It is time the United States stopped equivocating and led the way towards multilateral liberalisation by clearly stating its international open skies policy. Jacqueline Gallacher reports.

The attempt to launch a worthwhile debate on multilateralism at last November's Icao worldwide air transport conference, resulted in little more than a furious finger wagging competition between the organisation's 137 member states. By far the largest forefinger belongs to the US, the country that has the power to unleash or restrain global liberalisation.

An appropriate parody of the current stalemate could read like this: 'You don't really want liberalisation,' shrieks a US representative, completely exasperated by two days of listening to the Japanese monologue on the need for balanced opportunities. 'Oh, don't we? Just give us US open skies tomorrow, and you'll see,' taunts his resilient Japanese adversary in reply. 'Hee, hee, hee, they'll never reach an agreement,' exults the French representative, gleefully contemplating many years to come of cosy protectionism.

Far fetched? Not really. Few, including Icao itself, expected radical changes to emerge from the conference, held to coincide with the 50th anniversary of the signing of the Chicago Convention. And there were no surprises when the countries present fell neatly into three predictable categories.

The first, made up of countries that want actively to restrict liberalisation, included most of Africa and Japan. 'Japan has become the hero of the Africans,' says Chris Lyle, Icao's head of economics and statistics. The second, including some European and Asian countries, consisted of those who are happy to observe that so far Icao has failed to get a grip on the main issue of freeing up market access. The third, led by the US, includes those countries arguing in favour of greater or complete liberalisation.

While Japan emerged from the meeting labelled 'restrictive' and the US as 'arch-liberal', matters are not that simple. The US has been heavily criticised since the meeting for its 'negative' attitude and failure to use the meeting as an opportunity to further its stated liberalisation goal. Its insistence on arguing against the need for safeguards or a dispute resolution mechanism in a liberal regime - a need recognised by virtually all the member states - provoked a major row and a strong response from the developing countries in particular. Many countries have read the US stance as confirmation of what they always suspected. 'They will implement the [open skies] policy provided they benefit from it. It is not a policy per se,' says Bashir Ahmad, commercial director at Malaysia Airlines.


Equal opportunities

Meanwhile Japan's position, which argues the need to rebalance existing bilateral agreements before liberalising further, has perhaps been misconstrued. Kosuke Shibata, director international air transportation division at the Japanese ministry of transport, talks primarily of equal opportunities for Japanese carriers, not further limits on US carriers as the US routinely claims. 'There has to be an equal footing for competition before going ahead with liberalisation,' he says, expressing the view that both sides need to start out with the same advantages. 'If the US would like to have an open skies policy - and they can do that unilaterally - we would also be accommodating,' he adds.

So is the US really the bad guy in all this and does it only want open skies on its own terms as charged? A senior US DOT source claims that the US went to the Icao meeting with an open mind but was not surprised when the proposals on open market access were completely thrown out following objections from developing countries, the African states in particular. Instead, the conference asked Icao to do additional work on a number of issues and to focus on safeguards and safety nets against unfair competition as a prerequisite to any liberalisation of market access.

Worse still for the US position, the African Airlines Association (Afraa) asked the conference to develop special treatments for African carriers. These would include the right to stop or suspend concessions if rival carriers' capacity and pricing threatened the interests of African airlines; more favourable treatment in CRS displays; mechanisms for the rationalisation of capacity and the prevention of predatory pricing by limiting discounting. 'Africa feels it has done a very good job of telling the world what we consider are the most important issues for Africa,' says Mohammed Ahmed, Afraa's secretary general.

But for many, the rejection of the proposals on market access has shown that Icao is too wide a forum to take the lead on liberalisation issues, though it does allow an airing of the different viewpoints. 'The majority of the membership in Icao clearly was anti-progress, anti-relaxation of rules. If the majority wants a status quo it means that institution cannot serve as a forum for change,' says a senior source in Brussels.

The US may well feel vindicated in its caution towards Icao's aspiration to lead the multilateralism debate. Part of that caution stems from a belief that Icao should focus on its traditional role of monitoring safety and technical standards. While Icao received mandates from the conference to carry out further studies in 10 different areas, it is currently examining assessing much of this work the secretariat can carry out. Icao is also subject to United Nations budgetary constraints. 'We have always questioned how useful it is for Icao to get involved. We do not think it really moves the world forward,' says the US DOT source.

The main Icao mandates to expand the multilateral framework centre on: competition safeguards; ownership and control issues; codesharing implications; review of the Icao code of conduct on CRSs; 'doing business' matters; an analytical model for evaluating the net national benefits of international air transport and the economic impact of liberalisation; development of formalised structures to regulate hard rights on a bilateral or multilateral basis; and preferential measures to ensure the effective participation of developing countries in air transport.

The greatest consensus to emerge was on the development of an ownership mock-up to broaden the criteria for ownership and control. The main principle of designating a carrier which remains substantially owned and effectively controlled by nationals in a predetermined group of countries was accepted. Such a relaxation would give carriers better access to capital and could release multinationals from the constraints of bilateral agreements.

Icao is however reluctant to get into the exercise of trying to assess the net economic impact of liberalisation. 'We are being asked to do these studies or even develop a model for their evaluation. I can't accept that you can really measure those benefits,' says Lyle, adding that some states may be using this as a means to push back any prospect of liberalisation.

Overall, the conference concluded that there is no prospect in the near term for a multilateral agreement on hard rights, but that liberalisation on a regional and subregional level is a more imminent prospect.

Moves are already underway for open skies within the European Union and parts of Africa and South America, while the countries of southeast Asia are also moving in that direction. 'If you are going to move to a more liberal regime, the way to go about it is on a regional level,' says Ahmad at MAS. 'Airlines in the same region have the same problems and the same strengths. They do not mind opening up the market among themselves.'

Liberalisation between a region and another country or bloc can only come at a later stage, he believes. Any Icao proposals could come into play on a broader level at the right time. 'We are proposing liberalisation within Africa and can use the Icao proposals with countries outside Africa,' says Afraa's Ahmed.

While Icao strains to assume the workload being thrust upon it, the world's main aviation countries have their fingers in more than one pie.

The Organisation for Economic Cooperation and Development (OECD) embarked on the latest of a series of studies on air transport last June with a view to presenting its conclusions by early 1996. Some states feel the 25-member organisation has the advantage over Icao, because it consists of a smaller forum of industrialised countries, including the leading aviation nations. Furthermore, the European Commission may look more favourably on this forum within which it represents Community external interests as a whole.

But the specific exclusion of developing countries from membership of the organisation need not preclude their interests from being taken into account, argues Geoffrey Lipman, president of the World Travel and Tourism Organisation, who is involved in the OECD's work. 'It is unacceptable to think of a global system with no place for the developing countries, but that does not mean it is unacceptable for the countries that believe in liberalisation to push the envelope forward,' he says. 'The study will make every attempt to develop a framework which takes account of the aspirations of the developing countries,' he adds.


Development agencies

Lipman suggests that the African states in particular realise that protectionism will not really help them or their airlines. He believes the answer to their participation may lie in the development agencies giving more weight to assisting African airlines and airports.

Afraa's Ahmed however remains hostile to the idea of measures developing outside Icao. 'We do not want the most developed countries to take over. African airlines will oppose that and insist that the issue be looked at within Icao,' he says.

However, some feel the African continent - which represents just 3 per cent of world traffic - should not be permitted to hold back the development of trade between developed countries. Within Icao, African nations account for 30 per cent of total membership, because of the continent's 42 member countries.

Some states, including the US, take the view that developing countries only have themselves to blame if another forum takes up the issues that they have opposed within Icao. 'They have put Icao in a position where it is saying the most important issue is protecting the developing countries to make sure that if you liberalise nothing really changes,' says a source at the US DOT.

Wolfgang Michalski, the OECD's director consulting unit to the secretary general, claims the study will not focus on liberalisation per se but will consider the different options available for the industry to overcome its problems in the areas of market access, barriers to restructuring, and distortions of competition. The possible application of the General Agreement on Trade in Services (GATS) to air transport is only one of severaloptions that will be considered when it comes up for review in the next five years, Michalski stresses.

Though the OECD has no power to implement its recommendations, it can exert peer pressure among like-minded countries. 'Our power is that of intellectual persuasion,' Michalski. explains. The OECD spans the diversity of views represented by Japan, the US, France and the UK and all those countries support its work.

The OECD has a history in other sectors of evolving successful approaches to the issues raised by competition laws and trans-national ownership and played a major role in developing the basic concepts that allowed trade in services to be encapsulated in GATS, says Michalski. The Organisation also initiated the methodology that put agriculture on to the Uruguay Round agenda, he adds.

While Icao or the OECD may eventually develop the concepts that can one day be applied in a multilateral agreement between like-minded countries, the world cannot afford to sit around and wait. Meantime, the interested parties will have to work within the current system to expand regional and subregional liberalisation to a global level.

A strong US lead is paramount and yet its recent offer of open skies to nine European countries has been criticised as a 'divide and rule' policy by picking off individual states before the European Union gets its act together and empowers the Commission to act on external policy. Conversely, the US DOT believes that its offer could have broader multilateral implications. 'It goes beyond the airline industry and may go beyond the particular countries,' says the source.

As the largest market, it is up to the US to shake off its cloak of hypocrisy and come clean over the terms on which it is prepared to offer open skies - not just to European states but to powerful southeast Asian players as well. Failing this, the finger wagging will continue to fuel protectionist interests and frustrate the more liberal countries that want better US access and simply cannot get it.

As the largest market, it is up to the US to shake off its cloak of hypocrisy and come clean over the terms on which it is prepared to offer open skies - not just to European states but to powerful southeast Asian players as well. Failing this, the finger wagging will continue to fuel protectionist interests and frustrate the more liberal countries that want better US access and simply cannot get it.

Source: Airline Business