U.S., China Agree to Double Flights

Trade Representative Susan C. Schwab said intellectual property talks were especially contentious.
Trade Representative Susan C. Schwab said intellectual property talks were especially contentious. "We had a healthy exchange of views," she said. (By Chris Kleponis -- Bloomberg News)
By Ariana Eunjung Cha and Del Quentin Wilber
Washington Post Foreign Service
Thursday, May 24, 2007

The United States and China yesterday announced a broad aviation agreement that will more than double the number of daily passenger flights between the two countries by 2012.

As the U.S. and Chinese economies become more intertwined, with trading volume of $343 billion last year, passenger traffic between the countries has surged and flights are crammed with business travelers, tourists and students.

U.S. officials yesterday said the agreement would improve the nation's commercial and cultural ties with one of the world's economic powerhouses. The deal would allow U.S. carriers to operate 13 more daily flights to China over the next five years. In 2011, the Chinese would lift all limits on transpacific cargo flights, officials said.

"It is absolutely historic," U.S. Transportation Secretary Mary Peters said in a conference call with reporters yesterday afternoon. "We've achieved a breakthrough agreement that opens the way for more frequent, more affordable and convenient air service between China and the United States."

Until yesterday, the Chinese government had moved slowly to lift limits on flights by U.S. carriers to Beijing, Shanghai and the southern city of Guangzhou; 10 daily flights are permitted now.

The aviation announcement was the most significant outcome of a two-day economic dialogue hosted by U.S. Treasury Secretary Henry M. Paulson Jr., involving 17 Cabinet officials and agency heads from the United States and 15 ministers and 10 other high-level officials from China.

Under the agreement, the Transportation Department plans to award routes to U.S. carriers in stages through 2012. The first could be granted this summer. The daily flights would exceed by 10 the number U.S. commercial carriers were going to be granted through 2010 under a previous deal, officials said.

Analysts and airline executives predict U.S. carriers will aggressively lobby the Transportation Department for the slots because they will generate substantial revenue. Peters estimated that the new agreement will provide about $5 billion of new business for U.S. carriers.

The last route award drew applications from four major airlines and resulted in a bitter fight that included lobbying, hefty regulatory filings, letter-writing campaigns and pep rallies supporting the carriers' efforts. United Airlines won the contest and started flying between Beijing and its hub at Dulles International Airport in March.

Arch rivals US Airways and Delta Air Lines are expected to fight for the first open slot. Both carriers have already announced they would seek to serve Shanghai -- Delta from its base in Atlanta and US Airways from its hub in Philadelphia. Neither carrier now flies to China. Under the agreement, U.S. officials are likely to grant the route to a carrier that does not have a China route.

Jim Whitehurst, Delta's chief operating officer, stressed the importance to his company of winning the route. "We are going to do whatever it takes," Whitehurst said.

American, Continental and Northwest airlines also serve China from U.S. cities. They would probably apply to serve China when the other routes open: one in 2008; four in 2009; three in 2010; and two in 2011 and 2012. The 2008 flight must serve Guangzhou, officials said.

The deal, which also eases restrictions on Chinese airlines, comes two months after U.S. and European officials reached a far broader agreement that liberalized trans-Atlantic flights.

The United States has fairly liberal air service agreements with most of its main trading partners, except for China, Japan, Australia, South Africa and countries in South America.

The United States and China remained far apart on other issues discussed at this week's summit, including the value of the yuan, which U.S. lawmakers have said is too low, making Chinese goods unfairly cheap and thus hurting U.S. companies.

"What we've announced have been incremental changes," Paulson said. But, he added after the close of the talks, "We are making progress, and we are making more progress than we would have without" the strategic talks.

Paulson said the Chinese government agreed to remove a block on new foreign securities firms and would resume licensing them this year. It would also allow foreign securities firms to expand the scope of their businesses; now they are restricted to underwriting, but the new rules would allow them to offer services such as distributing shares of companies.

China also raised a restriction on how much foreign firms can invest in the Chinese stock market and in more than 50 other investment vehicles, to an aggregate limit of $30 billion from $10 billion. In a continuing effort to open its banking sector, the Chinese government would also allow licensed foreign banks to immediately begin offering yuan-denominated debit and credit cards.

Labor Secretary Elaine L. Chao said the United States and China had signed a memorandum of understanding to study pension systems, unemployment insurance and labor statistics.

Other tense discussions did not result in agreements. For example, U.S. and Chinese officials were close to a deal on increasing caps on foreign ownership of Chinese banks, but could not agree on the amount of the increase. They are still debating a reduction of trade barriers on environmental goods and services.

U.S. health officials pummeled the Chinese with questions about contaminated pet food ingredients, blamed for killing scores of pets in the United States. "The Chinese government clearly understands that the world marketplace will swiftly disadvantage any nation or economy or firm that is not able to establish a sense of confidence or reliability or safety," said Mike Leavitt, secretary of health and human services.

Commerce Secretary Carlos M. Gutierrez said the two sides also made progress on one of China's complaints about the United States -- that its controls on high-tech exports are too strict. He said that the Commerce Department explained "the steps we will take" to sell more technology to trusted Chinese customers. He would not elaborate.

One of the most contentious conversations concerned recent U.S. trade actions against China -- including new tariffs on high-gloss paper, and two U.S. complaints to the World Trade Organization alleging unfair subsidies imposed by China and a lack of progress on protecting intellectual property.

On that front, U.S. Trade Representative Susan C. Schwab said, "Suffice it to say we had a healthy exchange of views."

© 2007 The Washington Post Company