U.S. AND VIETNAM AGREE TO OPEN SKIES CARGO REGIME

UNCLAS SECTION 01 OF 02 HANOI 001186 ////ZFR ZFR ZFR CANCEL THIS CABLE IN ITS ENTIRETY, CABLE WILL BE ZFR/// ///RETRANSMITED UNDER NEW MRN ZFR ZFR ZFR//////////////////////////// SENSITIVE SIPDIS STATE FOR EAP/MLS AND EEB/TRA STATE FOR EEB/TRA TERRI ROBL AND VIKI LIMAYE-DAVIS SINGAPORE FOR FAA MARY WALSH USTR FOR DBISBEE USDOC FOR 4430/MAC/ASIA/OPB/VLC/HPPHO E.O. 12958: N/A TAGS: ECON EAIR EIND EINV ETRD VM SUBJECT: U.S. AND VIETNAM AGREE TO OPEN SKIES CARGO REGIME REF: HANOI 1113 HANOI 00001186 001.4 OF 002 (U) THIS CABLE IS SENSITIVE BUT UNCLASSIFIED (SBU). NOT FOR INTERNET DISTRIBUTION. ¶1. (U) Summary: The United States and Vietnam agreed to an Open Skies regime for all-cargo services on October 7 following two days of talks in Hanoi. The two sides renewed the 2003 Air Transport Agreement for three years and agreed to eliminate designation and frequency restrictions on passenger routes contained in the old agreement. The main impediment to a full Open Skies Treaty was again the GVN's unwillingness to grant U.S. carriers fifth freedom passenger rights over Japan. The GVN agreed to meet within two years to work toward further liberalization, including a possible exchange of fifth freedom passenger rights. End summary. VIETNAM AGREES TO OPEN SKIES ALL-CARGO REGIME -------------- ¶2. (U) The United States and Vietnam agreed to a new Open Skies regime for all-cargo services following two days of talks in Hanoi, October 6-7 2008. The Vietnamese side agreed quickly in the negotiations to these new rights, noting the benefits they would bring to trade and investment in Vietnam. The cargo arrangement, which incorporates seventh freedom rights, provides increased flexibility for U.S. cargo carriers such as FedEx Express and UPS, which currently operate in Vietnam, including the right to move goods between Vietnam and third countries. The agreement does not permit intermodal cargo surface transport across Vietnam's border, although the GVN's Ministry of Transport indicated that it may lift that restriction after further consideration. ¶3. (SBU) Lai Xuan Thanh, the Deputy Director General of the Civil Aviation Administration of Vietnam (CAAV),who led the Vietnamese side at the talks, pressed the U.S. to introduce new language into the agreement that would have restricted U.S. cargo carriers from obtaining basing rights (the locating of aircraft on a long-term basis) at Hanoi's Noi Bai and Ho Chi Minh City's (HCMC) Ton Son Nhat International Airports. Thanh, moreover, sought the introduction of a provision specifying central Vietnam's Chu Lai International Airport as the only airfield in Vietnam where U.S. cargo carriers could obtain basing rights. (Note: The GVN is spending $700 million to transform Chu Lai Airport into an air cargo transport hub as part of a greater economic development plan for central Vietnam. End note). ¶4. (SBU) The U.S. side, however, protested that new restrictions on cargo basing would revoke rights already held by the USG under the previous agreement. The GVN ultimately agreed to exclude new language from the agreement and to leave cargo-basing decisions to relevant airport authorities in Hanoi and HCMC. The U.S. side, meanwhile, agreed to include a provision in the Memorandum of Conversation noting Vietnam's interest in developing the Chu Lai airport. PASSENGER FIFTHS STILL A PROBLEM -------------- ¶5. (SBU) The negotiation discussions on liberalizing passenger services were problematic. Although Vietnam agreed to eliminate designation and frequency restrictions on passenger routes contained in the old agreement, the main impediment to full liberalization was once again the GVN's unwillingness to grant U.S. carriers fifth freedom passenger rights over Japan. (Comment: U.S. carriers say that fifth freedom rights are essential to open commercially viable new service to Vietnam. The failure to conclude an agreement on fifths means that new U.S. passenger service to Vietnam is unlikely in the short-term, including flights by Northwest Airlines, which had hoped to expand its route network by initiating service on the underserved Tokyo-HCMC route. For now, United Airlines remains the only U.S. carrier to offer direct service from the United States to Vietnam. End Comment). ¶6. (SBU) Explaining the GVN's unwillingness to exchange fifth freedom rights with the USG, Thanh explained that Vietnam had tried but failed to secure fifths from the Government of Japan (GOJ) during bilateral aviation talks in May 2007 and noted that such rights were necessary for Vietnam to offer direct services to the U.S. A negotiator from the U.S. Department of Transportation (DOT), however, pointed to evidence on the website of the GOJ's Ministry of Land, Infrastructure, Transport and Tourism (MLIT) indicating that Japan, in fact, did offer Vietnam limited fifth freedom traffic rights at the 2007 talks. HANOI 00001186 002.4 OF 002 ¶7. (SBU) Thanh denied this, arguing that the 2007 agreement merely gave Vietnam's carriers the right to make technical stops in Japan (i.e., refuel without taking on passengers). The DOT representative responded that Vietnam's carriers likely had technical landing rights established under the existing Japan-Vietnam bilateral aviation agreement. Privately, members of the U.S. negotiating team speculated that Vietnam either refused the fifth freedom rights offered by Japan or asked Japan to defer the rights for several years until Vietnam Airlines was prepared to begin flights on its long-planned HCMC-Osaka-Los Angeles (LAX) route. ¶8. (U) Thanh concluded that while Vietnam recognized the economic benefits that expanded passenger services would bring, the GVN needed to provide for "minimal equality" of opportunity for Vietnam Airlines and a "balance of interests" between the passenger carriers of both sides. The two sides agreed to meet again within two years to work toward further liberalization, including a possible exchange of fifth freedom passenger rights. MICHALAK 1