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Canada and the bully

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Canada and the bully

Imagine if the US were to introduce visa requirements for Canadians, and charge fees starting at $250 and running upwards, because of the country’s frustration in not being able to compel Canada to change its tax and regulatory policies for softwood lumber, or in not being able to force Canada to slow down the pace of development of the oil sands. Other than for the stakeholders in these two industries, there would be a national uproar against the tyranny of the US. Fortunately, the US is somewhat constrained from pursuing such a course of action by its commitments under the GATT and NAFTA. There is a rule of law.

Imagine instead if the US, in order to prop up its beleaguered airlines, imposed visa requirements and costs on Canadians traveling to the US only on non-US airlines. This immediately would be labeled as discriminatory by the Canadian Government and a direct violation of the Canada-US Open Skies Agreement.

However, this is essentially what the UAE has just done. The UAE is acting like the classic spoiled brat who throws tantrums whenever he cannot get his own way. There is a bilateral agreement between Canada and the UAE covering the airline industry, one that the UAE negotiated and voluntarily signed. But the UAE is no longer pleased with the conditions in this agreement and has been trying every tactic to pressure the Canadian Government to change the rules.

Canada cannot allow any country to dictate the terms of trade. In fact, no country should allow any other to bully its way to change the rules. Under the GATT for example, there are clearly established rules that must be honored and enforced; otherwise, the rules break down and we end up with power politics that benefit very few parties, if any.

Canada must draw a line in the sand with the UAE, making it very clear that we will not accept bully tactics and respond tit for tat with excessively costly visa requirements for all UAE citizens.

Canadian apologists for the UAE will argue, as the Globe and Mail editorial did today, that the UAE airlines (Etihad and Emirates) should be given unlimited access because this will be good for competition. However, the apologists know almost nothing about competition in this industry, or about competition in general.

Emirates prides itself on having to compete against 130 or so airlines in its home base of Dubai. Well, if there is this number of airlines serving Dubai, this tells me that there are many different ways for a Canadian to travel to Dubai and possibly beyond. And how many options are required before we conclude that there is competition?

I spent some time today looking at travel options and prices between Toronto and Dubai (I used the Travelocity website and looked at round-trips starting on January 17 and returning on January 24 – days on which Emirates flies to Toronto). In addition to Emirates, there are at least six other airlines providing direct service, and in addition, one can travel on Air Canada connecting with either Lufthansa or British Air.

Emirates does not offer the lowest fare. Turkish Airlines has this honor – a fare about $400 cheaper than Emirates. Several other airlines also have much lower prices. Emirates sole advantage is travel time.

I also looked at the Toronto-Mumbai route and found several airlines competing in this market. Again, Emirates is not the cheapest, nor does it offer the shortest travel time. So what exactly do we mean by competition?

Competition is really a smokescreen. Emirates has many more opportunities in the US and elsewhere. The primary issues, I believe, for Emirates, and to a lesser degree Etihad, is the concern that Canada could set an example for other countries. If Canada succeeds in restricting access, other countries might follow this lead. Such restrictions might sharply curtail the growth plans for the airlines and their government masters.

How about a multinational agreement for airlines as a way out of this dilemma? Of course, any such agreement would have to be specific to the airline industry. It should not be part of the GATT, nor should it be negotiated through the WTO. This path inevitably would result in trade-offs that go way beyond this industry – just consider the actions of the UAE at this time. But would the UAE airlines be amenable to such a negotiation and agreement?

It would have to include rules for airports and airport fees in order to prevent a race to the bottom. There also would have to be rules for labor and taxes. The NAFTA includes conditions on labor and environmental laws to prevent races to the bottom  and to ensure a level playing field for all North American competitors. A fundamental goal of any airline agreement would have to a level playing field. And all multinational agreements impose some limits on the policy autonomy of the signatories. Would the UAE accept such restrictions?

The agreement also might include a rule that all airlines be privatized. Would the UAE accept this rule? I suspect that Dubai would be quite hesitant, fearing a possible takeover of its airline by that of Abu Dhabi, and a resulting transfer of growth to Abu Dhabi.

The agreement also would have to include definitions and rules for subsidies and dumping. Interestingly, I found as part of my search for airfares and routes, that it is cheaper to fly on Emirates from Toronto to almost any city in India that it serves than to fly just to Dubai, even though all flights to India connect via Dubai. Is this dumping?

There are many destinations where the fare from Toronto is cheaper than the combination of fares to Dubai and from Dubai to these ultimate destinations. Again, is this predatory dumping? Rules need to be established to answer this question!

In the meantime, Canada should stand fast. Indeed, I suggest that Canada should go beyond a tit for tat response and impose visa costs on all travelers connecting through the UAE to Canada. Yes, this would be discriminatory, ruining Canadian markets for UAE carriers; but this would please Turkish Airlines, Jet Airways, Qatar and numerous other airlines, and demonstrate to the UAE that bullying will not be tolerated in a civil society.

As for the spineless Canadian apologists, I suggest that they crawl back into their holes since they cannot stand up to bullies, and only come out when they have developed a backbone.

The opinions expressed in this blog are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.


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