More Clouding of Issues in the Gulf Airline Trade Dispute

I’ve always been bothered by lack of proportion and perspective in matters of public policy, which is why I grimaced a few weeks ago when reading the latest opinion from Kevin Mitchell, founder of the grandly-named Business Travel Coalition. Mr. Mitchell has been a stalwart supporter of the massively-subsidized Gulf airlines, Emirates, Etihad Airways, and Qatar Airways, in a two-year-old trade dispute with American Airlines, Delta Air Lines, United Airlines, and major aviation unions. Those subsidies, which since 2004 have exceeded $50 billion, violate the provisions of the Open Skies aviation agreements between the United States and the United Arab Emirates and Qatar.

Mr. Mitchell’s newest paper focuses on air cargo, and he rightly lifts up the commercial success of FedEx and UPS. Both firms are undisputed leaders, providing the foundation for global supply chains, and, closer to home, bringing the benefits of online commerce to our front doors. They’re truly great companies. But he veers badly off course when he contends that the position of American, Delta, and United “would cause significant and irreparable damage to the U.S. all-cargo industry.” He says the three U.S. airlines seek to “decimate the World-Leading U.S. All-Cargo Industry,” and to “dismantle Open Skies.”

To the casual observer, that looks serious. But while Mr. Mitchell is right to tout the benefits of Open Skies policy, it makes no sense to argue against actually enforcing the agreements. I’d like to offer some clarification and perspective of what’s really going on here.

First, it’s important to understand that air cargo is a sector quite different from the passenger side, with varied business models (and is much more complex than Mitchell presents). Yes, passenger and all-cargo airlines operate machines with wings and jet engines, but the similarity largely ends there. And more to the point, it is wrong to claim that in order for the air cargo industry to succeed, we need to accept trade cheating and harm to Americans who work for passenger airlines. That’s the same illogic that says we should give Emirates, Etihad, and Qatar Airways a pass because they buy made-in-the-USA Boeing airliners.

Second, FedEx is being hugely inconsistent in its support for the Gulf airlines (for the record, UPS has not taken a position on the trade dispute). When state-owned enterprises threaten their business, they cry foul. For example, in a 2012 hearing on the Trans-Pacific Partnership (TPP) Agreement, a FedEx senior vice president said:

“The issue is as we go forward with postal units around the world, they have been subsidized by their governments, and then they compete in the express delivery business. That is a safeguard that we want. We are very happy to compete on a level playing field, but we don't want subsidies to the postal units to come into express businesses and then compete with us in an unfair advantage.”

Competing on a level playing field? Yes! That’s always been the ask of American, Delta, and United in their battle with the Gulf carriers.

In fact, FedEx has been so persistent in its pursuit of fair competition that every recent U.S. free trade agreement has included extra language (“annexes” in diplomatic parlance) to address FedEx’s concerns, with the opportunity for special government-to-government consultations if abuses were to occur. It’s one of the only industry sectors with its own special rules.

If you’re wondering why FedEx’s behavior in the Gulf issue is diametrically opposite its earlier positions, you might take a look at this YouTube video of their hub in Dubai. Although FedEx might claim that enforcing our Open Skies agreements could risk retaliation that would jeopardize its Dubai hub, its claim is hollow, because the Gulf carriers all have major cargo operations that depend on access to the huge U.S. market, business that they would not want to risk.

Third, it’s not surprising that Atlas Air, a smaller U.S. cargo player, has sided with the Gulf carriers, because it counts Emirates and Etihad as customers for its ACMI (Aircraft, Crew, Maintenance, and Insurance) services, which are Atlas’ core business. Atlas provides to Emirates and Etihad dedicated aircraft (747-400 freighters) and crew, and handles all the required maintenance, and provide insurance.

Air cargo is an important U.S. industry, but we should we wary of arguments like those of Mr. Mitchell. Policymakers in Washington should be able to find a way to advance the interests of U.S. passenger and cargo airlines alike, without allowing trade cheating and sacrificing American jobs.

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