It has taken years, but Japanese transport officials appear to have their first chance of forcing the US into a renegotiation of the 43-year-old bilateral over beyond rights from Kansai/Osaka.

Japan has long complained that US airlines have unfair competitive advantages over Japanese carriers as a result of the 1952 bilateral that was forced on a country still recovering from defeat in World War II. Incumbent carriers and, now, their successors - Northwest Airlines, United Airlines and FedEx - control a majority of the transpacific and intra-Asian traffic with the US' nearly unlimited fifth freedom rights beyond Tokyo and, theoretically, Osaka.

It is the latter gateway to Japan and the rest of Asia that has given Japanese Ministry of Transport officials a new lever. For a year, United and FedEx have complained that permission to establish services beyond the new Osaka/Kansai airport have been thwarted because of bureaucratic meddling by the MOT. FedEx has wanted to establish new services beyond Osaka to Kuala Lumpur, Sebu and Subic Bay in the Philippines, where its new hub is scheduled to go on line 1 May. United wants to fly Osaka-Seoul from July.

The problem is that, traditionally, US incumbents in Japan have filed service increase proposals with Japan's Ministry of Foreign Affairs. This 'diplomatic' channel has been accepted by Japan, except when a US carrier wants to establish a new service. In that instance, a filing with MOT is required.

Though the US disagreed with this latter requirement, incumbents Northwest and United have generally complied, even though an MOT filing excludes a usual MOFA understanding that the new service would go uncontested for at least six months. 'We have always said that we don't have to file with MOT,' says one US transportation official. 'But we did it under protest, and if "they" tried to cut a service, we would consider it a violation.'

All was fine until FedEx recently changed its filing policy for new services, which, since entering the market in 1990, had ignored the MOT. The carrier, which was keen to ensure the potentially lucrative Kansai-Subic Bay service would be running by May, were concerned that the Japanese were dragging their heels on approving its summer schedule. So in mid-April FedEx, which is also involved in a dispute with Beijing over its newly-acquired routes into China (see p16), caved in and filed with the MOT.

This move appears to have given Japan the bargaining chip it has been looking for to give substance to its position, built up over the past year, that it will only approve new services if the US agrees to new negotiations. Sources say Japan is bundling United's request for new passenger services and FedEx's cargo proposal together and is planning to 'Sendai them', or sit on them, much as the US did for a year with a Japan Airlines' proposal to serve Sendai-Honolulu.

The US is being forced into negotiations it has been dreading, though transportation officials now talk of an 'unalterable inevitability' about the process. 'Once this starts, it's going to be another UK in that the carriers will go to war against each other besides against another country,' says one US negotiator.

This refers to airlines that want access to the Japanese market like American Airlines and Delta Air Lines, which also want to ratchet back the incumbents' rights for competitive reasons. American has turned in 'shadow' filings, requesting services to Osaka from five points in the US to add pressure to any talks.

Japan has skillfully wedged the US into this uncomfortable position. If it is successful, it may try a number of ways to limit US growth in the region, perhaps by resurrecting a proposal for independent arbitration which was raised in 1993, when the two last met. US officials vow not to negotiate any existing rights, and some have threatened Japan with sanctions. A Japanese airline executive seems unconcerned: 'United and Northwest would be hurt, so we are not fearful.'

Source: Airline Business