U.S. State Department Geographic Bureaus: Europe and Canada Bureau



U.S.-Canada Air Services Agreement

Growing economic interdependence among nations--the "globalization" of the world economy--rapidly has expanded demand for international air services and challenged governments to rethink approaches to regulating this vital sector of the economy. Nowhere was the need for new thinking more important than in the U.S.-Canada bilateral aviation market--the world's largest air passenger market. The United States and Canada have just completed a new air transport agreement, thereby demonstrating a commitment to cooperation and economic progress in this key area.

Breakthrough Agreement

The new U.S.-Canada transborder aviation agreement, which is to be signed during the President's visit to Ottawa in February 1995, dramatically improves air services for consumers on both sides of the border. It replaces a highly restrictive regime with a liberal agreement which will allow significantly increased integration of the two countries' domestic air transportation networks. This result is consistent with the open border which traditionally has symbolized the excellent relationship that the two countries enjoy.

Based on the same fundamental open-market principles as the North American Free Trade Agreement (NAFTA), this new aviation agreement will contribute to economic expansion in both countries as it is implemented over a three-year phase- in period. By modernizing the critical infrastructure pillar which air transport represents, the new agreement not only reinforces but also expands the benefits of NAFTA by allowing for a fuller realization of its potential.

U.S. International Air Transportation Policy

The new air transport agreement also represents a milestone in the Administration's efforts to promote freer trade and clearly meets the objectives outlined in the Clinton Administration's international aviation policy statement of 1994. The new agreement will provide the aviation industry with the opportunities it needs to meet new demands and compete effectively in this market. It will provide consumers and shippers with more and better service options and contribute to:

-- Expanding the international aviation market;
-- Increasing service opportunities for airlines;
-- Raising productivity and skilled job opportunities
within the aviation industry; and
-- Promoting aerospace exports.

The World's Largest Bilateral Market

The U.S.-Canada aviation market is the largest bilateral market in the world in terms of passenger movements, even though it has, until now, been severely constrained by one of the most restrictive aviation regimes. Despite the constraints of an outdated agreement--which has not allowed direct service between the two capitals and which had prevented one-third of the top 50 city-to-city markets from having any direct service--13 million people still traveled across the border on commercial flights in 1993. This cross- border movement generated more than $2.5 billion in direct revenues and many times this amount in indirect benefits to the travel and tourism industries in both countries.

It is difficult to estimate precisely this agreement's potential economic impact, due to the scale and scope of liberalization. Comparison with the growth achieved in other aviation relationships, though, offers some indication of its magnitude. Since 1978, for example, U.S.-Canada air travel has grown by less than 4% annually, while other U.S. aviation markets have grown several times faster.

Air cargo carriers and the businesses which rely on specialized, time-sensitive air deliveries also will see immediate benefits from the agreement. Severely hampered by the former agreement's limitations on aircraft size and package weight and dimensions and by constraints on routes and frequencies, all-cargo carriers now will be freed of many restrictions immediately and largely deregulated within 12 months.

Key Elements of New Agreement

-- This agreement substantially frees this huge aviation market from the governmental regulation which has hindered its growth in the past and permits introduction of the passenger and cargo services demanded by our expanding economic ties.

-- Canadian airlines will have immediate open access to all points in the U.S.

-- U.S. carriers will achieve open access to Canada after a short, three-year transitional phase.

-- The markets for all-cargo and charter services will be largely liberalized.

-- Numerous U.S. cities will receive new and better service.

-- This air agreement is an essential complement to the NAFTA and the U.S.-Canada Free Trade Agreement.


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