VZCZCXRO3322
OO RUEHGH
DE RUEHC #8684/01 2592115
ZNR UUUUU ZZH
O P 152108Z SEP 08
FM SECSTATE WASHDC
TO RUEHBJ/AMEMBASSY BEIJING IMMEDIATE 3045
INFO RUEHGH/AMCONSUL SHANGHAI PRIORITY 3353
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/TREASURY DEPT WASHINGTON DC 9841
RULSDMK/TRANSPORTATION DEPT WASHINGTON DC 0629

UNCLAS SECTION 01 OF 02 STATE 098684 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: CH EAIR KTIA
SUBJECT: CHINA CIVAIR:  UPS REQUESTS USG ADVOCACY 
 
REF: A. REFS: STATE 35772 
     ¶B. BEIJING 1508 
     ¶C. LATHAM/LEVINE--LIMAYE-DAVIS EMAILS 
     ¶D. AUGUST-SEPTEMBER 2008 
 
¶1. This is an action request.  Please see para 6. 
 
¶2. (SBU) Summary: As Post is aware, U.S. cargo carriers 
continue to experience difficulties getting their operating 
schedules approved by the General Administration of Civil 
Aviation in China (CAAC).  Recently, the CAAC informed UPS 
that its 2008 winter schedule may not be approved. The CAAC 
cited concerns over UPS,s planned schedule and questioned 
whether Shanghai qualifies as a hub.  Washington agencies 
believe that CAAC's position is inconsistent with our air 
services agreement.  Hub rights for U.S. carriers were a key 
component of our 2004 Protocol to the 1980 agreement, and the 
CAAC's &buyer's remorse8 is extremely troubling. 
Washington requests Post demarche CAAC officials at the 
highest levels to urge Chinese approval of UPS's schedule and 
recognition of its right to operate a cargo hub, under the 
agreement, at Shanghai.  Washington agencies will then 
consider how best to supplement this demarche to CAAC with 
senior-level discussions in other fora, including the SED. 
End summary. 
 
¶3. (SBU) In April, after Embassy Beijing intervened, the CAAC 
approved UPS's summer schedule for one season, after weeks of 
delay (Refs A and B).  Last month, the CAAC raised objections 
to UPS' and FedEx's winter 2008 schedules, citing concerns 
about multiple beyond points on a single change-of-gauge 
routing and questioning the ability of both companies to 
co-terminalize in China.  The companies, working closely with 
the CAAC to make the necessary revisions to their schedules, 
had received some positive feedback over the last few weeks. 
However, the latest report from UPS indicates the Chinese are 
now questioning a much broader right -) whether UPS's 
Shanghai operations meet the criteria for a cargo hub (Ref C). 
¶4. (SBU) Article 9 of the 2004 Protocol to the Agreement 
between the Government of the United States of America and 
the Government of the People's Republic of China Relating to 
Civil Air Transport (which added Article 11bis to the 
Agreement) clearly defines the four criteria necessary to 
achieve hub status.  The USG has already articulated our view 
that the UPS facility in Shanghai clearly meets the hub 
requirements.  In April 2007, DOT Secretary Peters traveled 
to China and formally announced UPS's qualification as having 
an air cargo hub in Shanghai.  It appears the CAAC is now 
reinterpreting the bilateral to set a new standard, one that 
would require a cargo hub to operate as a "transit hub." 
 
¶5. (SBU) The Chinese appear to be reinterpreting and 
misinterpreting our bilateral in order to forestall U.S. 
competition in the cargo market.  As Embassy is aware, State 
and DOT are sending a team to China for meetings and 
technical consultations September 26-28. 
 
¶6. (SBU) Action requested: Prior to the upcoming technical 
talks, we request Embassy engage with the CAAC at the highest 
levels at the earliest opportunity to express concern with 
the incorrect interpretation of the bilateral, and urge the 
CAAC to approve UPS's planned operations at the earliest 
possible date.  Embassy may also wish to use some version of 
the talking points with other high-level Chinese officials 
who may appreciate the potential wider repercussions of the 
aviation issue.  EAP/CM also plans to engage with Chinese 
Embassy officials in Washington this week.  Post may draw 
from talking points below. 
 
Begin talking points. 
 
-- In 2004 and 2007, U.S. and Chinese civil aviation 
negotiators agreed on two landmark amendments to our 
bilateral Air Transport Agreement that significantly 
liberalized our aviation relationship to reflect the two 
countries' strong trade ties, as well as the important roles 
of China and the United States in the global economy.  Rights 
were expanded for passenger traffic as well as for the 
establishment of cargo hubs to benefit both countries.  The 
two sides also agreed to pursue discussions beginning in 2010 
to fully liberalize our aviation relationship. 
 
-- Our cargo carriers have committed to hub operations with 
millions of dollars of investment in China and employment of 
 
STATE 00098684  002 OF 002 
 
 
thousands of Chinese workers.  UPS has invested $600 million 
in China, employs 4,500 workers, and expects to employ 1,200 
just at its Shanghai hub by 2010.  Chinese communities and 
companies have also made investments and commitments. 
 
-- We are very concerned to hear that questions have been 
raised with respect to our carriers' ability to exercise 
their rights under the Agreement, in particular with respect 
to hub status. 
 
-- The 2004 Protocol clearly defined the four criteria 
necessary to achieve hub status.  The USG has already 
articulated its view that the UPS facility in Shanghai meets 
these requirements.  In April 2007, DOT Secretary Peters 
traveled to Shanghai and formally announced UPS's 
qualification as having an air cargo hub in China.  It 
appears that the CAAC is now trying to set a new standard, 
one that would require a cargo hub to operate as a "transit 
hub," a concept neither defined nor included in the 2004 
Protocol definition. 
 
-- Unilateral limits on hub operations would be inconsistent 
with our bilateral agreement. 
 
-- Moreover, a failure to recognize UPS's hub rights would 
not be consistent with our excellent cooperation and 
relationship with China in so many other areas. 
 
-- China gains huge benefit from efficient and flexible cargo 
connections to move Chinese products around the world. 
 
-- The fact that China and the U.S. agreed in 2007 that we 
will work toward fully liberalizing our bilateral civil 
aviation relationship in 2010 reflects that China is ready to 
move its economy into an even higher gear. 
 
-- The possibility that CAAC might seek to reverse what was 
agreed upon risks putting the brakes on China's own economic 
boom. 
 
-- We urge that you not permit such backtracking to 
jeopardize our two countries' excellent relations. 
 
End Talking Points. 
 
¶7. Washington agencies appreciate Post's assistance. 
RICE