November 11, 2005

Freedom of the Air

For a week now, we've been waiting for the Canadian and U.S. Governments. They've been negotiating to finalize an "Open Skies Agreement". This deal was just announced today. It's an important development. To underline its significance here is a quote from Jean Lapierre the Canadian Transport Minister: "It is my hope that this agreement will encourage the development of new markets, new services, lower prices and greater competition."

Given the impact this deal will have on business and technoloogy I thought it would be valuable to have a subject matter expert contribute value add to this topic. It just so happens that this expert is my father. He is one of the leading experts on Open Skies. Have a read at his article...

Freedom of the Air - Changing the Pattern of Trade & Commerce

By Aaron M. Daniels, Professor of Logistics & International Business at Sheridan College. Author and Consultant to the Logistics & Marine Insurance industries.

Sixty one years ago the Chicago Convention of November 1944 enabled the first manifestation of globalization of trade and commerce. Since those days, there have been radical changes in business vision, technology, security and safety. All have contributed to changing process and administration of the conduct of business transportation called freedoms of the air and Open Skies.

Two of the five freedoms of the Chicago Convention, single handedly removed the shackles from international trade. Growth of major world air carriers date from this point and has lasted more than half a century. All of these freedoms are associated with specific terms and conditions such as frequency of flights, mutual docking arrangements etc., all of which are determined by bilateral agreements between the nations that are parties to the Chicago Convention.

According to the US Department of State's website: "Open Skies Agreements create a free market for aviation services and provide substantial benefits for travelers, shippers, and communities as well as for the economy of each country. Bilateral Open Skies Agreements give the airlines of both countries the right to operate air services from any point in one country to any point in the other, as well as to and from third countries. These rights enable airlines to network using strategic points across the globe."

Canada and the U.S have such contracts under NAFTA. At this time, Canada and the United States are negotiating in Ottawa as they have been assiduously doing since the past decade to try to create amendments to the NAFTA Agreement to enable greater agreement in making open skies, open minds a better reality.

As in the case of Customs duties and other barriers to trade such as import/export quotas being reduced or eliminated or even of industry subsidies, the long-term impact of elimination, wholly or in part, has certainly result in improved global trade and commerce. For example these relaxations benefit airlines directly and compensate for the large blip on rising fuel costs recently faced by all carriers. It would certainly mean reducing supply management costs and even improved overall productivity.

In the short term there may be high unemployment and carriers that are presently enjoying exclusive market share in both Canada and the USA will have to rationalize. It could prove to be a win-win situation in the long term.

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