Liberalising Air Transport Services in APEC

This draft working paper represents work in progress aimed at assessing the prospects for a more liberal air passenger transport regime in the Asia Pacific region under the auspices of APEC. The decades-old bilateral air services regime has been under pressure to reform for several years; yet notwithstanding the critical role that international air transport plays in the ongoing integration of Asia Pacific economies, the airline industry remains one of the region’s most heavily regulated. A detailed analysis of bilateral air service agreements (ASAs) concluded by APEC economies reveals that, although some progress has been made, key restrictions on market access and on ownership links remain largely in place. Some more headway is being achieved in plurilateral ASAs, which have been proliferating in the APEC region. Preliminary estimates using the gravity equation find a positive and statistically significant relationship between relaxing bilateral air services restrictions and air passenger traffic. The estimated impact on traffic, albeit relatively small, is stronger than what was found in previous analysis using a similar methodology. Yet, when controlling for all country-specific factors through importer and exporter fixed effects, the relationship between regulation and traffic becomes insignificant. This may be due in part to the fact that countries tend to sign fairly similar agreements with multiple parties.