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Cablegate: March 12-14 Us-Vietnam Aviation Negotiations

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 HANOI 000725

SIPDIS

SENSITIVE

STATE ALSO FOR EAP/BCLTV, AND EB/TRA
TRANSPORTATION FOR EOPPLER, DMODESITT AND CTOURTELLOT

E.O. 12958: N/A
TAGS: EAIR EINV PREL VM
SUBJECT: March 12-14 US-Vietnam Aviation Negotiations

1. (U) Sensitive but unclassified protect accordingly.

2. (SBU) Summary: Substantial progress was made during
civair negotiations March 12-14 with the Civil Aviation
Administration of Vietnam (CAAV) on a limited bilateral
aviation agreement. The Vietnamese accepted elements of the
model U.S. Open Skies text and were willing to grant
significant route, capacity, and operational rights. They
withheld, however, France, Japan and Korea from the U.S.
passenger route description, and restricted important
regional fifth freedom rights for passenger and cargo
services, thus severely limiting, if not eliminating, the
commercially viable options for U.S. carriers wishing to
implement service to Vietnam. Addressing these critical
restrictions will be the focus of the next round of
discussions to be held in Washington, probably in late June.
End Summary.

Productive Talks
----------------

3. (U) A delegation of State and Transportation Department
officials, headed by State Aviation Negotiations Deputy
Director Laura Faux-Gable, and U.S. private sector
representatives met March 12-14 in Hanoi with a Vietnamese
delegation including representatives of the Civil Aviation
Administration of Vietnam (CAAV), the Office of the
Government (Prime Minister's office), the Ministries of
Transportation and Foreign Affairs, and Vietnam Airlines to
negotiate a bilateral air services agreement. The Vietnamese
delegation was headed by Mr. Pham Vu Hien, Deputy Director
General of the Civil Aviation Authority of Vietnam (CAAV).

4. (SBU) The negotiations were productive, breaking the
deadlock that had characterized the conclusion of the
previous rounds of talks, held in August of 2000 in
Washington, D.C., and in Hanoi in 1998. During the earlier
Washington round in particular, the Vietnamese had objected
to nearly every element of the U.S. Open Skies agreement,
and had stressed repeatedly that Vietnam was not ready for
open-skies. This round, Hien opened the talks by agreeing
in principle to a good number of the U.S. open-skies
provisions, thus signaling a change in Vietnamese policy and
setting a positive tone for the subsequent discussions.

5. (SBU) CAAV's Hien opened the negotiations by indicating
that the GVN considers conclusion of an air services
agreement with the U.S. important to the process of full
economic normalization between the two countries. Vietnam
initially proposed an agreement under which the U.S. would
open its market to Vietnam immediately while Vietnam would
phase in U.S. carriers' access over a ten-year period.
(NOTE: Hien was probably basing his proposal on the model of
the Bilateral Trade Agreement which phases in Vietnam's
obligations but gave them immediate access to the U.S.
market.) Such a long phase-in period is unprecedented in
U.S. civair agreements, and the U.S. chair countered that a
shorter-term agreement as a transition toward an eventual
Open Skies agreement would be more appropriate in light of
rapidly changing developments in the aviation industry. The
U.S. side then tabled a proposal for limited liberalization,
which the Vietnamese delegation reviewed and, after
deliberation, used as a basis for a counterproposal. This
counterproposal included most of the Vietnamese delegation's
substantive concessions, a description of which is provided
below.

6. (SBU) After discussion of substantive issues, the
delegations spent the second day reviewing each article of
the U.S. model Open Skies agreement, which Vietnam had
agreed to use, with modifications in an annex, as a basic
text for an air services agreement. During the course of
this discussion, certain Vietnamese concerns were raised and
alternative wordings offered. A copy of the air services
agreement was prepared with bracketed text indicating
wording that requires policy and legal review on both sides.

7. (U) The negotiations ended with the signing of a
Memorandum of Consultations, which included in its
appendices the bracketed air services agreement and a copy
of each side's proposal for liberalization. The MOC
expressed the intent to resume negotiations in the second
quarter of 2003. Informal discussion with the Vietnamese
delegation suggested that the next meeting would likely be
in late June in Washington.

The Bottom Line
---------------

8. (SBU) The Vietnamese offered the following rights to U.S.
carriers:

- Two designations for passenger carriers in years one and
two, a third carrier in year three and enough frequencies
for each to operate daily service.

- Unlimited cargo capacity but with restrictions on critical
fifth freedom rights

- Double disapproval pricing for cargo and country-of-origin
pricing for passenger.

- Unlimited bilateral, same-country, and third-country
codesharing.

- Some of the standard open-skies operational and other
provisions, including self-handling, full change-of-gauge,
CRS, security, and safety. In other areas, most notably user
charges and fair competition, differences remain to be
resolved.

9. (SBU) Despite these concessions, the significant
restrictions on route and traffic rights in the Vietnamese
offer may be impediments to completing an agreement if not
resolved in the second round of discussions. Specifically,
the Vietnamese proposal excludes from the U.S. route points
in Japan, France, and Korea, and withholds fifth freedom
rights from points in Taiwan, and, in the first two years,
from Hong Kong. (During the course of the negotiations, the
Vietnamese first withheld fifth freedom from Hong Kong
altogether, then granted it, then settled on withholding it
for two years). While most U.S. cargo carriers were
generally willing to accept the Vietnamese offer, United and
Northwest, the two U.S. carriers with extensive Pacific
operations, were adamant that without fifth freedom rights
from Tokyo, they could not and would not implement direct
service. Thus, the issue of fifths from Japan will be
central to the next round of talks.

10. (SBU) Comment: The GVN understands that it needs to open
up the air services market to the United States in order to
continue to capitalize from the market-opening benefits of
the Bilateral Trade Agreement and to serve its export growth
needs. CAAV's Hien clearly had a mandate to liberalize, and
came to the table ready to offer significant access to U.S.
carriers. Despite that mandate, however, protectionist
objectives remain, and the exclusion of Japan from the U.S.
route reflects the importance of Tokyo-Vietnam travel for
Vietnam Airlines, and also its hope that it may eventually
develop a U.S.- Vietnam route. As they enter the second
round, the Vietnamese must weigh Vietnam Air's aspirations
against the tangible economic benefit that Vietnam would
derive from increased U.S. passenger traffic and access to
the global cargo networks of U.S. cargo carriers.
BURGHARDT

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