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December 06, 1996

The Government of the Republic of the Philippines and the Government of Macau, the latter being duly authorized by the competent sovereign institution of the Portuguese Republic and with the consent of the Government of the People's Republic of China,

hereinafter described as the Contracting Parties,

Desiring to conclude an agreement for the purpose of establishing and operating air services between the areas of the Philippines and of Macau,

Agree as follows:

ARTICLE I
DEFINITIONS

For the purpose of this Agreement, unless the context otherwise requires:

a) the term "aeronautical authorities" means, in the case of the Republic of the Philippines, the Civil Aeronautics Board and, in the case of Macau, the Civil Aviation Authority, or in both cases, any person or body authorized to perform any functions exercised at present by the said authority or similar functions;

b) the term "designated airline" means an airline which one Contracting Party shall have designated, by written notification to the other Contracting Party, in accordance with Article IV of the present Agreement, for operation of air services on the routes specified in the Annex thereto;

c) the term "the Convention" means the Convention on international Civil Aviation opened for signature at Chicago on the seventh day of December 1944 and includes any Annex adopted under Article 90 of that Convention and any amendment of the Annexes or Convention under Articles 90 and 94 thereof;

d) the term 'Larea" in relation to the Philippines, with reference to Article 2 of the Convention, includes the land areas and territorial waters adjacent thereto under the sovereignty, suzerainty, protection or mandate of the Philippines; and in relation to Macau, includes Macau peninsula and Taipa and Coloane Islands;

e) the terms "air services", "international air service", "airline" and "stop for non-traffic purposes" have the meaning respectively assigned to them in Article 96 of the Convention;

f) the term "agreed services" means scheduled air services on the routes specified in the Annex to this Agreement for the transport of passengers, cargo and mail;

g) the term "specified route" means a route specified in the Annex to this Agreement;

h) the term "Annex" means the Annex to this Agreement or as amended in accordance with the provisions of Article XIII of this Agreement. The Annex forms an integral part of this Agreement and all references to the Agreement shall include the Annex except where explicitly agreed otherwise.

i) the term "appropriate channels" means in the case of the Republic of the Philippines, through the Department of Foreign Affairs, and in the case of Macau, through the Aeronautical Authorities.

ARTICLE II
APPLICABILITY OF THE CHICAGO CONVENTION

In implementing this Agreement, the Contracting Parties shall act in conformity with the provisions of the Convention including the Annexes, and any amendment to the Convention or to the Annexes, in so far as these provisions are applicable to the Contracting Parties.

ARTICLE III
GRANT OF RIGHTS

1) Each Contracting Party grants to the other Contracting Party the rights specified in the present Agreement for the purpose of establishing and operating air services specified in the Annex to this Agreement.

2) Subject to the provisions of the present Agreement, the airline designated by each Contracting Party shall enjoy the following privileges:

a) to fly without landing across the-area of the other Contracting Party;

b) to make stops in the said area for non-traffic purposes; and

c) to make stops in the said area at the points specified for that route in the

Annex for the purpose of putting down and taking on international traffic in passengers, cargo and mail coming from or destined for other points so specified.

3) Nothing in paragraph 2) of this Article shall be deemed to confer on the airline of one Contracting Party the privilege of taking up in the area of the other Contracting Party, passengers, cargo or mail carried for remuneration or hire and destined for another point in the area of that other Contracting Party.

ARTICLE IV
PRINCIPLES GOVERNING THE DESIGNATION OF AIRLINES AND THE REVOCATION OR SUSPENSION OF OPERATING AUTHORIZATION

1) Each Contracting Party shall have the right to designate m writing to the other Contracting Party not more than two airlines for the purpose of operating the agreed services on the specified routes.

2) On receipt of the designation, the other Contracting Party shall, subject to the provisions of paragraphs 3) and 4) of this Article, without unnecessary delay, grant to the airline designated the appropriate operating authorization.

3) The aeronautical authorities of one Contracting Party may require an airline designated by the other Contracting Party to satisfy them that it is qualified to fulfill the conditions prescribed under the laws and regulations normally and reasonably applied by them in a manner not inconsistent with the provisions of the Convention to the operation of international commercial air services.

4) (a) The Government of the Republic of the Philippines shall have the right to refuse to accept the designation of an airline and withhold or revoke the grant to an airline of the operating authorization specified in paragraph 2) of this Article or to impose such conditions as it may deem necessary on the exercise by an airline of the operating authorization in any case where it is not satisfied that that airline is incorporated and has its principal place of business in Macau;

(b) The Government of Macau shall have the right to refuse to accept the designation of an airline and withhold or revoke the grant to an airline of the operating authorization specified in paragraph 2) of this Article or to impose such conditions as it may deem necessary on the exercise by an airline of the operating authorization in any case where it is not satisfied that the substantial ownership and effective control of that airline are not vested in the Government of the Republic of the Philippines or its nationals.

5) Subject to the provisions of Article VIII of the present Agreement, at any time after the provisions of paragraphs 1), 2) and 3) of this Article have been complied with, an airline so designated and authorized may begin to operate the agreed services.

6) Each Contracting Party shall have the right to suspend the exercise by an airline of

the operating authorization specified in paragraph 2) of this Article or to impose such condition as it may deem necessary on the exercise by an airline of the operating authorization in any case where the airline fails to comply with the laws and regulations of the Contracting Party granting the operating authorization or otherwise fails to operate in accordance with the conditions prescribed in the present Agreement, provided that, unless immediate suspension or imposition of conditions is essential to prevent further infringements of laws or regulations, this right shall be exercised only after consultations with the other Contracting Party.

ARTICLE V
EXEMPTION FROM CUSTOMS DUTIES AND OTHER CHARGES

1) Aircraft operated on international services by the designated airline of either Contracting Party, as well as their regular equipment, supplies of fuel and lubricants and aircraft stores (including food, beverages and tobacco) on board such aircraft shall be exempt from all customs duties, inspection fees and other duties or taxes on arriving in the area of the other Contracting Party, provided such equipment and supplies remain on board the aircraft up to such time as they are re-exported.

2) There shall be also exempt from the same duties and taxes, with exception of charges corresponding to the services performed:

a) aircraft stores taken on board in the area of either Contracting Party, and for use on board aircraft engaged in an international air service of the other Contracting Party;

b) spare parts entered into the area of either Contracting Party for the maintenance or repair of aircraft used on international air services by the designated airline of the other Contracting Party;

c) fuel and lubricants destined to supply aircraft operated on international air services by the designated airline of the other Contracting Party, even when these supplies are to be used on the part of the journey performed over the area of the Contracting Party in which (hey are taken on board;

Material referred to in sub-paragraph a), b) and c) may be required to be kept under customs supervision or control.

3) The exemptions provided by paragraph 2) of this Article shall also be available where the airline of one Contracting Party has contracted with another airline, which similarly enjoys such exemption from the other Contracting Party, for loan or transfer in the area of the other Contracting Party of the items specified in paragraph 2) of this Article.

ARTICLE VI
MAINTENANCE OF TECHNICAL AND ADMINISTRATIVE PERSONNEL

The designated airline of one Contracting Party shall be entitled, in accordance with the laws and regulations relating to entry, residence and employment of the other Contracting Party, to bring into and maintain in the area of the other Contracting Party its own technical and administrative personnel required for the operation of the agreed services.

ARTICLE VII
REMITTANCE OF EARNINGS

Either Contracting Party undertakes to grant the other Contracting Party free transfer, in any freely convertible currency at the official rate of exchange at the time of transfer or remittance, of the excess of receipts over expenditure and taxes achieved on its area in connection with the carriage of passengers, baggage, mail shipments and freight by the designated airline of the other Contracting Party. Whenever the payment system between Contracting Parties is governed by a special agreement, that agreement shall apply.

ARTICLE VIII
APPLICABILITY OF LAWS AND REGULATIONS

1) The laws and regulations of one Contracting Party relating to the admission to or departure from its area of aircraft engaged in international air services, or to the operation and navigation of such aircraft while within its area, shall be applied to the aircraft of the airline designated by the other Contracting Party, and shall be complied with by such aircraft upon entering or departing from or while within the area of the first Contracting Party.

2) The laws and regulations of one Contracting Party as to the admission to or departure from its area of passengers, crew, or cargo of aircraft such as regulations relating to entry, clearance, immigration, passports, customs, and quarantine shall be complied with by or on behalf of such passengers, crew or cargo by the airline designated by the other Contracting Party upon entrance into or departure from, or while within the area of the first Contracting Party.

ARTICLE IX
PRINCIPLES GOVERNING OPERATION OF AGREED SERVICES

In order to develop the air transport services along the routes or section thereof in the schedule made part of the Annex and for the purpose of achieving and maintaining

equilibrium between the capacity of the specified requirements of the public for air transportation, as determined by the aeronautical authorities of the Contracting Parties, the following principles shall apply:

1) The designated airline of each Contracting Party shall enjoy fair and equal opportunity to operate the agreed services on the specified routes between their respective areas;

2) In the operation by the designated airline of either Contracting Party of the specified air services, the interests of the airline of the other Contracting Party shall be taken into consideration so as not to affect unduly the services which the latter provides on all or part of the same route;

3) The agreed services provided by the designated airlines of the Contracting Parties shall bear close relationship to the requirements of the public for transportation on the specific routes and shall have as their primary objective the provision, at a reasonable load factor, of capacity adequate to carry the current and reasonably anticipated requirements of passengers and cargo including mail between the areas of the Contracting Parties. Provisions for the carriage of passengers, baggage and cargo including mail both taken on board and discharged at points on the specified routes other than points in the area of the Contracting Party which designated the airline shall be made in accordance with the general principles that capacity shall be related to:

a) traffic requirements to and from the area of the Contracting Party which has designated the airline;

b) the requirements of through airline operations;

c) the air transport needs of the area through which the airline passes; and;

d) the adequacy of other air transport services established by airlines of the States comprising the region.

ARTICLE X
TARIFFS

1) The tariffs to be charged by the airline of one Contracting Party for carriage of traffic to or from the area of the other Contracting Party shall be established at reasonable levels, due regard being paid to all relevant factors including cost of operation, reasonable profit, and the tariffs of other airlines.

2) The tariffs referred to in paragraph 1) of this Article shall, if possible, be agreed to by the designated airlines of both Contracting Parties, in consultation with other airlines operating over the whole or part of the route, and such agreement shall, where possible, be reached through the International Air Transport Association.

3) The tariffs so agreed shall be submitted for the approval of the aeronautical authorities of the Contracting Parties at least thirty (30) days before the proposed date of their introduction; in special cases, this time limit may be reduced, subject to the agreement of the said authorities.

4) If the designated airlines cannot agree on any of these tariffs, or if for some other reason a tariff cannot be fixed in accordance with the provisions of paragraph 2) of this Article, or if during the first fifteen (15) days of the thirty (30) days period referred to in paragraph 3) of this Article one Contracting Party gives the other Contracting Party notice of its dissatisfaction with any tariff agreed in accordance with the provisions of paragraph 3) of this Article, the aeronautical authorities of the Contracting Parties shall try to determine the tariff by agreement between themselves.

5) If the aeronautical authorities cannot agree on the approval of any tariff submitted to them under paragraph 3) of this Article and on the determination of any tariff under paragraph 4), the dispute shall be settled in accordance with the provisions of Article XIV of the present Agreement.

6) No tariff shall come into force if the aeronautical authorities of either Contracting Party have not approved it.

7) The tariffs established in accordance with the provisions of this Article shall remain in force until new tariffs have been established in accordance with the provisions of this Article.

ARTICLE XI
AVIATION SECURITY

1) The Contracting Parties reaffirm that their obligation to each other to protect the security of civil aviation against acts of unlawful interference forms an integral part of this Agreement.

2) The Contracting Parties shall in particular, act in conformity with the provisions of the Convention on Offenses and Certain Other Acts Committed on Board Aircraft, signed at Tokyo on September 14, 1963, the Convention for the Suppression of Unlawful Seizure of Aircraft, signed at The Hague on December 16, 1970, and the Convention for the Suppression of Unlawful Acts Against the Safety of Civil Aviation, signed at Montreal on September 23, 1971.

3) The Contracting Parties shall provide, upon request, all necessary assistance to each other to prevent acts of unlawful seizure of civil aircraft and other unlawful acts against the safety of such aircraft, their passengers and crew, airports and air navigation facilities, and any other threat to the security of civil aviation.

4) The Contracting Parties shall act in conformity with the aviation security provisions

established by the International Civil Aviation Organization and designated as Annexes to the Convention on International Civil Aviation to the extent that such security provisions are applicable to the Contracting Parties; they shall require that operators of aircraft of their registry, operators of aircraft who have their principal place of business or permanent residence in their areas, and the operators of airports in their areas act in conformity with such aviation security provisions.

5) Each Contracting Party agrees that its operators of aircraft may be required to observe the aviation security provisions referred to in paragraph 4 above required by the other Contracting Party for entry into, departure from, or while within the area of that other Contracting Party. Each Contracting Party shall ensure that adequate measures are effectively applied within its area to protect the aircraft and to inspect passengers, crew, carry-on items, baggage, cargo and aircraft stores prior to and during boarding and loading.

6) Each Contracting Party shall give sympathetic consideration to any request from the other Contracting Party for reasonable special security measures to meet a particular threat.

7) Each Contracting Party shall also give sympathetic consideration to a request from the other Contracting Party to enter into reciprocal administrative arrangements whereby the aeronautical authorities of one Contracting Party could make in the area of the other Contracting Party their own assessment of the security measures being carried out by aircraft operators in respect of flights destined to the area of the first Contracting Party.

8) When an incident or threat of an incident of unlawful seizure of civil aircraft or other unlawful acts against the safety of such aircraft, their passengers and crew, airports or air navigation facilities occurs, the Contracting Parties shall assist each other by facilitating communications and other appropriate measures intended to terminate rapidly and safely such incident or threat thereof.

9) When a Contracting Party has reasonable grounds to believe that the other Contracting Party has departed from the provisions of this Article, the first Contracting Party may request immediate consultations with the other Contracting Party.

ARTICLE XII
RECOGNITION OF CERTIFICATES AND LICENSES

Certificates of airworthiness, certificates of competency and licenses issued or rendered valid by one Contracting Party shall be recognized as valid by the other Contracting Party for the purpose of operating the routes and services described in the Annex to this Agreement. Each Contracting Party reserves the right to refuse to recognize, for the purpose of flight above its own area, certificates of competency and

licenses granted to its own nationals in the case of the Republic of the Philippines and its own residents in the case of Macau by any other non-Contracting Party.

ARTICLE XIII
CONSULTATION

In the spirit of close cooperation, the Contracting Parties shall consult each other from time to time with a view to ensuring the implementation of, and satisfactory compliance with, the provisions of the present Agreement and the Annex thereto.

Either Contracting Party may request through the appropriate channels such consultation, which shall begin within a period of sixty (60) days from the date the other Contracting Party receives a written request, unless the Contracting Parties agree to an extension of this period.

ARTICLE XIV
SETTLEMENT OF DISPUTES

1) If any dispute arises between the Contracting Parties relating to the interpretation or application of the present Agreement and its Annex, the Contracting Party shall in the first place endeavor to settle it by negotiation between themselves.

2) If the Contracting Parties fail to reach a settlement by negotiation, they may agree to refer the dispute to a tribunal of three arbitrators, one to be nominated by each Contracting Party and the third to be appointed by the two so nominated. Each of the Contracting Parties shall nominate an arbitrator within a period of sixty (60) days from the date of receipt by either Contracting Party from the other of a notice, through appropriate channels, requesting arbitration of the dispute by such a tribunal and the third arbitrator shall be appointed within a further period of sixty (60) days. If either of the Contracting Parties fails to nominate an arbitrator within the period specified, or if the third arbitrator is not appointed within the period specified, the President of the Council of the International Civil Aviation Organization may be requested by either Contracting Party to appoint an arbitrator who shall be a national of a State that can be regarded as neutral in relation to the dispute and shall act as President of the arbitral tribunal.

3) The Contracting Parties shall equally share the remuneration necessary for the arbitrators as well as other expenses due to the activity of the tribunal.

4) The Contracting Parties undertake to comply with any decision given under Paragraph 2) of this Article.

5) If and so long as either Contracting Party or a designated airline of either Contracting Party fails to comply with a decision given under paragraph 2) of this Article, the other Contracting Party may limit, withhold or revoke any rights which it has granted by virtue of the present Agreement to the Contracting Party in default or to the designated airline or airlines of the Contracting Party.

ARTICLE XV
AMENDMENT

If either of the Contracting Parties considers it desirable to modify the terms of the present Agreement including its Annexes, it shall request in writing, through the appropriate channels, consultation with the other Contracting Party. Such consultation shall begin within a period of sixty (60) days from the date of the request. Any modifications so agreed shall come into force when they have been confirmed by an exchange of letters through the appropriate channels.

ARTICLE XVI
REGISTRATION WITH THE INTERNATIONAL CIVIL AVIATION ORGANIZATION

The present Agreement and any modifications thereto in accordance with Article XV above, shall be registered with the International Civil Aviation Organization.

ARTICLE XVII
TERMINATION

Either Contracting Party may at any time give notice in writing to the other Contracting Party, through the appropriate channels, of its decision to terminate the present Agreement; such notice shall be simultaneously communicated to the International Civil Aviation Organization. In such case, the Agreement shall terminate twelve (12) months after the date of receipt of the notice by the other Contracting Party, unless the notice to terminate is withdrawn by agreement before the expiry of this period. In the absence of acknowledgment of receipt by the other Contracting Party, notice shall be deemed to have been received fourteen (14) days after the receipt of the notice by the International Civil Aviation Organization.

ARTICLE XVIII
ENTRY INTO FORCE

The present Agreement shall enter into force and effect on the date of the exchange of letters, through the appropriate channels, indicating that the respective legal requirements of each Contracting Party have been complied with.

In witness whereof, the undersigned, being duly authorized thereto by their respective Governments, have signed the present Agreement.

Done in duplicate in the English language at Pasay this 18th day of Junly 1997.

ANNEX

I. Routes for the operation in both directions by the designated airlines of Macau:

1. For passenger and cargo combination services:

2. For all-cargo services:

II. Routes for the operation in both directions by the designated airlines of the Republic of the Philippines:

1. For passenger and cargo combination services:

2. For all-cargo services:

III. Notes:

1. Points in Hong Kong, Taiwan and inland of China may not be served either as intermediate points or as points beyond.

2. The designated airlines of both Contracting Parties may, on all or any flights, omit calling at any of the above points provided that the agreed services on the route begin at points of origin in the respective areas.

PHILIPPINES/MACAU AIR SERVICES CONSULTATIONS 4 - 6 DECEMBER 1996

CONFIDENTIAL MEMORANDUM OF UNDERSTANDING

Delegations representing the Governments of the Republic of the Philippines and Macau (hereinafter referred to as "the Contracting Parties")held discussions in Macau from 4 to 6 December 1996 to conclude an Air Services Agreement. A list of the members of the two delegations appears as Attachment 1.

As a result of these discussions, which were held in a friendly and cordial atmosphere, the Contracting Parties have agreed on and initialed the text of the Air Services Agreement and its Annex (hereinafter collectively referred to as "the Agreement"), attached hereto as Attachment II.

The Contracting Parties have further agreed that the following arrangement on capacity in connection with the operation of the agreed services shall apply:

The designated airlines of each Contracting Party shall be permitted to provide 550 seats per week in each direction for passenger and cargo combination services on the specified routes without restriction to the type of aircraft.

The designated airlines of each Contracting Party shall be permitted to provide 250 tons per week in each direction for all-cargo services on the specified routes without restriction to the type of aircraft.

The designated airlines of the Contracting Parties are encouraged to enter into a co-operative arrangement between them to be approved by the aeronautical authorities of the Contracting Parties.

The Philippine delegation took note that the Macau delegation would submit the initialed Agreement together with this Confidential Memorandum of Understanding to the Sino-Portuguese Joint Liaison Group for approval. In due course thereafter, the Macau Government will inform the Government of the Republic of the Philippines that the Agreement is ready for signature.

Signed at Macau this 6th day of December 1996.

Attachment 1-1

MACAU DELEGATION

PHILIPPINE DELEGATION