ASEAN Aviation Services and Liberalization Workshop on ASEAN Aviation Integration, Kuala Lumpur 22 January 2018 Jae Woon Lee Assistant Professor, Chinese University of Hong Kong, Faculty of Law 1
1. Overview 2. Market Access Liberalization (3 agreements) 3. Collateral Benefits: Joint Venture Airlines 4. The Common External Strategy 5. Success Factors 6. Remaining Challenges 7. Conclusion 2
Overview Aviation has been an integral component in the establishment of the ASEAN Economic Community (AEC). Significant integration and liberalization have taken place since 2004. Liberalization New and better air services Traffic growth Economic growth Job growth 3
Overview Market Share of Low Cost Carriers Source: CAPA (Centre For Aviation) 4
Market Access Liberalization (3 agreements) In 2004, the ASEAN transport ministers adopted the Action Plan for ASEAN Air Transport Integration & Liberalization 2005 2015 and the Roadmap for Integration of the Air Travel Sector. This roadmap has been successfully incorporated into three formal legal agreements: 1) The 2009 Multilateral Agreement on Air Services (MAAS) 2) The 2010 Multilateral Agreement for the Full Liberalization of Passenger Air Services (MAFLPAS) 3) The 2009 Multilateral Agreement for the Full Liberalization of Air Freight Services (MAFLAFS) 5
The 2009 Multilateral Agreement on Air Services (MAAS) Protocol Protocols 1 to 4 Protocol 5 Protocol 6 Scope Limited impact, mainly covering secondary cities in growth areas (sub-regions) straddling borders of neighboring states Unlimited 3rd and 4th freedoms between capital cities (A s carriers between A s capital and another capital) E.g. Singapore Airline (SQ) Singapore-Bangkok and vice versa Unlimited 5th freedom between capital cities (A s carriers from A s capital to C s capital via B s capital) E.g. SQ s Singapore-Kuala Lumpur-Hanoi and vice versa 6
The 2010 Multilateral Agreement for the Full Liberalization of Passenger Air Services (MAFLPAS) Protocol Protocol 1 Protocol 2 Scope Unlimited 3 rd and 4 th freedoms between all cities (A s carriers from A s capital to B s non-capital, A s non-capital to B s capital, and A s non-capital to B s non-capital) E.g. Philippine Airlines (PAL) Manila-Ho Chi Minh, Cebu-Jakarta, Cebu-Ho Chi Minh Unlimited 5 th freedom between all cities (except capital-capital-c apital) E.g. Garuda Indonesia (GA) Surabaya-Singapore-Bangkok, Jakarta-Kuala Lumpur-Ho Chi Minh, Jakarta-Chiang Mai-Hanoi Jakarta-Kota Kinabalu-Cebu 7
The 2009 Multilateral Agreement for the Full Liberalization of Air Freight Services (MAFLAFS) Protocol Scope Unlimited 3 rd, 4 th, and 5 th freedoms between designated points Protocol 1 Protocol 2 E.g. Vietnam Airlines Hanoi-Clark and Hanoi-Vientiane-Bangkok cargo routes Unlimited 3 rd, 4 th, and 5 th freedoms between all points with interna tional airports E.g. Vietnam Airlines Ho Chi Minh-Singapore and Hanoi-Singapo re-manila cargo routes 8
Market Access 1 st Freedom 2 nd Freedom 3 rd Freedom 4 th Freedom 5 th Freedom (6 th Freedom) O 7 th Freedom 8 th Freedom 9 th Freedom X 9
Collateral Benefits: Formation of Joint Venture Airlines Ownership and Control Restrictions: An airline must be substantially owned and effectively controlled by nationals of the state in which the airline is registered. EU broke with this tradition by introducing the concept of the community carrier for the first time. In ASEAN, the wholly owned subsidiary strategy is not legally allowed. Instead, joint venture airlines formed by two different ASEAN nationalities are commonplace in ASEAN. 10
Source: CAPA (Centre For Aviation) 11
Collateral Benefits: Formation of Joint Venture Airlines Country/ Territory Joint Venture Airline Foreign Shareholder/s Local Shareholder/s Indonesia Indonesia AirAsia AirAsia Investment 49% Indonesia Indonesia AirAsia X AirAsia X Berhad 49% Malaysia Malindo Air Lion Air 49% Philippines Philippines AirAsia AirAsia Investment 40% Thailand Thai AirAsia AirAsia Investment 45% Thailand Thai Lion Air Lion Air Group 49% Thailand Thai AirAsia X AirAsia Berhad 49% Neither airline companies, nor do they have prior business experience in the airline industry 12
Challenges to Community Carriers Domestic Law Air Services Agreement Ownership A C Control B D Traditional Restrictions in Air Services Agreements Each Contracting Party shall have the right to refuse to accept the designation of airlines or to refuse to grant the operating authorisation, in any case where the said Contracting Party is not satisfied that substantial ownership and effective control of those airlines are vested in the Contracting Party designating the airlines or in its nationals. 13
India s FDI Rules on the Airline Industry 1927: Setting up of Civil Aviation Department 1932: Tata started air services between Delhi and Karachi After WWII, 6 new private companies started business 1953: Civil aviation sector was nationalized 1994: Opened for private and foreign investment - FDI up to 40% permitted - Foreign airlines are not allowed 2012: 49% permitted, including foreign airlines 2016: 100% FDI permitted, but 49% for foreign airlines 14
The Common External Strategy Since the early stage of the ASEAN, the member states have been aware of the need to establish a common external strategy vis-à-vis third countries and regions. CU: FTA + common external tariff CM: CU + free movement of capital & labor, some policy harmonization Economic Union: CM + common economic policies 15
ASEAN China Good progress with China (in relation with FTA) The ASEAN-China Air Transport Agreement (2010) Protocol 1 (2010) Unlimited 3rd and 4th freedoms access for airlines on both sides Protocol 2 (2014) Limited 5th freedom access for airlines on both sides Plan to further expand 5 th freedom rights in 2018 16
Source: Alan Khee-Jin Tan (2014) 17
ASEAN Japan The ASEAN-Japan Working Group on Regional Air Service Arrangement (AJWG-RASA) was established in 2014. Japan signed open skies agreements allowing 3rd and 4th freedom for passenger and cargo services with 8 ASEAN states (except Laos and Cambodia). 6 out of the 8 agreements allow unlimited 5 th freedom except Tokyo (8 Thailand and the Philippines). The key is the 5 th freedom via Tokyo. 18
ASEAN Korea ASEAN is actively looking to establish a new agreement as a group with Korea. Korea has signed open skies agreements permitting 3rd and 4th freedom with 6 ASEAN members (Vietnam, Malaysia, Myanmar, Thailand, Cambodia, and Laos). None of air services agreement contains unlimited 5th freedom. Again, the key is the 5 th freedom. 19
ASEAN The EU The EU and ASEAN agreed to commence negotiations on a comprehensive air transport agreement between both regions in 2014. The two parties are negotiating not only market access issues but various topics including fair competition. It is named as the ASEAN-EU Comprehensive Air Transport Agreement (CATA). This will be the first ever region-to-region aviation agreement. The impact of the agreement to the other parts of the World will be interesting to watch. 20
Success Factors All States are Better Off Gradual Approach Role of Airlines 21
Remaining Challenges Insufficient Infrastructure Incomplete National Commitments Lack of Shared Vision 22
Conclusion ASEAN is now looking at a greater level of integration as stated in the AEC Blueprint 2025. Air transport: Strengthen the ASEAN Single Aviation Market (ASAM) for a more competitive and resilient ASEAN, through the following key measures: a. Advance safer and more secure skies in ASEAN; b. Enhance air traffic management efficiency and capacity through a seamless ASEAN sky; and c. Foster greater connectivity, including the conclusion of aviation agreements with Dialogue Partners. 23
Thank you