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Cablegate: U.S. And Vietnam Initial Air Services Agreement

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

UNCLAS SECTION 01 OF 04 HANOI 002678

SIPDIS

SENSITIVE

STATE ALSO FOR EAP/BCLTV, AND EB/TRA
TRANSPORTATION FOR EOPPLER, DMODESITT AND CTOURTELLOT
COMMERCE FOR ITA:EALFORD

E.O. 12958: N/A
TAGS: EAIR EINV PREL VM
SUBJECT: U.S. and Vietnam initial air services agreement


1. (U) Sensitive but unclassified protect accordingly.

2. (U) Summary: On October 9, the U.S. and Vietnam entered
into a five-year air services agreement that, while
maintaining some restrictions, contains many Open Skies
provisions. The agreement will eventually allow three
passenger carriers from each side to serve the other
country, will allow all U.S. cargo carriers to provide
virtually unlimited service through their hubs, and will
grant to U.S. carriers unlimited rights to codeshare with
third country carriers. The agreement restricts the right
of carriers to pick up local traffic in Japan, a restriction
that may make direct passenger service by the major U.S.
Pacific carriers less likely. End Summary.

3. (U) At the end of the third round of negotiations,
delegation heads from the United States and Vietnam
initialed a five-year air services agreement October 9 in
Hanoi, the first such formal agreement between the two
countries. The agreement, while falling short of Open
Skies, includes many key elements of an Open Skies
agreement, and liberalizes the U.S.-Vietnam relation far
beyond the service provided for in the previous Memorandum
of Discussion, which included only bilateral codesharing and
very limited third-country codesharing. The new agreement
will be applied immediately on the basis of comity and
reciprocity.

Restrictions
------------

4. (U) The elements where the new agreement differs from a
standard Open Skies agreement are as follow:

-- Designations: Each side is limited to two passenger
designations during the first two years of the agreement,
and a third during the final three years;

-- Frequencies: Passenger carriers are limited to seven
round-trip frequencies per week;

-- Restricted routes: Each country may select intermediate
and beyond points in three countries each, and beyond points
may not be the same as intermediate points.

Passenger routes for U.S. carriers may not include points in
Korea or France. U.S. carriers have no fifth freedom rights
(the right to pick-up local traffic) from points in Japan,
Taiwan, and, until October 15, 2005, Hong Kong. U.S. cargo
carriers have no fifth freedom rights from points in Japan,
France, Taiwan, and, until October 15, 2005, Hong Kong.
However, a "hub" exception was included, so that U.S. cargo
carriers may carry traffic to and from the above mentioned
countries, as long as the traffic transits a point where
fifth freedom rights are granted.

Vietnamese carriers are prohibited from exercising fifth
freedom rights from points in Japan.

-- Destinations: Direct service may be provided to five
points in the other country;

-- Codesharing: Vietnam is restricted to serving 25 points
in the U.S. via codeshare partners;

-- Charters: Each side may operate 52 charters per year;

-- User Charges: Vietnam is exempt from providing national
treatment for user charges until October 15, 2007;

-- Other: The definition of Territory (Art 1.10) was
altered to include airspace, and the text of the agreement
was slightly modified in several places to conform to this
additional meaning. The Vietnamese said that their
Constitution required this definition. The use of foreign
currency (Art. 8.4) was permitted, but "in accordance with
national laws" on "a non-discriminatory basis" to take into
account Vietnamese regulations regarding foreign currency.
The right to employ intermodal surface transportation was
not granted to and from third countries (Art. 8.8), so the
phrase "or in third countries" was removed from the sentence
describing that right.

The Main Issue - Japan
----------------------

5. (U) There was really only a single major point upon which
the two sides had significant disagreement: fifth freedom
rights over Japan. The Vietnamese head of delegation,
Civil Aviation Administration (CAAV) Deputy General Director
Pham Vu Hien, maintained throughout the three rounds of the
negotiations that Vietnam's airlines cannot compete against
U.S. airlines on Japan routes, and that they therefore need
protection. The U.S. for its part maintained that, since
two of its major trans-Pacific carriers have hubs at
Tokyo's Narita airport, it is commercially infeasible for
those airlines to provide service to Vietnam without fifth-
freedom rights. In the third round, the U.S. attempted to
break the impasse by offering to accept transitional
frequency and/or seat restrictions on fifth-freedom traffic,
but Vietnam refused to yield on the issue. Mr. Hien
emphasized several times that even without Japan fifths, the
concessions Vietnam was offering were the most liberal that
Vietnam has ever given to any country.

6. (U) In the end, the U.S. side decided that the benefits
of the agreement - very liberal cargo rights and unlimited
third country codesharing for U.S. passenger airlines -
outweighed the considerable disadvantage imposed by the
Japan restrictions. In an effort to mitigate the
concession, the U.S. side obtained from the Vietnamese side
the right to run blind-sector operations from Japan, a point
that the Vietnamese had adamantly rejected up to that point.
To underscore the importance of Japan, the U.S. side also
insisted on denying Vietnamese carriers fifth-freedom rights
over Japan. Note: Terms of the Japan-Vietnam bilateral air
services agreement preclude Vietnamese carriers from
exercising blind sector or fifth freedom rights to the U.S.
over Japan. End Note.

7. (U) As an indication of the sensitivity of Japan, the
Vietnamese requested that in exchange for U.S. blind sector
rights, language be put in the Memorandum of Consultations
accompanying the agreement to the effect that fifth-freedom
rights over Japan should not come up for discussion between
the two sides until the agreement's successor is negotiated.

Other issues
------------

8. (U) Other issues were not contentious, and the
negotiations concerning them primarily involved working out
details. The Vietnamese side accepted without significant
comment the "hub" exemption for fifth-freedom cargo rights,
a concession that considerably lessens the effect of the
fifth-freedom restrictions placed on U.S. cargo carriers.
Significantly, it also accepted the inclusion of Korea for
cargo fifth freedoms, immediate application of the agreement
on the basis of comity and reciprocity, and specified
effectuation dates - rather than periods based on entry into
force - for phased provisions.

9. (U) On the issue of termination, the U.S. had proposed
that only Annex IV, which contains all of the provisions
limiting the application of full Open Skies, expire at the
end of five years. The basic Open Skies agreement would
then remain in place, and only the nature of subsequent
transitions to Open Skies would need to be re-negotiated.
The Vietnamese side was unwilling to accept this, however,
because it was not prepared to negotiate in the face of a
default to Open Skies. The entire agreement, therefore,
expires five years from entry into force, with a commitment
to renegotiate in year four.

10. (SBU) Comment: The Vietnamese reluctance to default to
Open Skies in 2008 should not be taken as an indication that
they have fundamental reservations about eventually moving
to Open Skies. During the course of the three rounds of
negotiations, and again in a press statement at the final
initialing ceremony, Mr. Hien indicated that Vietnam intends
to move to Open Skies "well before the 2020 APEC Bogor
target date (for developing economies to remove trade
barriers)." In negotiations, he mentioned specifically 2011
or 2012 as the year when Vietnam would be ready for Open
Skies. In the next round of negotiations, therefore, it is
reasonable to press the Vietnamese to negotiate a transition
agreement to full Open Skies. End Comment.

Impact on Service
-----------------

11. (SBU) Based on the reaction of the carriers to the
agreement, it is likely that passenger service between the
U.S. and Vietnam will increase primarily through codesharing
arrangements, rather than through direct service. Western
press at the initialing ceremony already noted the
difficulty with direct service, questioning how a "nearly-
empty" U.S. plane could operate profitably between Vietnam
and Japan. Northwest and United confirm that blind sector
service from Tokyo is infeasible, and that neither is likely
therefore to offer service over Tokyo or any other hubs
during the life of the agreement. The agreement, however,
affords Continental the option to operate direct service
from Houston via Guam. Vietnam Airlines for its part
publicly stated its desire to make San Francisco its first
U.S. destination, although its plans to make this service
viable (i.e. over which route) have not been publicized. On
the other hand, codesharing will expand beyond the frequency
limitations permitted in the existing MOD. The Delta Air
Lines representative was already preparing to submit the
necessary documentation for a codeshare with Korean Air
before departing Hanoi. American intends to implement its
already approved codeshare with Vietnam Air as soon as the
latter has completed its required FAA licensing and
certification procedures. All U.S. airlines are expected to
seek codeshare partners during the life of the agreement.

12. (SBU) Despite restrictions, U.S. cargo operators plan
some direct service shortly. Fedex and UPS already serve
Vietnam as freight forwarders, and are likely to commence
air service in early 2004 when the necessary regulatory and
logistical arrangements can be completed. Polar is looking
at the possibility of starting service this Winter Season
(Oct 26, 2003 - Mar 28, 2004).

Entry into Force
----------------

13. (SBU) Both sides have indicated a desire to sign the
agreement as soon as possible. The GVN must translate the
agreement (which was negotiated entirely in English) into
Vietnamese, before it can submit it to the Prime Minister
for approval to sign. A potential visit of Deputy Prime
Minister Vu Khoan to the U.S. in December presents one
opportunity for signing the agreement in the U.S. After
signing, the GVN estimates it would complete the necessary
bureaucratic procedures within a month before an exchange of
dipnotes would bring the agreement into force.

14. (SBU) Comment. This agreement clearly represents not
only a significant step forward in the strengthening of
bilateral economic ties, but also another indication of the
GVN's recognition of the benefits of broadening the
relationship as a whole. In stark contrast to the first
rounds of ASA negotiations held in 1998 and 2000, the GVN
exhibited a markedly higher degree of willingness during the
three rounds in 2003 to compromise on a number of issues in
order to secure an agreement. End comment.

Delegation Lists
----------------

15. (U) The following were the participants in the
negotiations:

VIETNAM

Mr. Pham Vu Hien
Delegation Head
First Deputy Director General
Civil Aviation Administration of Vietnam (CAAV)
Mr. Lai Xuan Thanh
Director, Air Transport Department
CAAV

Mr. Luu Van Doan
Deputy Director, International Affairs
CAAV

Mr. Vo Huy Cuong
Senior Official, Air Transport Department
CAAV

Mr. Tran Van
Advisor

Mr. Nguyen Van Truong
Advisor

Mr. Do Tat Chat
Advisor

Mr. Bui Thien Thu
Advisor

Representatives of Vietnam Airlines and Pacific Airlines

UNITED STATES

Ms. Laura Faux-Gable
Delegation Head
Deputy Director, Office of Aviation Negotiations
Department of State

Mr. Edward Oppler
Deputy Director, Office of International Aviation
Department of Transportation

Mr. Richard Gaffin
Office of Aviation Negotiations
Department of State

Mr. David Modesitt
Chief, Europe Division and Senior Negotiator, S.E. Asia
Office of International Aviation
Department of Transportation

Mr. Christopher T. Tourtellot
Office of the General Counsel
Department of Transportation

Mr. Samuel R. Watson, III
Counselor for Economic Affairs
U.S. Embassy in Hanoi

Ms. Jessica L. Adkins
U.S. Embassy Hanoi

Ms. Nguyen Bich Ha
U.S. Embassy Hanoi

Representatives of the Air Transport Association (ATA), the
Airports Council International-North America (ACI), the San
Francisco Airport Authority, and nine U.S. carriers.

16. This cable was cleared with the delegation.
BURGHARDT

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