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Diplomacy in Action

Keynote Speech: U.S. International Aviation Policy and Challenges

Krishna R. Urs
Deputy Assistant Secretary for Transportation, Bureau of Economic and Business Affairs
International Aviation Issues Seminar; Airports Council International-North America
Washington, DC
December 5, 2013


Remarks as prepared

Thank you very much for that warm introduction. It’s my pleasure to be here with you today and I appreciate this opportunity to talk about International Aviation Policy and Challenges.

Transportation Affairs in the Bureau of Economic and Business Affairs at the Department of State works daily to provide the fullest possible commercial support for the U.S. aviation industry. The responsibilities and authorities of our two offices, the Office of Aviation Negotiations and the Office of Transportation Policy, provide us a unique opportunity to advocate for the aviation stakeholders active in international markets.

The Office of Aviation Negotiations manages U.S. bilateral aviation relationships and, in close coordination with the Departments of Transportation and Commerce and the private sector, conducts bilateral negotiations to liberalize commercial aviation. Since 1992, the United States has established Open Skies relationships with over 100 partners—111 at current count. Open Skies agreements are pro-consumer, pro-competition, and pro-growth. They represent a market-oriented approach to aviation relations by allowing markets, not governments, to decide which cities to serve, how often to fly, what aircraft to use, and what fares to charge. Our agreements have opened new markets and created numerous business opportunities for our air carriers around the world. These new markets also promote growth for U.S. airports, cities, and regions, as carriers develop new city-pair routes or expand the services they offer from various cities.

Today, our Open Skies partners include major aviation markets like the European Union, Brazil, Colombia, Canada, and Japan. We worked closely with a broad range of stakeholders, from industry associations—including ACI North America, our hosts today—to individual air carriers, to organized labor, to individual airports and communities in the development of our Open Skies policy, and continue to do so in our ongoing negotiations. We consult with industry before negotiations, and industry representatives frequently come to our negotiations as members of the U.S. delegation. ACI and other airport representatives provide valuable insight into the wants and needs of facility operators, and we welcome their perspective. We also collaborate with the Department of the Treasury to ensure reciprocal exemptions from taxes, duties and the like in all of our Open Skies agreements.

The Office of Transportation Policy develops and coordinates policy on international civil aviation and maritime transport issues, including policy research; safety and security; and environmental protection and accident investigations. OTP participates in the development of policy on international civil aviation and international maritime issues with broad substantive or multinational application, such as those involving the International Civil Aviation Organization and the International Maritime Organization. For example, OTP is the Bureau of Economic and Business Affairs’ office involved in formulating the U.S. Government’s policy on the development of a global market based measure in ICAO.

Looking around the world today, we can see successful carriers of numerous nationalities serving global markets. These carriers are increasingly integrated into global alliance structures. Within such alliances, cooperation can range from codesharing and common levels of service quality to deeper integration involving joint decision-making on schedules and prices. Our Open Skies agreements have played a key role in facilitating these alliances by opening new markets and creating new business opportunities for our air carriers around the world. A good example of this is our Open Skies agreement with the EU, signed in 2007. But Open Skies also can facilitate deeper integration in another way. As you know, for U.S. regulators, Open Skies is a necessary, though not sufficient, condition for the granting of anti-trust immunity. The Department of Transportation has issued grants of antitrust immunity to joint ventures operating over the Pacific and Atlantic in recent years.

Our work on Open Skies is linked closely to the President’s National Export Initiative and to the Department of State’s Economic Statecraft initiative. Open Skies agreements have helped to expand international passenger and cargo flights to and from the United States. Expanded passenger and cargo links promote increased travel, tourism, and trade; enhance productivity; and spur high-quality job opportunities and economic growth. How do they do this? They eliminate government interference in the commercial decisions of air carriers about routes, capacity, and pricing, thus freeing carriers to provide more affordable, convenient, and efficient air services for consumers.

I am optimistic that we will soon have encouraging year-end data for 2013, but, in the meantime, let me give you some examples from early 2012, which illustrate these points:

  • Portland, Oregon reports combined airport and visitor revenue of $241.5 million annually from international flights to major cities in Europe and Asia.
  • Dallas/Fort Worth direct to Madrid on American Airlines, which was made possible by Open Skies with the European Union, has a $100 million annual impact on the local Dallas/Fort Worth economy.
  • Asiana’s Atlanta to Seoul cargo service generates an estimated $25 million annual economic impact in Georgia.
  • Minneapolis to Paris on Delta Air Lines has an estimated $200 million annual economic impact in Minnesota.
  • In 2010 UPS completed a one billion dollar expansion of its WorldPort facility in Louisville, which benefits tremendously from international cargo traffic made possible through Open skies agreements.

Indeed, cargo is central to our Open Skies agenda, because Open Skies is critical to allowing the global operations of cargo carriers that support economic growth and development throughout the world. As one executive of a major cargo carrier told us, “Open Skies is the way we exist.”

But conclusion of an Open Skies agreement is not the last word in our civil aviation relationship with any country. These agreements mark important, but by no means final, milestones. Some trade economists are fond of describing trade liberalization using the analogy of a bicycle. As long as the bicycle is moving forward, it is not difficult to keep it upright. But once the bicycle stops it often topples over. The same paradigm seems to apply to aviation liberalization. We must keep moving forward and ensure that the hard-won liberalization achieved through our Open Skies agreements has not been in vain.

We do continue to seek Open Skies agreements with countries where we do not have them yet. China is the largest of our non-Open Skies partner economies; others include Mexico, South Africa, Vietnam, Russia, Argentina, and a number of Caribbean partners. We know we will have some challenging negotiations ahead.

One of the major challenges going forward for the industry is security. Let me talk about just a few of the ways in which this is being addressed.

In January 2012 President Obama signed an Executive Order for a National Tourism Strategy that will benefit the aviation industry by improving both the marketing of the U.S. as a tourism destination and secure visa processing to facilitate this traffic. This is especially important for China and Brazil, which have large populations that are eager to travel to the United States, but were frustrated with long waits for visas and at immigration lines on arrival. Changes in visa processing in these two countries, and marked increases in consular staffing, have made visits to the United States easier for these travelers.

These changes and additional resources mean we can focus even more scrutiny on travelers, not less. While the economic and social benefits from international travel are great, and promoting legitimate travel to the United States is an important goal, our first priority remains the security of our country and, in the context of Open Skies, the passengers who board international flights to come here. We are proud that we are using technology and better management to enhance our security and to facilitate legitimate travel at the same time.

Another effort, the Global Entry Program run by Customs and Border Protection, makes the international border control process easier for frequent fliers who voluntarily submit to a background check and meet program eligibility requirements. While still protecting our borders, Global Entry facilitates entry into the U.S. through the use of a dedicated lane, automated kiosk and the elimination of queues during the border control process. The kiosk confirms program enrollment by having the traveler scan his passport at an automatic passport reader, and verifies identity through the comparison of biometrics (fingerprints) collected at the initial enrollment. It also correspondingly reduces wait times for those travelers not enrolled in the program by taking a portion of passengers out of the border control queue. Thus new technology maintains national security and boosts tourism at the same time.

I am also very pleased to note that Global Entry has been expanded beyond the initial eligibility of U.S. citizens. Through bilateral partnerships, Global Entry is now available to citizens of the Netherlands, Mexican citizens, South Korean citizens, and Canadian citizens enrolled in the NEXUS program. CBP has limited pilot programs in place with the United Kingdom, Germany, Qatar and Saudi Arabia. CBP expects to expand eligibility in the future to include all citizens of Germany, Qatar, and the United Kingdom who meet and satisfy Global Entry participation requirements. These changes will further streamline the border control process.

The third leg of this stool is preclearance, which like improved visa processing and Global Entry promotes both security and tourism. Preclearance promotes security by “pushing out the border” to overseas preclearance stations, where we have an opportunity to screen inbound passengers earlier in the process. This can help us keep inadmissible travelers off of aircraft landing in the United States, rather than flying them to a U.S. port of entry, denying them entry at immigration control, and sending them back on another lengthy flight. On the tourism side, preclearance means arriving passengers can bypass the potentially long waiting times at major international airports, reducing the number of missed onward domestic connections and improving the travelers’ overall experience.

Preclearance is not a solution for every point of departure from overseas to the United States, but when put in place it is an excellent example of serving the dual goals of enhancing both security and the customers’ travel and arrival experiences. That said, I know concerns exist about preclearance, as evidenced by proposed legislation in HR 3488. As always, I am eager to hear your views on this and will share them with my colleagues at CBP who oversee the program.

Another challenge, one that has arisen fairly recently, is competition from the Arabian Gulf States for the transatlantic market that is the bread and butter of established U.S. and European carriers. I think some aviation stakeholders, and European interests especially, are concerned about how this growing competition will affect through-passenger traffic. The United States has Open Skies agreements with all of the Gulf States. In addition to pro-market aviation policies and an enviable geographic position, their labor costs are much lower than U.S. and European operators. Some allege that Gulf carriers receive subsidies from their governments. To date, we have not seen solid evidence confirming allegations of unfair government support, but we take very seriously the concerns of U.S. aviation industry stakeholders, and we will continue to engage with them on this issue.

In addition to security, a major challenge for U.S. industry is economic viability in a rapidly changing environment. Related to this, there has been some discussion in recent years about relaxing the rules governing foreign investment in U.S. airlines, with the thought that allowing such investment will make further consolidation—and the associated cost savings—possible in the transatlantic sphere. Any changes in these rules of course would require action by Congress, because U.S. legislation currently requires that foreign investors own less than 25 percent of any voting shares. But let me just tell you a bit more about the matter.

Ownership and control was a topic of discussion during both first- and second-stage Open Skies negotiations with the European Union, and it has been broached again as part of the talks currently under way surrounding the Transatlantic Trade and Investment Partnership. Additionally, ICAO is currently studying a proposed Multilateral Convention on Foreign Investment in Airlines (MCFIA). Countries adhering to the convention would agree to waive ownership and control rules for airlines based in other convention countries. If it is adopted widely, it could open up opportunities for significant foreign investment in airlines.

So while there are challenges ahead, and there are some disagreements on how best to meet those challenges, let me sum up by saying that our Open Skies policy overall has been very good for aviation and for the consumer. Passengers today fly, and expect to fly, in city pairs that were unlikely to be possible before Open Skies. To cite just one example, before the U.S.-EU Open Skies agreement, it was hard to believe that one day someone could fly non-stop Detroit-Amsterdam. Airports have been aggressive in promoting these new city pairs and are reaping the benefits, and it’s been good also for the consumer. Much of this growth is possible because of joint ventures that were not available without Open Skies. I have no doubt that the years ahead will bring new successes and new challenges to every aspect of aviation, and I look forward to continuing that journey with all of you.

Thank you very much.

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