This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 04 OTTAWA 003144 
 
SIPDIS 
 
STATE FOR WHA/CAN - ALAN HOLST, EB/TRA - JOHN BYERLY 
 
STATE PASS USTR FOR SAGE CHANDLER 
 
TRANSPORTATION FOR OST (EDDIE CARAZO) AND INTERNATIONAL 
AVIATION (SUSAN MCDERMOTT) 
 
COMMERCE FOR 4320/MAC/WH/ON/OIA/WORD 
 
FAA FOR LEEANN HART 
 
TSA FOR SUSAN WILLIAMS 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EAIR ECIN EINV CA
SUBJECT: CANADIAN MINISTER OF TRANSPORT SUGGESTS THAT THE 
STATUS QUO HAS GOT TO GO 
 
REF:  A) Ottawa 2893 
     B) Ottawa 2766 
 
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Summary 
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¶1.  (SBU) Canadian Transport Minister Jean Lapierre has 
signaled his interest in reviewing Canada's civil aviation 
policy.  He has proposed a broad examination of barriers to 
a more innovative and efficient civair system in Canada, 
including questioning foreign investment limits and cabotage 
prohibitions.  This is the first time that a Minister of 
Transport has so enthusiastically questioned the status quo, 
but not the first time that these questions have been 
raised.  Most recently, in autumn 2002, Canada's Independent 
Transition Observer on Airline Restructuring called for the 
Government of Canada (GOC) to vigorously pursue a program of 
liberalization of the airline market-- unilaterally if 
necessary.  Those recommendations, and others like them from 
2001, 1999 and earlier, all fell on deaf ears when David 
Collenette was Minister of Transport (from June 1997 to 
December 2003).  The new Minister is clearly more amenable 
to change, but this will depend on USG willingness to engage 
on this issue as well as Canadian Cabinet interest in 
dealing with a potentially divisive issue while in a 
Minority government position.  For its part, Air Canada, the 
national flag carrier, has indicated that it is ready for a 
more open bilateral aviation agreement with the United 
States.  End summary. 
 
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The Minister Talks Liberalization 
--------------------------------- 
 
¶2.  (U) The federal government is mulling a dramatic 
overhaul of the country's airline industry, including the 
elimination of limits on foreign ownership in Canadian 
airlines and even letting U.S. carriers fly passengers 
between Canadian destinations.  Jean Lapierre, the Transport 
Minister since June 2004 (Tony Valeri was Minister from 
December 2003 to June 2004), said in early October that he 
would reopen the question of a more liberal aviation 
agreement with the United States and initiate public debate 
on the issue (reftel B).  In late October Lapierre said that 
Canada must open up its airline sector and force Air Canada 
to survive on its own.  In his comments to airline 
executives on October 29 in Toronto Lapierre noted that: 
"For nearly a quarter of a century, the federal government's 
air policies have been built on protecting what we have, 
rather than building something better, protecting against 
loss of service, against the loss of our national flag 
carrier."  "The time for this approach is over," the 
Minister stated. 
 
¶3.  (U) At the Toronto meeting Lapierre questioned whether 
it is time to relax airline ownership restrictions, if it is 
time for Canada to consider allowing foreign carriers to 
provide domestic passenger service, and whether cargo 
cabotage should now be allowed.  Lapierre made similar 
allusions to liberalization in discussions with Ambassador 
Cellucci during their October 26 meeting (reftel A). 
 
¶4.  (U) Minister Lapierre said he intends to task the House 
of Commons Standing Committee on Transport with addressing 
these questions and, once he has their views, to "move 
swiftly" toward implementation.  Lapierre presented his 
proposals to the Commons Transport Committee in early 
November for its review and recommendations.  In a speech 
before the Air Transport Association of Canada in Vancouver 
on November 15, Lapierre said that he would ask the 
Transport Committee to consider not only a "fully open skies 
agreement with the United States," but also an expanded, 
integrated market that includes Mexico. 
 
--------------------------------------------- -- 
The Issue Has Already Been Exhaustively Studied 
--------------------------------------------- -- 
¶5.  (U) This is not the first time that these questions have 
been raised in Canada, although this is the first time that 
the Minister of Transport has been so clearly enthusiastic 
about possibly altering the status quo. 
 
¶6. (U) In September 2002 Debra Ward, the "Independent 
Transition Observer on Airline Restructuring," released her 
final report with long- and short-term policy 
recommendations on how to improve market competition in 
Canada's airline industry.  Ward's position was established 
in August 2000 (by then-Minister David Collennette) in the 
wake of the take-over of Canadian Airlines International by 
Air Canada, and the consequent establishment of Air Canada's 
monopoly position in the Canadian air travel market.  Ward 
had the mandate to examine the overall impact of airline 
restructuring on the following:  consumers; urban, rural and 
remote communities; travel agents and airports; and airlines 
and their employees.  (FYI:  Ward's 2002 report is available 
online: 
www.tc.gc.ca/pol/en/Air/Airline_Restructuring _menu_page.htm. 
End FYI.) 
 
¶7.  (U) In addition to liberalization, Ward's 
recommendations encompassed a wide array of subjects, such 
as the need for a "Passenger Bill of Rights," provision of 
air service to small and isolated communities, and travel 
agency regulation.  Liberalization was identified as a long- 
term policy goal and four specific recommendations for 
action were made: 
 
¶A.  "That the government make every effort to reach 
reciprocal agreements, but be prepared to liberalize air 
service without direct or immediate reciprocal benefits for 
carriers, if there is an obvious advantage for Canadians and 
consumers, and when the liberalization has either no impact 
on the carrier industry, or when the carrier interests are 
clearly subsumed by a greater benefit." 
 
¶B.  "That, within the context of a liberalization framework, 
the Government of Canada liberalize the current rules of 
ownership to allow foreign-ownership of domestic Canadian 
carriers and a 49% ownership level of international 
carriers." 
 
¶C.  "That the Government of Canada rigorously pursue and 
accelerate a program of liberalization under the bilateral 
regime." 
 
¶D.  "That the Government of Canada work to achieve 
liberalized air agreements with key multinational partners 
and plan towards the establishment of common aviation 
areas." 
 
(Comment:  Ward identified the United States as the country 
that Canada should target first for enhanced liberalization 
negotiations.  End comment.) 
 
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Ward's Findings Echo Prior Reports 
---------------------------------- 
 
¶8.  (U) Over the past 12 years the Canadian Competition 
Bureau has consistently advised the GOC to liberalize 
domestic air transport, unilaterally if necessary, in order 
to enhance competition.  In the more recent past (since 
1999), the Competition Bureau has recommended that the GOC 
permit foreigners to hold up to 49 percent of voting shares 
in Canadian air carriers. 
 
¶9.  (U) The Canadian Transportation Act Review Panel, in its 
June 2001 report, also recommended that the limit on the 
voting shares of Canadian airlines that can be held by 
foreigners be raised to 49%.  That panel recommended that 
the government enter into negotiations with the United 
States and Mexico to create a North American Common Aviation 
Area in which carriers from Canada, the U.S., and Mexico 
would compete freely.  And, as a back-up option in the event 
those negotiations did not succeed, the Panel recommended 
that the government negotiate with other countries for the 
granting of reciprocal modified sixth freedom rights and of 
rights of establishment for foreign-owned domestic carriers. 
 
¶10.  (U) In addition, the House of Commons Standing 
Committee on Transport recommended in late 1999 that the GOC 
should raise the foreign ownership limit in Canada's 
airlines from the current 25 percent to 49 per cent; 
initiate negotiations with the United States on reciprocal 
cabotage; and examine the viability of licensing foreign- 
owned carriers to operate solely on Canadian domestic 
routes. 
 
------------------------ 
Will Liberalization Fly? 
------------------------ 
 
¶11.  (U) In 2002 then-Minister of Transport David Collenette 
reacted to Ward's recommendation to open Canada's passenger 
airline industry to foreign competition by noting the strong 
counter-argument that has been applied previously; i.e., 
that unilateral opening of Canadian air markets would lead 
to only the most passenger-intensive and lucrative routes 
receiving extra attention, while low-load routes serving 
smaller communities would be further marginalized. 
Collenette also declared that homegrown Canadian competition 
to Air Canada, such as Calgary-based WestJet, is 
increasingly successful and would only be damaged by 
unilateral liberalization.  Furthermore, Collenette pointed 
out that the United States had shown little enthusiasm for 
further reciprocal liberalization, e.g., passenger cabotage. 
 
¶12.  (U) Air Canada has recently indicated that it would be 
interested in liberalizing the aviation relationship. 
Speaking to reporters November 15 in Toronto, Air Canada 
Chief Executive Officer Robert Milton urged the USG and GOC 
to "get on with" expanding the existing bilateral aviation 
agreement, observing that he thinks that would be good for 
Air Canada's business.  Asked about reports that Minister 
Lapierre appears to have become the champion of a more 
liberal bilateral aviation policy, Milton was quoted as 
saying that he is as happy with that news as Red Sox fans 
were with the World Series. 
 
¶13.  (SBU) Embassy discussions in recent weeks with local 
Air Canada officials and industry insiders confirm Air 
Canada's interest in an enhanced aviation agreement, 
particularly for cargo.  There are reports that Air Canada 
would like to switch its air cargo operation from one which 
currently only carries cargo in the hold of passenger 
flights, to a full-service, all-cargo branch.  The carrier 
has reportedly started making inquiries for the acquisition 
of cargo freighters.  Air Canada officials suggest that the 
carrier's code share partner, United, would be supportive of 
negotiations for a broader bilateral aviation agreement, but 
we have not heard that directly from United. 
 
¶14.  (SBU) Comment:  We expect that many of the familiar 
protectionist arguments will be made against liberalization 
as Parliament debates Minister Lapierre's proposals.  There 
are many objective advocates of liberalization, however, 
such as Debra Ward, the Competition Bureau, and the 
Transportation Act Review Panel, all arguing in favor of 
opening up the aviation environment.  Now there is a 
Minister in place who seems to want to act on this body of 
well-reasoned advice.  He is clearly convening a 
parliamentary group to examine the issue to smoke out in 
advance any obstructionist views.  We will be speaking with 
Liberal, Conservative, Bloc Quebecois and NDP Members of 
Parliament to determine what their thinking might be on 
liberalization.  Post would also appreciate learning the 
views of the USG and U.S. aviation interests regarding 
reciprocal liberalization with Canada.  End comment. 
Cellucci