When Open Skies Mean Broken Windows

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The sociologist James Q. Wilson is famed for the “broken windows” school of policing.  Small signs of disorder quickly lead to chaos on a greater scale, he reasoned. His theory holds that broken windows should be quickly fixed, fresh graffiti immediately painted over, and even seemingly small offenses like jumping subway stiles should be policed attentively to stop larger problems before they start.  

In the 1990s, New York City Mayor Rudy Giuliani applied the broken windows theory to make New York City, formerly beset by crime, into one of the safest major cities in the world. Of course, there is more than one way to break a window.  Other cities have successfully applied Wilson’s theory to make public spaces safer and more livable, but broken windows can occur in global trade as well.  

Imagine the case of one, or possibly two small countries with unlimited resources from oil production determined to build the largest airlines in the world without regard to expense or profitability.  These countries, if they wished, might spend $50 billion or more to build the world’s largest airline by capacity (not revenue) and build colossal airports to go with them.   This sounds fantastic, and yet it has happened.  

In an October 2018 study, scholar Thomas J. Duesterberg of Washington’s Hudson Institute compiles data to show that as of 2015, the oil kingdoms of Qatar and the United Arab Emirates have provided $48 billion in subsidies, plus another $4 billion of in-kind subsidies in the form of below-market-rate fuel, to build out not one but three separate airlines–Emirates Airlines, Etihad Airways, and Qatar Airways, known collectively as the Middle East 3 or ME3.

The money is still flowing.   Duesterberg recounts that as of 2017, Emirates and Etihad had 228 Boeing aircraft in their fleet and orders for another 300 on the books.  Emirates Airlines also had 101 Airbus A380 planes which carry up to 500 passengers in its fleet and 77 more on order.  Emirates is literally the world’s largest carrier by capacity, though not in terms of revenue. Etihad similarly has 66 Airbus planes in its fleet and 62 more on order.  

These airlines have increased their passenger capacity by 10-fold since 2001, Duesterberg reports, and are building airport capacity to match.  Qatar’s Hamad Airport is five times the size of Chicago’s O’Hare.  The government of Dubai is building what it says will be the world’s largest passenger airport at a cost of $32 billion and that will be able to hand 200 million passengers per year and service 100 Airbus A380s simultaneously. This growth in capacity far exceeds growth in the actual number of passengers.  

The airline business has notoriously low profit margins.  Excess capacity lowers profit margins for everyone.  Excess capacity by state-subsidized carriers destroys the profitability of commercial airlines that receive no state support and even that of state-owned airlines that operate under commercial rules.  It destroys the value of private-sector investment and undermines competitive markets.

The excess capacity problem isn’t a fluke or isolated occurrence.  It is one of the major issues in trade disputes between China and its trading partners including the United States.  Unprofitable Chinese excess capacity in steel, for instance, has wiped out steel industries around the world.  China has state-subsidized airlines too, that are growing at rates similar to ME3 and, as they reach beyond China, will soon contribute worldwide to excess capacity in the way the ME3 have, and perhaps even on a grander scale.   

There is a way to stop this problem.  Air travel between countries is governed by bilateral treaties between countries called “Open Skies” agreements.  Open Skies agreements ensure that each country has a reasonable and equitable number of flights from one to another.  In the US, Open Skies agreements are managed by the US Department of Transportation. The United States has Open Skies agreements with the UAE and Qatar.   But Open Skies agreements must be kept up to date.

In late 2017, Qatar Airways has used its petrodollar resources to buy a controlling stake in a failing Italian airline with 11 aging planes which it has rebranded as Air Italy and furnished with 50 new aircraft (Boeing 737 MAX and 787s) with plans for more and larger planes to come.  Air Italy has landing rights in five U.S. cities. In the new Air Italy, these cities now form the US anchor of a global airline that stretches from the US to East Asia and employs state-subsidized, oil-financed excess capacity all the way.   

The DOT has not yet revised the current US Open Skies agreement with Qatar to address this new reality of a Qatar-owned Italian air carrier. It needs to, quickly, because subsidized overcapacity, along with technology theft and other uncompetitive practices, mostly by China, is a central issue in the trade disputes that threaten the global economy.  China represents an enormous challenge to fair and free bilateral trade worldwide.   Qatar is a small problem in comparison, but the broken windows theory tells us to fix small problems before the large ones become unmanageable.

Originally Published on Town Hall.

americans4fairskies2015When Open Skies Mean Broken Windows
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Trouble for CNN over terror nation ties to TV analysts

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A report highlighted by Donald Trump Jr. that some CNN national security analysts have undisclosed ties to a Middle Eastern nation that sponsors terrorism threatens to undercut the network’s support among Democrats and independents, according to a new survey.

A poll of six battleground states found that likely voters, especially Democrats, believe the report, the latest evidence that President Trump’s attacks on CNN have had an impact.

Donald Trump Jr. tweeted the story out, adding, “Shocked to hear this. Many of CNN’s national security analysts have undisclosed ties to oppressive Qatari regime.”

Qatar has been in trouble with the administration over subsidizing its Qatar Airways and flooding U.S. routes in violation of an open-skies agreement that shuns subsidized airlines.

The “believability” poll tested three anti-Qatar messages and the one mentioning the CNN report topped the charts.

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It read: “The nation of Qatar is paying national security analysts, and specifically those working for CNN, who are speaking out positively on their behalf and not disclosing they are being paid by Qatar.”

It was the “most effective” message in the poll.

What’s more, it was the top message among Democrats and independents, two groups that have long supported CNN.

Republicans chose, instead, a message about American jobs being lost to the subsidized Qatar Airways.

The poll also found support for Trump retaliating against Qatar for violating the open-skies agreement. Those results:

  • Two-thirds of voters support efforts to stop Qatar Airways from violating international agreements (66%), which is strongest in Florida (71%) and Iowa (69%). Support is strongest among Republicans (79%), conservatives (77%), and voters without a college education but make over $75,000 (76%).
  • Though overall support did not adjust, invoking the president’s name caused partisanship support to increase (Republicans 82%, conservatives 80%). Support is now highest among voters in Florida (71%), Wisconsin (71%), and Iowa (70%).
  • Nearly half of all voters would be more favorable of the president (45%), with one-third claiming it would make no difference (14%). Less than one-fifth would become less favorable (14%). A plurality of all states would have a more favorable impression.
  • Two-thirds agree that immediate action must be taken by the president (67%) with a majority “strongly” agreeing (54%). Support is strongest in Florida (73%) and Wisconsin (71%).

Originally Published on the Washington Examiner.

americans4fairskies2015Trouble for CNN over terror nation ties to TV analysts
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No cheating on friends

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A president who talks and acts tough on trade has been a long time coming. Donald Trump made getting fair dealing on trade a major plank in his campaign platform and has followed through. China can’t say it wasn’t warned about the imposition this week of additional tariffs on selected goods coming into the United States.

Bad trade deals have cost the United States billions of dollars and cost millions of American workers their jobs over the last several decades. Supporters of free trade find tariffs against China, Europe, Mexico and Canada hard to take. Tariffs are taxes hiding under another name and lead to higher prices for U.S. consumers. The stock market dropped 500 points after the new China tariffs were announced. Tariffs provide a safe harbor for inefficiencies, and protect markets and manufacturers from the need to innovate and increase productivity. But as a short-term strategy to get the Chinese to the table to make agreements to protect American intellectual property, for example, it might be that rare occasion on which to do something bad so that good may come. A tariff strategy worked with the Europeans, and for Japan, Mexico and Canada, and now they’re talking about new trade deals that critics of the president said would never happen.

Mr. Trump must remember that a deal on paper and signed is only the beginning. Other signatories to a deal will be tempted to cheat if they think they can get away with it. This is what’s happening now with Qatar, which by being too clever by half found a workaround to an agreement it concluded with the United States regarding the operation of the heavily subsidized Qatar Airways.

Under a deal cut a year-and-a-half ago under Open Skies, an international regulatory regime meant to enable open entry into a nation’s airspace, an airline must not use government subsidies to establish lower fares in competition with U.S. carriers.

Qatar, a nominal U.S. ally and host to the largest American military base in the Gulf, agreed to terms in January 2018 it is now subverting through its purchase of a 49 % share in an Italian carrier it renamed Air Italy. Soon afterward, Air Italy said it would offer bargain-rate flights from Milan to New York, Miami, Los Angeles and San Francisco. Qatar is using Air Italy to get access to gates at U.S. airports it said it would not pursue under its own name. The word for that is cheating. Qatar Airways is not being shy about it. Air Italy is operating flights with Qatar Airways aircraft, with financing provided by the Qatar government. Its financial statements show Qatar Airways covers Air Italy’s operating losses. Air Italy’s chief operating officer and ranking executives are former Qatar Airways senior executives. Air Italy crew uniforms that are just like those worn by Qatar Airways crews.

This hasn’t escaped the notice of U.S. carriers, which are rightly angry about it. American advocates on Capitol Hill, including Sen. Ted Cruz of Texas, a conservative Republican, and Bob Menendez of New Jersey, a liberal Democrat, are trying to do something about it. They’re asking the Trump administration what it intends to do. Unless pushed, probably nothing.

Qatar must be called to account, and not just for its own mischief but for the message that would send to the Chinese and other major U.S. trading partners. If Qatar Airways continues to use Air Italy as its proxy, and gets by with it, that would tell China, Japan, MexicoCanada and Europe they can agree to trade deals and if they’re caught cheating the United States will look the other way. Someone could write a book, and call it “The Art of the Steal.”

Originally Published on The Washington Times.

americans4fairskies2015No cheating on friends
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Air Italy plans North American growth despite US protests

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Air Italy plans to announce at least two additional North American destinations for the summer of 2020, as the airline expands transatlantic service despite opposition from US legacy carriers.

The carrier also hopes to unveil its first US interline partner later this year, chief operating officer Rossen Dimitrov tells FlightGlobal.

He declines to specify the new destinations pending agreements with airport operators, but says one of the two will likely be seasonal. In addition, Air Italy sees potential for one of its two Californian destinations – Los Angeles and San Francisco – to convert to year-round service in 2020, says Dimitrov.

The Italian carrier recently added seasonal service to Toronto from Milan Malpensa, after launching seasonal flights from Milan to both Los Angeles and San Francisco. It plans to suspend US seasonal flights later this year in favour of destinations like the Maldives, Mombasa, Tenerife and Zanzibar. Air Italy serves Miami and New York John F Kennedy year-round.

Its expansion across the Atlantic is unfolding as Air Italy becomes the focus of a years-long campaign backed by three US mainline carriers, which allege that Air Italy‘s 49% shareholder Qatar Airways is using the smaller carrier as a proxy to expand into the USA.

The US airlines – American AirlinesDelta Air Lines and United Airlines – are backed by their unions in the lobbying coalition, called The Partnership for Open and Fair Skies.

Dimitrov, who dismisses the allegations as “baseless”, says the campaign by the US carriers will have no impact on how Air Italyexpands its North American network.

“Why should it? We are a European airline which is completely compliant with regulations,” says Dimitrov.

Despite Qatar Airways‘ stake in Air Italy, the Italian carrier does not codeshare with the Doha-based carrier on its routes to the USA from Milan, points out Dimitrov.

“It has always been the case,” he says. “Let them [the US carriers] prove we’ve done it.”

Air Italy does not carry Qatar Airways‘ code on any flights, Cirium schedules data show. The Gulf airline carries Air Italy‘s code on routes between Doha and four Italian destinations, according to schedules.

The campaign by the three US legacy carriers has made it difficult for any potential partnerships, as Air Italy seeks its first interline and codeshare deals across the Atlantic.

“We will be happy to work with American, Delta and United, I have all respect for them. Instead of us fighting, we could work together,” says Dimitrov.

The Italian carrier, in the meantime, is in talks with other potential US partners.

“In terms of the interline, we might be able to announce something this year as long as the work gets completed,” he says. An interline agreement will be the first step towards forming a codeshare partnership, he adds, saying Air Italy could potentially partner more than one US carrier.

Given the dominance of the US legacy carriers, Air Italy will not have many other US airlines to choose from if it wants a codeshare partnership with substantial coverage from its year-round US destinations of Miami and New York JFK.

At JFKJetBlue Airways is likely the best option. New York-based JetBlue, which has partnerships with several foreign carriers, is the second largest airline at the airport after Delta.

American operates more than half of the capacity out of Miami, Cirium schedules data show. Aside from the US legacy carriers, only Frontier Airlines operates US domestic service from Miami.

Originally Published on Flight Global.

americans4fairskies2015Air Italy plans North American growth despite US protests
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Enforce the Open Skies Act

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President Trump is in the middle of a growing number of trade disputes. On Sunday, he promised to dramatically raise tariffs on $200 billion in Chinese goods if a trade deal isn’t completed by this Friday.

But while the Trump trade threats over tariffs steal the headlines, the Trump administration will soon have to make a series of decisions about non-tariff barriers to trade. Those include quotas in the new Trump agreement with Canada and Mexico that will supersede NAFTA and a nasty dispute over agreements the U.S. has negotiated to ensure fair competition in international airline flights. In these non-tariff trade cases, the chief debate isn’t over how to convince trading partners to level the playing field but how to enforce existing agreements. As Douglas Holtz-Eakin, a former chair of the Congressional Budget Office, notes, “unless trade agreements are enforced, it does not matter what philosophy drives their negotiation.”

International airline travel has exploded in recent years, making enforcement of the dozens of agreements under the Open Skies Act ever more important. Open Skies regulates which airlines get to enter another country’s territory. The goal is open entry, unless a government-subsidized carrier is using its artificial advantage to unfairly compete with private carriers.

Such is the case with Qatar Airways, which is owned by the fossil-fuel-rich government of Qatar and has spent billions to become a major player in international aviation. Qatar Airways is now so big that the U.S. and Qatar signed an agreement in January 2018 to limit Qatar’s ability to fly directly into the U.S. from European cities. These so-called fifth-freedom flights are carefully negotiated to avoid unfair competition.

But Qatar soon made it clear that it was reinterpreting the agreement in such a way as to make it meaningless. It bought a 49 percent stake in a failing carrier called Air Italy, which previously had flown only regionally in Europe along with a couple of seasonal flights to the U.S. Two days after Qatar Airways bought a stake in it, Air Italy began an expansion that now has it making nonstop flights from Milan, Italy, to New York, Miami, Los Angeles, and San Francisco. Its bargain rates are clearly designed to poach passengers from U.S. carriers, using its Qatar-government subsidies to make up any losses.

Qatar Airways didn’t make much of an effort to hide the fact that Air Italy is basically a front for its Qatari owners. Air Italy’s extensive operating losses are covered by Qatar, its top executives are almost all former executives at Qatar Airways, and even Air Italy’s crew uniforms are almost identical to those worn by employees of Qatar Airways.

A range of U.S. officials, from Democratic senator Bob Menendez of New Jersey to Republican senator Ted Cruz of Texas, have called foul on this subterfuge and complained to U.S. Secretary of State Mike Pompeo. At a recent Senate hearing, Pompeo responded to such concerns by reiterating his support for the Open Skies Act: “The U.S. government sees what’s going on, and we’re working to put this agreement — we think it was a good agreement, and we’re trying to ensure it’s enforced.”5

Open Skies agreements not only promote free-market principles, but they give the U.S. aviation industry the opportunity to compete around the world. The distortions that government-owned carriers in the Persian Gulf are creating in the airline market threaten a wide range of other airline agreements and make a mockery of financial transparency.

As President Trump has decided which trade fights to pick, he has sometimes made mistakes or exaggerated the dangers. But when it comes to the Open Skies agreement with Qatar, the U.S. has an obligation to make sure it is fully enforced. Anything else would make a mockery of the very idea of a trade agreement working in behalf of the American people.

Originally Published on The National Review.

americans4fairskies2015Enforce the Open Skies Act
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Ken Blackwell: Democrats have no answer to Trump trade deals

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With the Democratic primary campaign underway, presidential hopefuls on the left are seeking to contrast themselves with Donald Trump in a variety of ways. They want to raise taxes on the wealthy to fund free college, free health care, and the Green New Deal. They want to end private health insurance. They want to pack the Supreme Court. They want to let death-row inmates vote. They want open borders.

Meanwhile, they are all but ignoring the president’s America First policy, especially his efforts to reverse the unfair treatment of American companies and industries. This has been an unsung victory for the Trump administration, and Democrats don’t have an answer for it.

Chief among the president’s successes is the renegotiation of NAFTA – which was clearly in need of major modernization and revision.  In its place, President Trump negotiated and implemented the United States-Mexico-Canada Agreement, a fairer trade deal that boosts America’s ability to create new jobs. Trump’s ability to get Mexico and Canada to the table in the first place should be commended. The USMCA is a great trade deal, and Congress should work towards approving it.
In addition to the new NAFTA, President Trump has renegotiated our trade agreement with South Korea, with an eye towards greater protection for American companies.  While previous administrations have talked tough on China, the Trump administration has taken aggressive action to stop the unfair treatment of American industries and finally level the playing field. As a result of all these actions, the U.S. trade deficit fell to an eight-month low in February.

Standing up for American companies and workers and ensuring our partners don’t take advantage of us will be a winning message heading into the 2020 elections.

Across the board, the administration has pursued a strong America First policy to ensure that other nations live up to their end of our trade deals.  American companies and industries will compete on a level playing field once and for all.
Another critical part of the economy where the President has stood up for the enforcement of existing agreements is the airline industry.  For years, U.S. airlines, workers, elected officials complained that Qatar and the United Arab Emirates were violating the open skies agreements between our nations by illegally subsidizing their airlines and putting our airlines at a disadvantage.
While the Obama administration did nothing for years, the Trump administration stood up for our workers and brought both nations to the table and negotiated strong agreements with both to ensure their compliance with the open skies agreements.

Unfortunately, it appears that Qatar has now begun to test the limits of those agreements – and likely the patience of the administration.  Qatar Airways has bought a commanding stake in Air Italy, previously a small regional carrier with financial woes, and Qatar Airways CEO Akbar Al Baker now describes the airline as if it is his own. Additionally, Air Italy and Qatar Airways share many of the same executives, and they are operating almost as one company. Qatar Airways has even provided aircraft from their own fleet for Air Italy to use in service between Milan and New York, an already crowded route. Five other airlines have daily flights along the same path that Air Italy is encroaching in with the help of subsidized Qatar Airways.
This represents a violation of the spirit of the hard-fought negotiations between Qatar and the Trump administration and has brought a great deal of criticism.  Senator Ted Cruz, R-Texas, led a group of 11 senators who wrote to the administration asking them to review Qatar’s compliance with the previous deal.  Rep. Matt Gaetz, R-Fla., a key Trump ally wrote to the president urging him to take the issue seriously.
Not surprisingly, the administration is keeping a close eye on this issue and if the president’s track record is any indication, their concerns will be addressed.  Secretary of State Mike Pompeo recently said the administration is “looking very closely” at Qatar’s compliance.

President Trump understands that for too long, the United States has been trampled on in trade deals, treaties and alliances and is reworking deals to protect American interests.   Not only is it critical that he continue to renegotiate trade deals, but also to hold our trading partners’ feet to the fire in the commitments they make and ensure they don’t use loopholes to get around them.
Standing up for American companies and workers and ensuring our partners don’t take advantage of us will be a winning message heading into the 2020 elections.

Originally Published on Fox News.

americans4fairskies2015Ken Blackwell: Democrats have no answer to Trump trade deals
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