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Office of the Press Secretary

For Immediate Release January 30, 1998
                           PRESS BRIEFING BY 
                     ASSISTANT TO THE PRESIDENT FOR 

The Briefing Room

4:10 P.M. EST

MR. TOIV: We have here to brief on the civil aviation agreement just achieved between the United States and Japan: Dan Tarullo, who is the President's Assistant for International Economic Affairs; Secretary of Transportation Rodney Slater; Assistant Secretary of State for Economic and Business Affairs Alan Larson; and Assistant Secretary of Transportation for Aviation and International Affairs Charles Hunnicutt.

Let me tell you that following this briefing, over at the Department of Transportation, there will be a more technical briefing. So if you could keep that in mind as you think up questions for this crew of briefers. Thank you.

MR. TARULLO: Thank you, Barry, and good afternoon. We are pleased to announce this afternoon an agreement that will change the face of trans-Pacific air travel. The agreement reached between our negotiators and those of Japan this afternoon will entail a dramatic increase in air services, both passenger and cargo, across the Pacific.

The resulting economic benefits for the United States are certain to be substantial, both in terms of economic development in cities heretofore not served by non-stop or direct service to Japan; in terms of increased employment in our very competitive aviation industry. The result is sure to be thousands of new jobs created and sustained in the United States.

In addition, the agreement announced today fits in with the President's policies which he's pursued for five years on the economy as a whole. It is a three-pronged policy of balancing the budget, of investing in our people, and of expanding our export opportunities.

This agreement today, like prior agreements in the civil aviation area over the last five years, like our telecom and financial services agreements, opens markets abroad for the very competitive services industries of the United States, the result of which, of course, is a stronger 21st century American economy.

Many of you know that over the last several years we have concluded very liberalized agreements with Germany, Canada, and about two dozen other partners as well. The agreement today is truly a landmark. Just a few years ago, virtually nobody would have predicted that the kind of liberalization that we'll soon be seeing with Japan on air travel could take place.

I might say that the efforts that Secretary Slater, who will speak in a moment, and his team, and Madeleine Albright and Al Larson -- that their efforts are not going to stop today, both with respect to our liberalized aviation policies generally and with respect to Japan. As you can probably see when you look at the fact sheet on the agreement, there is built into this agreement provisions for further liberalization over the course of the next four years.

What we'll do with the briefing here is to have Secretary Slater make a statement to lay out the agreement for you and put it into context. And then Al and Charlie will also be available to answer questions.

Secretary Slater.

SECRETARY SLATER: Thank you, Dan, and thank you for acknowledging the quality effort of the State Department, the Department of Transportation working with the White House, USTR, to make today possible. Also we should commend the private sector, our carriers, trade associations, the airports, cities, and states, our international and interested members of Congress and others who have worked hard to work with us to make today possible. And I'd also like to acknowledge Assistant Secretary Hunnicutt and Assistant Secretary Larson, who were our chief negotiators, for a job well done.

Again, thanks for coming. I'm delighted to be here today to announce this new aviation agreement between the world's two biggest economies, the United States and Japan. It is a significant agreement. It adds to the bounty of new trade agreements, which number some 240, about 34 of them with Japan alone, that have come into existence since President Clinton took office.

And I'd also like to note that this is the first major trade agreement the United States has signed since President Clinton renewed his pledge to continue to open new markets in his State of the Union address Tuesday night. This latest agreement will greatly liberalize the $10 billion U.S.-Japan aviation market. It is an agreement that comes at a critical time in our economy, as we move into the global economy, global competition, and the 21st century. Today record high exports account for fully one-third of America's economic growth. So it is absolutely critical that our transportation system be international in its reach so as to meet and to extend to new markets and to support our economic growth.

And expanding a transportation system in its reach is exactly what this agreement is all about. It will expand aviation markets between the United States and Japan. And it will let U.S. airlines fly to Japan and beyond to other points without restriction. This is good because greater access to Japan means greater access to the rest of Asia.

So what does it mean to the average American? By opening this market to more competition, American consumers will benefit from better service and more flights across the Pacific and around Asia. By adding flights, we add capacity. And added capacity will soon help to drive down fares -- this despite the complexities of pricing in the Japan market.

The U.S. aviation industry also is a winner, because there will be more flights to Asia and more airlines will be allowed to enter this key market.

Let me give you a few highlights of the agreement. First, it lifts all current restrictions on the number of flights and cities served, both in the United States and Japan, by what are called incumbent carriers. These include United Airlines, Northwest Airlines, and Federal Express.

Second, it nearly triples the number of flights allowed by so-called non-incumbent carriers to 136 flights per week. These carriers include Delta Airlines, American Airlines, and Continental Airlines. And two additional U.S. carriers will be able to enter the U.S.-Japan market, one immediately and one in two years.

Next, the agreement allows, without restriction, all incumbent passenger carriers to fly from Japan to any other country. Also, incumbent cargo carriers will be allowed to fly unrestricted to any point in the world. This agreement also allows U.S. and Japanese airlines to enter into cooperative arrangements known as code sharing. It will lay the groundwork also for Japan to seek greater market liberalization in the future.

Finally, the current number of charter flights will be allowed to double to 800 parts per year.

All told, this is an excellent agreement. It will boost U.S. airline revenues to just over $1 billion per year. It will also increase net U.S. aviation service exports by nearly $1 billion a year. The agreement also will generate billions of dollars in new economic activity in cities across the nation, and it will also serve to create thousands upon thousands of jobs.

Let me also put the agreement in a larger perspective. We have signed 27 open skies aviation agreements over the last three years, including five last year in Asia and the Pacific. Open skies around the global continue to be our goal. Still, we recognize that most goals are achieved one step at a time. And that is what this agreement is -- a step forward, a big step forward. So we will keep pushing forward with Japan and all of our trading partners to open skies worldwide.

Let me end by saying that this agreement is about more than just additional air flights to Asia. It is about more jobs -- again, hundreds of thousands of jobs for Americans. It is about growing our communities by linking them to the global economy. It is about providing opportunity for all Americans. And that is what this agreement will do. It will strengthen America as we head into the 21st century.

Again, thanks to all who worked to make this agreement possible.

MR. TARULLO: Thank you, Mr. Secretary. We're happy to take any questions right now.

Q How is the issue of slots at Narita handled?

MR. TARULLO: Ambassador Larson, why don't you --

ASSISTANT SECRETARY LARSON: First of all, slots -- that is, arrival and take-off times, are not something that's typically dealt with in a bilateral aviation agreement. And that is true in this case as well. We have a very strong slot position at Narita airport that our airlines have built up over time. We have had some very important discussions with the Japanese that we believe sets a framework for both safeguarding the slots that we have and also permitting -- consistent with rules, international rules under IATA -- a framework for the transfer of such slots that might be under-utilized at the moment to other carriers that need them to introduce new opportunities. Our view is that this framework is one that is workable. It will be up to the private sector to work out the precise details, but we think that there are going to be early opportunities for our carriers to introduce new service to all points in Japan, including Narita airport.

Q What's the next step? Does this have to be approved by Congress, or just signed by the President, or does it take effect automatically, or what?

MR. HUNNICUTT: The memorandum of consultation that we signed today has to be put into the form of a memorandum of understanding, which is normally, with a country of this importance, signed by the Secretary of Transportation on behalf of the United States. But we put into effect -- its provisions -- immediately on the basis of comity and reciprocity. We begin to implement until such time as the memorandum of understanding is signed.

MR. TARULLO: There's no need for Congressional approval although we have been consulting very closely with interested members of Congress throughout the past year and half of fairly intense negotiations.

Q Is that true on the Japanese side, too? It doesn't have to be approved --

MR. TARULLO: There's no Diet approval necessary, no.

Q On the slot question again. Did I understand correctly then there's nothing specifically in the agreement that says Federal Express has to turn over unused slots at Narita? It's up to Federal Express to do that, or is there some process that will impel that?

ASSISTANT SECRETARY LARSON: Well, there is nothing in the agreement that deals specifically with the issue of slots, but there is an agreed framework that provides a process by which, consistent with these international guidelines, it will be possible to arrange, through private negotiations and private arrangements, transfers of slots that are under-utilized now and can be used by our non-incumbent carriers.

Q Who decides who gets the slots?

ASSISTANT SECRETARY LARSON: It's going to be left to private arrangements.

Q Can I understand a little bit more about the pricing issue? My understanding was that Japan currently controls prices of flights over to Japan and that those -- that mechanism is now under review. Is that right?

MR. HUNNICUTT: Well, it is, yes, partially correct. The Japanese do control prices. They also have under review their entire domestic aviation pricing regime. There is a ministerial commission which is going to recommend the next steps in their domestic aviation pricing liberalization. Between the two countries we have had a double approval system of pricing where price changes by airlines had to be approved by both governments.

What we have agreed to do with the Japanese in one step is, after their domestic airline pricing commission has reported the next steps for deregulation in Japan, we will reconvene to decide how the U.S.-Japan aviation pricing regime can be liberalized in concert with that.

In the meantime, a great deal of the pricing competition in Japan occurs through the sale of tickets through travel agencies, consolidators, and wholesalers. And we have ensured the ability of U.S. carriers to participate in that market and even to set up their own wholly-owned travel agencies to market U.S. aviation services in the Japanese market at competitive prices.

Q Mr. Secretary, could you tell us why you gave up all this -- in this negotiation?

SECRETARY SLATER: Well, we didn't give up. We got the very best deal that we could get at this point in time. As was noted earlier, as a part of this agreement, there is the provision that if within three years or so we have not been able to work towards the open skies agreement that we sought from the very beginning, that certain additional benefits will accrue to U.S. carriers.

And so we will continue to press the case. But, again, you've heard the specifics of the arrangement that we've negotiated and I think we've done a great job. And, again, big accomplishments start with steps, and we've taken one here. It is a mighty step forward and we look forward to continuing to press forward until the job is done.

MR. TARULLO: I might just add, if I could supplement Secretary Slater's response, that the President's policy has been directed towards achieving big, liberalized benefits for American services industries. This doesn't mean that we'll conclude any deal no matter how incremental.

The point of this deal, as Secretary Slater said in his remarks, is that it truly does revolutionize the nature of trans-Pacific air travel, with all the provisions that he mentioned -- of code sharing, of increased opportunities for the non-incumbent carriers, the removal of any disputes surrounding incumbent carriers beyond rights, as Charlie mentioned, the rights to establish one's own travel agency and thus discounting in Japan.

These are fundamental breaks with the way in which air transportation has been conducted with Japan since the original 1952 agreement. It is part of an ongoing strategy which is not driven by any narrow ideology, but by an effort to achieve the greatest practical utility for American carriers and American consumers.

Q Do you have just general projections on the effects on the market, in terms of passenger increase, price effects, and cargo increased levels?

MR. TARULLO: We certainly do. CEA has done an analysis on the overall revenue effects and the impact on current account. Does somebody have -- can you give --

ASSISTANT SECRETARY LARSON: I can give you the overview on the aggregate amounts. Basically, it's to repeat what Secretary Slater said in his remarks. In other words, we believe that just based on the new opportunities for non-incumbent combination carriers and the new opportunities for incumbent carriers, passenger and combination carriers, that we can expect increased revenues of about a billion dollars a year for that part of the industry.

We have not been able to estimate precisely a lot of the other benefits that will come from increased opportunities beyond, and we have not attempted at this stage to estimate precisely the increased benefits for the cargo sector. Our estimate of the benefits to consumers is on the order of $300 million a year. And the estimate of the effect on the bilateral current account relationship, where we enjoy a $5 billion surplus now, is that our surplus should increase by about a billion dollars a year. Obviously, there's a range around any kind of estimate like that, but we've tried to be conservative.

MR. TARULLO: I might add that I believe earlier -- maybe yesterday or the day before -- the Economic Strategy Institute, which is a Washington think tank, released its own studies and projections. Because they were not privy to the negotiations, they of course weren't able to project precisely on the basis of the agreement that we reached. But they were given -- they knew a rough idea, based on press accounts of prior rounds, as to what the benefits would be. And their conclusions, I believe, were broadly consistent with those that Secretary Slater and Ambassador Larson have stated.

Q Ticket prices? I mean, just something as specific as a ticket price, how that might be affected?

MR. TARULLO: I don't think either study attempted to make reference to ticket prices, although, obviously with substantially increased opportunities, substantially increased travel, and substantially increased competition, you can imagine the pricing is going to be more competitive in these markets.

Q If the current accounts benefit increases by a billion and total revenue increases by a billion, does this mean that all of the benefit accrues to American carriers?

MR. TARULLO: No. It's not going to be a circumstance in which all the benefit accrues to American carriers.

Q How does it divide among American and Japanese carriers?

MR. TARULLO: I don't know. Do we have a copy of the study, of the CEA study, or a summary? We can get you a summary of the study itself, which breaks that down. And we can get it -- I don't know if you're going to be at the DOT briefing, but we can get it to you then.

Q For UPS and Polar are they getting a full beyond rights? And I have another question. For the 90 flights for the non-incumbent passengers, how many do you expect for Narita?

SECRETARY SLATER: The beyond rights for UPS and Polar that they currently enjoy with some addition will be full traffic rights and not blind sector beyond rights. And the amount of initial entry into Narita Airport will of course depend upon the arrangements that are made between the private commercial interests in terms of the totally new entry. But we expect a significant amount of new entry at Narita Airport.

Q Secretary Slater, I want to ask this in light of a lot of the current climate. There's been division among U.S. airlines over this. All of them are major political players, and you've been in touch with a lot of the CEOs. Have their political contributions ever come up in the context of these discussions and have they affected the negotiations?

SECRETARY SLATER: No, they have not come up. I can tell you what they have asked us to do, and that's to be as aggressive as possible in opening markets for them that they might continue to grow and prosper. I can tell you that when the President came into office, three years prior to that point they had lost $10 billion, and that over the last three they've enjoyed record profits. And I can tell you that this kind of effort, along with our other efforts to open the skies of the world for their benefit, will continue to result in their growth, development, and prosperity, and that's good for the American people. That is what has driven us as we have sought the best possible agreement that we could consummate.

Q When does this agreement take effect, and what is the duration of it? I know at one point you were talking about a four-year agreement, but this looks like it's indefinite agreement.

MR. HUNNICUTT: The agreement takes effect on the basis of comity and reciprocity now. We will begin to implement its provisions. The term of the interim part of the agreement is for four years. But we have agreed to meet in three years to begin negotiations to establish a fully liberalized aviation regime, which in our terms means open skies. And that if we fail to do that within one year, at the fourth year there are significant new liberalizations that occur automatically as a contingency in case it takes us longer than one year to reach full liberalization.

So the regime could go on and there are provisions that continue to kick in on the contingency basis up to the seventh year. But our plan is to replace the entire regime with a new fully liberalized agreement at the end of the fourth year.

END 4:31 P.M. EST