Frequently Asked Questions


Members of the WTO have agreed to the following definitions for subsidy:

A government practice that involves a direct transfer of funds (e.g. grants, loans, and equity infusion), potential direct transfers of funds or liabilities (e.g. loan guarantees)

  • Government revenue that is otherwise due is foregone or not collected
  • Government provides goods or services other than general infrastructure, or purchases goods
  • Government makes payments to a funding mechanism, or entrusts or directs a private body to carry out one or more of the type of functions illustrated in (i) to (iii) above which would normally be vested in the government and the practice, in no real sense, differs from practices normally followed by governments


*Because members of the WTO have agreed to the definition of what IS a subsidy, everything NOT defined as such is therefore NOT a subsidy

Do we have Open Skies Agreements with Qatar and the United Arab Emirates?

YES.

The United States holds Open Skies Agreements with Qatar and the United Arab Emirates, as well as with 113 other countries.

The US-UAE Open Skies Agreement can be viewed here.

The US-Qatar Open Skies Agreement can be viewed here.

So, what’s the problem?

Since the Open Skies agreements with the United Arab Emirates and Qatar were signed in the late 1990s, the United Arab Emirates and Qatar have subsidized their airlines, Emirates and Etihad (which didn’t exist when the Open Skies agreement was signed), and Qatar Airways, respectively, with over $50 billion dollars in subsidies. The Open Skies agreements specifically state that such subsidization is not allowed (fair competition is spelled out in Article 11, and pricing determinations are spelled out in Article 12).

These massive and unparalleled subsidies have allowed these three airlines to expand at an unprecedented rate into markets they wouldn’t have otherwise been able to expand into if they were operating at true commercial businesses without government subsidies. The subsidies have also allowed them to purchase considerable quantities of wide-body aircraft and flood existing aircraft routes with excess capacity (seat-dumping) while artificially lowering prices on seats.

Why is this so serious?

It can be challenging to visualize the long-term impact that these subsidies will have on U.S. aviation and it’s industry employees. While there is a very real threat currently from this unprecedented, subsidized expansion (a net 1,500- U.S. based jobs are lost for every route lost or forgone to one of the Gulf carriers), the long-term reality is far more dire. While tickets may seem lower on the Gulf airlines currently (this isn’t because they actually are cheap, this is because the Gulf airlines are artificially lowering prices to distort the market), as U.S. carriers begin to lose long-haul routes, they won’t be able to sustain their vital short haul routes, and Gulf carriers, with a monopoly on those routes, will be able to set whatever price they like for tickets. So long term, this isn’t just bad for U.S. carriers and American aviation workers, it’s bad for consumers and could be devastating for the U.S. economy as the aviation industry alone contributes over 5% of US GDP.

What parts of the Open Skies Agreements are being violated?

Article 11 Sections 1 & 2: Fair Competition

1.Each Party shall allow a fair and equal opportunity for the designated airlines of both Parties to compete in providing the international air transportation governed by this Agreement.

2.Each Party shall allow each designated airline to determine the frequency and capacity of the international air transportation it offers based upon commercial considerations in the marketplace. Consistent with this right, neither Party shall unilaterally limit the volume of traffic, frequency or regularity of service, or the aircraft type or types operated by the designated airlines of the other Party, except as may be required for customs, technical, operational, or environmental reasons under uniform conditions consistent with Article 15 of the Convention.

Article 12 Section 1 Subsections a & c :Pricing

Each Party shall allow prices for air transportation to be established by each designated airline based upon commercial considerations in the marketplace.
Intervention by the Parties shall be limited to:
1. a.Prevention of unreasonably discriminatory prices or practices;
2. Protection of consumers from prices that are unreasonably high or restrictive due to the abuse of a dominant position;
3. Protection of airlines from prices that are artificially low due to direct or indirect governmental subsidy or support.

Is Chapter 11 a subsidy?

NO.

There are a number of reasons that can be used to explain why Chapter 11 is NOT a subsidy:

Chapter 11 is not a subsidy because the WTO does not define it as one

Chapter 11 does not involved equity infusions by the taxpayer/government and is overseen by an independent judiciary (not the government).

An organization that enters Chapter 11 comes out as a newly reorganized entity that is not the same business that entered Chapter 11.

Are the Post-9/11 financial packages subsidies?

NO.

The Air Transportation Safety and System Stabilization Act was a response to U.S. airspace and the American aviation industry (and its partners) being shut down by the federal government in the days following 9/11.

Is this happening anywhere else in the world?

YES.

Aviation markets in Canada, the European Union, and Australia have been adversely affected by the subsidies coming out of the Gulf. These countries (or governing bodies) hold their own forms of bilateral trade agreements with the UAE and Qatar. Open Skies Agreements specifically refer to particular US air transport agreements that have been negotiated as such.

Are these countries doing anything about it?

Australia:
Australia’s flag carrier, Qantas Airlines, after sustaining record losses as a result of the Gulf airline subsidies, capitulated in 2003, and now runs limited flights as a code-share partner of state-owned and state-subsidized Emirates Airlines. This has resulted in massive job losses at Qantas as the airline turns more and more of its international flying over to Emirates.

Canada:
Bilateral air transport agreements with the UAE were first signed in the 1999. By 2010, Canada, feeling the threat of unfairly subsidized competition, refused to grant further landing slots to the UAE airlines – Emirates and Etihad – into Toronto. In retaliation, the UAE government refused to allow Canada to continue operating out of Camp Mirage, and denied landing rights at Camp Mirage to Canada’s Chief of Defense. The UAE also actively lobbied against Canada’s United Nation’s Security Council bid in 2010 as a result of this dispute.

Europe:
As European carriers and their employees have begun to be affected by the unnatural expansion of the subsidized Gulf carriers, France, Germany, and the Netherlands have taken a stand. They have recently frozen new routes for the Gulf carriers into their countries until the subsidies are addressed and France and Germany have announced combined European effort to combat the illegal subsidies from the United Arab Emirates and Qatar to their airlines and ensure “fair competition” and asking their European Union partners and the EU executive commission to work together in finding strategy that will bring about a fair and equitable resolution to the issue of the Gulf subsidies.
This development comes after “current EU talks with the six-nation Gulf Cooperation Council on fair aviation competition have failed to curb market-distorting government aid to carriers such as Emirates, Etihad Airways PJSC and Qatar Airways Ltd,” according to European Transport Commissioner Violeta Bulc. If implemented, this new effort, supported by other EU member states and the European Commission, would replace individual bilateral agreement negotiations and will be headed by the Commission on behalf of individual members.
French transport minister Alain Vidalies has stated, “Any commercial flying agreement including the granting of air traffic rights to foreign carriers should be accompanied by provisions allowing member states to monitor potential illegal subsidies and unfair competitive practices.” Such an arrangement would allow for the opportunity for both sides to talk about new landing rights and will likely delay the decision to further open European Markets until such conversations had taken place.

Do the U.S.’ Open Skies Agreements with these countries provide a structure for dispute resolution?

YES.

Articles 13 & 14 of the Open Skies Agreements clearly outline consultation and dispute resolution measures for Open Skies.

Article 13: Consultations
Either Party may, at any time, request consultations relating to this Agreement. Such consultations shall begin at the earliest possible date, but not later than 60 days from the date the other Party receives the request unless otherwise agreed.

As explicitly stated in the text of the Open Skies Agreements the US holds with Qatar and the UAE, either party has the right to call for consultations at any time. This is important for two reasons: first, this means that both Qatar and the UAE have the same right and access to consultation requests as the Untied States. Second, this means that no reason is required for such consultations to take place. Violation claims are not required for consultation requests.

What action is the United States government taking to end the Open Skies violations?

The U.S. Departments of State, Transportation, and Commerce have announced that the subsidy claims, “are of significant interest to stakeholders and all three federal agencies. The U.S. government takes seriously the concerns raised in the report and is interested in receiving insights and feedback from stakeholders before any decisions are made regarding what action, if any, should be taken.”

As such, they have opened a public online forum in which to collect evidence, insights, and feedback regarding the subsidy claims before they open a formal investigation into the matter.

What needs to happen moving forward to equitably resolve the subsidy violations of our Open Skies Agreements with the UAE and Qatar?

The actions taken by the U.S. Departments of State, Transportation, and Commerce are a first step, but this issue is far from resolved. Americans for Fair Skies is asking the United States government to call for consultations with both the UAE and Qatar to begin the process of finding an equitable resolution to the subsidy violations of Open Skies.

Until such time as those consultations take place and a reasonable agreement has been reached, Americans for Fair Skies is also requesting that the U.S. government put a freeze on new routes from these carriers into the United States.