FREQUENTLY ASKED QUESTIONS:
First, some qualifications: The World Trade Organization has agreed to the following definitions for subsidy:
A government practice that involves a direct transfer of funds (e.g. grants, loans, and equity infusion), potential direct transfers of funds or liabilities (e.g. loan guarantees)
Government revenue that is otherwise due is foregone or not collected
Government provides goods or services other than general infrastructure, or purchases goods
Government makes payments to a funding mechanism, or entrusts or directs a private body to carry out one or more of the type of functions illustrated in (i) to (iii) above which would normally be vested in the government and the practice, in no real sense, differs from practices normally followed by governments
*Because members of the WTO have agreed to the definition of what IS a subsidy, everything NOT defined as such is therefore NOT a subsidy
The United States holds Open Skies Agreements with Qatar and the United Arab Emirates, as well as with over 120 other countries.
The US-UAE Open Skies Agreement can be viewed here.
The US-Qatar Open Skies Agreement can be viewed here.
Since the Open Skies agreements with the United Arab Emirates and Qatar were signed in the late 1990s, the United Arab Emirates and Qatar have subsidized their airlines to the tune of over $50 billion dollars. The Open Skies agreements specifically state that such subsidization is not allowed. The importance of fair competition is clearly spelled out in Article 11, and pricing determinations are spelled out in Article 12.
Because of these subsidies, Emirates, Qatar, and Etihad can expand into markets they wouldn’t be able to If they played by the rules of true commercial businesses. But because they get all of this government cash, they can now buy significant quantities of wide-body aircraft and use them to flood other routes with excess capacity, known as seat-dumping, which allows them to artificially lower prices on routes that were once profitable for other airlines. Seems like a pretty unfair playing field, right?
One big reason? Jobs. Because of this subsidized expansion, a net 1,500 U.S.-based jobs are lost for every route lost or forgone to one of the Gulf carriers. That means 1,500 fewer consumers in the US economy and 1,500 families that lose the stability of career in the aviation industry. When the U.S. aviation industry alone contributes over 5% of US GDP, that’s a big deal. The long-term implications aren’t much better.
While ticket prices may seem lower on the Gulf airlines currently, as U.S. carriers begin to lose long-haul routes, they won’t be able to sustain their vital short haul routes, and Gulf carriers, with a monopoly on those routes, will be able to set whatever price they like for tickets. In the long term, Gulf subsidization isn’t just bad for U.S. carriers and American aviation workers, it’s bad for consumers too.
The U.S. aviation industry alone contributes over 5% of US GDP, and any external or internal force that threatens it is a big deal.
While ticket prices may seem lower on the Gulf airlines currently, as U.S. carriers begin to lose long-haul routes, they won’t be able to sustain their vital short haul routes, and Gulf carriers, with a monopoly on those routes, will be able to set whatever price they like for tickets.
One very real and very serious consequence of the lost routes is job loss. The American aviation industry directly and indirectly employs millions or hard-working Americans, and because of this subsidized expansion, a net 1,500 U.S.-based jobs disappear for every route lost or forgone to one of the Gulf carriers.
That means 1,500 fewer consumers in the US economy and 1,500 families that lose the stability of career in the aviation industry. In the long term, Gulf subsidization isn’t just bad for U.S. carriers and American aviation workers, it’s bad for consumers and the US economy too.
Article 11 Sections 1 & 2: Fair Competition
1.Each Party shall allow a fair and equal opportunity for the designated airlines of both Parties to compete in providing the international air transportation governed by this Agreement.
2.Each Party shall allow each designated airline to determine the frequency and capacity of the international air transportation it offers based upon commercial considerations in the marketplace. Consistent with this right, neither Party shall unilaterally limit the volume of traffic, frequency or regularity of service, or the aircraft type or types operated by the designated airlines of the other Party, except as may be required for customs, technical, operational, or environmental reasons under uniform conditions consistent with Article 15 of the Convention.
Article 12 Section 1 Subsections a & c :Pricing
Each Party shall allow prices for air transportation to be established by each designated airline based upon commercial considerations in the marketplace.
Intervention by the Parties shall be limited to:
1. a. Prevention of unreasonably discriminatory prices or practices;
2. Protection of consumers from prices that are unreasonably high or restrictive due to the abuse of a dominant position;
3. Protection of airlines from prices that are artificially low due to direct or indirect governmental subsidy or support.
There are a number of reasons why Chapter 11 is NOT a subsidy:
The WTO does not define Chapter 11 as a subsidy.
Chapter 11 does not involve equity infusions by the taxpayer/government and is overseen by an independent judiciary (not the government).
An organization that enters Chapter 11 comes out as a newly reorganized entity that is not the same business that entered Chapter 11.
The Air Transportation Safety and System Stabilization Act was a response to U.S. airspace and the American aviation industry (and its partners) being shut down by the federal government in the days following 9/11.
Aviation markets in the European Union and Australia have been negatively affected by the massive subsidies coming out of the Gulf. These countries (or governing bodies) hold their own forms of bilateral trade agreements with the UAE and Qatar. Open Skies Agreements specifically refer to particular US air transport agreements that have been negotiated as such.
Job losses for Australia’s flag carrier, Qantas Airlines. After sustaining record losses as a result of the Gulf airline subsidies, Qantas capitulated in 2003, and now runs limited flights as a code-share partner of state-owned and state-subsidized Emirates Airlines. This has resulted in massive job losses at Qantas as the airline turns more and more of its international flying over to Emirates.
A last ditch effort to save routes. As European carriers and their employees became negatively affected by the unnatural expansion of the subsidized Gulf carriers, France, Germany, and the Netherlands were forced to take a stand. They froze new routes for the Gulf carriers into their countries until the subsidies were addressed, and France and Germany announced a combined European effort to combat the illegal subsidies and ensure fair competition. The two countries asked their European Union partners and the EU executive commission to work together to develop a strategy that would bring about a fair and equitable resolution to the issue of the Gulf subsidies. If implemented, this new effort, supported by other EU member states and the European Commission, would replace individual bilateral agreement negotiations and will be headed by the Commission on behalf of individual members.
Articles 13 & 14 of the Open Skies Agreements clearly outline consultation and dispute resolution measures for Open Skies.
Article 13: Consultations
Either Party may, at any time, request consultations relating to this Agreement. Such consultations shall begin at the earliest possible date, but not later than 60 days from the date the other Party receives the request unless otherwise agreed.
As explicitly stated in the text of the Open Skies Agreements the US holds with Qatar and the UAE, either party has the right to call for consultations at any time. This is important because it means that both Qatar and the UAE have the same right and access to consultation requests as the United States, and it means that no reason is required for such consultations to take place. Violation claims are not required for consultation requests.
The U.S. Departments of State, Transportation, and Commerce have announced that the subsidy claims, “are of significant interest to stakeholders and all three federal agencies. The U.S. government takes seriously the concerns raised in the report and is interested in receiving insights and feedback from stakeholders before any decisions are made regarding what action, if any, should be taken.”
As such, they have opened a public online forum in which to collect evidence, insights, and feedback regarding the subsidy claims before they open a formal investigation into the matter.
The actions taken by the U.S. Departments of State, Transportation, and Commerce are a first step, but this issue is far from resolved. It’s time to finally end these illegal subsidies and restore fairness to our Open Skies. Americans for Fair Skies is asking the United States government to hold all parties accountable and begin the process of finding an equitable resolution to the subsidy violations of Open Skies. If Open Skies Agreements are going to work, everyone has to play by the rules. Until such time as those consultations take place and a reasonable agreement has been reached, Americans for Fair Skies is requesting that the U.S. government put a freeze on new routes from these carriers into the United States.