With the reams of documents submitted so far, and more surely to follow, the ongoing Open Skies debate is a big win for accountants, lawyers, and typists.
What started as a debate over the definition of the word subsidy, has now escalated to a dispute over which agreements apply, as the conflict between U.S. airlines and Gulf carriers on Open Skies in the U.S. continues.
Yesterday, Emirates warned officials from the U.S. Department of State, Transportation, and Commerce in Washington, D.C., that the flawed legal arguments on Open Skies could have repercussions beyond the Gulf airlines, possibly endangering agreements with over 113 countries and even backfiring on the U.S. airlines.
In its extensive report submitted to U.S. officials, Emirates claims that the big three U.S. airlines base their subsidy claims on provisions of the wrong agreement and the wrong articles of the right agreement.
The Wrong Agreement
Emirates says the U.S. airlines’ Open Skies argument relies on WTO (World Trade Organisation) Subsidies and Countervailing Measures (“SCM Agreement”). This agreement, Emirates argues, does not apply to services, which fall under the WTO’s General Agreement on Trade in Services (GATS).
Further, GATS does not apply to international aviation, and is not “implicitly incorporated” in the U.S. Open Skies agreements, because Open Skies agreements have established their own unique language on subsidies.
Speaking in Washington, D.C. yesterday, Emirates’ President and CEO, Sir Tim Clark, said the U.S. airlines are themselves responsible for the exclusion of these WTO rules on Open Skies.
“It is ironic that the Big 3 are trying to argue their case based on WTO rules, when the USA, at the behest of these same legacy carriers, has always opposed efforts to bring air transport into GATS. Part of that reason would be because the US carriers themselves would be a prime target for restrictions, and would for the first time have to compete with foreign carriers in their protected US domestic market.”
The Wrong Articles
Stating that US legacy carriers have “built their case on wrong legal standards,” Emirates says that the Fair and Open skies group are effectively asking the U.S. government “to act against the law by imposing a unilateral freeze.”
Emirates also points out that requests by the Big 3 legacy carriers “for a unilateral freeze on Article 11 of the Open Skies Agreement,” is twice flawed.
First, because Article 11 (“fair and equal opportunity”) relates to access to the skies and not to subsidies. Subsidies are addressed in Article 12 which defines specific procedures to address artificially low fares “due to direct or indirect governmental subsidy or support”.
Second, Emirates argues, both Articles 11 and 12 of the Open Skies agreements bar participants from acting unilaterally except “under very limited circumstances,” not over subsidy arguments.
A Curt Response
The Fair and Open Skies group responded to Clark’s speech and Emirates’ report with a brief statement in which it said: “Emirates can submit as many pages as it wants, but it still won’t paper over what has been well documented.” The group referred to the document stash it released documenting its investigations into Gulf carriers financials — not including Emirates —earlier this year.
“With American jobs at stake, the time for action is increasingly urgent,” the group warned.
In his speech, Clark said: “The Big 3 are far from being ‘harmed’ financially by Emirates’ operations, and they are not even operating in the same markets that we are.”
Far Reaching Repercussions
Clark described documents prepared by U.S. Carriers in their appeal for review of Open Skies agreements as “littered with self-serving rhetoric,” based on errors and legal distortions.
“By asking the US government to take unilateral action, the Big 3 are asking the US to breach its own negotiated international obligations. This would put in jeopardy America’s Open Skies relationships with 113 other countries, and all the significant public and competition benefits that the Open Skies program has generated,” said Clark.
The outspoken airline leader summed up Emirates’ objections to the argument put forth by the Fair and Open Skies group, with a warning on the repercussions to the aviation industry of this ongoing Open Skies debate:
”[T]he legacy carriers, not satisfied with their protected domestic market, plus their anti-trust immunized global alliances which let them collude on capacity and price with joint venture partners, are now flexing their lobbying muscle to further restrict valuable international air transport links for American consumers, communities and companies,” Clark said. “[I]f their protectionist campaign were to be successful, it will not end with just the Gulf airlines.”
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Photo credit: From left, United Airlines Chairman, President and Chief Executive Officer Jeff Smisek, American Airlines Group Chairman and Chief Executive Officer W. Douglas Parker, and Delta Air Lines Chief Executive Officer Richard Anderson, participate in a panel discussion about what they call unfair international competition, Friday, May 15, 2015, at the National Press Club in Washington. 154605 / 154605