Carriers Applaud Cargo Pact : Pena Says New Japan Agreement Will Benefit U.S.

Federal Express emerged the big winner in the U.S.-Japan aviation agreement finalized Friday, but other U.S. air cargo carriers also applauded the deal as progress toward a less-regulated environment in the world’s fastest-growing air cargo market.

U.S. Transportation Secretary Federico Pena--speaking in Los Angeles, where the bilateral talks were held--said Friday that he had lifted threatened sanctions against Japanese carriers, after the Japanese government approved seven new Federal Express routes from Japan to the Philippines and other points in Asia.

Ecstatic officials at the Memphis-based cargo carrier announced that they would open their Subic Bay trans-shipment facility on Sept. 4. The company spent $10 million to $15 million building a hub at the former Navy base in the Philippines for its Asian express cargo network. “We’re tremendously pleased with the resolution of these issues,” said Doyle Cloud, a Federal Express vice president.

For the next 20 years, the multibillion-dollar intra-Asian air cargo market is predicted to grow at 8% to 9% a year, according to Boeing Co. forecasts.

The successful resolution of bitter auto and aviation disputes within the past three weeks clears the way for the United States to focus on other U.S.-Japan trade issues, the most prominent of which is a Kodak complaint over access to the Japanese film market.

The Federal Express route approval was a key piece of a bilateral agreement finalized at about noon Friday, following a four-hour meeting between U.S. and Japanese officials. Early in the morning, Pena and Japanese Transport Minister Shizuka Kamei met briefly to clarify details that weren’t hammered out the previous day.

In Friday’s talks, the U.S. government agreed to allow Japan’s two major airlines--Japan Air Lines and Nippon Cargo Airlines--to fly from Osaka to Chicago and beyond to an unidentified city in Canada.

The two nations also established a “work plan” for talks scheduled to begin in September on liberalizing the cargo provisions of the 1952 treaty that governs all passenger and cargo flights between the United States and Japan. Those talks are expected to last six months.

Key issues in the next round of discussions will be the protection of existing rights for U.S. and Japanese carriers, expansion of routes and frequency of flights, and increased flexibility in both route structures and the amount of cargo that can be picked up by carriers and transported to other countries.

Pena expressed confidence Friday that U.S. carriers will emerge winners in a more “open and competitive” air cargo environment--particularly those that are now excluded from that market. A U.S. government official later cited Polar Air Cargo, a small Long Beach carrier, as a company that could benefit from the accord.

The transportation secretary also said the United States hopes to come up with an agreement that provides “stability and predictability” to a bilateral relationship that has been marked by clashes over route approvals and other issues.

For years, the Japanese have argued that the 1952 treaty unfairly favors U.S. carriers, noting that it was negotiated during a time when Japan had no national airline. Under the treaty, Japan’s passenger and cargo service to the United States is limited. While Friday’s agreement does not include passenger rights, Japanese officials hope that will be the next item on the bilateral agenda, according to Japanese media reports.

Cloud said Friday that he isn’t worried about the renegotiation of the treaty, even though Federal Express (as the successor to Flying Tiger Line), Northwest Airlines and United Airlines now enjoy special privileges as the only U.S. airlines authorized to fly cargo or passengers to Japan and beyond to other countries.

Federal Express, he said, supports the move toward fewer government regulations and is confident it can compete in an “open skies” environment. Cloud said he also believes the U.S. government will protect his company’s existing rights.

“We don’t see either side at this point intending to go in and reduce the competitiveness of carriers on the other side,” he said.

United Parcel Service spokesman Ken Sternad said his company will not benefit immediately from the renegotiation of the bilateral treaty but supports any move that makes future expansion possible.

He said UPS has focused on moving cargo between the United States and Asia rather than developing an intra-Asian network like Federal Express’. Presently, UPS has four daily flights from the United States to Asia, with no immediate plans for expansion.

“Once a precedent is established, we hope the playing field would be level when we do seek those rights,” Sternad said.

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Outstanding Issues

U.S. and Japanese trade negotiators now have two agreements under their belts in just three weeks, one covering autos and auto parts, the other reached late Thursday on air cargo routes. But key issues remain in the cargo arena, and the nations have other disputes to resolve.

Air Cargo: Talking Points and the Market

Here’s a rundown of negotiating points for talks beginning in September:

The United States Is Seeking:

* Protection of the rights presently enjoyed by Federal Express and Northwest Airlines under an existing 1952 agreement

* Expanded routes and frequency for U.S. carriers, along with routes for new carriers to enter the U.S.-Japan market

* Clarification on the percentage of cargo that U.S. carriers can pick up in Japan for transit to other parts of Asia--so-called beyond rights

* Opportunities for cooperative marketing-distribution agreements between U.S. and Japanese carriers

Japan Is Seeking:

* Relaxed restrictions on existing routes held by Japan Airlines and Nippon Cargo Airlines

* Expanded routes, frequency and “beyond” rights for existing or new Japanese carriers

* More flexibility for carriers to rearrange stops in the interest of efficiency

Federal Express dominates air cargo market share both nationally and globally. In Asia, several carriers hold almost equal footing.

UNITED STATES FedEx: 35% UPS: 25% Major combination carriers*: 12% Airborne Express: 9% Other: 19%

WORLDWIDE FedEx: 16.7% UPS: 6.4% Lufthansa: 4.7% JAL: 4.1% Northwest: 3.9% Other: 64.2%

ASIA Singapore Airlines: 14.4% Cathy Pacific: 14.2% Korean Airlines: 11.3% JAL: 10.3% Thai International: 8.4% Other: 41.4%

* These airlines carry both passengers and cargo and include such major carriers as United, Delta, American and Southwest.

Other Fronts

* Retail distribution: Eastman Kodak is challenging what it alleges are Japanese limits on market access. * Law and intellectual property: U.S. software companies complain of inadequate Japanese protection of copyrights. * Financial services: Washington pulled out of global talks on open markets in banking, insurance and securities. Japan is wavering on the multinational deal. * Construction: With the U.S. side expressing dissatisfaction, talks open Wednesday to review progress on Japan’s pledge of open competition for big public works contracts.

Overall Trade

The bottom line on U.S.-Japan trade: There’s still a huge advantage to the Japanese side. Monthly U.S. trade deficit with Japan, in millions of dollars:

May 1995: -$5.5

Sources: Cargo Facts newsletter, MergeGlobal Inc., Times staff and wire reports. Researched by JENNIFER OLDHAM / Los Angeles Times