Sino-US air deal marks new era of open skies From 2007, both nations' airlines will have the right to provide cargo services to third countries China's new reciprocal air services agreement with the United States will rewrite the aviation rule book in Asia, and protectionist governments not up to the challenge will watch the new era of open skies from the ground. According to a copy of the agreement seen by the South China Morning Post, from 2007 both countries' airlines will be granted so-called 'Seventh Freedom' rights allowing them to set up cargo hubs and serve third-country destinations without having to return to their home markets. Express operators such as United Parcel Service will be able to fly from a China hub to, for example, Tokyo and back whenever it pleases. At present, such seventh freedom rights are not available to foreign carriers in most Asian countries including Hong Kong. Three years after preset criteria for establishing a hub have been met, operators will have almost complete operational flexibility in terms of frequencies, aircraft types, sales and marketing, trucking distribution and self-handling. However, domestic cargo will remain off limits to foreign carriers. Regional negotiators already rendered breathless by the dizzying pace of China's aviation reform are again reaching for their oxygen masks. 'This is very close to an open agreement, especially for express operators,' an airline executive said yesterday. 'It is a very, very open agreement and will impact on future air-service negotiations in Japan, South Korea, Hong Kong - all across the region. Other governments will have to react.' The Sino-US agreement could threaten Asian regional hubs that are looking to mainland travellers and cargoes for the lion's share of their revenues. New mainland hubs could even begin to siphon off non-China business from their regional rivals by 2007. At particular risk are China-gateway ports such as Hong Kong and Tokyo. Hong Kong, for example, relies on China trade for 50 per cent of its imports by air and 70 per cent to 80 per cent of its exports. With direct access to the mainland restricted, Sino-US trade through Hong Kong has grown tremendously. In the first quarter, for example, the value of goods moving between the US and Hong Kong by air jumped a comparative 23.2 per cent over the same period last year to HK$295 billion. But that could begin to change as soon as next month when the Sino-US air services agreement is signed in Beijing and the first new US cargo airline - expected to be Polar Air Cargo - gets direct access to China in August. Asked if the new agreement would prompt his company to reconsider the efficacy of its Hong Kong hub, a senior executive for a US express operator said: 'It all will now depend on 2005', when US and Hong Kong aviation officials open a new round of air services talks. The air-services agreement also allows five new carriers from each country to access the Sino-US travel and air-cargo market by 2010. All cargo and passenger operators will be allowed to serve any city, whereas before US and mainland airlines were restricted to five and 12 destinations respectively. Cargo operators will be given 111 additional flights per week by 2010 and passenger carriers 84. Before the agreement, they had an aggregate of only 54 weekly flights. According to Ken Torok, Asia-Pacific president for UPS, this represents a 500 per cent increase in freight capacity between the two markets. But even these impressive numbers pale in comparison to the regulatory advances contained in the agreement, particularly for cargo carriers. Only four criteria must be met for a 'point in the territory of the other party' to be considered a hub. An airline must serve it with 72 all-cargo aircraft movements a week, employ dedicated cargo workers, use dedicated cargo facilities at the airport and operate a bonded facility under customs supervision. Article 11b, Section C of the agreement reads: 'Airlines shall have the right to perform scheduled international all-cargo services between the hub point in the other party's territory and any point or points in third countries, without serving the territory of the designating party.' Section B of the same article sets out the post-2007 regulations for 'change-of-gauge' operations, under which carriers can fly into a hub with large aircraft and redistribute cargo to smaller planes for shorter regional connections. It states: '[Carriers can] perform international air services without any limitation as to change, at the hub, in size, type or number of aircraft operated, provided that only four flights may operate to another point in that party's territory from the point of change of gauge for each incoming aircraft.'