Hudson Institute Releases New Study on State Subsidies and Unfair Competition in Global Commercial Aviation

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Hudson Institute released a new study, “Subsidies and Unfair Competition in Global Commercial Aviation: How to Respond,” authored by Hudson senior fellow Thomas Duesterberg. The report assesses the commercial airline industry’s “Open Skies” framework and the impact of violations and distortions by state-subsidized international carriers. The findings demonstrate that Emirates Airline, Etihad Airways, Qatar Airways, and other airlines are leveraging major government subsidies to rapidly expand their share of the global passenger aviation market. To address the violation of bilateral air transport agreements and the loss of market share from U.S. carriers, the report advises that the U.S. should enforce the transparency requirements of the 2018 supplemental agreements with Qatar and the UAE. Additionally, the U.S. should work with allies on ways to check new subsidized services from Gulf carriers and growing subsidized competition from China.

“Fair competition underpins the success of commercial aviation as an economic driver in the U.S. and abroad,” said Ken Weinstein, President and CEO of Hudson Institute. “This new report highlights important steps toward ensuring that airlines relying on subsidies from foreign governments do not undermine this key American industry.”

Key takeaways from the report include:

    • $48 billion in total cash or in-kind subsidies by the Gulf states have allowed the Gulf airlines to achieve a ten-fold increase in daily passenger seats since 2001 and capture significant market share in international travel from U.S., European, and Australian airlines.
    • Qatar Airlines is violating the spirit of the supplemental agreements by purchasing the small Italian carrier Meridiana (rebranded as “Air Italy”), enlarging its fleet size by 500%, and establishing U.S. routes from third-country stopover destinations.
    • Gulf airlines have exploited government subsidized service and government-funded upgrades to their hubs to grow their market share for U.S.-India passenger travel from 8 percent in 2008 to 46 percent in 2016.
    • China’s growing air transport market is benefitting from state subsidies, including tight capacity limits and direct subsidies from local Chinese government agencies. While operating largely outside the Open Skies framework, China should be considered a possible future partner in trade agreements covering commercial airline services.

The report was authored by Thomas Duesterberg, a senior fellow at Hudson Institute. He has previously served as the assistance secretary for international economic policy at the U.S. Department of Commerce. More recently, he was the President and CEO of the Manufacturers Alliance. He also served in senior staff positions in the U.S. Senate and U.S. House of Representatives. He is the co-author of “U.S. Manufacturing: The Engine of Growth in a Global Economy,” a comprehensive analysis of the U.S. manufacturing sector’s impact on the economy.

Please contact Hudson Institute Press Secretary Carolyn Stewart, [email protected] and (202) 974-6456 for media inquiries. The full report, “Subsidies and Unfair Competition in Global Commercial Aviation: How to Respond” can be accessed here: https://www.hudson.org/research/14641-subsidies-and-unfair-competition-in-global-commercial-aviation-how-to-respond.

Originally Published on Hudson Institute.

americans4fairskies2015Hudson Institute Releases New Study on State Subsidies and Unfair Competition in Global Commercial Aviation
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Airlines face perfect storm

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U.S. airlines are facing a pivotal moment as higher fuel prices combine with government policy proposals that threaten to undermine the industry’s profitability after years of struggle.

The rising fuel costs are forcing executives to consider raising fares to compensate, a move that may spark consumer backlash, even as Congress debates restrictions to extra fees for services such as checking baggage. Casting a shadow over both is the challenge of navigating divides within the industry and the traveling public over President Trump’s controversial policies, from charging heavy tariffs on imported products to separating parents and children at the southern U.S. border.

Several carriers rapidly distanced themselves from the separations, urging the government not to use their services for related activities.

“We have no desire to be associated with separating families, or worse, to profit from it,” Forth Worth, Texas-based American Airlines said in a statement. The Department of Homeland Security called the decision unfortunate and lambasted the companies for refusing to protect the traveling public and help the government.

The administration’s import duties, meanwhile, won support from Delta Air Lines Chief Executive Officer Ed Bastian, despite opposition from the broader business community and even the typically GOP-friendly U.S. Chamber of Commerce.

“We’ve been victimized by unfair trade practices,” Bastian said at a recent event at the National Press Club. “With respect to the administration’s policy of giving U.S. workers the best chance at success to create that level playing field, we are 100 percent in agreement.”

Bastian’s Atlanta-based carrier is among those working to mitigate the effect of what the International Air Transport Association said was a 51 percent increase in jet-fuel prices, which reached $95.50 per barrel at the start of July.

“We have seen early success in addressing the fuel cost increase and offset two-thirds of the impact in the June quarter,” Bastian said in a statement this month. “With strong revenue momentum, an improving cost trajectory” and by trimming less-lucrative seating capacity from the fall schedule, “we have positioned Delta to return to margin expansion by year end,” he said.

While the industry has been largely free of price controls since 1978, the fare increases that higher fuel prices are likely to cause raises the risk of government scrutiny as travelers rebel. That would compound the challenge from restrictions on a fee-based price model increasingly popular in the industry in recent years.

The rise of low-cost carriers like Southwest Airlines forced larger airlines like Delta and American to begin offering cheaper seats and charging extra fees for upgrading them or checking baggage. Some lawmakers are seeking to insert in a Federal Aviation Administration-funding measure a provision to cap the charges, while the industry says they’re necessary to keep flying affordable for a wide range of passengers.

“It is one of the biggest challenges that we’re facing in Washington right now, as it threatens to roll back 40 years of progress, innovation and affordability for consumers,” Sean Kennedy, senior vice president of global government affairs for Airlines for America, said in a recent interview. “It would completely upend and upset the work that’s allowed us to finally be sustainably profitable.”

Companies fear that further intrusion from the federal government may nudge the industry closer to the days when all prices were heavily regulated. The Trump administration, which has touted its accomplishments in reducing regulation it deems unnecessary, appears to agree.

The Department of Transportation earlier this year urged the Senate to address that provision as it crafts its counterpart bill to the House-passed measure to reauthorize funding for the FAA.

“Simply put, this provision marks a return to the pre-1978 era when the federal Civil Aeronautics Board controlled domestic airline fares and other rates charged to the public,” James Owens, the transportation department’s deputy general counsel, wrote in a letter to Senate Commerce Chairman John Thune of South Dakota.

Current FAA funding expires at the end of September. Thune and Sen. Bill Nelson of Florida, the top Democrat on the commerce panel, are working to negotiate an agreement to bring the reauthorization bill to the chamber floor, according to Senate Majority Whip John Cornyn of Texas.

Despite the challenges, carriers have won some significant victories under the Trump administration. Most notable was a deal the State Department reached with United Arab Emirates to require Gulf carriers to publish annual financial statements. Delta Air Lines, American Airlines and others have long charged that Etihad Airways and others are unfairly subsidized by the UAE.

Original Found on: WashingtonExaminer.Com

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After agreement with Middle Eastern rivals, Delta to resume nonstop flights to India in 2019

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Delta Air Lines will fly nonstop from the U.S. to India for the first time in a decade, a decision the airline said was due to recent agreements over three of its Middle Eastern rivals’ practices.

The flights will begin next year and either depart from New York’s John F. Kennedy International Airport or Delta’s home base at Hartsfield-Jackson Atlanta International Airport, but the airline has not made a final decision.

Delta’s announcement came after agreements this year appeared to put to rest a bitter, years-long dispute with three Persian Gulf airlines — Qatar Airways, Emirates and Etihad — which U.S. airlines said received government subsidies making it impossible for the U.S. carriers to compete in certain markets.

Delta CEO Ed Bastian told CNBC earlier this month the airline intended on returning to markets, including India, where it had been “hurt” by the three carriers.

In January, Qatar agreed to open its books and provide financial statements. Earlier this month, the United Arab Emirates agreed to a similar deal with the Trump administration. Bastian credited the administration for allowing the airline to restart the service to India. The three Persian Gulf carriers involved in the dispute with their U.S. competitors offer frequent service from their hubs to India.

“This move will mark a return to India for Delta, which was forced to exit the market after subsidized state-owned airlines made service economically unviable,” the company said in its announcement

The service requires government approval, Delta said, adding that it plans to also expand its code-sharing agreement with local partner Jet Airways to carry passengers to other destinations in India.

United Airlines is the only U.S. airline that currently flies nonstop to India from the United States.

Published on CNBC.

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Delta Eyes New Flights to India after Gulf Deal

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Delta Air Lines Inc. Chief Executive Ed Bastian said an agreement between the U.S. and two Persian Gulf states affords new protections to U.S. airlines that make it worth restarting service to foreign destinations that could include India.

“We can now go back into markets that we’ve been run out of,” he said Monday in an interview.

Hours after the U.S. and the United Arab Emirates reached an agreement, a diplomatic spat broke out over its interpretation.

Gulf carriers such as Emirates Airline for years have been taking market share on flights to India and Africa from U.S. and European airlines. U.S. airline executives and some lawmakers have argued that Gulf carriers have illegal government backing to buy jets and set fares at below-market price.

The U.S. and the United Arab Emirates on Monday said they’d resolved the dispute, mirroring a deal struck earlier this year between the U.S. and Qatar.

However, White House adviser Peter Navarro later told airline industry leaders that the U.A.E. had agreed to freeze additional flying between the emirate and the U.S. via Europe.

U.A.E. officials said the issue hadn’t been raised in months of talks.

United Continental Holdings Inc. UAL +0.88% is the only U.S. carrier that flies direct to India, from its hubs in Newark and Chicago. American Airlines Group Inc. AAL +0.54% dropped its Chicago-to-New Delhi service in 2012, three years after Delta ended a flight from New York to Mumbai. Delta also stopped a Mumbai flight operated via Amsterdam in 2015.

Gulf carriers such as Emirates deny they receive illegal subsidies. They say they have expanded consumer choice by offering more flights, lower fares and better service than their U.S. airlines and their European partners such as Deutsche Lufthansa AG and Air France-KLM SA.

European officials are also in discussions with Persian Gulf states over alleged airline subsidies.

The new agreements commit Emirates and Etihad Airways in neighboring Abu Dhabi, as well as Qatar Airways, to improve financial disclosures and avoid doing business at low prices with service companies that are in turn subsidized by Gulf governments.

Gulf government officials said financial transparency was important, but the new agreements left airlines free to operate as before.

“U.A.E. and U.S. airlines will continue to have complete commercial flexibility to add or adjust service to meet travelers needs,” said U.A.E. Foreign Minister Sheikh Abdullah bin Zayed Al Nahyan.

Emirates, the world’s largest carrier by traffic, said it welcomed the U.S.-U.A.E. agreement but that it wouldn’t curb existing flights and retained the right to expand services to the U.S., including flights via Europe.

The U.S. pacts with the U.A.E. and Qatar preserve existing open-skies aviation deals that allow unlimited direct flying between the two nations. The pacts also protect other benefits including rights for U.S. cargo carriers such as FedEx Corp. to operate a hub in Dubai.

The U.S. has such deals with more than 100 countries, with China a notable exception.

The Chinese government still controls the country’s largest airlines, which in recent years have rapidly expanded service to the U.S. and started funneling passengers and cargo from other countries through their own airport hubs.

American CEO Doug Parker has said state subsidies to Chinese carriers are “nothing close” to the level secured by Gulf carriers.

Still, Mr. Bastian said the subsidies stood in the way of open-skies deals.

“That would be a discussion at the table before an agreement was reached,” he said.

Delta has a 3.6% stake in China Eastern Airlines Corp. Ltd. American—which also campaigned against the expansion of Gulf carriers-—is allied with China Southern Airlines Co. Ltd.

“We will see what happens if we ever get to open skies with China,” Mr. Parker said in an interview earlier this year.

The U.S. and China haven’t held talks on liberalizing their aviation deal for several years. However, airline executives said an opportunity may emerge next year when new capacity becomes available at congested airports in Beijing and Shanghai.

Published on The Wall Street Journal.

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Letter: Fair and open skies

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While the left claims to be the party of the middle class, it is conservative activists, alongside our president, who are working to protect the livelihoods of American citizens. A perfect example would be the recent win in the Open Skies agreement.

International trade is a cornerstone of our nation’s success, but fair and free trade only works if both parties abide by the rules. Such has not been the case with the Open Skies agreement – a bilateral agreement between foreign governments and the U.S. regarding international flights.

Three Middle East government-owned airlines – Emirates, Etihad Airways and Qatar Airways – have, for years, violated this agreement which explicitly prohibits government subsidization of the airlines. This trade cheating allowed the three airlines to fly unprofitable routes for the sole purpose of driving out the competition, putting the jobs of omore than 1.2 million American workers at risk. Unfortunately, very few people were aware of the violation and no previous administrations had attempted to rectify it, until now.

Due to the efforts of conservative activists, Qatar is now committing to provide transparency of its records, which will have a domino effect with other countries. Conservative activists worked to educate the public by reaching over one million Americans through webinars, op-eds, “tool-kits” and calls to members of Congress, resulting in thousands of signatures being hand-delivered to the White House. Thanks to the tireless effort of these activists, and the persistence of our president, the campaign promise to enforce trade agreements is becoming a reality, as well as the President’s agenda to ‘make America great again’ and put American workers first.

Orignally Posted on Argus Leader.

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Why Trump should enforce the Open Skies agreement

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On the heels of the successful passage of President Trump’s tax reform that lowers taxes for tens of millions of America’s working families, the president is making the surprising move of pushing for a tax increase in the form of tariffs.

The president is proposing a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports – which may very well protect the 140,000 or so American jobs in those industries, but will also simultaneously damage up to 5 million American jobs that depend on steel and aluminum imports. Myopic protectionist schemes rarely help the overall workforce, and they almost always create price hikes for U.S. consumers.

Where tariffs are concerned, the economic costs far outweigh any potential benefit.

President Trump’s instinct here to protect American jobs is unassailable. But his proposed method of implementing protectionist tariffs will (if history is any guide here) backfire and lead to economic disruptions in U.S. manufacturing.

However, as long as the president has started the much-needed conversation about trade deals and protecting American workers, how about an agenda item that would enforce trade agreements in the United States’ favor and protect American workers? The Open Skies trade agreements provide exactly that opportunity.

The enforcement of our Open Skies agreements with the United Arab Emirates would accomplish everything President Trump is seeking to do with the steel tariff proposal, but without the negatives that necessarily result from protectionism.

President Trump has already scored a major victory in this area this year, and should be applauded for the steps he has taken to enforce our Open Skies agreements with other countries. The Open Skies agreements, which are bilateral trade agreements, govern international air travel and stipulate the conditions for fair and free trade in international air travel. The agreements specifically forbid governments from significantly subsidizing airlines because of the market distortions that result from government interference.Two of the most flagrant abusers of that particular provision of the Open Skies agreements have been Qatar and the United Arab Emirates, which have both pumped billions of dollars (upwards of $52 billion since 2004, in fact) into their state-owned airlines in an elaborate scheme to undercut international competition.

In the short term, this type of government-orchestrated market interference tilts the playing field in favor of the grossly subsidized airlines, making it difficult for other international airlines to fly certain routes. In the long term, however, the consequences are much more serious. U.S. airlines, unable to compete with oil-rich governments’ subsidized airlines, will be forced out of major international routes and could even be forced out of business.

The good news is that the Trump administration has been listening to Americans’ opposition to these violations of the Open Skies agreements. And, even more importantly, the Trump administration has taken swift action to enforce the Open Skies agreement.

Back in January, the Trump administration landed a big victory during the U.S.-Qatar Strategic Dialogue, when Qatar agreed to provide detailed and transparent financial records. Those financial records will enable the State Department and other U.S. agencies to evaluate possible violations of the Open Skies agreements.

Moving forward, the Trump administration should insist that the United Arab Emirates submit to the same transparency standards that Qatar recently agreed to implement. That would mean, at a minimum, the full release of its financial records, in accordance with internationally recognized accounting standards.

Fully 10 million U.S. jobs and $1.5 trillion in nationwide economic activity depend on our nation’s airline industry. The enforcement of all of the Open Skies agreements provides a platform for President Trump to protect American workers and consumers, all while creating new economic opportunities.

Ensuring that other nations abide by the both the spirit and the letter of the agreements is critically important for protecting those millions of American jobs. President Trump’s success in January is the model his administration should replicate in its negotiations with the United Arab Emirates.

On the campaign trail, Donald Trump frequently promised to protect the U.S. economy by putting American workers first in policy-making decisions. His campaign message was refreshing for American workers who, all too often, are often overlooked in Washington, D.C.

By enforcing the Open Skies agreements, President Trump is putting into action his America-first campaign promise.

Orignally Posted on the Washington Times.

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U.S. Trade Enforcement Mechanisms

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By: Douglas Hultz-Eakin, Jacqueline Varas

Executive Summary

  • Trade and other international economic agreements provide broad benefits to the United States and its international trade partners. However, these agreements must be enforced effectively to engender the trust needed to maintain and expand international commerce.
  • The primary enforcement mechanisms are dispute settlement provisions under specific trade laws and the World Trade Organization, as well as anti-dumping and countervailing duties to counter harm from specific countries and products.
  • “Safeguard actions” provide import restrictions to protect harmed domestic industries. An interesting test of safeguards are the recently imposed import restrictions on washing machines after Samsung and LG were perceived to have evaded U.S. antidumping duties by moving production from South Korea to China, Vietnam, and Thailand.
  • Enforcement is also important in other forms of international agreements such as treaties. For example, a test of the future of the Open Skies treaties with Qatar and the United Arab Emirates is the ability to negotiate resolution of the damage to U.S. carriers from government-subsidized international routes by three airlines headquartered in those countries.

Introduction

International economic agreements contribute to the ability of the United States and its allies to build stronger relationships, accomplish shared goals, and reap the economic benefits. A key tool for preserving confidence in these agreements is enforcement mechanisms. Absent these features, agreements would not permit nations to fully experience the advantages of international commerce.

International trade creates significant benefits for the United States. It expands the consumer base and increases demand for U.S. businesses, exposes Americans to lower-priced or higher-quality consumer goods from around the globe, and generates significant productivity gains resulting from international competition and specialization. Trade agreements increase these benefits by reducing trade barriers. They also foster global trust, cooperation, and stabilization.

For trade agreements to be effective, all partners must have confidence that the terms will be upheld. Nations must be assured that their exports to partner countries will not be taxed at higher rates than previously agreed, that they will not face unfair competition from government-subsidized goods in other nations, and that no trade agreement partner will discriminate against them in favor of its own domestic producers. With this confidence intact, producers and consumers can trade freely and experience the economic growth that is spurred by open markets.

In cases where the United States (or another trade agreement partner) believes it is being treated unjustly, there must be a path to adjudicating the complaint. This is also true for other types of agreements in which nations are held accountable. The United States has established several such mechanisms for resolving these types of disputes.

Dispute Settlement

In the realm of trade agreements, there are two main types of dispute resolution mechanisms. The first is Investor-State Dispute Settlement (ISDS), a procedure in which investors can pursue arbitration with governments that discriminate against foreign suppliers. ISDS can also be triggered if governments deny foreign investors their right to due process, seize property without just compensation, or restrict the movement of capital within their borders. Approximately 3,000 agreements worldwide contain some type of ISDS provisions, and the United States is party to 50.

When an ISDS case is brought against a nation’s government, it is not resolved through either nation’s court system. Instead, the parties enter an arbitration process in which the case is decided by a three-member panel of legal experts. While some have criticized this process, it is designed this way to protect investors from potential bias within a country’s courts and from weak legal institutions in developing nations. Furthermore, in the over 20 years in which the United States has been party to ISDS agreements, it has been sued by foreign investors only 16 times. Of those, 10 were decided in favor of the United States and the remaining cases were either settled or dropped. By contrast, U.S. investors have utilized ISDS to challenge foreign governments over 150 times.

ISDS gives companies at home and abroad the security to invest internationally. Without it, foreign and domestic businesses may not have the confidence to expand, participate in trade, or invest in the United States.

The second type of dispute resolution is State-to-State Dispute Settlement (SSDS). If nations have a dispute concerning the interpretation or application of an agreement, they can seek arbitration through SSDS. Like ISDS, trade partners can request the formation of a three-member arbitration panel of representatives from each nation to rule on disputes. The United States has only been involved in eight SSDS cases: five under the U.S.-Canada Free Trade Agreement and three under the North American Free Trade Agreement (NAFTA).

In addition to dispute settlement processes laid out in U.S. trade agreements, the World Trade Organization (WTO) also functions as a mechanism to enforce the rules of global trade. It was formed in 1995 to oversee the global trading system and promote the liberalization of trade barriers, and now has over 160 member nations. Members of the WTO face lower tariffs when exporting to other WTO nations and are afforded protections against unjust trade barriers and discrimination.

For nations that do not wish to utilize dispute settlement mechanisms within individual trade agreements, or for nations that do not have trade agreements with one another, the WTO offers its own dispute settlement procedure. The WTO dispute settlement process resembles that of an international tribunal: Countries engage in initial consultations, hearings, and the creation of a panel to aid in making rulings and recommendations, which are subject to appeal. Final decisions are adopted by the Dispute Settlement Body; a council consisting of representatives of all member governments. While the primary goal of this process is to settle disputes privately through initial consultations, the WTO has an average of 30 dispute settlement panels active each month. Decisions are usually made in a little over one year.

Anti-Dumping and Countervailing Duties

The United States can also try to unilaterally enforce trade rules by imposing anti-dumping and countervailing (AD/CV) duties. These are duties placed on imports that injure U.S. industry, either due to government subsidies or sales at below cost prices. U.S. businesses can petition the Department of Commerce and the U.S. International Trade Commission (USITC) to perform AD/CV investigations if they believe competing products from specific countries are injuring them. If the Department of Commerce finds dumping or subsidization and USITC finds material injury to U.S. industry, duties are applied to specific imports from that country to offset the subsidies or dumping.

It is not always necessary for domestic industry to petition for an investigation to take place. While it is rare, the Department of Commerce may self-initiate AD/CV investigations. This practice has occurred under the Trump Administration, which self-initiated an investigation against Chinese aluminum late last year. However, AD/CV duties may be met with backlash. Canada recently launched a WTO case against the United States for placing AD/CV duties on imports of softwood lumber, and initiated an SSDS process under NAFTA.

Additional Trade Enforcement Mechanisms

Legislation has empowered the United States to seek other enforcement options as well. For instance, the Trade Act of 1974 offers multiple avenues for the United States to challenge trade actions taken by other nations. One example is Section 201 – a statute that authorizes USITC to perform “safeguard investigations.” If USITC finds that a recent surge of imports has seriously injured domestic producers (or there is a threat of serious injury), it can recommend temporary import restrictions. Unlike AD/CV duties, these restrictions would apply to all imports of a specific product, regardless of the country of origin. Furthermore, for USITC to recommend import restrictions following a safeguard investigation, it does not need to find that exporters were engaging in potentially illegal or uncompetitive activity (e.g. receiving government subsidies). It only needs to confirm that the import surge is causing serious injury (or a threat of serious injury) to domestic industry.

Under the Trump Administration, USITC has launched two safeguard investigations. One investigated imports of solar cells and modules , and the second concerned imports of large residential washing machines.

USITC first started investigating washing machine imports after Samsung and LG (both based in South Korea) evaded U.S. antidumping duties resulting from previous AD/CV investigations. Whirlpool alleges the companies moved production from South Korea to China, Vietnam, and Thailand after tariffs were enacted. USITC agreed with Whirlpool that these imports threaten domestic suppliers, and the president responded by enacting tariffs of 20 percent on the first 1.2 million units of washing machine imports. Tariffs on imports above this level will start at 50 percent, but both tariff rates will decline over time.

The other safeguard investigation was in response to increasing competition from solar imports. A U.S.-based manufacturer claimed that increasing solar imports from China, where solar companies are subsidized by the government, causes serious injury to domestic manufacturing. In this case, USITC also concluded that solar imports threaten domestic industry and the president imposed tariffs starting at 30 percent and declining over time.

Section 301 of the Trade Act of 1974 is another example. This statute empowers the U.S. Trade Representative (USTR) to investigate unfair trade practices, which can include trade agreement violations, market access restrictions, legal violations, or discriminatory practices. USTR recently initiated a Section 301 investigation into China for intellectual property theft and improper technology transfer, a practice that U.S. companies have been protesting for years. If USTR confirms these unfair trade practices, it has the authority to impose tariffs or other import restrictions on China. Or, if China agrees, they may also enter into a binding agreement to phase out the practice of intellectual property theft.

These tools enable the United States to enforce the rules of international trade while also protecting the U.S. from discrimination and trade cheating. However, it is important to balance any trade enforcement action pursued by the United States with the possibility of retaliation by other countries, effects on other domestic industries, and potential economic harm to consumers.

Some argue that legislation like the Trade Act of 1974 has become obsolete with the establishment of a multilateral trading regime and the creation of the WTO. They further argue that any action taken against our trade partners should only be pursued through the WTO, and that there is a credible threat of retaliation if the United States acts unilaterally. This is a serious risk: If our enforcement actions are met with trade restrictions from other countries, U.S. exporters could lose market access abroad and U.S. consumers will be faced with higher prices. Furthermore, it would be foolish to believe that trade restrictions imposed by the United States can revive uncompetitive industries or counteract natural shifts in production. However, it is necessary to enforce the rules of trade agreements after they are negotiated and agreed to. If rules are not enforced, unfair trade practices will go unchallenged and it will be difficult to maintain domestic support for trade agreements.

Enforcement in Other International Agreements

Effective enforcement is also important for instilling confidence in other types of international agreements. For instance, the State Department recently opened talks with Qatar (and plan to so with the United Arab Emirates ) about an international agreement called Open Skies. This is one of over 120 U.S. bilateral agreements designed to prevent government intervention in commercial airline travel. Under Open Skies, private airlines in all partner nations have the freedom to make their own decisions about airline routes, the number of flights, the types of aircrafts, and pricing.

Before Open Skies, governments regulated all aspects of airline travel. The Airline Deregulation Act of 1978 deregulated the airline industry in the United States, making way for market forces to spur competition, innovation, and lower prices for consumers. The United States continued this trend in 1992 by establishing the first Open Skies agreement with the Netherlands. We have since entered into Open Skies agreements with partners around the globe in Europe, Africa, the Middle East, the Asia Pacific, and Latin America and the Caribbean.

Open Skies has produced significant benefits for both airline industries and consumers. According to the International Trade Administration (ITA), the U.S.-EU Open Skies Agreement was projected to increase the total number of airline passengers by up to 39 million and increase cargo by up to 170,000 tons. ITA argues that Open Skies also enabled a growth in international trade by improving supply chain efficiency and reducing the distance between manufacturers, suppliers, and customers. Another study found that liberalizing the air services of 320 countries without a current Open Skies agreement would create 24.1 million full time jobs and boost the global economy by $490 billion.

The United States opened diplomatic channels with Qatar (and plans to do so with the United Arab Emirates ) after American, Delta, and United Airlines alleged that government subsidies to state-owned Gulf airlines are forcing competitors out of the market. Specifically, they claim that these subsidies are in violation of Open Skies’ Fair Competition Clause, in which all airlines are allowed a “fair and equal” opportunity to compete. According to the airlines, the governments of Qatar and the United Arab Emirates (UAE) have given over $52 billion in subsidies to Qatar Airways, Etihad Airways, and Emirates.

The current Open Skies dispute is a pertinent example of how enforcement is integral to the success of international agreements. Due to foreign subsidies, U.S. airlines have been forced to terminate their competing routes to Gulf nations.. Without enforcement, airlines in Qatar and the UAE would continue benefitting from these subsidies and driving U.S. competitors out of the market. This is evidenced by the fact that over 80 percent of Gulf Carrier flights to the United States in 2014 were found to be unprofitable. These carriers are willing to operate at a loss in order to capture market share.

The addition of “fifth freedom” flights – flights by an airline between two foreign countries – appears to be another byproduct of Gulf subsidies. In the case of the UAE, Emirates has started offering fifth freedom flights in the U.S.-EU market targeted to consumers not flying to the Gulf. For example, they offer nonstop flights between New York City and Milan as well as between Athens and Newark. By leveraging government subsidies and continuing to add fifth freedom routes, Gulf airlines could conceivably overtake the United States as the global leader in aviation, significantly diminishing the economic prospects of U.S. carriers.

As a result of diplomatic talks, Qatar airways has agreed to commit to greater financial transparency and to halt any fifth freedom flights to the United States. This is an important first step toward ensuring that entities which use government subsidies are held accountable and that competition between the United States and Qatar remains open.

Conclusion

International commerce and cooperation have immense benefits for the United States. Entering into international agreements with other nations is one of the best ways we can build relationships with our allies. However, effective enforcement of these agreements is a key component of their success. To fully benefit from the economic growth that follows open markets or international deregulation, nations must have confidence in the agreements themselves.

Published on American Action Forum.

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Strong enforcement of Open Skies agreement with Qatar is good for the U.S.

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A few weeks ago, President Trump announced an agreement with Qatar that would protect 1.2 million American aviation industry jobs. This announcement shows that the new administration is serious about enforcing our Open Skies agreements and protecting Americans from unfair competition with nations like Qatar.

Transport Daily News has the story:

As part of the recent agreement between the U.S. and Qatar, the partnership said Qatar has committed to operate in a transparent manner by using internationally agreed upon accounting and auditing standards and applying commercial terms to all transactions.

“Qatar and the UAE have both engaged in dishonest accounting methods to distort and conceal the truth about the extent to which the governments have kept the three state-owned airlines afloat,” according to Jenny Beth Martin, president and co-founder of the Tea Party Patriots and the chairman of the Tea Party Patriots Citizens Fund, in an opinion piece published Feb. 9 in The Washington Times. “Thanks to President Trump’s persistence, Qatar is now committing for the first time to provide more transparency in its record-keeping.”

Martin also thinks the U.S.-Qatar agreement will benefit American workers, who have seen “their slipping importance and relevance in Washington as politicians have routinely prioritized Silicon Valley, Wall Street and other crony capitalist interests” over them, she wrote.

And in general, the agreement with Qatar is a win for free market supporters who think “winners and losers in the market should be determined through fair competition — not through heavy-handed government programs or massive government subsidies,” Martin wrote.

We are thrilled that President Trump has taken the initiative to enforce our trade agreement with Qatar to put America first and overturn trade deals that prioritize foreign trade cheaters over 1.2 million American jobs.

Published on Tea Party Patriots.
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Skies Are Looking Fair

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A little more anyway. Last year, I wrote about a battle between U.S. airlines and three aggressive Middle East competitors: The charge from this hemisphere was that the state-owned airlines — Etihad Airways, Emirates, and Qatar Airways — were violating and exploiting the “Open Skies” agreement by spending a whopping $50 billion to undercut the U.S. carriers and unfairly compete via expanded routes and services in the U.S.

Unchecked, the trio’s efforts were projected to result in a major loss of U.S. aviation-related jobs. Well, there seems to be a little good news to share: The association for the embattled U.S. carriers, Partnership for Open and Fair Skies, announced last week that, courtesy of State Department intervention, Qatar would start to end it wicked ways. Years late and a few billion bucks short, sure. But still, things just got a little more fair. So, that makes it one airline down, two to go. Chop chop Rex!

Published on National Review.

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Newt Gingrich: Trump should enforce our free trade agreement on air travel

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Experience shows that letting markets, rather than politics, dictate economic activity creates more value for consumers and frees up capital that ultimately leads to more jobs.

This is why I have actively supported free trade and other agreements that remove government barriers and entanglements to international commerce throughout my career.

For open markets to work as intended, however, all parties need to be operating on the same, level playing field. One of the biggest challenges advocates of free trade must confront in the 21st century is the growing number of countries using nation-state resources – often in violation of trade deals – to give their state-owned companies huge advantages.

In these cases, international competition does not create the greater efficiencies, innovation, and new demand for services that leads to a growing economy for all. Instead, since the unsubsidized competition cannot possibly compete, it leads to a hemorrhaging of jobs and wealth in the countries that do not cheat, as well as fewer options for consumers.

The emergence of this highly aggressive form of state-sponsored capitalism provides a test for the United States and for advocates of unencumbered international economic activity: Are we willing to stand up for American workers? Are we willing to enforce our trade deals?

The United States faces a perfect test case when it comes to our Open Skies agreements with the United Arab Emirates and Qatar.

Open Skies agreements allow airlines, rather than governments, to make decisions about international routes, pricing, and capacity. The goal is to allow market demand rather than politics to drive these decisions, which saves customers money.

The United States has more than 100 of these agreements, and they have been a huge success. Estimates show that Open Skies agreements save passengers approximately $4 billion per year on U.S.-international routes.

However, for these agreements to be mutually beneficial, the airlines in all participating countries must be operating under the same rules. In the case of the United Arab Emirates and Qatar, this is clearly not the case.

A report submitted to the U.S. government by a coalition of the three major U.S. airlines and several airline worker unions shows that between 2004 and 2014, the governments of the UAE and Qatar have provided over $40 billion in subsidies and benefits to their state-owned airlines: Emirates, Etihad Airways, and Qatar Airways. Updated analysis by the coalition shows that since 2014, the total subsidy has passed $50 billion.

U.S. airlines have competed against state-owned airlines for decades, but these massive subsidies are unprecedented. The Gulf carriers are using this almost limitless government funding to open new routes without considering consumer demand, and thanks to the subsidies they receive, can afford to hemorrhage money until their unsubsidized competitors have no choice but to end their service. The coalition’s analysis shows that every route closure leads to a net loss of 1,500 U.S. jobs.

Why would the Gulf governments do this? Because the two nations’ larger economic development strategies depend on making themselves major airline hubs. Therefore, they are willing to let their state-owned airlines lose money to serve their broader, long-term goals.

This is a direct violation of our Open Skies agreements, which require parties to ensure “fair and equal” opportunities to compete. As the report shows, the Gulf carriers are operating hundreds of millions of dollars in the red every year, while at the same time rapidly expanding routes and capacity. They are not creating new demand for routes. They are only driving out the competition who cannot afford to operate at a loss. The Gulf carriers couldn’t do this without the more than $50 billion in subsidies they have received over the past decade. This is the opposite of fair competition.

One might be tempted to dismiss the findings of this study because it was funded by the United States’ three major legacy carriers, but other developed nations such as Canada, Japan, and China – as well as the EU – have come to the same conclusion and have already taken steps to equalize the economic playing field with the Gulf carriers. It is clearly time for the United States to follow suit.

Our Open Skies agreements allow the State Department to request immediate consultations with partner countries to address grievances. We should do so immediately. If we are refused, the Trump administration should announce it is freezing the addition of new routes from the Gulf carriers to the United States until UAE and Qatar come to the table.

Those opposed to enforcing our Open Skies agreements with Qatar and UAE argue that doing so would invite scrutiny of alleged subsidies that U.S. carriers receive, and undermine Open Skies agreements with other countries.

This is a smokescreen. There is no comparison between the tens of billions of dollars in subsidies that the Gulf carriers receive with the small advantages U.S. carriers have, such as relatively liberal bankruptcy laws and the partial reimbursements they received from the government after it decided to ground flights in response to the 9/11 attacks.

If free and fair trade is to continue to expand in the 21st century, those of us who advocate robust international commerce free of government interference must be willing to stand up for U.S. workers when other countries are not playing by the rules.

In short, supporting free trade requires enforcing free trade agreements. All Americans should demand that the U.S. government acts to enforce its Open Skies agreement with UAE and Qatar.

Newt Gingrich is former Republican speaker of the U.S. House and a former candidate for president.

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