It could well be that the Trump administration would presumably balance the core interests of connectivity and the best interest of the consumer that air transport stands for against protecting the US carriers from open competition.
by Dr. Ruwantissa Abeyratne
America first will be the major and overriding theme of my administration…. President-elect Donald Trump at the campaign trail
( November 17, 2016, Montreal, Sri Lanka Guardian) During his election campaign, President-elect Donald Trump gave us a glimpse or rather an outline of his foreign policy during his major policy speech at the Mayflower Hotel in Washington, D.C. One of the statements Mr. Trump made was: “no country has ever prospered that failed to put its own interests first… under my administration, we will never enter America into any agreement that reduces our ability to control our own affairs”. Another statement was “under a Trump administration, no American citizen will ever again feel that their needs come second to the citizens of a foreign country”. These statements are undoubtedly patriotic and perhaps prophetic. But are they too protectionist for air transport?
It is now well known that the three large US carriers – American, United and Delta – in their white paper to Congress in 2015 claimed that Middle Eastern airlines, in particular Emirates, Etihad and Qatar were dumping capacity in the United States under the open skies agreement between the United States and the United Arab Emirates supported by State subsidies given to these carriers by the UAE government. The US carriers claimed that as a result there was a net loss of 821 jobs to Americans with each wide body flight operated by the Middle Eastern carriers. The American carriers claimed that the ultimate result was that: “US carriers would be forced to exit some domestic markets, especially small communities, as the airlines lost international feed in markets where they were unable to compete with the Gulf airlines”.
On this issue, Congress got involved to the extent that by letter dated 30 April 2015, 260 United States Congressmen wrote jointly to Secretary of State John Kerry and Secretary of Transportation Anthony Foxx urging them to “seek consultations with the governments of Qatar and the United Arab Emirates (UAE) in an effort to stem the tide of subsidized capacity that their state-owned airlines are deploying on international routes to the United States, in direct contravention to the U.S. Open Skies policy”. The Congressmen went on to say: “Specifically, we have learned that over the past decade, the governments of Qatar and the UAE have granted over $40 billion in concealed subsidies, as defined by the World Trade Organization and U.S. trade law, have taken a wide variety of forms, such as direct cash injections, interest free loans with no payment obligations, shareholder advances, significant related party transactions not at arm’s-length, and subsidized infrastructure, as well as other unfair business practices, such as bans on unions. The evidence is drawn almost entirely from financial statements, most of which have not been released in this country”.
The letter added: “According to available research, each daily international round trip frequency lost/foregone by US airlines because of subsidized Gulf carrier competition results in a loss of hundreds of US jobs”. If this fact were authenticated, the Trump administration will be forced to look into the job-loss claim, as it is the antithesis of the central theme of increasing jobs in the United States that President-elect Trump has pushed during his campaign. Being the astute businessman he is, he may take cognizance of the analogous argument by Emirates on Canada contained in a study released in March 2010 concluding that Canada could reap economic benefits of around $466 million a year and create 2800 jobs if it was given the flying slots it is demanding to counter Canada’s accusation against Emirates of wanting to “flood” the Canadian routes in order to divert passengers through Dubai.
Therefore, it could well be that the Trump administration would presumably balance the core interests of connectivity and the best interest of the consumer that air transport stands for against protecting the US carriers from open competition. The US carriers have a difficult time proving that a benefit has been conferred on the UAE carriers through subsidies granted to them. Under the US/UAE Open Skies Agreement there is no distortion of competition nor is there a specific benefit in operating air services as allowed in the Agreement. There is no prohibition of subsidies nor any mention thereof in the Agreement. On the contrary, the services offered by the UAE carriers, and Qatar Airways as well as Turkish Airlines (which has also been identified as a threat to US carriers), only stimulate competition. The only instance where subsidies are questioned in the open skies agreement is when subsidies are used to distort the market by the practice of predatory pricing, which is not in issue with regard to the spat between the US and Middle East carriers.
One view is that under a Trump administration, the major US carriers – particularly American, Delta and United – would stand to benefit, and that foreign carriers, such as Norwegian which has applied for a permit for its Irish based subsidiary NAI will not be issued with a permit, under pressure from the US labour unions which claim that NAIs entry into the US market will undercut US carriers resulting in job losses in the US. The unions use the “flag of convenience” argument against Norwegian that might resonate with the trade policies of the Trump administration.
However, air transport is a peculiar animal which impels governments that are protective to heed its inherent compelling nature of “reciprocity” that makes governments take a balanced view when it comes to market access. As an example, some have cited the distinct disadvantage that small carriers such as Alaska Airlines, Hawaiian Airlines and JetBlue Airways will face if a protectionist policy is imposed on foreign carriers such Emirates and Etihad, as Alaska and JetBlue have code share agreements with Emirates and Etihad, and the two US carriers, including JetBlue have extensive codeshare involving partnerships with the Gulf carriers, that are calculated to expand globally. For example, JetBlue has pointed out that if Norwegian’s application on behalf of NAI is rejected, there could be negative consequences when JetBlue attempts to launch services to Europe, as there could be inevitable reciprocity from EU aviation authorities in the nature of rejection of JetBlue’s application.
The US Department of State website says: “The United States has achieved Open Skies with over 100 partners from every region of the world and at every level of economic development. In addition to bilateral Open Skies agreements, the United States has negotiated two multilateral Open Skies accords: (1) the 2001 Multilateral Agreement on the Liberalization of International Air Transportation (MALIAT) with New Zealand, Singapore, Brunei, and Chile, later joined by Samoa, Tonga, and Mongolia; and (2) the 2007 Air Transport Agreement with the European Community and its 27 Member States”. It goes on to say: “Open Skies agreements have vastly expanded international passenger and cargo flights to and from the United States, promoting increased travel and trade, enhancing productivity, and spurring high-quality job opportunities and economic growth. Open Skies agreements do this by eliminating government interference in the commercial decisions of air carriers about routes, capacity, and pricing, freeing carriers to provide more affordable, convenient, and efficient air service for consumers. America’s Open Skies policy has gone hand-in-hand with airline globalization. By allowing air carriers unlimited market access to our partners’ markets and the right to fly to all intermediate and beyond points, Open Skies agreements provide maximum operational flexibility for airline alliances”.
The above statements are an explicit recognition of the fact that air transport is about offering the best service to the customer through openness and unfettered commercial opportunity offered to carriers and the antithesis of protectionism. The philosophy of the Chicago Convention of 1944 – which sets the rules for air transport – is that the future development of international civil aviation greatly helps create and preserve “friendship and understanding” among the people of the world by connecting them through equality of opportunity for carriers. Both the US Department of State and the Convention are totally consistent in this regard. To infuse protectionism to the industry with the sole intent of protecting jobs would be upending the core raison d’etre and development of air transport and President-elect Trump is far too commercially savvy not to notice this.
The author is former senior legal officer of the International Civil Aviation Organization.