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PLEASE NOTE: The following transcript is a portion of the official hearing record of the Committee on Transportation and Infrastructure. Additional material pertinent to this transcript may be found on the web site of the Committee at [http://www.house.gov/transportation]. Complete hearing records are available for review at the Committee offices and also may be purchased at the U.S. Government Printing Office.
PROBLEMS IN THE U.S. AVIATION RELATIONSHIP WITH THE UNITED KINGDOM AND JAPAN

TUESDAY, APRIL 30, 1996
U.S. House of Representatives,
Subcommittee on Aviation,
Committee on Transportation and Infrastructure,
Washington, DC.

    The subcommittee met, pursuant to recess, at 2:03 p.m. in room 2167, Rayburn House Office Building, Hon. John J. Duncan, Jr. (chairman of the subcommittee) presiding.

    Mr. DUNCAN. The subcommittee will come to order.

    We will go ahead and get started with our hearing this afternoon on our Nation's aviation relations with the United Kingdom and with Japan. This is actually our third hearing involving various aviation-related matters concerning the United States and Japan. We held a hearing on July 20th last year, and on the following day an agreement between the U.S. and Japan was reached. And just last month we held a second hearing which focused on additional passenger and cargo disputes between the two countries.

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    I hope that we helped, at least in some way, to send a message to the Japanese government that our Government and the U.S. air carrier industry are united in seeking open and fair resolutions to our aviation-related disputes.

    First, let me welcome everyone here today and thank our distinguished witnesses for taking time out of what I know are very busy schedules to be with us this afternoon. I believe this is Assistant Secretary Hunnicutt's first time before this subcommittee, so, sir, we welcome you here today.

    Mr. Jeff Fegan, executive director of the Dallas-Fort Worth Airport is with us, and we appreciate his presence; and Mr. Gerald Greenwald, who is the chairman of United Airlines, who has been with us before and has provided us excellent testimony in the past, is here with us, as well. We appreciate their presence also.

    Japan is our second largest international passenger market, with 12,141,000 passengers in 1995, an increase of 12.7 percent from 1994.

    Again, I think this hearing is particularly timely in that the Japanese government seems intent upon making progress in the aviation area very difficult.

    In addition, the Japanese have now threatened to refuse United Airlines a second flight between Los Angeles and Tokyo. It is my understanding that Japan has indicated it will not approve this flight in retaliation for the U.S. refusal to approve Japan Airline flights between Tokyo and Hawaii. Apparently, the Department of Transportation has refused to approve this flight in retaliation for Japan's refusal to approve the United Airlines fifth freedom flight between Osaka and Korea.
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    The subcommittee will be most interested to hear from Mr. Hunnicutt and Mr. Greenwald as to their evaluation of this situation. I think this subcommittee would be even more interested in hearing how we can resolve this dispute favorably, and hopefully without starting an all-out trade war.

    Meanwhile, the market share of U.S. airlines between the United States and the United Kingdom continues to decline. Currently, British Airlines—British Airways and Virgin Atlantic—fly 59.5 percent of the passengers between the U.S. and the United Kingdom, while U.S. airlines carry only 40.5 percent.

    I think it is general knowledge that the major point of contention between the U.S. and the U.K. involves access to Heathrow Airport.

    The United Kingdom is our third-largest international passenger market, with a little over 12 million passengers in 1995, an increase of 3.4 percent from the previous year.

    I believe Mr. Fegan will speak to the U.S.-U.K situation and, in particular, the economic impact on the State of Texas should a route be approved from Dallas-Fort Worth to Heathrow.

    The subcommittee would very much like to see talks with the U.K resumed as soon as possible.

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    Again, we look forward to today's testimony from our outstanding witnesses.

    I now recognize the ranking member of the subcommittee, Mr. Lipinski.

    Mr. LIPINSKI. Thank you, Mr. Chairman.

    Mr. Chairman, this afternoon the subcommittee continues its study of the aviation relationship between the United States and United Kingdom and the United States and Japan. I want to thank you for scheduling another hearing on this very, very important subject.

    Today we will hear from witnesses from the Department of Transportation, United Airlines, and the Dallas-Fort Worth International Airport.

    Unfortunately, some of the other witnesses scheduled to appear at the second hearing were not able to adjust their schedules to be here this afternoon. These witnesses will be submitting testimony for the record that I look forward to reading.

    Our first witness this afternoon will be the new assistant secretary of aviation and international affairs. I gave a speech in January right before Mr. Hunnicutt assumed his new position in which I was critical of the Department of Transportation and Department of State's ability to negotiate bilateral agreements which provide U.S. carriers the rights that they deserve.

    There are quite a few cases, I will concede, in which DOT and State have been successful in opening markets to U.S. carriers and negotiating open skies agreements. I commend the negotiators for their hard work and success with these nations. The problem, unfortunately, is that we have not had the same level of success with the two most critical nations—the United Kingdom and Japan.
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    I'd like to mention at this particular time, too, that when I gave my speech, the gentleman who was probably mostly responsible for this particular department, Mr. Pat Murphy, who is here today—and I want to set the record straight now. When I gave that speech, it was not meant as criticism of Mr. Murphy. I think he is a very dedicated, hard-working individual, and I think that if he had gotten more cooperation from some of the powers that be, maybe we could have negotiated some better agreements for the United States of America.

    Now, back to my prepared remarks.

    Mr. Chairman, these two hearings will focus on the U.K. and Japan because they are the real problem. I encourage our negotiators to continue pushing for open skies in every country in the world, including Japan and the U.K. Open skies is good for American carriers and good for America and good for the world.

    But in the cases where open skies cannot happen, where the traditional approaches of negotiating bilaterals go nowhere, we need to be willing to consider alternative approaches. Thinking or acting the same way because that's the way we have always done it is simply not acceptable.

    Because of the inherent conflict between carriers on this issue, it is impossible to find a solution which provides every U.S. airline with what it wants. What we must strive towards is creating increased opportunities for U.S. carriers in every market around the world. Our priority should be expanding markets for all U.S. carriers to use their competitiveness against foreign competitors rather than pitting them one against the other to trade the rights we already have.
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    Mr. Chairman, I want to thank you for working with me to schedule this hearing. We have a full slate ahead of us, so at this point I'd like to yield back the balance of my time.

    Mr. DUNCAN. Thank you very much, Mr. Lipinski.

    I'd now like to recognize the vice chairman, Mr. Weller.

    Mr. WELLER. Thank you, Mr. Chairman. Good afternoon to my friend from Illinois, Mr. Lipinski, the ranking member. I, of course, want to thank each of you for arranging this very important hearing on U.S. aviation relations with the United Kingdom and Japan.

    International aviation travel has doubled in the last decade, and this trend is expected to continue on course. In order for the United States to be competitive in the global economy, we must have access to our foreign markets. And while we've worked to deregulate the aviation industry here at home, the international aviation industry remains heavily regulated.

    As we continue to work towards open skies, there are issues surrounding our current bilateral agreements that are of great concern.

    Today we're going to look at the current state of our relations with Japan and the United Kingdom, two countries that continue to remain highly restrictive.
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    Mr. Chairman, I want to commend you for having this hearing, particularly as we work to improve transportation, because as we work to improve transportation, as we work to improve aviation opportunities, we create jobs for working Americans. That's always our bottom line and the goals that we have.

    Mr. Chairman, I do ask unanimous consent to submit the remainder of my statement for the record and again commend you for holding this important hearing.

    [The prepared statement of Mr. Weller follows:]

    [Insert here.]

    Mr. DUNCAN. Thank you very much, Mr. Weller.

    Mr. Ewing will be next? Do you have a statement, Mr. Ewing?

    Mr. EWING. Mr. Chairman, I am not going to make a statement now except to say that I commend you for holding this hearing. It's very important to some Illinois business constituents that we solve this problem, and I look forward to the testimony today.

    Mr. DUNCAN. Thank you very much, Mr. Ewing.

    Mr. LaHood?

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    Mr. LAHOOD. Mr. Chairman, do you have the feeling that this particular hearing is of interest to Illinois?

    Mr. DUNCAN. I have noticed that. In fact, I said something to Mr. Schaefer about it. Until Mr. Ehlers got here——

    Mr. LAHOOD. Vern, you're welcome to our hearing. We're glad to have you.

    [Laughter.]

    Mr. DUNCAN. Thank you very much.

    Mr. Ehlers?

    Mr. EHLERS. Thank you, Mr. Chairman.

    I'm happy to join you as one of the two impartial people here to hear testimony and comment on it.

    I just have one brief comment to make in beginning, and I think as we approach this issue, whether it's with the U.K. or with Japan, it's very important for us to remember the history of Bermuda II, and how that particular agreement, I think, put us at a severe disadvantage and continues to do so. I think it's extremely important that we avoid making the same mistake twice.
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    With that statement, I will proceed to give up my time, or yield it back, and look forward to the rest of the testimony.

    Thank you.

    Mr. DUNCAN. All right. Thank you very much.

    We'll go ahead and start now with the witnesses. We have first Mr. Charles A. Hunnicutt, who is Assistant Secretary for Aviation and International Affairs of the Department of Transportation.

    Secretary Hunnicutt, thank you for being with us today. You are accompanied by Mr. Patrick Murphy also. Welcome to the hearing today.

TESTIMONY OF CHARLES A. HUNNICUTT, ASSISTANT SECRETARY FOR AVIATION AND INTERNATIONAL AFFAIRS, DEPARTMENT OF TRANSPORTATION, ACCOMPANIED BY PATRICK MURPHY, DEPUTY ASSISTANT SECRETARY FOR AVIATION AND INTERNATIONAL AFFAIRS

    Mr. HUNNICUTT. Thank you, Mr. Chairman and members of the subcommittee. I appreciate this first opportunity to discuss the important subject of international civil aviation with you before this very important subcommittee. I'm also pleased, as you and Mr. Lipinski have noticed, to have Patrick Murphy, the Deputy Assistant Secretary for Aviation and International Affairs, accompanying me, and would like to associate myself with Mr. Lipinski's remarks regarding his great abilities.
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    I know that you are primarily interested in hearing today the current status of our aviation relationships with the U.K. and Japan, but I would also like to take this opportunity to briefly update you on the substantial progress the airline industry has made under the Clinton Administration.

    The major passenger and cargo airlines reported combined net profits of $2.2 billion and operating profits of $5.46 billion for 1995. International operations, alone, generated combined operating profits of $929 million. The financial community and airline industry experts are predicting that 1996 will be another solid year for the airlines, with operating revenues growing as much as 4 percent.

    In fact, despite severe weather conditions in the mid-Atlantic and northeast earlier this year, the major airlines may report a combined net profit for the first quarter of 1996. The major airlines have not shown a first-quarter profit since 1979.

    Against the backdrop of a recovering aviation industry and a growing movement toward global liberalization, we continue to be very disappointed by the narrow tit-for-tat approach to liberalization taken by the British. Their position stands in stark contrast to the progressive approach to trans-atlantic liberalization shown by many of our European aviation partners, as well as to the market-oriented approach taken by the United Kingdom to many other trade matters.

    British airlines are not struggling to restructure and achieve profitability. The reverse is the case. For its most recent financial year, Virgin Atlantic posted over a $60 million profit. For the 9 months ending December 31, 1995, British Airways had profits of over $1 billion, up 16.6 percent. These airlines are indeed formidable competitors.
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    Some of you may be wondering about the recent assertion by the British Airways chairman that the fairness of the Bermuda II agreement is demonstrated by the fact that U.S. and U.K. airlines offer nearly the same number of flights between the United States and the United Kingdom. He went on to attribute the current market share differential solely to the larger aircraft and consequent higher number of seats flown by the British carriers.

    What he failed to mention is that, in an unrestricted market, U.S. carriers could offer a comparable number of seats by increasing the number of flights that they operate, particularly at their U.S. hubs. However, U.K authorities have intervened traffic season after traffic season to restrict U.S. airline proposals to increase flights from their primary U.S. gateways to London, even though their existing flights were nearly full.

    It is also extraordinary and unacceptable at the time U.S. and U.K. have an agreement that limits the U.S. passenger carriers at Heathrow Airport to only two.

    Some U.K. interests try to justify that restriction by asserting that slot constraints at Heathrow prevent commercially-viable new entry at the airport. however, our analysis indicates that, in addition to American and United replacing TWA and PanAm, 24 of the airlines operating at Heathrow in July, 1995, did not have any services there in July, 1990.

    In that time, departures from Heathrow have increased over 16 percent, and the airlines and airport authorities continue to work together to use the available capacity more efficiently.

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    So my answer to the congestion argument is, Get rid of the Bermuda II barriers to Heathrow access and let U.S. carriers compete for the slots with everyone else.

    I can assure you that U.S. aviation authorities recognize the importance to U.S. airlines and cities of expanding opportunities in the U.K. market. An immediate, full-scale liberalization is our preferred option. Because the British were simply unwilling to expand their focus beyond the immediate needs of their airlines or to allow market forces to shape the development of aviation services, an incremental approach to liberalization appeared to be the only effective way to make progress.

    In adopting a step-by-step approach, Secretary Pena emphasized that each incremental increase in opportunities must bring benefits to U.S. airlines and consumers and must be defensible on its own merits.

    The June 1995, deal met those tests. American Airlines, Continental, Northwest, and United are all using new opportunities that were secured last year.

    This first-stage agreement was also a prerequisite from the British perspective for moving on to discuss further liberalizations.

    I recognize and share your concern that a second-stage agreement has not yet been reached; however, we will not accept proposals that do not meet the standards set out by Secretary Pena.

    Consequently, we suspended the second stage negotiations because the British proposals on Heathrow were not sufficient to form a basis for discussion. They were structured to prevent certain U.S. cities and airlines from even competing for limited new Heathrow opportunities.
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    Despite the suspension of formal negotiations, contacts between the U.S. and U.K. continue. I had an informal discussion with my U.K. counterpart last month and a follow-up conversation just last week. I confirmed to the U.K. officials that the Department's goal remains the negotiation of the best possible liberalized bilateral relationship based on competitive considerations in the marketplace.

    I also communicated the increasing U.S. frustration that, despite a healthy and growing U.K. carrier presence in the market, U.K. authorities have been unwilling to loosen the constraints of the Bermuda II regime even sufficiently for us to move forward on a small, incremental phase two deal.

    Although we do not quite yet have a basis for resuming talks, these contacts allow us to explore possible ways of moving the process forward, and we are evaluating what we have learned. We have not closed the door on any options and are continuing to assess all possible ways to make progress.

    I would like to turn now to Japan, our largest air market in terms of revenues.

    Although there are a few other Asian destinations, such as Korea, Taiwan, and Hong Kong, that can support direct, nonstop service from the United States mainland, Japan is easily the primary gateway to Asia, due to its geographic location and the size of its aviation market.

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    Japan, where U.S. carriers do very well, will remain a key market for U.S. carriers operating trans-Pacific services for the foreseeable future.

    In the last 2 or 3 years, the Japanese have focused increasing attention on U.S. airline operations beyond Japan. It is clear from statements of Japanese officials that one of Japan's primary objectives is to impose constraints on U.S. carrier operations beyond Japan to other Asian points.

    We have repeatedly advised the Japanese that any actions to deny our carriers' rights to operate beyond Japan would be viewed as a serious violation of the U.S.-Japan air services agreement.

    We did successfully complete cargo talks and are now considering how to move the relationship forward in the passenger area.

    Some are reluctant to engage Japan in passenger talks now. They see that Japan's primary objective is to curtail existing U.S. rights to operate beyond Japan. They believe that Japan will use the U.S.' desire for additional U.S.-Japan routes as leverage to achieve this objective. They note that Japan has not indicated much interest in obtaining substantial new opportunities for its own carriers to serve the United States.

    Others have a different view. They believe that it would be in the overall interest of the United States to negotiate for new U.S.-Japan routes, even if the cost of obtaining such use is acceptance of constraints on U.S. beyond Japan services. They believe that an agreement could be struck that would preserve all existing beyond operations of U.S. carriers and that constraints would apply only to the rate of future growth of such services. In their view, this would be a reasonable price to pay for opening up the Japanese market to more service.
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    We are continuing to evaluate both sides of this question. My written testimony describes our work with the economic studies that we have received on this issue.

    I would like to note that, despite the ongoing debate about whether the U.S. should accept constraints on future growth of beyond operations to obtain additional U.S.-Japan routes, we are not prepared to subscribe to an either/or philosophy on this issue. Rather, our goal is to mutually expand opportunities. We achieved this in air cargo.

    It is vital that our carriers be able to compete effectively for Asian traffic. It is also desirable that we increase opportunities for additional services in this rapidly-growing market.

    Our job is to develop a strategy that best serves the overall interests of the United States; however, before any strategy can be pursued, we have several outstanding route applications, which you mentioned, Mr. Chairman, which first must be resolved.

    We began yesterday and are continuing today meeting with Japanese officials here in Washington to seek to reach an accord on the resolution for these services.

    If the several outstanding issues in the passenger area are resolved, we believe it would be appropriate to meet with the Japanese this summer in government-to-government meetings to agree on a possible framework for passenger negotiations. If an acceptable approach for passenger talks can be worked out, then I would anticipate the two sides would begin formal talks with Japan soon thereafter.
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    In conclusion, appreciate your support during my first months as assistant secretary. I recognize that the backing of this admirable, bipartisan forum has been an important contributing factor to the success of the Administration and Secretary Pena in achieving our national goals in international aviation, and I look forward to your continuing input as we work together to address 1996's international aviation challenges.

    Thank you, Mr. Chairman.

    Mr. DUNCAN. Thank you very much, Mr. Hunnicutt.

    I've got just a couple of questions before I turn it over to Mr. Lipinski.

    Does the Department feel that the Japanese—that there is a serious threat that the Japanese will block United's second flight between Los Angeles and Tokyo at this time?

    Mr. HUNNICUTT. I'm sorry, Mr. Chairman. Is your question whether we believe the Japanese are serious in their denial of the application for United to fly the additional——

    Mr. DUNCAN. What's the latest on that?

    Mr. HUNNICUTT. The Japanese denial of those applications are still extant and we expect to be enforced unless we can negotiate their removal today.
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    Our response, if we are unable to remove them, would be ultimately to prepare for a proportional response against Japanese service in the same city pair market.

    Mr. DUNCAN. Let me just ask you, in the other area, as far as our relationship with the United Kingdom, is the Department of Transportation—has it given any consideration to a renunciation of the British bilateral agreement?

    Mr. HUNNICUTT. Mr. Chairman, I understand—I more than understand—I know from reading the files that there was some consideration to renunciation earlier in this Administration, and it was tabled for the time being. We hope to examine other possibilities and a less-disruptive means of moving forward, but all policy options will remain open in resolving the aviation relationship with the United Kingdom.

    Mr. DUNCAN. I'm going to have some more questions in a few minutes, but I'm going to go at this time to Mr. Lipinski.

    Mr. LIPINSKI. Thank you, Mr. Chairman.

    Since there is a delegation from Japan here today and we're discussing somewhat this situation, I'm going to go very lightly in regards to the Far East situation, simply to say that I hope we can drive the best possible bargain for the United States, the U.S. carriers, and the world in our negotiations with the Japanese.

    In regards to Great Britain, I've had the dubious honor of leading a CODEL to Great Britain and sitting down and actually talking to the transport minister in regards to Heathrow, and I know what a brick wall that can be. I'm hoping that you have much greater success in the near future with the United Kingdom.
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    But I was just reading in ''Aviation Week'' magazine where Charles DeGaulle Airport and Orly Airport in Paris have really lost a number of flights over the course of the last year and a half, 2 years or so, because of the—number one was the strike situation there. I forget what the other reason was. But the point I want to make is that there must be a lot of places to land at Orly and Charles DeGaulle, and with the Chunnel now open, perhaps American carriers in the United States ought to look more towards flying in to Paris and bypassing England and London altogether, and people can fly in there, get on the very fast train, go through the Chunnel, and get back to London if they really want to get to London.

    My point is that I would like to see an extremely hard line taken with the United Kingdom in regards to this particular situation, because I think they have been enormously unfair to us, and if I was sitting in your position—I'm not asking you to do what I'm going to say, but if I was sitting in your position, I would simply renounce the agreement that we have with them at the present time. I would move towards restricting the access of British Air and Virgin Air to the United States, and I'd try to have the American carriers fly right around London and right around England into the Continent, perhaps into Orly, as I say, or Charles DeGaulle, and see what the British would like to negotiate at that particular point.

    I don't think we can take too hard a line against them.

    And if you want to comment upon my statement, you're more than welcome to do so. If you don't choose to do so, I can also understand that.

    Mr. HUNNICUTT. Congressman, I would like to comment, and I respect and will take your advice under advisement as to how we should proceed, but I do want to comment on the issue of over-flying London.
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    I think there are issues. Obviously, it's not the U.S. Department of Transportation's desire to tell travelers or shippers how they should respond to the market in the ways most appropriate to them, but what we are finding is that those areas of the north Atlantic market which are already benefiting from open skies arrangements are seeing a growth rate of approximately 9 percent a year in the passengers that are flying through those markets to gateways and to Europe, whereas there is no growth in the U.S.-London element of gateways to Europe.

    So I think we're seeing the market response to liberalization in the aviation market for North America already, and it doesn't take us to encourage that. The market forces, alone, will demonstrate to the British that, over the medium-to long-term, they will have a problem sustaining Heathrow as a gateway into Europe from the United States.

    Mr. LIPINSKI. Well, you seem to have a strategy, which apparently, by what you just said, is working in regards to surrounding these countries that have such a protective environment for aviation to the advantage of their own home carriers. It appears you're surrounding them with countries that have open skies policy, where there are no restrictions for us, no restrictions for them.

    As I say, it seems like it's working, but my question is: do you have any estimate of how long it's going to take for that particular strategy to work until these people are willing to sit down and be reasonable at the table?

    Mr. HUNNICUTT. Congressman, I can't give you a specific time estimate at this point.
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    Mr. LIPINSKI. I understand that.

    Mr. HUNNICUTT. We're hoping in the nearest future to be able to re-enter negotiations with particularly the British and hopes of reaching a second stage interim liberalization to re-establish a good aviation relationship between our two countries.

    And, as a strategy, I think it may make sense to view our open skies initiative in Europe as an attempt to encircle and capture, but I don't really think that's the intent.

    I really think the effort was to gain a critical mass of the European market participating with the United States in an open aviation arrangement which could demonstrate the benefits of bringing more market forces to bear in the aviation arena, and that hopefully the demonstration of those benefits would educate and bring along those countries which we more reluctant to enter into liberalizing market-oriented aviation relationships.

    I think we are seeing the effect of it. I think that if we wait for the economic pressure, alone, to force a change in government perspectives, we might wait longer than we want to in order to achieve the efficiencies that we know would be possible.

    It will require us to engage in government-to-government activities to try to bring these trading partners into a better aviation relationship with us.

    Mr. LIPINSKI. I mis-spoke there. I didn't mean that it was your plan, your strategy, your tactic; it was my interpretation of what was occurring. Perhaps my interpretation is not the correct interpretation, but, nevertheless, that was my interpretation. If it's working, I'm very happy about that.
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    I had another question I wanted to follow up here on, and now it seems to have escaped me momentarily. Since there are many other wonderful Members from the State of Illinois here who I want to give an opportunity to speak, Mr. Chairman, for now that's all the questioning I want to do.

    Mr. DUNCAN. All right. Thank you very much, Mr. Lipinski.

    I'm going to interrupt the questioning here at this point because we have Congressman Martin Frost, our colleague from Texas, who has come. He has a very busy schedule, but he wanted to at least introduce to the subcommittee, I believe, one of his constituents who will be testifying in the next panel.

    Congressman Frost, it's always good to have you with us. We'll just turn it over to you.

    Mr. FROST. Thank you, Mr. Chairman.

    I'd like to just make a brief statement, if I may, and introduce one of the witnesses.

    Mr. DUNCAN. Yes, sir. Go right ahead.

    Mr. FROST. Thank you, because Jeff Fegan, executive director of the Dallas-Fort Worth International Airport will be testifying shortly, and I appreciate your having him testify on this important matter and permitting me to appear today.
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    Mr. Chairman, I just wanted to say a few words about the United States-United Kingdom aviation negotiations.

    We need to do all we can to allow U.S. airlines more access to United Kingdom airports. The halt of the U.S.-U.K. negotiations is a major concern for the Dallas-Fort Worth Airport, the city of Dallas, the city of Fort Worth, and the entire north Texas area.

    As you know, no Texas city has access to Heathrow. This is particularly troubling to the north Texas region, given that D/FW Airport is the second-busiest airport in the world in terms of operations and the third-busiest airport in terms of passengers.

    Lack of Heathrow service means fewer opportunities for D/FW to attract foreign tourists and business visitors from the U.K., Europe, and the Middle East. It makes it more difficult for the Dallas-Fort Worth area business travelers to reach these destinations.

    In addition, export trade by the D/FW area firms is restricted because it is more difficult to ship goods to these destinations.

    Mr. Chairman, I have met and corresponded with Secretary Pena on this issue on several occasions. The Secretary has assured the Texas delegation that he is committed to expand opportunities in the U.S.-U.K. market.

    It is my hope that somehow talks will resume and that a liberalized air agreement with the U.K. will be achieved, specifically one which will provide D/FW Airport access.
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    Thank you very much.

    Jeff Fegan will be testifying shortly on this issue, which is of critical importance to our part of the country.

    Thank you.

    Mr. DUNCAN. Thank you very much, Congressman Frost. The concerns that you have mentioned in your statement are some of the very reasons why this is the third hearing that we have held on our aviation relationship with Japan and with U.K.—two extremely important aviation partners with us. We need to look into the whole gamut of our aviation relationship with those two very important countries.

    We thank you for being with us. Because we all have a chance to discuss these matters with you privately, I don't ever have any questions of fellow Members. I'll let you just get on with your schedule and we'll go back to Secretary Hunnicutt.

    Mr. FROST. Thank you very much. I appreciate it.

    Mr. DUNCAN. Thank you very much for being with us today.

    Next, we'll go for questioning now to Mr. Weller.

    Mr. WELLER. Thank you, Mr. Chairman.
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    Mr. Secretary, glad to have you with us this afternoon. Of course, you have a tough job. As you can see, there is great interest. Those of us from Illinois and, of course, I represent the Chicago region, and Chicago O'Hare, of course, being not only a major employer but the world's busiest airport, aviation and the opportunity to take advantage of ever-expanding aviation markets is very important for the economy of the Chicago region.

    Of course, you have a tough job because we're looking to you to create more opportunity in your negotiations, as well the fact we're always looking over your shoulder to help you along the way.

    I appreciate your taking time to be with us today.

    I've just got a few questions I'd like to ask of you, Mr. Hunnicutt.

    Less than 2 weeks ago your colleague, Pat Murphy, testified for the U.S. Department of Transportation before the Senate Aviation Subcommittee, and he was pretty explicit in warning Japan that if they acted to ground United's Los Angeles-Tokyo flight, United States would be forced to respond accordingly.

    From your perspective, do you think that Japan believes that the Department's warning is serious, or do you think they just take that as a bluff?

    Mr. HUNNICUTT. Mr. Congressman, first I would like to thank you and say we're always glad to have the Members of Congress looking over our shoulders and giving us input in what we're doing in aviation policy, despite the fact that it is a tough job and we're not always getting kudos for what we're doing at that particular moment.
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    In answer to your question, of course, Mr. Murphy, it turns out, is sitting next to me, and I will let him comment further after I make a brief response for you.

    I think that the Japanese realized last summer that the Department of Transportation was prepared to follow through on its order that would have curtailed Japanese air cargo services sixth freedom rights into the United States if they had not granted the Federal Express fifth freedom applications that were pending and that were covered by the bilateral arrangement.

    I think that went a long way to setting the stage for the successful conclusion of the cargo talks.

    I don't believe that the Japanese think we are a paper tiger or that we are bluffing in discussing what our reactions would be to denial of existing rights of our air carriers. If they are of the impression that we would not follow through, they're making a serious political miscalculation which will further complicate resolving the issues in this relationship.

    Mr. WELLER. Just kind of following up with that, since Mr. Murphy made the statement regarding warning Japan that if they acted to ground that United's L.A.-to-Tokyo flight that, of course, United States would respond, what type of response have you gotten from the Japanese since then? Have you seen any change or any indication of communication?

    Mr. HUNNICUTT. Well, the discussions with the Japanese that we're engaged in today—and, of course, you'll understand that I'm reluctant to get into any great detail, since they are ongoing and we will be going further this afternoon—involved more than just the LAX-Narita United frequencies. And while that was the most immediate in terms of urgency because of the timing—they were to come into effect this week—there were a broader range of existing passenger disputes, passenger issues that needed to be resolved, and it was the context of resolving a broader range of passenger issues, not just the LAX-Narita, that was on the table.
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    So we haven't had a specific response to our saying, on that particular issue, we would respond; however, the response would be proportional and related to the services that we're being denied under our rights under the bilateral.

    Mr. WELLER. Mr. Murphy, can you follow up on that?

    Mr. MURPHY. Yes, Congressman.

    Following my statement to the Senate committee, I met with the chief Japanese negotiator in Washington. He came to Washington. He had a copy of my testimony in his briefcase. He told me he had read it. He understood what we were saying.

    I pointed out to him that that testimony, as all of our testimony, had been circulated in the Administration, so I think he understood what we were saying and he understood how serious we were about that.

    It was following that testimony and several discussions with him that it was agreed that the Japanese would come to Washington, and talks began yesterday.

    Mr. WELLER. So he understood there is no backing down from that statement that you made, that you were dead serious?

    Mr. MURPHY. That's my understanding. Yes, sir.

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    Mr. WELLER. Okay.

    Mr. Hunnicutt, just another question I'd like to follow up with you on. If Japan succeeds in its plan to eliminate or restrict U.S. carrier operations beyond Japan, does the Department have a projection of the size of the loss in the U.C. carriers' share of the Pacific air transportation market that could result if the Japanese are successful?

    Mr. HUNNICUTT. The short answer to that question is, No, we don't have a specific calculation.

    As you know, we have received several studies comparing the value of beyond Japan rights for U.S. carriers to U.S.-Japan market rights. We're in the process of really assessing, as you'll see in my written testimony, a lot of the assumptions that underlie the analysis that goes into those four studies.

    We have asked the authors of the studies several questions. We've met with the authors of two of the studies to date to go over their assumptions and their analysis. We have not been preparing an independent analysis of the trans-Pacific economic issues, but intended really to refine our understanding based on a better understanding of the assumptions within the analysis of those four studies.

    So while the simple answer to your question is no, that doesn't mean that we don't understand that that's an important question and we aren't trying to grapple with how we get a handle on the relative value and what that should mean for U.S. policy.

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    Mr. WELLER. In following up on that, if you are analyzing these studies that have been done independently, what's your time table for where you would expect to have some data that you would be able to state as an official answer to the question I've asked?

    Mr. HUNNICUTT. I'm not sure. I guess it's—when we met with the authors of the two studies we've met with, which were the access Japan study and the Economic Strategies Institute study, we went over a way of refining and assessing the qualitative assessment of the numbers they've come up with. We were not trying to rerun their data series to come up with new numbers.

    We are waiting and hope to meet soon with the authors of the United study to do the same evaluation, as well as the Roberts Roche study that was done for Northwest.

    I'm not sure that at this time we plan to calculate an actual number. I'm not sure if I'm understanding your question right, but if you're looking for whether we are going to tag a number, we have not been moving in that direction. We were really moving in terms of getting an understanding of what these four studies collectively show us in terms of the policy options that are out there.

    Mr. WELLER. Do you feel, though, from your personal perspective, Mr. Hunnicutt, that if Japan was successful eliminating or restricting U.S. carriers' ability to operate beyond Japan, that it would have a negative impact, from your own personal perspective——

    Mr. HUNNICUTT. Yes.
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    Mr. WELLER.——on our market share?

    Mr. HUNNICUTT. Congressman, I am convinced, from the information and the analysis I've read, it would have a very significant negative impact not only on market share but on U.S. economic interest.

    Mr. WELLER. And, of course, creating jobs is the bottom line.

    Mr. Chairman, I do have additional questions. I realize I've run out of time. Are we going to come around a second time?

    Mr. DUNCAN. Yes. If you need to, that will be fine.

    Mr. WELLER. Thank you, Mr. Chairman.

    Mr. DUNCAN. We'll give Mr. Hutchinson a few minutes to collect his bearings, since he just got here, and go to Mr. Ewing for questions that he has at this time.

    Mr. EWING. Thank you, Mr. Chairman.

    Mr. Secretary, if you look at the history of the contact between Japan and the United States, it appears there has been a pattern of—at least from our point of view—violations of agreements, or failure to abide by agreements. Even last year with FedEx there were problems. There are problems now. Very recently, according to information I have, Japan has backed away from a commitment to include aviation within the free trade regime for the Asian/Pacific Economic Cooperation members.
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    What's our response going to be to that? Are we going to enter into negotiations with Japan under that kind of current behavior if it is, in fact, as filled with failures to comply with these agreements?

    If we do, how can we be sure that agreements we make are going to be followed out?

    Mr. HUNNICUTT. You've asked a very difficult question, and I'll begin——

    Mr. EWING. Well this is a difficult situation. We're playing with real marbles here today.

    Mr. HUNNICUTT. Yes, sir. And I think what we have found is, of course, some of the things in your question you said ''from our perspective.'' Some of these violations have evolved from disagreements over interpretation of the agreement, itself, which have not been resolved. Some of them have resulted from what we would consider violations, regardless of how one would interpret the agreement, but were engaged in during periods of disputes between the two sides.

    I guess what I would say is, having had experience we negotiations with the Japanese in other trade areas at the International Trade Commission over the years, I find that often the negotiations are very difficult, and sometimes reaching agreement on what is the basic understanding that you have agreed to is sometimes very difficult.
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    We would expect that any agreement that succeeds the current aviation bilateral with Japan would be negotiated in a way that would be enforceable and that it would be clear to the Japanese that the U.S. Government intended to enforce the terms of that agreement that are agreed to if we engage in a broader round of aviation negotiations now.

    I think that part of the answer to this complicated situation is to make clear in the new agreements that are reached what the rights and responsibilities are and to make clear that the United States is not hesitant to enforce the rights of its carriers under the agreements that have been reached.

    Mr. EWING. What are some of our options in enforcing the rights of our carriers?

    Mr. HUNNICUTT. The most obvious and the best example is the one I cited earlier of looking to Japanese economic interests in the aviation relationship that are in some ways equivalent to the rights that we're trying to enforce.

    For example, in the Federal Express disputes, to look at sixth freedom cargo coming into the United States on Japanese carriers and to assess and take down a similar amount of economic activity against the Japanese side that's occurring—being denied to the U.S. carriers under their rights.

    Another would be, in a dispute like the LAX-Narita to respond in a proportional manner in the same market against the Japanese carrier in that market.
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    Mr. EWING. Would you assess that it is really to both sides' advantage to have a workable agreement?

    Mr. HUNNICUTT. Yes, sir. Undoubtedly. It's to both sides' advantage to have a workable agreement for the economic development of both countries. The lack of cargo and passenger services is a bottleneck in developing the greater efficiencies and economic integrations of the two economies.

    Mr. EWING. Would you feel that we have workable agreements now between the two countries?

    Mr. HUNNICUTT. My assessment of the agreement, as it exists now, is that it is—I want to say ''muddling through,'' but that's not even the—it's limping along. I don't think that it's an adequate agreement for moving into the future, based on the economies that we have in Japan and the United States.

    Mr. EWING. The Japanese have major access to our markets and our airports?

    Mr. HUNNICUTT. Yes, sir. I guess the interpretation is what is ''major.'' We have—there is major access on both sides.

    Mr. EWING. But we're not trying to restrict their access at this time. The restrictions come——
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    Mr. HUNNICUTT. No.

    Mr. EWING.——on a one-sided basis.

    Mr. HUNNICUTT. The only restrictions we're interested in are restrictions that are reciprocal because they're restricting the relationship on their side of the equation.

    Mr. EWING. Well, it just appears to me that if it is indeed beneficial to the Japanese economic community to have access here, that they need to understand that access to Japan is important to us. I guess maybe we need to make that very clear that we intend to enforce the bilateral part of those agreements. I would hope your Department and your agency would take that as part of their responsibility.

    Mr. HUNNICUTT. Yes, sir.

    Mr. DUNCAN. Thank you very much, Mr. Ewing.

    Mr. LaHood?

    Mr. LAHOOD. Mr. Hunnicutt, did you read Mr. Greenwald's testimony?

    Mr. HUNNICUTT. For today?
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    Mr. LAHOOD. Yes, sir.

    Mr. HUNNICUTT. No, sir, I haven't seen it.

    Mr. LAHOOD. Do you believe that United is being discriminated against by the Japanese government or by Japan on their ability to engage flights into that country?

    Mr. HUNNICUTT. Do I believe that——

    Mr. LAHOOD. Do you believe that United Airlines is being discriminated against by the Japanese government on their ability to engage flights into Japan?

    Mr. HUNNICUTT. I believe that United Airlines is being denied their bilateral rights by the Japanese government to enter into the Japanese market under the agreement we have. I'm hung up on the word ''discriminated against'' because there are also other U.S. carriers that are being denied those rights.

    Mr. LAHOOD. Like who?

    Mr. HUNNICUTT. Like Northwest, for their beyond rights; until the cargo agreement, Federal Express.

    Mr. LAHOOD. So there are actually three then?
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    Mr. HUNNICUTT. I'm not sure that I would call it ''discrimination,'' but several U.S. carriers are being denied their rights.

    Mr. LAHOOD. Three. There are three U.S. carriers then? United, Northwest, and——

    Mr. HUNNICUTT. Bilateral.

    Mr. LAHOOD. Pardon me?

    Mr. HUNNICUTT. Under the bilateral, Federal Express.

    Mr. LAHOOD. What do you think that you should be doing about that? What do you think that our government should be doing about that?

    Mr. HUNNICUTT. Our Government's role should be to enforce the rights that exist under the bilateral.

    Mr. LAHOOD. Are we doing that?

    Mr. HUNNICUTT. The Government—the reason we are in discussions with the Japanese today is an attempt to move forward in doing that. Yes, sir.

    Mr. LAHOOD. But are we doing it?
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    Mr. HUNNICUTT. I guess my answer would be that it's never 100 percent perfectly achieved, but in the example of Federal Express and Cargo, all of the requests for bilateral rights that existed were taken care of in the agreement that we achieved. So yes. And what are we trying to do in passengers? That's achieve at least a similar resolution of those outstanding issues before we move forward to try to achieve a better bilateral relationship.

    Mr. LAHOOD. Is Japan in any violation of any agreements that we have with them?

    Mr. HUNNICUTT. I would say that they are in violation of the aviation bilateral now in applications that have not been approved, particularly the United application for Osaka. Yes, sir.

    Mr. LAHOOD. So what is our recourse as a government?

    Mr. HUNNICUTT. We have not acted on the application for Japan Airlines to serve Kona, Hawaii.

    Mr. LAHOOD. Is there a provision in the agreement or the treaty that allows for anything other than not acting on their request?

    Mr. HUNNICUTT. There are no dispute resolution mechanisms, but there are provisions for consultations, required consultations; there are provisions for arbitration; and there is a potential for renunciation of the agreement, itself, as an ultimate.
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    Mr. LAHOOD. So you've only really taken one small, minute step; is that correct? I mean, you really haven't done anything except you have not agreed to look at whatever Japan's request is to the United States. You've taken none of the other steps.

    Mr. HUNNICUTT. That's correct. We have not taken——

    Mr. LAHOOD. Why is that?

    Mr. HUNNICUTT. We have not engaged in consultations or—because at the current time—we didn't assess that the possibility of achieving our goals, our objectives of getting the U.S. carriers' rights implemented were possible through consultations or arbitration.

    Mr. LAHOOD. But they're not. It's very apparent that they are not. Would you agree with that?

    Mr. HUNNICUTT. They have not yet been—those applications have not yet been approved. That's correct.

    Mr. LAHOOD. Well, you know, with all due respect—Mr. Murphy, would you like to comment on this?

    Mr. MURPHY. I was just going to suggest, Congressman, that when we ran into our problems with Federal Express last summer, we solved those immediate problems with a meeting between the two ministers last July. The ministers then agreed to work on cargo problems until this March, and just a few weeks ago we were successful in resolving the problems our cargo carriers were having. So both governments agreed to focus on cargo issues.
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    Now we have passenger issues that are coming to the fore.

    Mr. LAHOOD. Well, I would say this: with all due respect, I think to this point you folks have defaulted on your responsibility to offer an even playing field with respect to United Airlines. Now, maybe you've resolved the freight issue. I don't know. I assume—I'll take your word for that. But you have not resolved this issue, and I hope that at some point it—you can get with the program here and get it resolved.

    I assume that at some point you'll read this testimony, which is an astounding indictment against one particular airline. If half of this stuff is true, which I assume that all of it is, United is getting hosed in the process here. And it doesn't look like our Government is doing anything about it, or at least following the agreements and the steps that should be taken here.

    I hope you get with the program here.

    Thank you, Mr. Chairman.

    Mr. DUNCAN. Thank you, Mr. LaHood.

    Mr. Hutchinson?

    Mr. HUTCHINSON. Thank you, Mr. Chairman.

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    I'd like to follow up on what Mr. Ewing and Mr. LaHood both have pointed out.

    Just since I have been here you have pointed out that we are muddling through, limping along. You have said that United Airlines, FedEx, and Northwest have been denied their bilateral rights under existing agreements and that Japan is in violation of the aviation bilateral. That's since I've been here.

    It seems to me—I am increasingly concerned and disturbed over the problems that our industry is encountering in the markets of the United Kingdom and Japan.

    This is the third—if I'm correct, this is the third hearing the Aviation Subcommittee has held on this issue in the past year, and I want to thank our chairman for calling these hearings, for bringing these issues to light, and for airing them. But it's also quite frustrating that, in the course of these three Aviation Subcommittee hearings on the subject, that instead of our trading partners becoming more cooperative, they have become more intransigent.

    And I am wondering, Mr. Secretary, that, while historically these international aviation agreements have been negotiated between Department of Transportation and the State Department and individual foreign countries, is there a role, as you see it, for us here in Congress? What can we do to assist you in these negotiations and the enforcement of these agreements? And if there is no dispute resolution or any mechanism beyond what you have said, what do you propose to do and what can we do to assist you?

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    Mr. HUNNICUTT. Congressman, I think, one, my words that you have just quoted I think are very accurate, because obviously we were not here to tell you we have resolved this issue or that it's taken care of. We're here to tell you that there is still a problem, but to inform you on how we've been working on it and where we're trying to go with it.

    I believe that the—there are two issues you've raised. One is the issue of enforceability, dispute settlement mechanisms, whether it makes sense to have these relationships on a bilateral basis, and I think there has been some thought about that in the aviation community and a look at it, and really a view that at the present time we're in this bilateral world in terms of aviation agreements, and the best we can do in terms of providing market access for our carriers, and therefore improved economic efficiencies for global aviation, is to have better bilateral agreements with those countries with which we can negotiate them, and to negotiate with those countries that are reluctant to move to liberalize, to market economic aviation relationships as far as possible.

    With that, it means being consistent and going back to the Japanese and the U.K. with our objectives, being willing to be pragmatic in making issues—in resolving issues like the cargo agreement, accepting that the cargo agreement wasn't everything we wanted it to be.

    When the cargo negotiations were launched, our goal was a completely liberalized cargo regime, and we ended up with a cargo agreement which greatly improved market access for the U.S. carriers, but did not take us all the way to the liberalized regime that we were hoping to achieve.

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    I think that part of the goal here has to be a unified U.S. consensus on what we want from these countries in terms of an open aviation relationship and an ability to have the staying power in these negotiations to continue to insist on movement in that direction.

    I don't know if that——

    Mr. HUTCHINSON. That addressed one of the issues I raised. The other one was what role do we have. Beyond oversight hearings, do you see Congress in any way being able to strengthen your position?

    Mr. HUNNICUTT. Well, we're certainly interested always in Congressional input into ideas, concepts, thoughts of moving forward. In terms of proposed legislative changes, in terms of the structure of how the U.S. Government deals with these issues, or the legal authority we have to take actions, I'm not today prepared to give you any clear answers on that because I haven't really given that a great deal of thought to prepare for this hearing, but I would be glad to do that.

    Mr. HUTCHINSON. I would appreciate that.

    [The information received follows:]

    [Insert here.]

    Mr. HUTCHINSON. Are you optimistic that we're going to see greater cooperation and see these issues resolved in the relatively near future?
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    Mr. HUNNICUTT. I am cautiously optimistic that we can make at least incremental improvements in the very near future, and that we can make genuine aviation liberalization at least in the near to medium term for both of these major trading partners.

    Mr. HUTCHINSON. Thank you, Mr. Chairman.

    Mr. DUNCAN. Thank you, Mr. Hutchinson.

    If these issues are not resolved to your satisfaction and the satisfaction of the majority in the Congress, we can come up with legislation that would take some action in that regard.

    I'll go back to Mr. Lipinski at this time.

    Mr. LIPINSKI. Thank you, Mr. Chairman.

    I would certainly support the chairman's remarks in regards to legislation. If we don't get the desired results out of the negotiations, I think it's only right that we members of the Aviation Subcommittee and the full Committee on Transportation and Infrastructure in the House of Representatives wind up weighing in on this particular issue, and I would say that our patience probably is not too extensive on this, so I would recommend we move as quickly as possible in regards to achieving some of the goals we want to achieve with the U.K. and with Japan.

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    I'd like to get back to a point that was raised over here by my very good friend, Congressman LaHood, about discrimination against United Airlines by the Japanese government.

    It seems to me that United is a wonderful airline. It's my home town airline. I fly it back and forth all the time. They're magnificent. But I think that every U.S. carrier could take the same position, and probably they do take the same position, that Japan is discriminating against them. I'm talking about Northwest, FedEx, UPS, American, Delta, just to name a few. I could probably go on, but those are the only ones I'm aware of being interested in going to Japan and going on. I'd like to hear you or Mr. Murphy comment on the expansion of the discrimination.

    Mr. MURPHY. Congressman, I think you're right; that is, each of those carriers, and we could probably name a few more, feel that they are not receiving the rights to serve Japan, either that the agreement sets forth or which they ought to be entitled to, especially at a time when we're talking about a country where we have a huge trade imbalance and they're denying more access by our airlines, one sector where we do extremely well. Where we can out-compete the Japanese is in the aviation sector, yet they keep our airlines out of the market. So I agree. From that standpoint, I think our carriers would feel it is discrimination.

    Mr. LIPINSKI. Yes. And certainly there are different cases to be made. As far as United goes and Northwest and FedEx, they have an agreement that at one time apparently this country and Japan agreed upon what that agreement meant. That has not been fulfilled as far as U.S. carriers are concerned, the U.S. Government is concerned, and I'm sure the members of this subcommittee are concerned.
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    Then there are other carriers here who, for their own benefit, for the benefit of this country, for the benefit of consumers, want to get more access to Japan and even beyond rights of Japan.

    As I say, they have a different argument to be made. I happen to agree with both arguments, and I think that we should press both causes very strenuously.

    I'd like to get back to the agreement on cargo. That agreement was announced shortly before one of our hearings here, and I'll only speak for myself, but I think it was universally supported that we were—I was in a state of euphoria because of the agreement that we were told was reached with the Japanese in regards to cargo, but a gentleman who's sitting behind you, slightly to your left, that particular day—a different Murphy. Those Irish are all over the place. A Cyril Murphy from United Airlines was the only voice of real reason that particular day, and he was not carried away by the euphoria by any means whatsoever.

    He said at that time that all we got really was what they had promised us a long, long time ago in an agreement, plus a few routes for UPS.

    I have ultimately come to the same conclusion as Mr. Murphy, but he's much more knowledgeable in this area than I, so he came to it very quickly.

    But really that agreement in regards to UPS and FedEx, we almost got—we got very little, really, out of that other than what, by agreement, we were entitled to.
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    Now, I know United Parcel was very happy about it because they finally got some access to Japan, but I don't think that we should give the Japanese any particular points in regards to that agreement.

    If you'd like to comment on it, go right ahead and comment on it. If not—

    Mr. HUNNICUTT. Well, Mr. Congressman, I would only start by commenting that I've never seen Mr. Cyril Murphy euphoric, but I'm looking forward to the day——

    [Laughter.]

    Mr. HUNNICUTT.——when I can observe that for myself.

    Mr. LIPINSKI. Well, when LaHood was talking about United being discriminated against by Japan he was euphoric at that time.

    Mr. HUNNICUTT. But I do want to say that, as I said earlier in my testimony, we were looking for, in the beginning of those negotiations, a cargo liberalization agreement much broader in scope than where we ended up.

    On the other hand, we were really pleased that we did have for United and Northwest and FedEx the ability to serve from all points in the United States and to additional points in Japan, and for UPS this was a major agreement to have beyond rights from Japan for their services, and we will select an additional cargo carrier to serve Japan, which was a new element of the cargo deal, as well.
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    So, while I don't want to say that I disagree with you in that we shouldn't think that the cargo deal was all that it should have been or that we would have hoped for, we do believe it was a useful deal.

    Mr. LIPINSKI. But you wouldn't get euphoric over it?

    Mr. HUNNICUTT. I would not be euphoric.

    Mr. LIPINSKI. For a man who said he wasn't going to get into Japan, I certainly have managed to slide into that. But some of my fellow Illinoisans have led me down that path.

    I just have one last question for you two gentlemen.

    I am interested in your thoughts on having the U.S. trade representative handle negotiations for the United States in regards to international aviation. Now, I know a lot of people are opposed to that because they say you don't want to talk about aviation and soybeans and things like that, but I counter to say that if the international trade representative handled the negotiations for the United States with Japan and the United Kingdom, particularly in Japan we might not want to talk about soybeans—although, on the other hand, we might want to talk about soybeans. But what we could talk about was automobiles, and I think that that would give us a very significant talking point when it came to automobiles and access to the American market by Japanese automobile manufacturers. Even though they do have a number of transplants here, we still do import a number of automobiles from Japan.
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    Do either one of you gentlemen have any comments on having the U.S. trade representative taking over our negotiations?

    Mr. HUNNICUTT. Congressman, I think maybe both of us can give a quick response, because I bring the ''no baggage of history'' in terms of dealing with this current arrangement of the Department of State other than the last 3 months, and a great deal of history working with the U.S. Trade Representative's office over the years in trade negotiations.

    My first reaction to being asked that—and I've been asked once before in front of the Senate subcommittee—was to say that the current structure of having the negotiators operate out of the Department of State versus a structure which would have the negotiations done at the U.S. Trade Representative's office really is a choice between whether you want aviation to be potentially traded off or traded to benefit from or be penalized for geopolitical purposes in terms of the objectives of the negotiators, or do you want it to benefit from or be traded off for potential trade and commercial benefits of the United States.

    That's something that I haven't resolved in my own mind in terms of where the greater benefits for aviation come, because there is some protection being somewhat separate, and that protection is it doesn't get traded off for other, less-competitive American industries in the international marketplaces.

    On the other hand, the down side is exactly what you've pointed out and exactly what some of your fellow majority members have pointed out by indirection, which is: what leverage do you have for achieving greater good in the aviation world when your only ability to respond is against aviation services and you're really cutting shippers' and passengers' potential choice of services down every time you do that?
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    So I guess that's somewhat of a non-response, but I hope it gives you the flavor of where my thinking is, because I haven't resolved it.

    I will say that, having arrived at the Department now almost 3 months ago, the working relationship between the current team of negotiators at the State Department and the aviation specialists at the Department of Transportation is very good and working very smoothly.

    Mr. LIPINSKI. Thank you.

    Mr. Murphy, you want to add anything?

    Mr. MURPHY. No, sir.

    Mr. LIPINSKI. Okay. I want to thank very much Mr. Hunnicutt and Mr. Murphy for their testimony here today. I look forward to working with these gentlemen in the future, and I'm very happy that I got to ask that question before Mr. Aviation, Mr. Oberstar, arrived because I happen to support using the trade representative and Mr. Oberstar is opposed to it.

    Have a good day, gentlemen.

    Mr. HUNNICUTT. Thank you.

    Mr. DUNCAN. All right. Thank you, Mr. Lipinski.
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    Mr. Hunnicutt, let me ask you—I assume you're familiar with this group headed up by former Governor Baliles, Access: U.S.-Japan, and do you—what do you think about their objectives and really, going from that, does it cause any problems for your Department that there seem to be some divisions between U.S. airlines? Does that cause problems for you in negotiating with some of these other countries?

    Mr. HUNNICUTT. I think historically and currently there have been serious divisions within the industry over major issues, and obviously, from someone trying to put a negotiating policy together and a strategy for negotiators to work on, it's very much complicated when you have varying interests in the industry, but that's not unlike many other industries in the United States where some members of the industry import components and other members don't, so that interests end up really being varied, and the role of the government is to discern the greatest national interest.

    In terms of Access: U.S.-Japan, we have met with them. As I said earlier, we're working with their study. I've met with the governor to discuss their proposals, and I have found them to be responsible and making responsible arguments. Whether they will prevail in the end in their arguments is another question, but I don't think it's necessarily, at this point, disruptive to have different points of view over an issue that's as important as the U.S.-Japanese aviation relationship and its future development and those views of all of the industry, as well as cities, consumers, shippers, labor, to be taken into account as the Federal Government decides what the policy going forward ought to be.

    So yes, it complicates matters to have clear elements within an industry taking different positions. It also complicates it to have some elements of the industry on one position closer to where your negotiating partner may be in terms of their arguments. But I don't see that as irresponsible or an unreasonable position for them to be in.
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    Mr. DUNCAN. Well, I assume you've been told what we've been told—that they have at least 500 members in all of the 50 States. Have they told you that?

    Mr. HUNNICUTT. Congressman, I think the latest figure I heard was at a speech by Governor Baliles to the Arrow Club, and it was considerably more than 500.

    Mr. DUNCAN. Is it fair to sort of summarize our relationship with Japan by saying that they seem to want free trade in automobiles and other areas, but in one of the few areas where we lead the world, aviation, they want to manage trade and restrictions and capacity limits? Is that accurate?

    Mr. HUNNICUTT. Yes, sir. And, I think, as Mr. Murphy tried to indicate, it's particularly galling that they would pick the one area in our economic relationships where we clearly are competitive and succeeding as the one where they want to restrict trade, while continuing to argue for open markets in other areas.

    Mr. DUNCAN. All right.

    We'll go now to Mr. Weller.

    Mr. WELLER. Thank you, Mr. Chairman. I just have one more question I'd direct to Mr. Hunnicutt.

    It's my understanding you've had extensive experience with the ITC, been involved in trade issues with the Japanese prior to your current role as an assistant secretary and bring a breadth of experience to this issue.
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    We're fortunate, with our current situation, as I understand it, we do have a trade balance in our favor, a surplus, when it comes to aviation, with the Japanese. What is that amount right now, the estimated balance in the United States' favor with Japanese?

    Mr. HUNNICUTT. Congressman, we know the market share, which is about 62 percent, but I can't give you the current trade balance in dollars, but it's substantial and I will get that to you precisely for 1995.

    Mr. WELLER. I'd appreciate that.

    [The information received follows:]

    [Insert here.]

    Mr. WELLER. I was wondering, what is, overall, just to compare where we've been and where we are now, with the trade balance with the Japanese, where are we today? What's the balance? Whose favor is it in and what's the estimated difference.

    Mr. HUNNICUTT. The overall trade balance—I can't give you numbers, but it is still substantially in Japan's favor. It has been declining somewhat and continues to appear to be declining in terms of the overall trade balance, including manufactured goods and services.

    Mr. WELLER. Do you know the dollar figure?
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    Mr. HUNNICUTT. I can't give you the dollar figure, but I can certainly get that for you.

    Mr. WELLER. You're saying it's declined over the last 3 years?

    Mr. HUNNICUTT. It has declined in most recent periods. I don't know about 1995 over 1994.

    Mr. WELLER. Well, what's—from your experience in trade, what was the trade balance 3 years—how long have you been assistant secretary now?

    Mr. HUNNICUTT. Three months.

    Mr. WELLER. Three months. Prior to that you were with the ITC?

    Mr. HUNNICUTT. No. I left the ITC in 1987.

    Mr. WELLER. All right. Okay. But 3 years ago what was the trade balance with the Japanese? Do you remember that figure?

    Mr. HUNNICUTT. I'll have to get you those numbers.

    Mr. WELLER. So you're not sure of that figure and you're not sure of it now, but you think that it's gotten better.
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    Mr. HUNNICUTT. It has been reduced.

    Mr. WELLER. I'm very interested in——

    Mr. HUNNICUTT. I will give you the specifics.

    Mr. WELLER. I would like to see those specific figures to compare where we've been, where we are now, and also with the aviation sector to see what that trade balance—those would be very helpful.

    Mr. HUNNICUTT. I'll be glad to get that. I'm sorry. I didn't know you'd be interested.

    Mr. WELLER. Obviously, rooting for the home team, I'd like to see it in our favor.

    [The information received follows:]

    [Insert here.]

    Mr. WELLER. From your experience on these issues—and, of course, it's become a real bone of contention with the folks back home in my District. My District is very dependent on international trade. Of course, major manufacturers such as Caterpillar and petrochemicals and plastics in my District, but also agriculture, so trade issues, in general, are very, very important to me, and particularly our trade opportunities with the Japanese.
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    Just from your experience, looking back to your experience prior to being assistant secretary before 3 months ago, and also going back to your ITC days experience, do you think that the Japanese government believes the United States lacks the political will to defend the rights of its air carriers today?

    Mr. HUNNICUTT. Congressman, I'll say I got a similar question related earlier and feel that they shouldn't. I think, based on the cargo Federal Express order that was issued last summer, preparation for taking down Japanese service in order to defend Federal Express' rights; I think the response that we've given most recently in not approving Japanese applications for increased service based on their denial of pending U.S. applications that U.S. carriers are entitled to; that the signal is out there for the Japanese to read pretty clearly that we intend to vigorously defend the rights of our carriers.

    As I said earlier, I think that they're making a serious political miscalculation if they are looking at the United States as a paper tiger in terms of defending aviation rights.

    Mr. WELLER. Mr. Murphy, do you want to add to that?

    Mr. MURPHY. No, sir.

    Mr. WELLER. All right. So, as I understand from your testimony, you're standing firm, and that the Japanese should not expect you to back down from your position?
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    Mr. HUNNICUTT. That's correct.

    Mr. WELLER. Okay. Thank you, Mr. Hunnicutt. Mr. Chairman, thanks for the courtesy of a second go-round.

    Mr. DUNCAN. Well, thank you. And I might say that the trade deficit last year with Japan was $60 billion, which most economists say conservatively translates into a loss of 20,000 jobs per billion, which would—that was with just Japan. I don't know what it was 3 years ago, but it was $60 billion last year.

    Mr. WELLER. And, if the chairman would yield, how many jobs?

    Mr. DUNCAN. Conservatively, most economists say a minimum of 20,000 jobs per billion, so that would be 1,200,000 jobs lost just last year in that trade imbalance.

    Mr. WELLER. Thank you, Mr. Chairman.

    Mr. DUNCAN. Thank you.

    We're always pleased to have with us the former chairman of this subcommittee and the ranking member of the full committee, and a man whom all of us consider to be the real aviation expert in the Congress, Mr. Oberstar.

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    Mr. OBERSTAR. Thank you very much, Mr. Chairman, again for your very kind and thoughtful words. Let me return the compliment by appreciating the work that you have done and the diligence you have invested in the issue of aviation in all of its aspects and the quick study you have done in your very judicious manner in conducting the hearings.

    I very much appreciate and strongly support your continuation of hearings on international aviation trade policy. These hearings and—this subject matter is of great importance not just to the airlines, to the communities they serve, to the airports out of which they operate, to the employees of the airlines, to the traveling public. And the policies we develop are important to our international trading partners, as well.

    I'm not going to repeat, because I've said it earlier at the outset of these hearings, my overall view on U.S. policy in international aviation trade, on cargo and passengers.

    I just want to say that I am very pleased with the statement that you prepared, Mr. Hunnicutt, for today's hearings. If you continue to take the sound advice of Mr. Murphy you'll do very well in this position.

    I also am very pleased with Secretary Pena's continuing support of movement toward international liberalization of aviation trade, and especially that we not put aviation trade rights on the bargaining table with other trade issues. If ever aviation trade becomes a part of a broader negotiating scheme in which we are thrown in with crackers, hotel rooms, automobiles, eucalyptus oil, all of which are part of the broad U.S. trade talks that we've undergone in the general agreement of tariffs and trades of the World Trade Organization, aviation will be swallowed up and spit out like little pieces.
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    Valuable rights which we have worked and negotiated to build a U.S. preeminence in virtually every market but two in the world will quickly be traded away for beads and blankets, as we did with the Native Americans 100 years ago.

    Mr. LIPINSKI. Would the gentleman yield for one second?

    Mr. OBERSTAR. I'd be happy to yield to my good friend.

    Mr. LIPINSKI. I was talking to the chairman over there. I assume you're talking about the U.S. trade representative.

    Mr. OBERSTAR. I didn't say anything about him yet.

    [Laughter.]

    Mr. LIPINSKI. I just felt it was coming. I wanted to make sure that it was coming, because I wanted to listen intently. Thank you, sir, for yielding.

    Mr. OBERSTAR. To throw our international aviation trade to the tender and uninformed mercies and untrained disposal of the U.S. trade representative would be a serious mistake.

    Mr. LIPINSKI. Would the gentleman yield for just one moment?

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    Mr. OBERSTAR. I'd be happy to yield.

    Mr. LIPINSKI. But my complete plan here is, after we get aviation into that position, I'm going to speak to the President to appoint you to it, and then we'll have no problems whatsoever.

    [Laughter.]

    Mr. LIPINSKI. On top of that, there will be one less person ahead of me on this full committee.

    [Laughter.]

    Mr. OBERSTAR. You know, years ago when Eisenhower was President he was looking around for a Secretary of Defense and he looked at Carl Vincent, who was chairman of the House Armed Services Committee, and he called Mr. Vincent and pleaded with him to take over the position of Secretary of Defense.

    Vincent thought about it over the weekend and he called Eisenhower back on Monday and he said, ''Thank you, Mr. President, but I'd rather run the Pentagon from the Hill.''

    [Laughter.]

    Mr. OBERSTAR. I'd rather run U.S. trade policy from here, if you don't mind.
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    Restrictive aviation trade agreements always mean foregone economic opportunities. You've concluded a study of what the effects have been of liberalizing our agreement with Canada—a role in which this subcommittee played a very significant part 5 years ago in getting those talks started, and then they slacked and went back again, but we've supported that liberalization agreement.

    Has the Department done an analysis of the dollar value on foregone opportunities because of our restrictive agreements with the U.K. and Japan?

    Mr. HUNNICUTT. Congressman, we have, as you'll see in my prepared statement, we are looking at the studies that have been prepared on the value of the rights under the bilateral agreement, fifth freedoms, and third and fourth, with Japan, but to my knowledge I have not seen and am not aware of any particular Department of Transportation analysis of the cost incurred by the restrictive nature of the agreements. No, sir.

    Mr. OBERSTAR. I think that would be a useful study and one that would be well worth considering and undertaking. I think it strengthens our hand in dealing—in pushing for more open liberalized trade agreements.

    One of your policies is to, in effect, surround protectionist countries with open skies agreements. That was something I advocated in a talk that I gave in Brussels in 1991, that the way to penetrate the European cartel mentality is to not necessarily surround, but to select a partner with which, in the European Community, to negotiate a liberalized agreement. Once that would be done, it would be difficult for other countries to resist negotiating, particularly the U.K., a more liberalized agreement.
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    We picked out a very small partner, the Netherlands, and that worked to a very small degree, but didn't have much effect at all on the British.

    Now we've negotiated under this Administration an agreement with a much bigger partner, Germany. It still hasn't had much effect on the British.

    Maybe that policy doesn't work with a major economic force with Japan, but it's something that we need to consider and we need to develop a strategy for dealing with a force such as Japan that you can't easily circumvent and can't go around. You can't, in cargo trade, for example, just go to Singapore and pick up enough business on a 747 freighter to make that service valuable. You have to top that trade off in Japan.

    So the beyond rights that we own with Japan are extremely valuable, and opening up that market beyond Japan is extremely important to us. And developing strategies that lead to opening that market without sacrificing existing rights, certainly without sacrificing the 1952 treaty right carriers, has to be a central part of our trading strategy.

    Mr. Hunnicutt, would you like to respond to that?

    Mr. HUNNICUTT. Congressman, I guess I could respond by saying yes, sir.

    Mr. OBERSTAR. That's sufficient. Thank you.

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    [Laughter.]

    Mr. OBERSTAR. I think the chairman wants to go on with other witnesses, and I very much appreciate and wish you well in your endeavors. Welcome to the committee. We hope you'll spend a lot of time here.

    Mr. HUNNICUTT. Thank you, sir.

    Mr. DUNCAN. Thank you very much, Mr. Oberstar.

    We're always pleased to have the chairman of the full committee, Mr. Shuster, with us. He is certainly one of the most active and involved chairmen in this entire Congress, and I think even in the history of the Congress.

    Mr. Shuster, do you have any statement or comments or questions at this time?

    Mr. SHUSTER. Thank you, Mr. Chairman. I just want to congratulate you and the ranking member for proceeding with what I think are extremely vital hearings. I am deeply distressed by what I believe to be an abrogation of agreements by our Japanese trading partners, and I believe that, unless we can get a comfort level that agreements are going to be adhered to, then this Congress is going to have to consider taking legislative action.

    Thank you.
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    Mr. DUNCAN. Well, thank you. That backs up something I said just a few minutes ago. I know that when Chairman Shuster speaks on transportation and infrastructure issues, not only this country listens but people throughout the world listen, as well, so I appreciate that.

    Mr. Geren?

    Mr. GEREN. Thank you, Mr. Chairman. I apologize for missing the testimony earlier. I'm in between two markups. I had one that started at 1:30 and one that's just now starting at 3:30, so I hope I'm not going to be repeating some of the questions that have already been asked, Mr. Hunnicutt.

    I know you all talked at some length about the Japan issue, as well as the U.S.-U.K., and I guess just kind of an overview question: Mr. Hunnicutt, what progress would you say that DOT has made since last June on United States-U.K. aviation relations? What's been happening since June when things started coming apart?

    Mr. HUNNICUTT. I guess I would say that I can't report any concrete success or advances. What I can say is we have re-engaged following the implementation of the first interim agreement, which had some liberalizing and goodwill gestures in it.

    Since the breakdown of the discussions in October, really there hasn't been a great deal of activity. Since I've come into the job I have re-engaged the British in some informal discussions, going to London once and telephonically, to explore parameters of where we may be able to find flexibility that would allow us to go forward with a second interim arrangement of liberalizations.
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    We're not yet ready to engage in formal discussions based on those conversations, but I'm cautiously optimistic that we'll make some headway.

    Mr. GEREN. Is it still a top priority for DOT?

    Mr. HUNNICUTT. The U.S.-U.K. and U.S.-Japan aviation relationships are the highest priority for the Department of Transportation.

    Mr. GEREN. You say you've had some discussions and nothing tangible or nothing concrete. Do you have any kind of a time table that we could look towards that you expect something happening?

    Mr. HUNNICUTT. No, sir. I don't have a specific time table, although, as I said earlier, I'm hoping that in the shorter term we will be able to make some progress on an interim arrangement, short of a full-scale liberalization, and hopefully to move forward toward larger liberalization measures in the medium term.

    Mr. GEREN. I know it's impossible to answer a question like this with any certainty, but on the shorter term are we talking about by the end of this year? What kind of—it just seems like negotiations that don't have any time limits imposed upon them just seem to drift and drift and drift, and time is not on our side. Time is on their side.

    Mr. HUNNICUTT. Right. I think that the issue of the drift is unrelated to not having a date certain for completion; it's more related to the ability of the British to talk to us about the issues of liberalization that have to be on the table.
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    I'm hopeful that the commercial realities not only of the changing North Atlantic market, based on the open skies arrangements that are beginning to really change the marketing structure, and the positions of the British carriers in terms of what they hope to achieve commercially, will, within the matter of months, lead to agreement on at least interim measures for liberalization.

    Mr. GEREN. And that's as specific as you feel like you can get at the present time?

    Mr. HUNNICUTT. Yes. I'm sorry. I don't want to be evasive, but I just don't have any indication at this point of timing.

    Mr. GEREN. But it's specific as far as specific measures, too, as well, that you all are pushing or negotiating angles that you feel like you might have? Is there——

    Mr. HUNNICUTT. Well, I wouldn't want to talk about any negotiating angles, but the issues that were on the table at the time of the breakdown of discussions in October were, of course, Heathrow access for U.S. carriers, cargo liberalization, buy America provisions that the British were interested in, dispute settlement mechanisms that the British were interested in. Those were the areas of discussion that——

    Mr. GEREN. Yes. I'm very well aware of the areas of discussion, but I'm thinking more in terms of what things you all are doing specifically to advance the American position in the negotiations in regard to those issues.
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    Mr. HUNNICUTT. Obviously, I don't want to get into specifics. What we have done is tried to find where we thought there was more flexibility on those issues than we had at the time the discussions broke down and tried to help the British find more flexibility on their side on those issues at the time the discussions broke down.

    Mr. GEREN. All right. Thank you, Mr. Chairman.

    Mr. DUNCAN. Thank you, Mr. Geren.

    Mr. Ehlers?

    Mr. EHLERS. No questions, Mr. Chairman.

    Mr. DUNCAN. All right. Well, thank you very much, Secretary Hunnicutt, Secretary Murphy. We appreciate very much your being with us today.

    We'll move on to the second panel at this time and ask those panel members to come forward, please.

    The second panel—and we're very pleased to have this very distinguished panel before us—consists of: Mr. Gerald Greenwald, chairman and chief executive officer of United Airlines; Mr. Cyrus F. Freidheim, Junior, vice chairman of Booze Allen & Hamilton; Mr. Jeffrey Fegan, who is the executive director of Dallas-Fort Worth International Airport, accompanied by Kevin Cox, the deputy executive director of the Dallas-Fort Worth International Airport.
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    I want to welcome all of you here today.

    Mr. Geren, I believe you have a statement you want to make at this time.

    Mr. GEREN. Thank you, Mr. Chairman. I appreciate your letting me proceed out of order. As I mentioned, we're in the middle of markup on the authorization bill for the National Security Committee, and I'm going to have to go back to the markup, but I wanted to welcome Jeff Fegan and Kevin Cox to the committee today and thank them for their excellent work. I've had a chance to review the testimony, and just once again want to express our appreciation to you for the great work you do for the aviation community in this country and the help you've given this committee.

    Welcome to Washington. I look forward to continuing to work with you.

    Thank you, Mr. Chairman.

    Mr. DUNCAN. Thank you, Mr. Geren.

    I suppose what we'll do is we'll just go right down the table, and so, Mr. Freidheim, we'll start with you and then go to Mr. Greenwald and then Mr. Fegan and proceed in that manner.

    Mr. Freidheim.

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TESTIMONY OF GERALD GREENWALD, CHAIRMAN AND CEO, UNITED AIRLINES, INC., ACCOMPANIED BY CYRUS F. FREIDHEIM, JR., VICE CHAIRMAN, BOOZ ALLEN & HAMILTON, INC.; AND JEFFREY P. FEGAN, EXECUTIVE DIRECTOR, DALLAS-FORT WORTH INTERNATIONAL AIRPORT, ACCOMPANIED BY KEVIN COX, DEPUTY EXECUTIVE DIRECTOR

    Mr. FREIDHEIM. Thank you, Mr. Chairman and Representative Lipinski and members of the subcommittee. It's always an honor to be invited to appear before the committees of our Congress.

    As indicated, I am Cyrus Freidheim. I'm a vice chairman of Booz Allen & Hamilton, which is a management and technology consulting firm. We have over 6,000 employees and 100 offices worldwide and we work in a number of industries, and particularly extensively in the airline industry, both the United States and abroad.

    Mr. Chairman, I would like to place this report dated today into the record. My comments will summarize the conclusions that are in the report.

    Mr. DUNCAN. That report will be placed in the record. Thank you.

    Mr. FREIDHEIM. Thank you.

    Last summer we were asked by United Airlines to analyze the value of the beyond rights that U.S. passenger airlines were accorded by the air service agreement of 1952 between the United States and Japan.
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    We did this by estimating and projecting the revenue and profits for the U.S. carriers and the impact on the U.S.-Japan trade balance under three scenarios: first, full utilization of beyond rights, which is the ability of carriers to use Japanese cities as hubs to serve other Asian cities; second, elimination of those rights; and, third, limiting the beyond rights to those Asian cities served by U.S. carriers today through Japan.

    Our overall conclusions were the following:

    First, that beyond rights have great value to the two U.S. carriers, United and Northwest Airlines, that had these rights. We estimated the value at between $4 and $5.5 billion, based on the discounted value of the earning stream from these routes.

    We included, of course, only the routes affected by beyond rights, so that is those that used the Japanese cities as hubs.

    The value loss by limiting these rights to Asian cities currently served is computed at about $2.5 to $4 billion. It is important to recognize that, long-term, the cities currently served will have less need for the Japanese hub since the markets will merit direct flights from the U.S.; hence, the value of beyond rights is greater for cities net yet served than for cities currently being served through the Japanese hubs.

    The impact on the U.S. balance of trade we estimated to be about $100 billion cumulatively over the next 20 years. This reflects the lost revenues by United and Northwest caused by the elimination of those beyond rights.
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    Now, it's important to understand how we arrived at these numbers. We used passenger forecasts by Iota and modified them only slightly through our own analysis and some other sources. Passenger growth between the United States and Japan is projected at 6 percent. Growth from the U.S. to other Asian cities varies from 6 percent for cities like Singapore to 15 percent for cities like Beijing, Shanghai, and Ho Chi Minh. The average for the U.S.-non-Japan cities from the United States is to grow at about 9 percent. We ought to remark that this is the highest growth rate of any area in the world.

    We project yields or prices to decline in real terms at the rate of about 3.5 percent per year for the U.S.-Japan routes over the next 10 years and 3 percent thereafter, and yields for the U.S.-Asian routes to decline at about 3 percent annually. These projections are in line with the experience that we've seen over the last 10 years on the heavily-competitive routes between U.S. and Europe.

    We concluded that the best solution for the consumer, the countries involved, and the carriers is open skies. We also concluded that trading beyond rights for added flights between U.S. and Japan is a very bad deal for consumers, for the U.S., and in net, in total, for the U.S. airline industry.

    The group, Access: U.S.-Japan, questioned our conclusions. They claimed the following:

    One, that additional flights between U.S. and Japan had substantial value, much greater than the unexercised beyond rights of the two carriers, United and Northwest.
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    Secondly, that U.S. communities would benefit by $9 billion annually.

    Third, that prices between the U.S. and Japan are artificially high, 20 to 60 percent over the U.S. European routes, and that added competition would cause prices between U.S. and Japan to drop substantially.

    They concluded that the U.S.-Japan market is grossly under-served compared with the U.S.-European market, and that passenger traffic would be stimulated by a large amount if more competition and prices were allowed to decline.

    And that we've vastly overstated the value of the unexercised beyond rights. Why, they ask, don't United and Northwest serve these beyond cities now if they're so valuable.

    Finally, that the impact on the balance of trade was not a traditional way of valuing air transportation rights and therefore shouldn't be included in the analysis.

    Well, if only Access: U.S.-Japan were right, we could immediately accede to the Japanese demands to stop granting the rights guaranteed by the 1952 air service agreement and ultimately stop U.S. carriers from using Japanese cities as hubs to Asia, and we'd all be better off, and what a terrific win/win solution.

    Unfortunately, this is not the case. Let me discuss each of these issues.

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    First, the core of the argument is that U.S.-Japan routes are under-served and over-priced. They claim that U.S.-Japan should have many more passengers, based on a comparison if U.S.-U.K. passenger travel. They compared populations and GNPs among the two countries with available seat capacity and, since Japan is larger and has a higher GNP than the U.K., they should have, therefore, more air service, but, in fact, the answer is the reverse.

    Using this argument, the U.S. should have 10 times its current service with Spain and 50 to 300 times as many flights to China today. We don't believe that argument holds.

    Secondly, the best measure of adequacy of service is what is called the ''load factor.'' That's the percentage of seats that are actually occupied on average over time at a comparable price.

    The U.S.-Japan load factors are, in fact, lower than the U.S.-European load factors—73 percent for U.S.-Japan and 76 to 78 percent for the United States to Europe. We'll demonstrate in a moment the prices, in fact, are comparable.

    Access: U.S.-Japan claims that the additional competition will cause prices to drop by 25 to 40 percent, which will unleash large, pent-up demand across the Pacific.

    We certainly agree that a 40 percent real price reduction would stimulate plenty of tourism in Japan and the U.S.; unfortunately, it would bankrupt any carrier which added substantial capacity at those fares.

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    Access: U.S.-Japan's argument is based on the assumption that U.S.-Japan prices are artificially high; that they are 25 to 60 percent higher on a per mile basis than the U.S.-European fares. This is partly true for published fares. Fortunately for consumers, they actually pay far less than published fares.

    In fact, our data shows that actual fares paid—again, on a per mile basis—for discounted travelers are 15 percent lower for U.S.-Japan than for the U.S. and Europe in season, and about 15 percent higher off-season. Business class fares, in fact, are lower for the U.S.-Japan than the U.S.-Europe in all seasons.

    Interestingly, the same round trip purchased in Japan is substantially higher than purchased in the U.S. JAL sets the pricing in Japan. JAL has a substantially higher cost than U.S. carriers—somewhere between 50 and 100 percent—and hence charge higher fares.

    This is important to note, because without U.S. competition consumers can rightfully expect higher fares from Japanese carriers, and JAL, in particular.

    We have projected a real decline in the average fares between the U.S. and Europe of 3.5 percent, as I indicated earlier, for the next 10 years, which will result in fares in the year 2005 30 percent lower than they are today, and 10 years from now, that's 1 year later, it would be 40 percent.

    These projections follow the experience of the tightly-competitive U.S.-European routes. There is plenty of challenge for U.S. carriers to continually improve their productivity to be profitable with declining prices of that magnitude.
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    We also believe that our projection of 6 percent growth in passengers between the U.S. and Japan is realistic and further stimulation probably will not result in significantly higher growth rates. The bulk of the growth will come from vacation travel, business opportunities, rather than low fares to determine how often people travel for business.

    Hence, we stand by our projections of volume growth and price declines.

    Now let us examine the value of unexercised rights. Japan, as I think we all know, is a natural hub to Asia. It's on the great circle route to most Asian cities from the United States. It has a large population which travels—the largest in Asia. It is an excellent location to consolidate passengers from Asian cities headed for the U.S. and U.S. passengers headed for Asia. Tokyo and Osaka, in fact, rate number one and number two as Asian destinations and hubs from the U.S.

    U.S. carriers add service to Asian cities, when potential traffic volume permits, three flights per week. This is the basis on which they decide which city is next—from that city to the Asian hub, Tokyo or Osaka. These passengers then board the U.S. flights that are already there to the United States to the city of their choice.

    The U.S. carriers add direct nonstop service to Asian cities when the potential traffic merits three round trips from the United States to that city per week.

    Markets are built first by serving a city through a hub, and later providing direct service as the market grows. Even when direct nonstop service is provided, carriers continue to serve the city through the hub to offer more options to the consumer; that is, if they continue that they'll have—when they get the three times per week direct service, they'll continue three or four times a week through the hub city and you'll wind up with daily service.
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    It's interesting to note that no U.S. carriers provide direct service to Asian cities—other than Japan and one to Korea—without accompanying hub service through Japan. The economics, the market, and the customer service just don't work without the hub.

    The cities not now served—take Pusan as an example—do not yet have sufficient traffic to provide service through Japan to the U.S. Now, in the case of Pusan, in 2005 it will, and in 2010 it will merit direct service to the U.S., along with the hub service from Japan.

    The vast Asian market is coming to fruition in the next 15 years. Projections call for Asia to become the largest international air transport market in the next 20 to 25 years.

    U.S. carriers must be well-positioned to capture their share of that market. Japanese hubs are key to U.S. competitiveness, and that is why the unexercised beyond rights are so valuable—more valuable than the currently-exercised rights.

    Much of the travel to cities currently being served through Japan will be provided directly from U.S. cities in the next 10 years.

    Finally, the impact on U.S. communities and the economy—Access: U.S.-Japan projects a $9 billion economic advantage for U.S. communities by adding more U.S.-Japan flights. Their estimate is based on a multiplier of $7,000 per added passenger and 1.3 million additional passengers.
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    Our research has concluded that most economists believe that multiplier to be closer to $4,000 or $5,000, and we use the ESI—the Economic Strategy Institute—number of $4,300 in computing our impact.

    Secondly, the Access: U.S.-Japan assumed that a high incremental volume—that's the 1.3 million passengers with no offset. We computed that about 700,000 incremental passengers would be stimulated if you dropped prices by an additional 10 percent beyond the—as I said, in 10 years—36 percent that we've already got—in other words, a 45 to 47 percent price reduction—would give us about 10 percent additional passengers, and that would be about 700,000.

    On that basis, and using our $4,300 multiplier, we get a net positive impact of about $3 billion. That is if there is no offset. If all that happens is the Japanese allow us a whole bunch of additional flights between the United States and Japan. The likelihood of that happening is, frankly, not high.

    If, however, U.S. beyond rights were limited in trade for those added U.S.-Japan flights, the loss of passengers from the U.S.-Japan to Japanese carriers and the consequent drop in U.S. employment would more than offset the benefit of added passengers to U.S. communities. Our report documents those conclusions.

    I don't know how to respond to the Access: U.S.-Japan's comment that balance of trade has no role in these discussions. We do, and the numbers, as I indicated earlier, are very, very large.
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    Two other points are relevant. First, what is the impact of code sharing on these results? Secondly, in our view, what is Japan's strategy and what is in the best interest of the United States?

    First, code sharing—code sharing is good for consumers, for countries, for the industry. Code sharing enables one reservation, more-convenient connections, more-reliable baggage service, broader use of frequent flier miles, more options. It enables carriers to serve more cities without supporting low-yield routes or battling for positions in tough markets.

    Code sharing, however, is not a replacement for economic on-line service through a hub—not for the consumer, not for the carrier, not for the countries involved.

    Pricing on the leg controlled by the other airline—in this case the Japanese carrier—can and probably will be much higher. The U.S. carriers in those cases lose the revenue on the code-shared leg, and the country of the carrier loses in balance of trade and employment—big losses and, as we indicated with our numbers, far overshadowing any value that we get by additional flights between U.S. and Japan.

    We support market development through code sharing, as does the Department of Transportation, but not in trade for on-line service.

    Finally, Japan's position—in our view, to determine what the U.S. posture should be in negotiations with Japan on air transportation rights, it's important to understand Japan's position.
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    We believe their interests are clear and well-documented publicly: first, to gain greater control over its most-rapidly-growing market—Asia, Japan—and to benefit fully from the growth and provide Japanese airlines a basis of profitability.

    Japan's solution: to limit low cost—that is, U.S. carrier competition in that market—as much as possible.

    Secondly, to maximize the value of its natural Asian hub, which they view, quite correctly, as a national asset to Japan, and to use that hub to capture a significant share of the rapidly-growing U.S.-Asian market.

    Japan's solution: limit or eliminate the right of U.S. carriers to use Japanese cities as hubs.

    Third, limit the losses across the Pacific where Japanese carriers are reportedly losing money. As I indicated, their costs are somewhere between 50 and 100 percent higher than the efficient U.S. carriers.

    Japan's solution: limit open skies competition with substantially lower-cost U.S. carriers.

    Japan's strategy: argue that the U.S. 1952 agreement is unbalanced and should be equalized. Curtail United and Northwest rights to use Japanese hubs to serve Asian cities, which will also result in the reduction of U.S.-Japan flights for those carriers because they don't have the passengers going beyond. And additional MOU rights—those carriers other than United and Northwest—would be granted between the U.S. and Japan, along with added Japanese rights which would, in effect, replace United and Northwest flights and substantially weaken their two strongest competitors, especially if code sharing arrangements can assure that a high proportion of the remaining U.S.-Asian market connects through Japan.
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    So their solution is quite clear and, frankly, it's in their best interest to pursue this in a very, very hard fashion. They are, as was indicated earlier, now in a balance of trade deficit position with the United States. I believe it's one of the only major—it may be the largest deficit position they have in any industry. Our numbers tell us—to answer the question that somebody asked earlier—it was $4.8 billion last year and growing.

    The United States should equally understand its interests. Air transportation is one of the few industries in which the U.S. enjoys a trade surplus with Japan. This surplus will grow if the 1952 agreement is followed. Simply, it will decline or be eliminated if hub rights in Japan are restricted or eliminated and jobs follow. In our estimate, by the year 2015 some 80,000 to 100,000 jobs would be lost if these rights were curtailed.

    U.S. carriers currently have a major share of the U.S.-Japan and U.S.-Asian market, somewhere between 60 and 70 percent. These markets are the fastest-growing markets in the world. That share advantage is routed in the hub rights in Japan and U.S. carriers that are substantially more efficient than their Japanese competitors, the reverse of many other industries in which our countries compete.

    Third, the U.S. business and vacation travelers are, in fact, well served to Japan and Asia, fares and load factors, as travelers are to Europe. U.S. carriers must aggressively add flights and reduce costs to maintain that share and profitability in those markets which are growing, as we indicated, at 6 percent for Japan and 9 percent for elsewhere, and prices are expected to decline at the rate of 3 percent.

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    Finally, the best solution, in our view, for the U.S. across the Pacific is open skies. Unlimited rights to serve any market by any airline and build hubs wherever economically justified would enable U.S. carriers to utilize their substantial competitive advantages. Elimination or limitation to the use of the Japan hubs by U.S. carriers is a step in the opposite direction and plays directly into the strategy to alter the competitive field to their advantage.

    Thank you.

    Mr. DUNCAN. Thank you very much, Mr. Freidheim.

    Mr. DUNCAN. We'll go next to Mr. Greenwald.

    Let me just say first of all, though, there apparently is some sort of misunderstanding, or at least a misimpression, that the subcommittee rescheduled this hearing just to accommodate Mr. Greenwald and to disadvantage certain other carriers, and that did not happen. I would always be pleased to have anybody who wants to testify in front of this committee to testify. At all the hearings we've held, we've had far more people who have wanted to testify than we've been able to accommodate, but we've always made sure that all viewpoints and all sides are well-represented.

    Mr. Menendez, who is a good friend of mine and who has been an outstanding member of this subcommittee, but who is not here at this time, sent a statement in which he said that—he says, ''I am wondering why an entire facet of this issue is being excluded from the chance to testify. It appears that American, Continental, Delta, and Access: U.S.-Japan have been scheduled out of appearing. I think this is grossly unfair, and I hope that they will have another hearing opportunity.''
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    I can say publicly that if we have enough interest to have another hearing, then we will schedule another hearing at an appropriate time. This subcommittee has held, I'm told, more hearings than any other subcommittee in the entire Congress, I believe, over the last year and 4 months. And we'll hold another hearing if it seems appropriate to do so. These are important issues.

    But we certainly did not exclude anybody from testifying.

    Mr. SHUSTER. Would the chairman yield?

    Mr. DUNCAN. Yes, sir.

    Mr. SHUSTER. It's my understanding that other carriers were invited to testify this morning.

    Mr. DUNCAN. That's correct.

    Mr. SHUSTER. Is that right?

    Mr. DUNCAN. That's correct.

    Mr. SHUSTER. And they chose not to appear. Thank you.

    Mr. LIPINSKI. Mr. Chairman?
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    Mr. DUNCAN. Yes?

    Mr. LIPINSKI. I would simply like to state that the chairman of this subcommittee has always gone out of his way to accommodate any requests that people have made to testify before this subcommittee. I am very disappointed that some other people who had expressed an interest in testifying were not able to adjust their schedule to come and testify here today. I hope that maybe at some time in the future, if we have a window of opportunity, they might be able to have another opportunity to testify.

    But I want to state very, very strongly that the chairman of this subcommittee has always gone out of his way to accommodate people, and I don't think that a great deal of weight should be given to a statement by anyone saying that people were somehow deliberately prevented from testifying.

    As many people probably know, I am a very good friend of the chairman of one of America's great airlines, Mr. Bob Crandall. He wanted to testify. We tried to accommodate him. Unfortunately, the scheduling just did not work out for him. But he does stand ready if we schedule another hearing to come and testify once again, Mr. Chairman, and I'm sure if we have that opportunity that you will see to it that it is worked out.

    Mr. DUNCAN. Well, thank you, Mr. Lipinski. I'm not upset with anyone. All I was trying to do was—I think that I have a very good relationship with all of the airlines, and certainly we're not attempting to exclude people. We want to have a good airing of views on all of these issues. But we'll proceed at this time now with Mr. Greenwald.
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    Mr. Greenwald, thank you very much for being patient and being here with us today.

    Mr. GREENWALD. Thank you very much, Chairman Duncan and Representative Lipinski and members of the subcommittee.

    I'll make my comments brief, I hope to the point.

    In my view, today the subcommittee is addressing a very, very major issue. In my view, the outcome of this issue will set a pattern in a number of ways: first, for air travel between the U.S. and many Asian nations; second, air travel to and from Japan; third, trade relations with a major economic impact well beyond air travel between Japan and the U.S.

    As you've heard, the fastest-growing and largest air travel market in the world is developing before our eyes. For U.S. carriers, the geography is too far for nonstops as of now, and for some markets is too thin for nonstops.

    Service hubs in Japan are essential to U.S. entry into Asia.

    The Ministry of Transport—MOT—of Japan would have us believe the deep Asian market should be reserved for Japanese carriers. Would you believe the U.K. if they laid claim to the Russian-U.S. market as theirs? Why should we surrender the Asian market because Japan claims the right to Shanghai or Seoul or Singapore or Djakarta?

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    United, Northwest, and in the cargo sector FedEx, have existing rights based on an agreement between the U.S. and Japan to fly deep into Asia, take passengers or cargo, land in Japan, and go on to the United States.

    Now, over the years the agreements, like I suppose most subjective of this kind, tend to use language that is best understood by those who write the agreements. We talk of beyond rights and third freedoms and fifth freedoms and so on. But I tend to bring it down to an example.

    Picture one Indonesian citizen in Djakarta, the capital. Picture another, who is a U.S. citizen. And picture a third, who is a Japanese citizen. Why should the Japanese carriers lay unique claim to transporting those three people from Indonesia to Japan and on to the United States? It makes no sense.

    Why should they choose to unilaterally refuse to comply the existing agreements? Well, my suspicion is they want to protect their Japanese carriers from competition. In my view, this is not good relations with our country, it is not good for the U.S. consumers nor the Japanese consumers, and peculiarly not even good for the Japanese carriers.

    Other Asian carriers are growing and prospering under the heat of competition—in fact, because of competition. Simply put, Japan is trying to win through regulation the advantage that they are losing in the competitive marketplace.

    Japan is unilaterally not complying with an agreement. The implications are: first, a severe rupture in basic international relations. I state the obvious. If two countries sign an agreement and one ignores it, then international agreements, themselves, are in jeopardy.
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    Second, the U.S. will lose, by the year 2010, about $5 billion a year in trade and about 100,000 jobs. Booz Allen, as you've heard, and Clyde Prestowitz of the Economic Strategy Institute, have both completed studies with similar conclusions.

    There are those in the U.S., particularly American and Delta and former Virginia Governor Baliles, who think differently on this subject than I do. American and Delta argue they want to fly from the U.S. to Japan. Their view goes, ''Let's have talks with Japan and agree to trade off some of United or Northwest deep Asia routes, the beyond rights, for some additional U.S.-to-Japan rights for American and Delta.''

    In other words, American and Delta are ready to reward Japan's intransigence by trading away rights that belong to their chief U.S. competitors, and they cloak this travesty in the red, white, and blue rhetoric of free trade.

    How do we get in this situation? Our U.S. competitors, in my view, are playing right into Japan's hands. A route from the U.S. to Japan is worth less for the U.S. than beyond rights. The Japanese would love that swap. Most of the passenger traffic from deep Asia would come into Japan on Japanese carriers and conveniently continue on Japanese carriers to the U.S. Only United and Northwest, as of today, have rights to compete on an equal footing head-to-head out of Asia with the Japanese carriers.

    Governor Baliles argues, ''Let's all speak with one voice in the U.S. and be good guys and start talking with the Japanese and ignore that they, the Japanese, are unilaterally violating existing international agreements.''
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    Mr. Chairman, I ask you: how can the U.S. ignore this violation and expect to negotiate a fair agreement after that? How can the U.S. cave in on airline issues and then expect Japan not to press for concessions in literally every other trade sector?

    I'm told some of our opponents argue that United and Northwest are using the Japanese violation as an excuse to avoid opening the market. First, that is dead wrong. Second, it is a distraction.

    The Japanese are refusing United the right to fly tomorrow from Los Angeles to Narita. And why not, if there is no penalty for them doing so?

    Tell me about trade relations of any type between our nations in that kind of climate. Can we count on them?

    I want to take a couple of minutes more and take you through a couple of charts, and then I'll sum up.

    The first chart is my way of describing to you how successfully Japan—and I might add, the U.K.—historically have been in micro-managing our trade relations in the airline industry, and what this chart shows is that, as a result of regulatory constraints, Chicago, which is our major international city, our largest hub—international I mean for international flying—does not offer very many international flights. Compare United's 14 percent in Chicago to American's 81 percent in Dallas or TWA's 100 percent from St. Louis.
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    Similarly, of the top 15 international carriers outside the U.S., all are the leading international operators out of their largest domestic hub. Through the—well, I was about to say ''unpleasant,'' but, nevertheless, through some history that for me isn't very pleasant, we are restricted in the frequencies we can fly out of O'Hare/Chicago both to the U.K. and to Japan today.

    Let me move on for a moment to the next chart.

    Mr. DUNCAN. Mr. Greenwald, let me interrupt you just for a second. Does this mean the percentage of international flights that each of the airlines has out of these hub cities? What is the—I'm not clear.

    Mr. GREENWALD. Thank you, Mr. Chairman. I need to be clearer about it. It says that, of all the international flying out of O'Hare, United does 14 percent of it, though we are by far the largest carrier out of O'Hare. That is not our preference, it is our restriction. That was the point I was trying to make.

    The second chart is to emphasize again with a chart the point I made earlier—that since 1978 the Asian carriers in countries that have liberal aviation policies with the United States and other countries—Korea and Taiwan and Singapore- have more than doubled their share of the U.S.-Asia market and nearly tripled their share of the global market.

    During this same period, the Japanese carriers, with their restrictive policies, have lost nearly half of their share of the U.S.-Asia market and have not grown at all in the global market over the past 18 years.
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    If I've ever seen a vote for open competition, there it is.

    The third point I want to make is: from a study that has been done in Japan, United commissioned Mitsubishi Research Institute, a leading economic research institute in Japan, to study the impact of U.S. carriers' competition on Japanese consumers.

    Their study shows that, with U.S. carriers competing beyond Japan, fares are reduced by 10 to 20 percent, passenger demand is stimulated by 1 to 10 percent, and travelers save up to $530 million annually in reduced travel costs. That's a study from Mitsubishi Research Institute in Japan.

    The most telling of all these charts—and that's why I saved them for last—describe the effectiveness to date of the Japanese stopping United and Northwest from building their systems in Asia while they go on to build their own.

    While the Japanese are busy expanding their networks out of the new airport, Osaka, U.S. carrier efforts to start a hub at Osaka have been held hostage by the Japanese government since December of 1994.

    This chart shows the extensive hub the Japanese carriers have set up at Osaka while U.S. carrier services have been restricted.

    Chart five shows the only city, Manila, that U.S. carriers—happens to be Northwest—can now serve beyond Osaka. Just as the Japanese have succeeded in constraining the use of our largest U.S. hub, Chicago, since 1985, they are now seeking to create the same constraints on our use of Japanese hubs.
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    So what do we do about it all?

    The Congress and the airlines should support the Administration's efforts to: one, refuse to open discussions on future agreements with Japan until existing agreements are complied with; two, refuse to trade away existing rights, any or all of them; three, offer to negotiate additional rights for U.S. carriers and the Japanese carriers, but test the deal based on the economic benefit to the United States. I did not say United. As a whole, I do not see any other rational alternative.

    Thank you.

    Mr. DUNCAN. Thank you very much, Mr. Greenwald.

    Mr. DUNCAN. Now we'll go to Mr. Jeffrey P. Fegan, who is the executive director of the Dallas-Fort Worth International Airport.

    Mr. Fegan, thank you very much for being here.

    Mr. FEGAN. Thank you, Mr. Chairman. I appreciate the opportunity to come out today.

    I do have the pleasure of serving as the executive director of the Dallas-Fort Worth International Airport. With me today is Kevin Cox, who is our deputy executive director for governmental affairs and is responsible for air service development for the airport.
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    At the outset, I would like to express my sincere appreciation for allowing D/FW to testify here today and provide our perspective, which is really a local/regional perspective, on the opportunities which exist for expanding the aviation market between the United States and the United Kingdom, as well as between the U.S. and Japan.

    As you know, D/FW International Airport, the second-busiest airport in the world, has been trying for years to obtain access to London Heathrow. Unfortunately, the bilateral aviation agreement between the United States and the United Kingdom, commonly known as Bermuda II, restricts the access to two U.S. airlines and a limited number of airports. Except for Chicago, only east coast and west coast cities have access to London Heathrow.

    In effect, the southwest and southeast regions of the U.S. have no direct access to London Heathrow. As a result, one in seven D/FW passengers traveling to London must either stop at an east coast city with London Heathrow access or incur the additional time and expense of taking an hour-long train ride from London Gatwick Airport to Heathrow.

    London Heathrow is the principal London airport, with the greatest array of connecting flights to the rest of Europe, the Middle East, and Africa. It is the most convenient way for Texas business and exports to move beyond London.

    Based on a recent economic impact study, it is estimated that a route from D/FW to London Heathrow would equate to $60 million in new economic opportunities for the State of Texas. It was also estimated to bring annually 50,000 new passengers to the State of Texas. These estimates do not include the additional revenues that would be earned by airlines serving the new D/FW-Heathrow route.
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    As this subcommittee well knows, the U.S. and U.K. were in negotiations over several months in 1995 to expand access to London Heathrow. Unfortunately, the U.S. suspended these negotiations in October, 1995. In doing so, the United States walked away from a United Kingdom offer which would have permitted two new London Heathrow routes and two new London Gatwick routes. One of these new Heathrow routes could have been used for D/FW-Heathrow.

    This United Kingdom offer was consistent with the United States' position of obtaining a very limited exchange of new London Heathrow routes.

    Acceptance of the United Kingdom proposal was supported by D/FW airport and virtually every other city, as well as by American Airlines, Continental Airlines, United, and Northwest. In fact, only Delta Airlines and TWA opposed the U.K. proposal.

    With U.S. carriers losing market share, U.S. airlines carry about 42 percent of the U.S.-U.K. market in 1995 versus 58 percent for U.K. airlines. The Administration's rejection of the British offer only perpetuates this disadvantage.

    In short, D/FW seeks this subcommittee's help in urging Secretary Pena to gain the White House support for resumption of talks this year. The U.K. has already signaled its willingness to resume talks in a recent speech by foreign Secretary Malcolm Rifkin.

    With your permission, I'd also like to focus on aviation issues from the U.S. to Japan.

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    D/FW recognizes that Japan is a particularly important market for many of the most important export-oriented growth industries, including high-technology. In this country, affiliates of Japanese companies employ literally hundreds of thousands of Americans and invest billions in the U.S. economy.

    As you know, passenger aviation between the U.S. and Japan is covered by the 1952 treaty that significantly restricts the number of flights, the cities served, and the carriers that can fly between the two countries.

    Only 11 mainland U.S. cities have nonstop service to Japan, less than half the number of cities with London flights. Major cities, such as Houston, Orlando, Cincinnati, Miami, St. Louis, Phoenix, and Boston are shut out entirely. D/FW is limited to 7 weekly flights to Tokyo.

    Efforts to expand U.S.-Japan air service should open new gateways, including new service to Osaka, seek to increase existing flights, and include new air carriers.

    The U.S. national interest, as well as the interests of D/FW, is served by expanding market access. D/FW's specific interests are nonstop access to Osaka through Kansi Airport and additional flights to Tokyo. Load factors on American Airlines' current Tokyo flights are extremely high, which is inhibiting growth of business travel, exports, and inward investments.

    North Texas is home to a number of high-tech export-oriented companies in the computer, telecommunications, and electronics fields. Texas Instruments, EDS, Dell Computer, and Motorola are household names in both countries and account for the fact that Japan is the D/FW area's biggest trading partner, despite the restricted access into Japan.
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    The lack of adequate D/FW-Japan air service is retarding growth trade in both countries. According to a study by Coopers & Lybrand, based on an analysis done by U.S. Bias in its pioneering 1990 study, one more flight a day departing D/FW for Tokyo or Osaka could lead to a potential increased economic benefit of more than $500 million a year for the area and the Nation. This figure reflects jobs resulting from increased exports, inward investment, and Japanese visitor spending in the area.

    Competition would mean expanded choice and lower fares for customers. For too many cities, U.S.-Japan passenger service is extremely limited or does not exist at all.

    More flights mean more jobs. U.S. economic activity will grow by an estimated $9 billion a year because of increases in tourism and the expansion of trade and investment.

    The successful conclusion of the cargo talks is a model for passenger talks. A new cargo agreement preserved rights and expanded the market. It will generate thousands of U.S. jobs in aircraft maintenance, cargo handling, shipping, and other related businesses. We are confident that we can duplicate this success in passenger talks.

    I might point out that D/FW Airport has never advocated negotiating away any beyond rights.

    The economic marketplace of the future is the Pacific Rim. U.S. business must increase their access to the region. Forty States have already realized the importance of this area and have established offices in Japan.
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    A grassroots coalition commonly known as Access Japan is comprised of over 2,000 communities, organizations, and businesses who are urging the Administration to immediately commence passenger negotiates with Japan. D/FW seeks this subcommittee's help in urging the administration to begin negotiates now with Japan in an effort to expand the passenger service agreements, thereby providing opportunities for more U.S. cities to receive service to Japan.

    In closing, D/FW strongly supports a broader U.S.-Japan passenger agreement that will open up more access to Japan from the U.S.

    And, regarding the U.S.-U.K. aviation talks, let me say that D/FW also only seeks the right to compete for a London Heathrow route, but unless the Administration gets back to the negotiating table we will not be offered that opportunity.

    Whether it's Japan access or London Heathrow routes, the issue is simple: no U.S. negotiations equals no new U.S. aviation opportunities.

    Thank you very much.

    Mr. DUNCAN. Well, thank you very much, Mr. Fegan.

    I'm going to yield my time at this point to Vice Chairman Weller.

    Mr. WELLER. Thank you, Mr. Chairman.

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    Before I begin my question, I do want to thank you for the courtesy you extended Mr. Greenwald of United Airlines in accommodating his schedule so that he could participate in today's hearing. I know they greatly appreciate that. Considering the fact United is a major employer in my home State of Illinois, we appreciate that.

    I'd like to direct my first question to Mr. Greenwald. Again, I want to thank you for taking time to be here, as well.

    As I now understand it, the position of Access: U.S.-Japan is that the United States should negotiate new access to Japan while at the same time preserving all the rights U.S. carriers such as United now hold. This sounds pretty similar to what I've heard United urge in the past, and I was wondering, do you and Access: U.S.-Japan now agree on negotiating objectives?

    Mr. GREENWALD. The situation is a bit unclear, in my mind. My schedule and Governor Baliles have been missing each other, and my hope is—I tried to sit with him this morning, but I hope we will be able to have a chance to get together. Over a several-month period, he and I have been on the phone together.

    I think the clearest answer I can give today is that Governor Baliles, in his statements, does take that position. What I want to raise with the governor is: how can what he represents be called a coalition if some of the primary members of that coalition—in particular, American Airlines—does take an opposite position? What is a coalition if it isn't one spokesman representing a common view of its members?

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    So, to be as clear as I can, I believe the governor is making the same statement that we are; that there should be no bending on existing rights of any form, rights being used or rights not being used today, but rights.

    I have not had a chance to explore with the governor the next question, however, which I do feel very strongly about: would the coalition support a view that United has, which is that there should be no talks until Japan complies with the existing agreements? I suspect we differ on that view.

    Mr. WELLER. Do you anticipate the two of you getting together in the near future?

    Mr. GREENWALD. Yes. I'd very much like to do that.

    Mr. WELLER. Earlier, when Mr. Hunnicutt was testifying—I know you were present for quite a bit of his testimony—I made reference to some comments that Mr. Murphy had made 2 weeks ago before the Senate Aviation Subcommittee regarding Japan's threat to shut down a daily United Los Angeles-Tokyo flight beginning tomorrow, and I was wondering, from your perspective, if Japan followed through on its threat to shut down that particular flight, do you have any projection what the economic loss might be as a result of Japan's action?

    Mr. GREENWALD. Well, it is in the range of about $7 million a month, and I don't—I mean, I have stated this to folks who are in the midst of the negotiations in the Administration that this issue is big enough, wide enough, and deep enough that if the Japanese take a step like that don't bend. We'll take the initial profit loss, but the matter needs to get resolved.
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    I would guess—maybe I should say it more strongly—I would expect that if we are refused the right to fly from Los Angeles tomorrow by the Japanese government, that at least an appropriate step would be that they would be refused a similar right to fly into Los Angeles.

    Mr. WELLER. Tell me again what that estimated economic impact is? Was it $7 million a day or a month?

    Mr. GREENWALD. A month.

    Mr. WELLER. A month. So that's about $84 million a year in lost economic opportunity.

    Mr. GREENWALD. Yes. I'm sure it wouldn't go on that long.

    Mr. WELLER. Pardon me?

    Mr. GREENWALD. We sure hope it wouldn't go on that long.

    Mr. WELLER. I certainly hope not, too. Twelve months is a long time, let alone 1 month. Hopefully we'll hold firm.

    I do have a question for Mr. Freidheim with Booz Allen.

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    It's clear from your testimony and what you've said today that you've spent a great deal of time immersed in this issue—aviation issues, particularly between Japan and the United States. I was wondering, in your view, your personal view as a result of that, what policy should the United States be pursuing with Japan in the area of aviation?

    Mr. FREIDHEIM. As I indicated, open skies is clearly the right long-term policy. The question is: how do you get there?

    Number one on the list would be to retain the rights that currently exist to go, as Mr. Greenwald calls it, deep into Asia, because the growth of the Asian market is going to be extremely important to the United States well beyond the U.S. Airlines' interests.

    Secondly would be to increase flights across the Pacific to all places, which would include to Japan. We certainly believe that the long-term interest in the country is to open more cities to have more flights from a variety of different places.

    But the market, which we believe is very robust and growing—the first and foremost issue is to retain the rights and enable the United States to exercise the rights that it has in Asia, because that's really the lynch pin for the U.S. aviation industry to participate in that extraordinarily high-growth market and to enable U.S. companies to participate more readily, as well.

    Mr. WELLER. Following up with that, of course a lot of us believe that whenever you improve transportation opportunities you create jobs, and of course what we're trying to do is not only protect American jobs but create more American jobs.
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    Mr. FREIDHEIM. Right.

    Mr. WELLER. You know, we've heard a lot about hubs and beyonds and point-to-point routes. I was wondering, could you just lay out for us, in plain terms, from your perspective with Booz Allen, what you believe Japan hubs and beyond rights are worth in economic terms and job creation for the United States?

    Mr. FREIDHEIM. Well, the value we put on it is in trade, about $100 billion over the next 20 years. That grows over the period of time. That's additional balance of trade benefits that being able to serve cities beyond Japan through Japan would result in.

    Now, the multiplier on that is something like 15,000 or 20,000 jobs per billion dollars of trade, so you can do the arithmetic there and you'd come up with, at the end of a 15-year period, something like 200,000 jobs. So it's quite considerable.

    Now, to the U.S. consumer there's a major benefit and, as others pointed out, there's a benefit to the Asian consumer, as well, that the U.S. carriers have a significantly lower cost position. And it's not just United and Northwest; it's American and Delta, as well. Enabling those airlines to compete freely will give the consumers a significant benefit.

    As we indicated, if you buy a round-trip ticket to Tokyo in the United States you pay substantially less than if you buy that same ticket from JAL in Tokyo. It reflects the difference in economics of the airlines. So there is a tremendous consumer benefit there, as well.
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    We believe, as a result of that, there will be higher trade, more travel with the lower fares.

    Mr. WELLER. Well, thank you.

    Mr. Chairman, I do have some additional questions. Will we have a second go-round?

    Mr. DUNCAN. Yes.

    Mr. WELLER. Okay. Thank you. I appreciate my time. I recognize I went over. Thank you.

    Mr. DUNCAN. All right. We'll go next to Ranking Member Lipinski. Mr. Lipinski?

    Mr. LIPINSKI. Thank you, Mr. Chairman.

    I welcome all you gentleman here today. This is an enormously important issue. I'm very happy that you could come and testify.

    Mr. Freidheim, I found your study enormously interesting. I've read it over once. After I read it over two or three more times I'll understand it hopefully 80 percent, not because it's confusing, it's just that I have a difficult time sometimes digesting all that information. It is very, very good study.
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    Of course, there are a couple of other studies out which are very good, also. But, as I say, I compliment you on that.

    The chairman of the board of the airline that I fly back and forth between Chicago and Washington, D.C., probably 45 weeks a year—always received excellent service. It's always nice to have the plane at B–7 because I get out of my car about 100 feet from B–7, and if it could always be there it would be ideal. About 8:15 would be perfect. Of course, there is one at 8:15 now.

    I welcome you.

    I'd like to go over what you had to say here about our negotiations with Japan and make sure I understand clearly what you're talking about here.

    Insisting that the Japanese honor their current agreement? What do you mean? Could you amplify on that? What is their current agreement as far as you are concerned in this statement?

    Mr. GREENWALD. I am talking about the written agreements between the United States and Japan. In particular, United had on application for over a year now the plan to fly from Osaka to Seoul, Korea, and more recently we have added to that an application to fly from Osaka to Djakarta.

    The Japanese government is supposed to, according to these agreements, respond favorably within 45 days or give reasons why not. We have yet to hear. It's been over a year. That is the most important step.
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    Incidentally, Northwest has some other applications pending of the same sort.

    The second issue, of course, is that the Japanese may tomorrow refuse United the right to fly from Los Angeles to Japan, and that needs to get resolved.

    By the way, the Japanese have an application with the U.S. Government to fly from Japan to Hawaii to Kona, and presumably, as part of all this straightening out, that should be settled on their behalf.

    Second, we need to have a very clear understanding with Japan that both United and Northwest are now free to go on and add more flying, more than the two applications, from Osaka into Asia.

    That's what I mean by existing agreement.

    Mr. LIPINSKI. And you believe that you have the right to do this based on the 1952 agreement or any subsequent agreements?

    Mr. GREENWALD. That is correct.

    Mr. LIPINSKI. Do you believe you have the right to do so on the 1952 agreement, alone, or are there subsequent agreements that give you the rights to do that?

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    Mr. GREENWALD. The 1952 agreements have been amended over time, but I would answer your question by saying the 1952 agreements as amended. Yes.

    Mr. LIPINSKI. Because it seems to me that you have the right to do that based upon the 1952 agreement, and it seems to me that amendments to that really have somewhat liberalized other carriers' access to Japan.

    Mr. GREENWALD. I believe that to be true—that over the years both—all of the airlines on the U.S. side and on the Japanese side have incrementally received additional flying rights to fly between the U.S. and Japan, but none of those additional agreements—I think I'm right in saying this—have added to the unique, if I could describe them that way, beyond rights to fly deeper into Asia.

    Mr. LIPINSKI. That was my understanding based upon about a three-and-a-half or four-hour seminar I had for myself conducted at Archer Avenue in Chicago by Mr. Murphy over there. I just wanted to make sure United was united in their agreement on the 1952 agreements.

    Mr. GREENWALD. I should point out that Mr. Murphy has asked me to step aside for 30 seconds to stand up and show that he can be euphoric.

    [Laughter.]

    Mr. GREENWALD. I suppose we won't take that time.

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    Mr. LIPINSKI. I know he can be embarrassed. His face is getting redder and redder every time I refer to him here.

    Refusing to trade existing rights or to accept restriction on those rights in exchange for the promise of other opportunities—I think this is perfectly clear. You don't want to give up any of your beyond rights or anyone else, including yourself, to get additional access simply into Japan?

    Mr. GREENWALD. That is exactly our position, sir.

    Mr. LIPINSKI. Setting our goals on the basis of economic analysis that identifies the best interests of the United States. Now, are you talking about Mr. Freidheim's study over here on economic analysis, or are you talking about something we're going to do in the future?

    Mr. GREENWALD. No. I was actually repeating a plank in the policy statement—I think that goes back to late 1993 even, or 1994—from the Administration, from DOT, that states a policy under which bilateral negotiations should be conducted.

    Basically what it says is that when a negotiation is pending, that they or someone for them should do an economic analysis of that particular pending deal. And if the answer comes out favorable for the United States, do it. If it doesn't, pause. That's what I was referring to.

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    Mr. LIPINSKI. Let me ask you the $64 million question here: you, Northwest, Federal Express have certain rights given to you in agreements between the United States and Japan. I think that you should keep those rights. I don't think that you should have to give up any of those rights. You either negotiated for them or you purchased them. In your case you bought PanAm's. There are other airlines that had the opportunity to buy those routes at the same time that United did.

    I don't want to see you lose anything. I don't want to see Northwest lose anything. I don't want to see FedEx lose anything.

    By the same token, we know absolutely that American, Delta, United Parcel, and perhaps other American carriers want to gain access to Japan.

    I want to see them gain access to Japan. I want to see them have that opportunity.

    Now, to the best of my knowledge, none of them have said at the present time that they want beyond rights, because the situation gets a little confusing here, because at times the—let us say the outs don't advocate giving up any beyond rights in order for them to get additional access to Japan; at other times it appears as though some elements of that coalition are advocating giving up your beyond rights, Northwest's beyond rights. So right now they're just advocating getting that access to Japan. I would like to see them get the access to Japan and also beyond rights.

    Now for the $64 million question: what would you recommend a person such as myself, and hopefully the United States Government, do to preserve your rights and to obtain additional rights for other carriers that are interested in flying into Japan?
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    Now, I know you stated your position over here, but I would like to have you elaborate on how you think we might be able to achieve that goal.

    Mr. GREENWALD. Well, I think I should first state that, as we do with the U.K. or Germany or any other sovereign nation, we are trade partners, and they have the right—they have their rights and we have ours, so we cannot unilaterally take a position and insist on it.

    But it seems to me that, at the very beginning, we have got to find a means by which to insist that once an agreement is struck that it's complied with.

    That, to me, has to be plank number one.

    It is our impression—and I am not certain of this—that the Japanese government would like to open new discussions on—bilateral discussions, also. I would hope that once existing agreements have been complied with, that those new discussions could be opened and at that point the U.S. Government would insist on simply getting more rights for U.S. carriers and that the Japanese would insist, in exchange, on getting more rights for their carriers. And that's fine.

    Mr. LIPINSKI. Are you concerned about opening negotiations without having a reaffirmation of your existing rights under treaties that we have signed with Japan?

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    Mr. GREENWALD. I am absolutely very concerned about that. I think it would send a—first, it would expose—selfishly, it would expose United and Northwest to losing rights.

    Mr. LIPINSKI. And I can understand that.

    Mr. GREENWALD. But, beyond that, it would, in my view, set a terrible precedent with Japan. It would reward them for unilaterally violating existing agreements.

    Mr. LIPINSKI. Well, what would have to be done by Japan and this country to reassure you and Northwest—and I'm sure Northwest feels the same way that you feel, and I'll even put in Federal Express. What would have to be done to assure you by Japan and the United States that they were not going to negotiate away any of your rights for you to fully support the real hard negotiations for additional access for other American carriers?

    Mr. GREENWALD. The primary—this is not primarily a question of assurances for the future; it is an absolute demonstration we are seeking today that Japan would free us to use our existing rights.

    Mr. LIPINSKI. And if I said future, I didn't mean to infer anything for the future. What I'm asking you is: what does Japan have to do for you to support negotiations that would give greater access to all American carriers simply to Japan?

    Mr. GREENWALD. I believe that what Japan needs to do is this afternoon say, ''We're freeing you to fly from Los Angeles to Narita and—
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    Mr. LIPINSKI. And the Osaka one?

    Mr. GREENWALD. It's Narita. And, second, that they would sign off on this longstanding application and the newer ones to have us start flying from Osaka to Seoul and from Osaka to Djakarta, and whatever the pending requests are that Northwest has—that they would sign off on them and we'd start.

    And they would also state that it is their expectation—or we would state and they wouldn't disagree—that we have a plan, a business plan, to continue to add more routes out of Osaka deeper in Asia.

    Once done, open negotiations.

    Mr. LIPINSKI. Okay. I thank you very much. My time is up and we have to move on.

    Thank you very much, Mr. Chairman.

    Mr. DUNCAN. Thank you, Mr. Lipinski.

    Mr. Ewing?

    Mr. EWING. Thank you, Mr. Chairman.

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    Welcome, Mr. Greenwald. I, like Bill Lipinski and Jerry Weller, fly your airline most of the time back and forth. I like gate B–5, just so that we don't have agreement on either side.

    Would you be able—I know you can—explain to me just a little more about your chart ''on international agreements constrain Chicago's growth.''

    Why is that affecting your airline in Chicago and its growth?

    Mr. GREENWALD. It is an unfortunate result of some bad decisions in recent history. There are two primary international markets that we would love to fly from O'Hare that we are not permitted to do so. One is the U.K.

    We, after 4 years of effort, did get approval to fly daily—limited for the moment to a 767 until January 1997, but that compares with American's rights to fly three times a day and British Air's rights to fly three times a day from O'Hare. We'd love to add flying from O'Hare to the U.K.

    Second, we are even more restricted in our flying from O'Hare to Japan. We are limited to six times a week. We would love to fly much more frequently from O'Hare to Japan.

    There are a few other examples of that kind, but that's essentially the reason why we have this—as do other airlines. Their primary hub brings in so much of our passengers from various places into Chicago, and we could serve those international passengers out of Chicago if we were free to do that.
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    Mr. EWING. The agreements that you purchased for United with Japan, they don't govern the number of flights, they govern the beyond? Or do they cover both?

    Mr. GREENWALD. The agreements that we've been talking about have no limits on beyond Japan into Asia flying. That is the issue. We want to be able to freely add flights as those markets become attractive.

    Mr. EWING. I'd like to ask a couple questions to Mr. Freidheim.

    Number one, as a result of your study of the U.S.-Japan aviation situation, why do you think that Japan is so interested in capping or restricting the beyond rights of U.S. carriers?

    Mr. FREIDHEIM. Well, I think there are two very significant reasons.

    One, the U.S. carriers are competing on the Japan-Asia leg of those routes, and they want to—they recognize those are very substantial growth routes, and so they do not wish to have that competition. The U.S. carriers are lower cost, and therefore keep pressure down on prices.

    Secondly, they do not want to have the competition on the Asia-U.S. routes. As was explained, the best way to get to an Asian city until it grows to the point where it can take direct service is through the Japanese hub. And by eliminating those routes, you eliminate your primary competition between that Asian city and the United States.
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    So the Japanese interests are very clear.

    Mr. EWING. If the U.S. were to surrender some of these beyond authorities of its carriers and receive in return more authority for U.S. carriers to fly in between the U.S. and Japan, would the U.S. consumer be better off?

    Mr. FREIDHEIM. No, for a couple of reasons. We think it's a very bad trade. We do believe that there should be more flying between the United States and Japan, but we believe it's a very bad trade for consumers to trade that for the beyond rights for two reasons: one, they will pay more on the U.S.-to-the-Asian-city flights through Japan than they would if the U.S. carriers had those beyond rights; and, secondly, we see the U.S.-Japan market as competitive, and there are now 12 carriers serving that marketplace, so there is a lot of competition.

    There will be continued price reductions over that market as a result of that competition, but the U.S. consumer would not benefit significantly by a lot of additional flights early on. They'll benefit over time, and we think that they are continuing to benefit.

    But the big issue is the Asian flights. And today I think the total of flights from the United States to Asia is about half for Japan and the rest for the other Asian cities, and that balance is going to shift. The Asian cities are growing faster than the U.S.-Japan routes and will pass them significantly in the future.

    Mr. EWING. Thank you.
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    Finally, Mr. Greenwald, it appears to me that, as we continue these very sensitive negotiations with both Japan and England, it is extremely important for the Congress and for the Administration not to take an inflexible stand, but to take a very firm stand that we must have open markets for our carriers just like we provide to their carriers. Would you agree that's the bottom line?

    Mr. GREENWALD. To paraphrase a comment made earlier, all I can say is, ''yes, sir.''

    Mr. EWING. Thank you. My time is up.

    Mr. DUNCAN. Thank you very much, Mr. Ewing.

    Mr. Ehlers?

    Mr. EHLERS. Thank you, Mr. Chairman.

    I would just like to make a brief statement, then I will yield the remainder of my time to Mr. Weller.

    I'm very concerned about this issue, and in my opening statement I referred to Bermuda II and what had happened as a result of that. I hope that we, as a Nation, learn from that and don't make the same mistake twice.

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    I happen to represent the State of Michigan. We have a lot of experience in dealing with issues of international trade, particularly in the automobile business, and I can assure you it's been very frustrating dealing with a number of nations who, on paper, say that they will provide equal opportunity in their countries but, in fact, they don't, through a whole host of practices that inhibit or occasionally prohibit business activity by the U.S.

    I believe the situation that you are in and that the other American airlines are in is, again, typical of that practice. I believe that it's absolutely essential for the United States to be not only firm but tough.

    I certainly agree with Mr. Ewing on his comments on that.

    It's just unconscionable, I think, to not act on the applications that you and other airlines have pending, just to hold them in abeyance, in contradiction to the international agreements we have. I don't believe it's something that we, as a Nation, should put up with. I hope that this committee, through its influence on the Federal Government, and you, in turn, using your influence, can make sure that we come up with a fair and proper solution that benefits all parties.

    I believe that the closer we can come to free and open trade in this area, as well as other areas, the better we are. But we have to ensure that it is free and open, and that has to be our prime goal.

    Having said that, I will yield the remainder of my time to Mr. Weller.

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    Mr. WELLER. Thank you, Mr. Ehlers. Thank you so much for sharing some of your time with me.

    I have a couple remaining questions I'd like to ask our panel here, and the first one I'd direct to Mr. Freidheim, just to follow up on some of the questions I was asking earlier, as well as Mr. Ewing's question.

    If Japan were to cap the beyond rights of U.S. carriers, couldn't our airlines gain the same type of hub advantages through code sharing agreements with Japanese carriers?

    Mr. FREIDHEIM. No. Code sharing is good, but, as I indicated in my prepared remarks, it's no replacement for direct, on-line service. And the biggest reasons for that are, number one, the—in this case, Japan Airlines, assuming that's the code share partner, would control the Asian leg and would be able to price that independently of the U.S. leg. So the U.S.-to-Asia fare would go up, and possibly substantially, and we believe that would have a dampening effect on U.S.-Asian travel through Japan.

    Secondly, that gives the Asian carrier—and assuming now that we are where we are, which is we have those rights now—that would give the Asian carrier the revenue and the employment that relates to it, so the U.S. carriers would lose both of those, which would have significant balance of trade impacts and employment impacts.

    Mr. WELLER. Thank you.

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    My last question I want to direct to the gentlemen from Dallas-Fort Worth Airport. I know most of the attention has been paid to the other two guys. You fellows are important and I'd give you a question, too.

    I appreciate your desire for service to London's Heathrow Airport, as you had indicated in your statement, but am I not correct that as things stand now that Texas and California are the only states that have two cities serving as gateways to London?

    Mr. FEGAN. Right now there are no cities in Texas that provide nonstop service to London Heathrow. We do have service to Gatwick, but not Heathrow.

    And Heathrow is critical, I think, for our regional economic development, mainly because of all the connections it does provide to other parts of the Middle East, Africa, and Eastern Europe, and those connections simply aren't as convenient through London Gatwick.

    Mr. WELLER. You say you do not have nonstop service. Where is the stop that you have that goes out of Dallas-Fort Worth?

    Mr. FEGAN. Well, if a passenger wants to go to London Heathrow, they would either have to go through New York or maybe one of the other east coast cities before going on to London Heathrow, and that does have an impact on convenience, not only for the passenger, but the cargo trade really does get impacted quite a bit with that one-stop activity, change of planes activity.

    Mr. WELLER. Thank you. I've enjoyed actually using your facility a few times, and you've got a well-run airport.
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    Mr. FEGAN. I appreciate that.

    Mr. WELLER. Of course, we feel O'Hare is better.

    [Laughter.]

    Mr. WELLER. And, of course, statistics show we are a busier airport there in the Chicago area, but we're glad to have you here.

    Mr. FEGAN. Thank you.

    Mr. WELLER. Mr. Chairman, I want to commend you for conducting today's hearing. I think this has been extremely helpful, and also I think a very important hearing as we discuss particularly U.S.-Japan and also U.S.-U.K. aviation agreements. This has been particularly helpful in making sure that people know the facts. I want to thank you for conducting the hearing and accommodating all of our witnesses.

    Mr. DUNCAN. Well, thank you very much, Mr. Weller.

    Gentleman, let me just ask just a couple question in conclusion.

    Once this year and once last year Fred Smith of Federal Express has been before this subcommittee and has been very outspoken in his criticism of U.S. negotiating policies in regard to cargo rights. What I would ask you is: how would you describe the U.S. negotiating policies in regard to air passenger travel? Would you say it's been tough or timid, or do you agree with a lot of what Mr. Smith has said?
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    Mr. GREENWALD. I think first, in fairness, we should not forget the home runs while we talk about the strike-outs.

    I think the Administration has completely succeeded in negotiations with Canada, in negotiations with nine smaller countries in Europe, is on its way, we hope, to a successful full open skies agreement with Germany. And there are a number of other improvements. Thailand now is on its way to having a bilateral agreement with the United States, and so forth.

    The two most difficult countries that we all tend to come back and talk about at hearings are the U.K. and Japan. And I don't know that I would describe those as failures. I would describe them as tough nuts to crack.

    I think that certainly with regard to Japan, if, in fact, the Administration stays firm today and going forward, we will see some acceleration in progress with Japan.

    I think that with the U.K. my own view is that what the Administration needs to do and what we airlines need to do is that the Administration needs to make their decisions on an economic basis, and the airlines need to get out of the way and let them do that and not try to politicize those issues.

    I might say, I share the view expressed from my friend to the right here that we were, as a Nation, close to the second mini-forward step with the U.K., and though United had nothing to gain from it, we had said, ''Fine. Here are some other airlines that look like they can get something in the way of liberalized trade with the U.K. We ought to get out of the way.'' But there were a couple of airlines who chose not to do that, got in the way, and the end result was that nobody got anything.
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    So, to summarize, I do think the Administration needs to stay firm and go forward with Japan and with the U.K. I think all the airlines need to get out of the way and the Administration needs to make their decisions on an economic basis.

    Mr. DUNCAN. Is that why you think the trend lines have been so pronounced? You know, in the last 15 years we talked about getting tough with the Japanese, and I think we do need to be tough in negotiating all of these aviation agreements, but our market share of traffic between the U.S. and Japan has gone way up in the last 15 years or so, and yet our share of the traffic between the United States and the U.K. is now about 40 percent and has trended in a different direction. Is it because the airlines have gotten in the way, as you say, or what reasons? What do you think the reasons are for that?

    Mr. GREENWALD. I think that there is a lesson to watch with regard to the U.K. as it would apply to Japan. What I mean by that is, Bermuda II got negotiated on an argument that BA was a weak airline and needed help. Well, that's all well and good to provide some temporary help, but to provide permanent help in the form of Bermuda II, and then watch that airline become strong, that is the reason for their higher market share. Now we're trying to get back to balance that the U.K. and it's taking a long time.

    Now, to shift over to Japan, we ought to listen carefully to what the Japanese are saying to us: ''The Japanese airlines are weak, so give us, the Japanese, permanently all of the flying deeper into Asia, the fastest-growing market in the world.'' We should not come close to accepting anything like that, because if we do, at some point JAL and ANA will strengthen again and we'll be having meetings on the same subject about their strength and market share and not knowing what to do about it, and we shouldn't let that happen.
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    Mr. DUNCAN. We've got to—I've got to bring this to a close because we're going to have some votes here in just a minute, but, Mr. Fegan, I assume—are you a member of Access: U.S.-Japan?

    Mr. FEGAN. Yes, sir, we are.

    Mr. DUNCAN. What did you think when Mr. Greenwald said that his view of the goal or the main goal of Access Japan is to—the end result would be for us to give up more-valuable deep Asia routes in return for less-valuable routes between the United States and Japan? Do you think that was an accurate statement about the goal of your group?

    Mr. FEGAN. Mr. Chairman, when we were approached by Access Japan about joining that coalition, there were a number of questions, a number of discussions held related to why D/FW would be interested in that. Throughout those discussions it was always stated that there was no interest by this group, the coalition, to eliminate any fifth freedom rights that any existing carriers might have. The real issue was to grow the pie, expand access to other major cities of the United States to Japan.

    I've seen statements and I've seen speeches that the governor has provided, and all the documentation that we signed up for does not include any negotiations of fifth freedom rights by existing carriers.

    Mr. DUNCAN. Well, I mentioned this earlier, but Governor Baliles has testified in front of this subcommittee before and certainly is welcome here again.
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    Thank you, gentlemen. You've been outstanding witnesses, and we appreciate very much your testimony here today.

    That will conclude this hearing.

    [Whereupon, at 5:07 p.m., the subcommittee was adjourned, to reconvene at 1:00 p.m. on Wednesday, May 1, 1996.]

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