(Japanese Note)

　Translation

　Bonn, May 1, 1985

　Excellency,
  I have the honor to refer to the consultations on the Civil Air Transport Agreement between Japan and the United States of America signed at Tokyo, August 11, 1952 as amended (hereinafter referred to as the "Agreement" ), and to the Memorandum of Understanding signed at Tokyo, April 30, 1985, appended hereto.

　I have further the honor to confirm agreement, on behalf of the Government of Japan, to the provisions on matters relating to the Agreement contained in the said Memorandum of Understanding.

　I shall be grateful if Your Excellency would provide the same confirmation on behalf of the Government of the United States of America.

　I avail myself of this opportunity to renew to Your Excellency the assurance of my highest consideration.

　(Signed) Shintaro Abe
Minister for Foreign Affairs

　His Excellency
George P. Shultz
The Secretary of State

MEMORANDUM OF UNDERSTANDING

　Delegations representing the Governments of the United States of America and Japan met in Tokyo on April 29 and 30, 1985, and agreed to record the following provisions, which constitute either understandings relating to implementation of the bilateral Civil Air Transport Agreement signed at Tokyo on August 11, 1952, as amended, or amendments of the Schedule attached to the Agreement. These provisions constitute an interim arrangement, pending conclusion of the comprehensive revision talks.

I. Cargo Services

1. With regard to the commencement of operations to the United States by Nippon Cargo Airlines (NCA), effective until September 6, 1985, or the conclusion of the comprehensive revision talks, whichever is later:

　NCA will be permitted to operate six (6) wide-body round trip all-cargo flights per week on a route between Tokyo-San Francisco/New York as of May 1, 1985.

　NCA may increase its frequencies from April 1, 1986 by a percentage equal to the percentage increase in the total air cargo traffic between Japan and the United States for the period January 1, 1985 to December 31, 1985 over the total air cargo traffic for the period January 1, 1984 to December 31, 1984, and similarly for each succeeding year. Any increased frequencies that become available and are not used may be banked. 

Note: The capacity increase will be calculated on the basis of statistics exchanged in accordance with the Agreed Minute dated January 14, 1959. Statistics of a particular month will be submitted within 60 days from the end of the month. At the request of either side, the aeronautical authorities of both countries will hold consultations in the first quarter of the year to study them.

2.

(a) Subject to the provisions of Notes 2 and 6 of paragraph III of this Memorandum of Understanding, either side may designate an airline not operating scheduled services in the U.S .-Japan market at the time of such designation to operate exclusively a small package service between any point in Japan and any point in the United States commencing no sooner than April 1, 1987, subject to the following:

(i) For the United States, the air transportation portion of this service may be operated between Tokyo and any point in the United States, except that Chicago shall not be the last point of departure or the first point of arrival in the United States.

(ii) For Japan, the air transportation portion of this service may be operated between any point in Japan and a point in the United States available to the designated airlines of Japan for combination service under the Agreement or this Memorandum of Understanding other than Chicago.

(iii) Individual packages shall not exceed a gross weight of 70 pounds each.

(iv) There shall be a separate airwaybill, issued under the name of the airline operating such service, for each package.

(v) There shall be no restriction as to aircraft type.

(vi) The airline shall be permitted to charge shippers a single through price for the air and surface portions of the service. This does not preclude any requirement that airlines file separate tariffs for the air and surface authorities.

(vii) Nothing herein may be deemed to prejudice the rights of any other designated airline to provide expedited small package service, or to operate the air transportation portion of this service between any points which the airline is otherwise permitted to serve.

(b) In order to facilitate the expeditious movement from shipper to consignee, which represents the principal characteristic of this service, the two sides agree to exert their best efforts to provide the most expeditious treatment of small package shipments.

II. Japan - Micronesia Routes

　Each side will permit the following number of designated airlines of the other side to operate on the routes specified below as of May 1, 1985. Subject to Note 1 concerning the future negotiation of "beyonds," as far as the routes between Japan and Micronesia and the number of airlines permitted to serve them are concerned it is the intention of both sides that this table will be incorporated without change into the revised Civil Air Transport Agreement between the two countries.

　                       Japan   U.S.2/

　TOKYO-GUAN/SAIPAN3/       2     2

　OSAKA-GUAN/SAIPAN         2     2

　NAGOYA-GUAN/SAIPAN        1     1

　FUKUOKA-GUAN/SAIPAN3/     1     1

　NANA-GUAN/SAIPAN          1     1

　For a three-year experimental period commencing May 1, 1985, the capacity on the above routes (excluding Naha-Guam/Saipan and Fukuoka-Guam/Saipan) will be governed according to the provisions in Attachment A. It is understood by both sides that with respect to the Naha-Guam/ Saipan and Fukuoka-Guam/Saipan routes, capacity is subject to the Agreed Minute on capacity dated January 14, 1959.

　This Memorandum of Understanding supersedes provisions relating to Guam, Saipan, and Micronesia operations in the Agreed Minutes, Memorandum of Consultations, Record of Consultations, and Memorandum of Consultations dated July 12, 1977, September 30, 1980, June 4, 1982, and December 14, 1983, respectively.

Note 1: The "beyond" issue is to be negotiated in the comprehensive revision talks.

Note 2: The U. S. side will withdraw the designation of TWA on route (B) (2) of the Schedule.

Note 3: Notwithstanding the May 1, 1985 start-up date, the Fukuoka-Guam/Saipan route will not be available to the airlines of either side until April 1, 1987, and the Tokyo-Saipan route segment will not be available until April 1, 1988 to the second airline designated by either side for the Tokyo-Guam/Saipan route.

III. New Combination Service

　The two sides have agreed to take the following interim measures pending the Conclusion of a new Civil Air Transport Agreement between the two countries.

1. Each side will permit presently operating or newly designated airlines of the other side to operate new combination services under either subparagraph (a) or (b) but not both, as of April 1, 1986: 1/

(a) On three2/3/ out of the five routes specified below:

(i) NAGOYA4/-HONOLULU

(ii) TOKYO4/-HONOLULU

(iii) TOKYO-PORTLAND4/

(iv) TOKYO-one point4/ in the United States not served as a non-stop gateway point by the airlines of either side as of April 1, 1985

(v) TOKYO-another point4/ in the United States not served as a non-stop gateway point by the airlines of either side as of April 1, 1985/

(b) on three2/3/ out of the four routes specified below:

(i) NAGOYA-HONOLULU

(ii) TOKYO-LOS ANGELES

(iii) TOKYO-one point4/ in the United States not served as a non-stop gateway point by the airlines of either side as of April 1, 1985/

(iv) TOKYO-another point4/ in the united States not served as a non-stop gateway point by the airlines of either side as of April 1, 1985/

2. Total frequencies for the airlines of each side on the new combination services specified above may not exceed ten (10) frequencies a week beginning April 1, 1986, eighteen (18) a week beginning April 1, 1987, twenty (20) a week beginning April 1, 1988 and twenty-one (21) a week beginning April 1, 1989, respectively.

　Frequencies to be provided by an airline for these new combination services on any route will not exceed seven (7) per week.

Note 1: Each side may authorize the same or a different airline to operate on each of the routes. Not more than one additional airline for each side will be permitted to operate a new service on each of these routes.

Note 2: if either side designates an airline to operate a small package service as provided by subparagraph 2, paragraph I of this Memorandum of Understanding, it may select only two combination services under subparagraph 1 above. It may, nevertheless, thereafter designate a third airline for either combination service or exclusively small package service under this section in substitution for the airline designated for the small package service.

Note 3: Each side may select its routes and, upon six months' notice to the other side, may change its selection.

Note 4: These points may be used as coterminals, and, in that case, the airline serving them is deemed to operate on each of the routes.

Note 5: Each side may select the new point in the United States to be served by its designated airline, and, upon six months I notice to the other side may change the point.

Note 6: If either side designates an airline to operate a small package service as provided by subparagraph 2, paragraph I of this Memorandum of under standing, the number of frequencies available to that airline for small package service will be drawn from the total number of frequencies provided by this section but will not exceed seven (7) per week.

IV. Doing-Business Issues

　The two sides discussed a number of doing-business issues including the questions of whether the number of flights of an airline must be balanced east-bound and west-bound and the use of dry-leased aircraft. They shared the view that regulations applicable to such subjects would be governed by the following understanding: In order to ensure that each designated airline of either side will enjoy an opportunity to exercise maximum management discretion in operating the agreed services, free as much as possible from government regulation, the aeronautical authorities of both sides will make their utmost efforts, within the framework of their domestic laws, to minimize doing-business restrictions on the airlines of both countries arising from economic regulations. This understanding will not apply, however, to exclusively environmental or safety regulations applied in a non-discriminatory manner.

　The aeronautical authorities of both countries will consult closely and frequently in order to solve the issues which may arise in the process of applying such economic regulations. With this in mind, the two sides shared the view that an eastbound--westbound balance rule and any regulation which significantly restricts the use of dry-leased aircraft such as repainting, will not be applied absent the agreement of both sides.

V. General Provisions

1. The opportunities granted by this Memorandum of Understanding will not derogate in any way from the right available under the authorizations granted by the designating sides as of April 1, 1985 to the designated airlines currently operating under the U. S. -Japan Civil Air Transport Agreement of 1952, as amended. Notwithstanding the preceding sentence, combination services on the routes specified in paragraph II of this Memorandum of Understanding will be governed exclusively by that paragraph.

2. The two sides agree that, at the request of either side, the aeronautical authorities of both countries will hold consultations in order to ensure flexible implementation of this Memorandum of Understanding.

3. The two sides reaffirm their obligation to provide all designated airlines a fair and equal opportunity to operate the agreed services. This requires that a fair and equal competitive opportunity be available to all designated airlines. These principles are applicable to passenger and cargo services under the l952 bilateral Agreement, and should be applied to commercial activities necessary to market such services.

4. The United States indicated that it is currently engaged in intensive study of the question of competitive conditions in cargo transportation between Japan and the United States. While some study has been completed, further study is continuing. If, as a consequence of the completion of this work, the United States is of the view that any part of this Memorandum of Understanding is inconsistent with conclusions reached in the course of the intensive study, the United states may request consultations with Japan. Such request for consultations would be made no later than July 31, 1985, for the purpose of holding such consultations within 30 days of the request. Through these consultations the two sides may modify this Memorandum of Understanding in light of the conclusions resulting from the study. If the two sides are unable to agree to such a modification, either side may, prior to September 30, 1985, suspend its implementation of this Memorandum of Understanding, pending agreement on modifications, in which event the other side may do likewise.

5. Nothing herein prejudices each side's interpretation of the rights and obligations under the 1952 bilateral Agreement.

　This Memorandum of Understanding is effective upon signature.

　(Signed)Makoto Watanabe
for the Delegation of Japan

　(Signed)Franklin K. Willis
for the Delegationof the  United States of America

　(Signed)Sumio Shioda
for the Aeronautical Authorities of Japan

　Tokyo, April 30, 1985.

ATTACHMENT A

　EXPERIMENTAL CAPACITY ARRANGEMENT FOR TOKYO/OSAKA/NAGOYA TO GUAM/SAIPAN

1. Each side will permit the airlines of the other side to operate the following number of seats or flights, at the discretion of that other side, in the markets indicated, according to the following table:

　Markets Total Base Weekly Flights or Seats

　Seats in Each Round Trip

　Direction2/ Flights1/2

　TOKYO-GUAM/SAIPAN 4,500or 34

　OSAKA/NAGOYA-GUAM/SAIPAN 2,000or 34

2. In the first quarter of l986, and each year thereafter for the duration of this Experimental Capacity Arrangement, the aeronautical authorities of both countries will meet to determine appropriate capacity increases for specific markets, commencing the following April 1. Among the factors which may be considered as guidelines is, inter alia, whether the average aggregate load factor of all the airlines of the side seeking the increase is greater than 65% during the previous January-December period. Capacity increases permitted for each side on April 1, 1986, and again on April 1, 1987, will not be less than three (3) flightsl/or 500 seats per week. The designated airlines of one side may match the capacity increase authorized for the airlines of the other side under this paragraph without regard to specific markets.

3. As an aid to these determinations, the two sides will exchange statistics for these markets in accordance with the Agreed Minute dated January l4, l959. Statistics of a particular month, in accordance with the bi-monthly reporting under the 1959 Agreed Minute, will be submitted within 60 days from the end of the month.

4. This Arrangement will apply for an experimental three-year period from May 1, 1985 through March 31, 1988.

Note 1: The following equivalencies will apply for the purpose of counting flights:

　B-727, B-707, DC-8 or equivalent sized aircraft 1

　DC-10, L-1011 or equivalent sized aircraft 1.5

　B-747 2

Note 2: Extra sections will not be included.

(U.S. Note)

　Bonn,May 1,1985

　Excellency,
  I have the honor to acknowledge receipt of Your Excellency's note of today's date, which reads as follows:

"(Japanese Note)"

　I have further the honor to confirm agreement, on behalf of the Government of the United States of America, to the provisions on matters relating to the Agreement contained in the Memorandum of Understanding referred to in Your Excellency's note.

　I avail myself of this opportunity to renew to Your Excellency the assurance of my highest consideration.

　(Signed) George P. Shultz
The Secretary of State

　His Excellency
Shintaro Abe
Minister for Foreign Affairs