASHINGTON,
D.C.
Francis P. Mulvey, Assistant Director
Howard F. Veal, Evaluator-in-Charge
Matthew A. Casey
Kelly S. Ervin
John H. Skeen, III
ATLANTA FIELD OFFICE
Deena D. Richart
*** End of document. ***