US embassy cable - 03HANOI725

UNCLAS SECTION 01 OF 02 HANOI 000725 
 
SIPDIS 
 
SENSITIVE 
 
STATE ALSO FOR EAP/BCLTV, AND EB/TRA 
TRANSPORTATION FOR EOPPLER, DMODESITT AND CTOURTELLOT 
 
E.O. 12958: N/A 
TAGS: EAIR, EINV, PREL, VM 
SUBJECT: March 12-14 US-Vietnam Aviation Negotiations 
 
1. (U) Sensitive but unclassified protect accordingly. 
 
2. (SBU) Summary: Substantial progress was made during 
civair negotiations March 12-14 with the Civil Aviation 
Administration of Vietnam (CAAV) on a limited bilateral 
aviation agreement. The Vietnamese accepted elements of the 
model U.S. Open Skies text and were willing to grant 
significant route, capacity, and operational rights. They 
withheld, however, France, Japan and Korea from the U.S. 
passenger route description, and restricted important 
regional fifth freedom rights for passenger and cargo 
services, thus severely limiting, if not eliminating, the 
commercially viable options for U.S. carriers wishing to 
implement service to Vietnam. Addressing these critical 
restrictions will be the focus of the next round of 
discussions to be held in Washington, probably in late June. 
End Summary. 
 
Productive Talks 
---------------- 
 
3. (U) A delegation of State and Transportation Department 
officials, headed by State Aviation Negotiations Deputy 
Director Laura Faux-Gable, and U.S. private sector 
representatives met March 12-14 in Hanoi with a Vietnamese 
delegation including representatives of the Civil Aviation 
Administration of Vietnam (CAAV), the Office of the 
Government (Prime Minister's office), the Ministries of 
Transportation and Foreign Affairs, and Vietnam Airlines to 
negotiate a bilateral air services agreement. The Vietnamese 
delegation was headed by Mr. Pham Vu Hien, Deputy Director 
General of the Civil Aviation Authority of Vietnam (CAAV). 
 
4. (SBU) The negotiations were productive, breaking the 
deadlock that had characterized the conclusion of the 
previous rounds of talks, held in August of 2000 in 
Washington, D.C., and in Hanoi in 1998. During the earlier 
Washington round in particular, the Vietnamese had objected 
to nearly every element of the U.S. Open Skies agreement, 
and had stressed repeatedly that Vietnam was not ready for 
open-skies.  This round, Hien opened the talks by agreeing 
in principle to a good number of the U.S. open-skies 
provisions, thus signaling a change in Vietnamese policy and 
setting a positive tone for the subsequent discussions. 
 
5. (SBU) CAAV's Hien opened the negotiations by indicating 
that the GVN considers conclusion of an air services 
agreement with the U.S. important to the process of full 
economic normalization between the two countries.  Vietnam 
initially proposed an agreement under which the U.S. would 
open its market to Vietnam immediately while Vietnam would 
phase in U.S. carriers' access over a ten-year period. 
(NOTE: Hien was probably basing his proposal on the model of 
the Bilateral Trade Agreement which phases in Vietnam's 
obligations but gave them immediate access to the U.S. 
market.) Such a long phase-in period is unprecedented in 
U.S. civair agreements, and the U.S. chair countered that a 
shorter-term agreement as a transition toward an eventual 
Open Skies agreement would be more appropriate in light of 
rapidly changing developments in the aviation industry.  The 
U.S. side then tabled a proposal for limited liberalization, 
which the Vietnamese delegation reviewed and, after 
deliberation, used as a basis for a counterproposal. This 
counterproposal included most of the Vietnamese delegation's 
substantive concessions, a description of which is provided 
below. 
 
6. (SBU) After discussion of substantive issues, the 
delegations spent the second day reviewing each article of 
the U.S. model Open Skies agreement, which Vietnam had 
agreed to use, with modifications in an annex, as a basic 
text for an air services agreement. During the course of 
this discussion, certain Vietnamese concerns were raised and 
alternative wordings offered. A copy of the air services 
agreement was prepared with bracketed text indicating 
wording that requires policy and legal review on both sides. 
 
7. (U) The negotiations ended with the signing of a 
Memorandum of Consultations, which included in its 
appendices the bracketed air services agreement and a copy 
of each side's proposal for liberalization.  The MOC 
expressed the intent to resume negotiations in the second 
quarter of 2003.  Informal discussion with the Vietnamese 
delegation suggested that the next meeting would likely be 
in late June in Washington. 
 
The Bottom Line 
--------------- 
 
8. (SBU) The Vietnamese offered the following rights to U.S. 
carriers: 
 
- Two designations for passenger carriers in years one and 
two, a third carrier in year three and enough frequencies 
for each to operate daily service. 
 
- Unlimited cargo capacity but with restrictions on critical 
fifth freedom rights 
 
- Double disapproval pricing for cargo and country-of-origin 
pricing for passenger. 
 
- Unlimited bilateral, same-country, and third-country 
codesharing. 
 
- Some of the standard open-skies operational and other 
provisions, including self-handling, full change-of-gauge, 
CRS, security, and safety. In other areas, most notably user 
charges and fair competition, differences remain to be 
resolved. 
 
9. (SBU) Despite these concessions, the significant 
restrictions on route and traffic rights in the Vietnamese 
offer may be impediments to completing an agreement if not 
resolved in the second round of discussions. Specifically, 
the Vietnamese proposal excludes from the U.S. route points 
in Japan, France, and Korea, and withholds fifth freedom 
rights from points in Taiwan, and, in the first two years, 
from Hong Kong. (During the course of the negotiations, the 
Vietnamese first withheld fifth freedom from Hong Kong 
altogether, then granted it, then settled on withholding it 
for two years).  While most U.S. cargo carriers were 
generally willing to accept the Vietnamese offer, United and 
Northwest, the two U.S. carriers with extensive   Pacific 
operations, were adamant that without fifth freedom rights 
from Tokyo, they could not and would not implement direct 
service. Thus, the issue of fifths from Japan will be 
central to the next round of talks. 
 
10. (SBU) Comment: The GVN understands that it needs to open 
up the air services market to the United States in order to 
continue to capitalize from the market-opening benefits of 
the Bilateral Trade Agreement and to serve its export growth 
needs. CAAV's Hien clearly had a mandate to liberalize, and 
came to the table ready to offer significant access to U.S. 
carriers.  Despite that mandate, however, protectionist 
objectives remain, and the exclusion of Japan from the U.S. 
route reflects the importance of Tokyo-Vietnam travel for 
Vietnam Airlines, and also its hope that it may eventually 
develop a U.S.- Vietnam route.  As they enter the second 
round, the Vietnamese must weigh Vietnam Air's aspirations 
against the tangible economic benefit that Vietnam would 
derive from increased U.S. passenger traffic and access to 
the global cargo networks of U.S. cargo carriers. 
BURGHARDT