Saturday, June 24, 2017

New heights for ASEAN–China commercial diplomacy in aviation

Author: Alan Khee-Jin Tan, NUS
In 2010 ASEAN and China concluded an air transport agreement to establish a liberalised market access regime for both sides’ airlines. Yet the benefits from the arrangement were unbalanced, with China making much bigger gains in access than the ASEAN states. A closer look at this imbalance makes clear the need for a true single market in aviation across ASEAN.The seventh-freedom right is a key to allowing ASEAN airlines reap the benefits of China traffic. (Photo: Reuters/Edgar Su).
The ASEAN states had attempted to negotiate as a bloc to increase their bargaining position against China. Up to this point, market access had been governed by bilateral agreements between the individual ASEAN states and China. These agreements typically imposed strict caps on the number of flights or types of aircraft operated by each party’s airlines in the other’s market.
The 2010 ASEAN–China Air Transport Agreement (ATA) relaxed these restrictions in line with the progressive liberalisation of airline market access worldwide. Because there are multiple actors in the ASEAN–China game, each ASEAN state’s aviation relationship with China depends not only on its bilateral dealings with China but also those with the other ASEAN states. Along the way, ‘satisficing’ arrangements, which suffice but are barely satisfactory, have come to be accepted, reflecting the realities of the political imbalance between ASEAN and China.
The ATA paved the way for the abolition of all capacity, frequency and aircraft-type restrictions on point-to-point routes between ASEAN countries and China. In practical terms, an ASEAN carrier like Singapore Airlines now enjoys unlimited penetration into any number of Chinese cities from Singapore, subject only to airport congestion and ‘slot’ restrictions in major cities. Correspondingly, Chinese airlines can now make use of unlimited connections and capacity between any number of points in China and any number of points in the ten ASEAN states.
At first glance the ATA seems like a goldmine for ASEAN airlines, allowing them unlimited access to mainland China, but a deep aero-political imbalance between the two remains. An individual ASEAN airline can only connect from its home territory to China, but not from points in other ASEAN states with China (the so-called ‘seventh freedom’). Yet, crucially, Chinese carriers can effectively connect any point in China with any point in each of the ASEAN states.
This asymmetry is caused by the ASEAN states’ unwillingness to treat their region as a unified market. If ASEAN had a common aviation market its member states would have been able to negotiate unlimited operations between all points in ASEAN and China for their respective airlines. Ultimately, this deficiency arises from ASEAN’s own internal realities and has little to do with China.
In effect, the ASEAN states have agreed to an arrangement that does not appreciably advance the collective interest of the group beyond the sum of their individual interests. Instead the ATA appears to have strengthened the Chinese carriers, which are now the only airlines that can truly connect any two given points between the respective land masses in an unlimited fashion. While Chinese carriers are not as competitive or well-managed as some Southeast Asian carriers, they are quickly expanding and will become significant competitors in coming years.
The ASEAN situation today is comparable to that which European states faced in their earlier aviation relationship with the United States. In order to correct that asymmetry, the European Commission asked EU member states to give it the mandate to negotiate anew with the United States. As it turned out, the Commission prevailed — the EU was soon able to forge the European Common Aviation Market and to negotiate with the United States from a position of greater combined strength.
This culminated in the United States–EU Air Transport Agreement of 2007, which effectively allowed any EU carrier to carry traffic between any EU point and any United States point, balancing what the US airlines were already enjoying.
There is no doubt that ASEAN must eventually achieve the same result with China and other trading partners. Efforts to do so will only gain traction if the ASEAN states first liberalise among themselves.
ASEAN governments must start allowing each other the ‘seventh freedom’ of the air — an airline’s right to carry between one foreign country and another without a service to their home country — if they are to carry traffic between any point in ASEAN and China. This is the only strategic way to match the Chinese airlines’ ability to do the same thing. Instead of achieving full liberalisation among themselves first, the ASEAN states have proceeded to adopt an ATA with China that could prove disadvantageous to their carriers in the long run.
To be fair, a liberalisation movement does exist within ASEAN, but it is ongoing and nascent. The ten ASEAN member states lack a directional supranational facility like the European Commission that can compel states to pursue a common regional interest. With vastly differing stages of development and airlines of varying strengths, the ASEAN member states have tremendous variance in aero-political interests.
The decision to pursue an ATA with China was made at the behest of those more liberal states, like Singapore and Malaysia, which have strong airlines, supported by a proactive ASEAN Secretariat. The rationale was to jumpstart the nascent intra-ASEAN liberalisation movement. But these states must now contend with the interests of bigger and more conservative states like Indonesia and the Philippines, which prefer a slower pace of liberalisation to protect their airlines from stronger regional rivals.
Due to this lack of agreement, the ASEAN states now have in place the erroneously labelled ‘Single Aviation Market’. In short, it is ‘single’ only in name. The crucial seventh freedom — which would allow, for example, a Thai carrier to station aircraft in Singapore and operate them to Indonesia — continues to be resisted by most ASEAN states and their airlines.
The seventh freedom right — resisted even within ASEAN — was nowhere to be seen in the ATA with China. Yet this is exactly what is required for airlines to be able to operate from any point in the region to China.
The absence of fully liberalised market access within ASEAN has a direct strategic bearing on their aviation relations with third states like China. By decrying the seventh-freedom right, the ASEAN states have failed to create a truly unified aviation market in the region.
The only way for the smaller ASEAN states to balance the might of their larger trading partners is to combine their individual markets and create a common market area. This is a major challenge for commercial diplomacy between Southeast Asia and China.
Alan Khee-Jin Tan is Professor of Aviation Law at the National University of Singapore.
This article appeared in the most recent edition of East Asia Forum Quarterly, ‘Strategic diplomacy in Asia’.

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