Trump must hold Qatar accountable for violating the Open Skies agreement

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Last week, President Trump hosted Sheikh Tamim bin Hamad al-Thani, the Emir of Qatar, at the White House.

The two leaders discussed Middle East security and peacekeeping efforts, and celebrated a Qatar Airways agreement to purchase five American-made Boeing 777 cargo planes.

While the order is good news for beleaguered Boeing, which is still reeling from the crashes and groundings of its 737 Max jets, Trump should’ve used the opportunity to hold Qatar and Qatar Airways accountable for a devious scheme to violate its Open Skies agreement with the United States.

Open Skies pacts are intended to level the playing field among international carriers by eliminating government subsidies to airlines and curtailing political involvement in business decisions such as routes and pricing. The agreements are very common; the U.S. maintains Open Skies arrangements with 126 countries throughout the world. In an overwhelming majority of instances, the agreements are followed and respected. America’s Open Skies pact with Qatar is a rare and troubling exception.

After using tens of billions of dollars in government funds to underwrite Qatar Airways, the Persian Gulf nation signed an Open Skies agreement and pledged to stop funneling subsidies to the airline. Just last year, however, Qatar was suspected of again using tax dollars and other government funds to subsidize Qatar Airways.

The Trump administration responded by renegotiating Open Skies to end the illegal subsidies, increase Qatari financial transparency, and freeze new Qatar Airways routes to the United States.

Unfortunately, Qatar was back to its old ways before the agreement was even finalized. Qatari officials concocted a shady way to sidestep Open Skies and both subsidize an airline and launch new routes to America.

Qatar Airways purchased a 49 percent stake in Meridiana, an insolvent regional Italian airline, and rebranded the carrier Air Italy. The new airline operates as a thinly veiled proxy for Qatar Airways, illegally ignoring Open Skies guidelines by offering service to five U.S. cities and pocketing millions of dollars in subsidies from the Qatari government.

Secretary of State Mike Pompeo promised members of Congress the Trump administration is working to address the problem.

“I have personally engaged in this issue and we are working to make sure every party to those agreements complies with every element of those agreements. The U.S. government sees what’s going on…,” Pompeo told lawmakers. “It’s not fair. It’s not right.”

In the meantime, though, Qatar’s Air Italy charade is making Congress and the administration look ridiculous.

Air Italy uses Qatar Airways jets to fly passengers served by crewmembers wearing variations of Qatar Airways uniforms. Until a few months ago, Air Italy’s Chief Operating Officer, Chief Flight Officer, and Vice President for Sales and Distribution were all Qatar Airways executives. Air Italy operates in the red and requires funds from Qatar Airways – and, ultimately, subsidies from the Qatari government – just to stay in business.

By ignoring its Open Skies agreement with the U.S., Qatar is jeopardizing the relationship between two strong allies. The situation is also setting a terrible precedent that the United States is willing to look the other way when countries aren’t playing by the rules – a precedent that could have dire consequences when it comes to trade and military negotiations in the future.

It is imperative that President Trump hold Sheikh Tamim to his commitment to the Open Skies agreement — and send a message to Qatar that disregarding the pact will no longer be tolerated by the United States.

Originally Published on The Economic Standard.

americans4fairskies2015Trump must hold Qatar accountable for violating the Open Skies agreement
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Airline CEOs: Subsidized Gulf airlines are violating trade agreements, threatening US jobs

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For decades, the U.S. aviation industry has served as an economic engine in every state, creating jobs for millions of Americans and building business opportunities across a wide range of industries. We’re proud that the three airlines we lead are an integral part of this story.

But in recent years, two foreign countries have thrown a wrench into this engine. For over a decade, the United Arab Emirates and Qatar have violated trade agreements with the United States by funneling over $50 billion in subsidies into their government-owned airlines — Emirates, Etihad Airways and Qatar Airways. These state subsidies are destabilizing the global airline industry and threatening to undermine our nation’s entire system of trade enforcement. Left unchecked, they send a signal that other countries can ignore our trade deals and trample upon our workers without consequences.

Thankfully, last year President Donald Trump negotiated new agreements designed to end these trade violations, mandate financial transparency and restore fair competition. But before the ink was even dry, these countries that are meant to be our partners were looking for loopholes.

Workers pay price for unfair trade

Qatar is perhaps most blatantly disrespecting its January 2018 agreement. The country pledged that its airline would not launch any flights directly between the United States and Europe. It quickly shrugged off the commitment by investing in a failing regional Italian airline and rebranding it as Air Italy, which is now being used as a proxy for new subsidy-backed routes between the U.S. and Italy.

To be clear, U.S. airlines are not opposed to competition. We compete each day for the business of millions of travelers, whether our rivals are large, small, private or government-owned. But what’s happening with the Qatar and UAE airlines is not fair competition.

Subsidies allow these carriers to fly money-losing flights in a way no rational commercial airline could afford. It is an advantage that no airline — no matter how big — can reasonably overcome. Ultimately, it’s U.S. airline workers who pay the price.

President Trump campaigned on a platform of defending American workers from bad deals and unfair trade practices. By violating their Open Skies agreements, Qatar and the UAE are putting over 1.2 million American jobs in jeopardy. It isn’t just the hard-working pilots, flight attendants and ground crews whose livelihoods are at risk; it is everyone who depends on the economic engine that the aviation industry creates for our country. An economic analysis we submitted to the government shows that for every long-haul international route a U.S. carrier loses or forgoes due to subsidized Gulf carrier expansion,1,500 American jobs are lost.

It also raises questions about how the United States should deal with partners that openly undermine trade agreements. In any business, you wouldn’t stand by and do nothing while the other side refuses to comply.

In light of actions by Qatar and the UAE over the past year, the Trump administration likely now sees that they have no intention of complying with their longstanding Open Skies agreements or last year’s deals.

Don’t reward bad behavior

Aside from Qatar’s blatant actions regarding Air Italy, we’re also seeing obvious inaction on the part of both countries when it comes to financial transparency. In fact, the Gulf carriers are less transparent today than before the UAE and Qatar signed their respective agreements.

Failure to enforce these agreements sends a message to other countries that they can take advantage of the United States without consequences. That can’t be our position. If Qatar and the UAE aren’t willing to uphold their side of the deals, the United States should consider removing itself from these two Open Skies treaties altogether.

This administration knows a trade violation when it sees one. The United States must act decisively to hold Qatar and the UAE accountable. Failure to do so would reward bad behavior and signal to other countries that they too are free to exploit American workers. That is a dangerous precedent that our airline workers and our country cannot afford.

Originally Published on USA Today.

americans4fairskies2015Airline CEOs: Subsidized Gulf airlines are violating trade agreements, threatening US jobs
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NEWT GINGRICH: TRUMP SHOULD PUSH QATARI EMIR TO END UNFAIR SUBSIDIES | OPINION

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The US economy is a behemoth. With an estimated $21.06 trillion gross domestic product, no other country on the planet can match our overall economic strength—without cheating, anyway.

Unfortunately, some countries do cheat.

One of the principle ways that other countries unfairly undermine and attack our economy—and therefore American jobs—is by heavily subsidizing their own industries to create artificially cheaper products and services that out-compete US companies.

American steel and aluminum manufacturers have been greatly harmed by China subsidizing its own metal industries and then dumping tons of artificially cheap steel and aluminum into the US market. The factories and other companies that use these products naturally buy the cheaper Chinese metals, and many American manufacturers have been shuttered as a result.

The US solar panel manufacturing market was essentially wiped out by this same strategy. In fact, in 2017, the US International Trade Commission ruled 4-0 that US solar manufacturers had been greatly harmed by Chinese subsidization. Twenty-five US-based solar cell manufacturers closed from 2012 to 2017. This represented an 80 percent reduction in the US industry.

In response to this Chinese metal and solar panel subsidization efforts, President Trump began the long-term trade strategy that he is still maintaining now with tariffs on these two industries.

This week, President Trump has an opportunity to stop another foreign government from harming a US industry. Sheikh Tamim bin Hamad al-Thani, the ruling emir of Qatar, is meeting with President Trump on Tuesday. The sheikh’s government partially owns Air Italy, which was a small, regional airline before the Qatari government bought a 49 percent stake in late 2017. Air Italy suddenly went from offering a few short flights to announcing new routes from Milan to San Francisco and Los Angeles in late 2018. These routes were only possible because Air Italy was being financially supported by the government of Qatar. So, US-based airlines that operated these routes would now have to compete with a government-owned airline that didn’t have to bother with making a profit.

The new route announcement was particularly troubling, because Qatar had previously agreed in January 2018 to be more transparent about the funding for its own Qatar Airways—which it had subsidized to the tune of $25 billion. It also agreed to not open new routes into the US. Instead, it has been using Air Italy to get around the 2018 agreement. So, Qatar has repeatedly said it was going to stop cheating and undercutting the American airline industry, but it hasn’t stopped.

President Trump has a great opportunity here to push Qatar and show the Emir that simply buying and subsidizing other small airlines is not a way to make good on past promises of fair play.

Originally Published on Newsweek.

americans4fairskies2015NEWT GINGRICH: TRUMP SHOULD PUSH QATARI EMIR TO END UNFAIR SUBSIDIES | OPINION
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President Trump Needs to Hold Qatar Accountable for Cheating on Open Skies

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The administration is rolling out the red carpet for Qatari Emir Sheikh Tamim bin Hamad al-Thani during his visit to Washington. Among the items on the agenda, dinner at the Treasury Department on Monday, organized by Secretary Steve Mnuchin, which President Trump attended. Trump has a meeting with the Emir on Tuesday. 

There’s much to discuss. The Emir almost certainly wants to discuss the U.S. position on the continuing Gulf Crisis that’s paralyzed relations between his small country, the UAE, Egypt, and the Saudis, and the impact it’s having on efforts to bring peace to the region.

For President Trump, the list is much longer. In addition to discussing the crisis and the problems created by Iran’s renewed aggressions — Iran being a full partner with Qatar in one of the world’s largest known natural gas fields — there are a few items one hopes he’ll raise that are important to the U.S. economy.

On the top of that list is the need for Qatar to live by the spirit of the Open Skies agreement governing international air travel, something that’s been a problem since President Trump’s first year in office.

The operations of Qatar Airways (along with Etihad Airways and Emirates Airline) are generously subsidized by their respective governments, thanks to the income generated from their abundant energy resources. Their airlines, referred to collectively as the ME3, have experienced huge capacity growth but not the profits that should follow. 

According to data compiled by Thomas J. Duesterberg of the Hudson Institute as of 2015, Qatar and the UAE had provided more than $52 billion in subsidies and in-kind discounts to the M3 carriers. His analysis also shows the three airlines have increased capacity 10-fold since 2001 and have placed orders for hundreds more Airbus and Boeing aircraft. Unlike U.S. carriers, these airlines don’t have to show a profit to stay in business. 

The Open Skies agreement the U.S. has with Qatar, the UAE and 124 other countries says that: “Each Party shall allow a fair and equal opportunity for the designated airlines to compete …” That’s supposed to level the landing field and prevent the government-subsidized carriers from driving the privately-owned ones out of business in price wars. 

In 2018 — while refusing to agree they were violating the Open Skies pact, Qatar and the UAE agreed to more transparency, fewer subsidies, and that they would not launch so-called “fifth freedom flights” to the U.S. This commitment was memorialized in a side letter as part of the government-to-government agreements between each country and the United States.

Since that agreement was made, however, Qatar has found a loophole big enough to fly several wide-body aircraft through. It bought, or rather Qatar Airways bought a 49% stake in Meridiana, a struggling Italian carrier. Now rebranded as Air Italy, and with an infusion of cash and equipment from Qatar Airways, it’s begun direct service to the U.S. 

The E.U., which also ought to partner with the U.S. on calling the Qataris out for cheating, has thus far been unwilling to describe Qatar Airways as anything but a minority investor in Air Italy. For that, they’ve gotten the promise more aircraft will be purchased from Airbus, the European conglomerate that competes with all-American Boeing. A sweet deal to be sure, but of the kind President Trump has already proven he can see through. 

On its face, the operation of Air Italy in this manner — with executives from Qatar Airways and flight crews and uniforms and airplanes — certainly violates the spirit of the Open Skies agreement. An investor with unlimited resources and no need to turn a profit will disrupt the global aviation market adversely, as far as U.S. private carriers are concerned, they’re allowed unfettered access to the American and European markets. 

As the current president often reminds us, past administrations were all too willing to sign bad trade deals and bad national security deals, to placate others. His predecessors since Ronald Reagan did little when agreements were broken so as not to offend trading partners or risk trade wars. That was a failed strategy that has rightfully been discarded. Any agreement that goes unenforced is not worth the parchment it’s printed on.

If he chooses to make an issue of it, he’ll have support in Congress from Republicans and Democrats. House Transportation and Infrastructure Committee Chairman Peter DeFazio and Republican Sen. Ted Cruz of Texas have both questioned Qatar’s investment in Air Italy. 

President Trump should challenge the Emir to make sure the right thing gets done. and get it resolved. He’s made it a central tenet of his trade policy to get out of bad deals and to negotiate good ones. He told the American voters he’d fight for American national security, American Jobs and American trade. To keep that promise he must bring this issue to the table. 

Horace Cooper is a writer and legal commentator based in Washington. D.C.

Originally Published on Issues & Insights.

americans4fairskies2015President Trump Needs to Hold Qatar Accountable for Cheating on Open Skies
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Newt Gingrich: US Expects Results From Qatar on Airline Actions

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President Donald Trump, while meeting with Qatar’s ruling emir Sheikh Tamim bin Hamad Al Thani in Washington on Tuesday, must inform him that the United States expects “results, not just words” on its actions towards the airline industry, former House Speaker Newt Gingrich said Monday.

“Qatar has been deliberately undercutting and acting in ways that make it impossible for a company to compete in the Middle East,” Gingrich told Fox Business’ Maria Bartiromo.   “They promised several months ago that they would stop. They haven’t stopped,” 

People who have been working on the issue hope that Trump “is going to look them in the eye and say ‘look, you’ve got to keep your word,'” said Gingrich. “We want to expect results, not just words. For the future of the American airline industry, this is a very big issue.”

Gingrich noted that Qatar is “pretty isolated,” as the Saudis and the United Arab Emirates are both against it. 

“Qatar is not coming from a position of great strength,” said Gingrich. “I suspect they’re eager to find some way to make Secretary (Steven) Mnuchin and President Trump happy.”

In June, the White House said the planned visit was being held to discuss economic and security ties, along with counterterrorism issues. 

Meanwhile, Saudi Arabia, the United Arab Emirates, Bahrain and Egypt severed ties with Qatar with Qatar in 2017, accusing the country of supporting Iran and Islamist militants, which it denies.

Originally published on Newsmax.

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Qatar Airways Subsidies Continue to Undermine Competition in Vital Transatlantic Routes

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Commercial aviation in international markets has never come under the disciplines of the World Trade Organization (WTO). It is instead loosely governed under a system of bilateral and sometimes regional “Open Skies” agreements which embody rules establishing mutually beneficial rights for services between signatory countries. The U.S. has over 120 separate agreements which generally promote flexibility in setting schedules, fares and capacity between the parties.  They require non-discriminatory treatment of carriers in the markets of each participant. Most agreements require that each party provide a fair and equal opportunity to compete on generally accepted commercial terms for both landing rights and associated support services such as financing and provision of airports and ground transport. The most important exception to the functioning of this system comes from the large and growing competition from subsidized carriers in the Gulf states of Qatar and the United Arab Emirates.

While the history of commercial aviation in its early years was dominated by state-owned (and often subsidized) carriers, in the last three decades the industry has moved toward a private sector model. Open Skies agreements have proliferated since 1992 in response to this new model and accommodate the huge growth in traffic. The commitment to use generally accepted commercial terms is the only effective check on government subsidies in the absence of WTO rules.

The biggest outliers to this model, although not the only ones, are the three Middle East-based carriers: Emirates, Etihad and Qatar airlines. Since the mid-1980s Emirates has become the world’s largest carrier in terms of capacity, and along with the others is rapidly taking market share from traditional carriers in the U.S., Europe, Australia, and Hong Kong, to name a few of the hardest hit. The U.S. lost six percent of its total international market share after 2007. Its market share declined from 48 percent to seven percent in travel to and from the Middle East. Massive subsidies approaching $50 billion to the oil-rich Middle East carriers have fueled this growth.

In late 2017 and early 2018 the U.S. State Department signed memoranda of understanding (MOUs) with the United Arab Emirates and Qatar under Article 15 of their respective Open Skies agreements to “seek disciplines on subsidies, transparency and state-owned enterprises.” High level support by the U.S. government was signaled by the presence of both then-Secretary of Defense Jim Mattis and then-Secretary of State Rex Tillerson at the signing ceremony for the Qatari MOU.

While the evidence is not yet clear regarding a major rollback of subsidies under the MOUs, the new transparency requirements have allowed documentation of a major breach on the part of Qatar.  In late 2017 Qatar bought a 49 percent stake in bankrupt Italian domestic airline Meridiana. The majority stake was retained by the Aga Khan Charitable Foundation. Meridiana was soon rebranded as Air Italy and its aging fleet of 11 Boeing 767s began to be retired and replaced by its new Qatar Airlines investor with Boeing 737 MAX and Airbus A330s. This would allow expansion of the previously short-haul domestic dominated carrier to major international routes. There is no evidence of how Air Italy is to pay for this massive transfer worth billions of dollars from the Qatar order-book to modernize its fleet.

There is however evidence that at least $30 million of the initial Qatar Airways injection into the holding company for Air Italy has been forgiven by the Middle East airline company. Additionally, Qatar Airways received a $491 million cash injection from the government of Qatar in 2018 partially to offset its operating loss that year and to facilitate the continued aid to Air Italy. Finally, Qatar Airways guaranteed a $30 million loan to Air Italy from HSBC, which carried a 2.5 percent rate of interest. Another $28.8 million loan from the parent holding company to Air Italy carried the same coupon rate. Such favorable loan terms could never have been approved for a startup just emerging from bankruptcy without backing from a larger and more stable firm. The Aga Khan majority owner has provided no fresh cash or loans to assist the new entity, and all major operating leaders of Air Italy came from Qatar Airways, indicating fairly clearly that the latter is in firm control.

The heavy subsidization of this small but growing airline is of concern for two principal reasons: it is in breach of the 2018 MOU with the U.S. and it threatens in the long run the ability of U.S. carriers to compete in major parts of the normally lucrative transatlantic markets. U.S. carriers have already seen their share of this market fall from 42 percent in 2005 to 34 percent in recent years. After righting their performance in the last three years, the three major U.S. carriers are building new capacity in an effort to reclaim lost share in the transatlantic market.

The clear target of Air Italy is to expand as a competitor in transatlantic routes to Italy, and it appears to be doing so at highly subsidized rates. I noted earlier the acquisition of a new fleet of long-haul equipment by Air Italy. Starting in 2018 and expanding this year, this new entity is using the international hub of Milan to offer direct flights to New York, Miami, San Francisco and Los Angeles, and has announced service to Chicago starting next year. Even offering new direct flights from Europe to the U.S. violates an understanding the American side asserted as part of the 2018 MOU. According to U.S. officials the parties to the MOU are barred from initiating new flights from third countries such as Italy. Additionally, the prices offered in a three-week test period this spring for these routes appear designed to win market share at the risk of losing money, a practice called dumping under WTO rules. Average fares for the four cities served by Air Italy averaged 28 percent less than those of competitors (which include Emirates Airways in the New York-Milan route) and fully 60 percent in the normally more profitable business class submarket. I did searches on the Air Italy website on June 10 and July 2 and found the following prices for round trip economy fares:

San Francisco-Milan            $618

Los Angeles-Milan                                  593

New York-Milan                                   545

Miami-Milan                                   661

Air Italy has announced its intention to eventually offer direct service to Rome. A one-stop (Milan) connection from Miami to Rome was priced at $383 for flights last spring and $440 for fall flights.

While financial reporting for the Italian carrier is not transparent enough (another violation of the MOU) to estimate the actual cost for these flights, it is difficult to imagine such prices allow for a market-based profit. Air Italy has announced plans to quadruple its flights by 2022 as it acquires new aircraft, escalating the pressures on U.S. and European airlines, which have lost one-third of their market share to Asia partially as a result of competition from the subsidized Mideast carriers.

There will be some who will not lament displacement of U.S. and European airlines from important international routes, especially price hungry consumers in search of even lower fares (and narrower seats). But tens of thousands of U.S. workers and suppliers will bear the brunt of subsidized competition from the deep pockets of the oil sheikdoms. Having a large domestic aircraft fleet is certainly important to U.S. transportation needs in times of conflict or emergency, especially given the demise of the U.S. commercial naval fleet and defense transport fleet. Trying to maintain a global trading system based on clear rules for transparency, fair play on a commercial basis, and reciprocity is also an important reason for pursuing Qatari violations of the spirit and letter of the 2018 MOU.

Qatari Emir Sheik Tamin bin Hamad al-Thani will visit President Trump and other senior officials in Washington on July 9. This offers a timely opportunity to raise the issues arising from poor implementation of Qatari commitments from the MOU. The circumvention of this understanding represented by the Air Italy expansion should be at the center of the discussions.

Originally published on Forbes.

americans4fairskies2015Qatar Airways Subsidies Continue to Undermine Competition in Vital Transatlantic Routes
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