Damned if you do,…
Emirates Airlines are continuing to lobby the Governments of Germany and France for increased access to their markets. Under the existing air services agreements, Emirates are allowed to fly to four cities in Germany, and to provide 21 weekly flights to France. Several years ago, Emirates initiated their campaign to add Berlin and Stuttgart to the four cities that they serve. Thus far, the German Government has rejected their appeals. In France, Emirates have tried to increase the number of weekly flights to at least 28, again with no success.
Each time their demands are rejected, Emirates remind the two countries that they have the largest orders outstanding for the Airbus 380 and 350 aircraft, and the production of both these planes generates tens of thousands of jobs in Germany and France. While no has accused Emirates of threatening the two countries in order to get their way, in light of the actions of the Government of Dubai in the dispute with Canada over rights for Emirates, it might not be a far stretch to believe that this might be the case. If so, this raises three very interesting questions.
The first: Are Emirates bluffing, and if so, should Germany and France call their bluff?
I believe that the airline is bluffing. There is no plane currently available to replace the 380, and it is very unlikely that Emirates would cancel future orders and run the risk of not having adequate capacity in place to support their growth plans. Further, the new generation of Boeing 747, the only competitor for the 380, would result in the introduction of a new type of aircraft into the Emirates fleet with the additional costs that go along with this.
While there is an alternative for the 350, namely the Boeing 787, it is unlikely that Emirates could get deliveries of this aircraft in sufficient numbers and in a timely fashion to replace the expected deliveries of their 350 order.
Thus, if Emirates did proceed to cancel any of their Airbus orders, they likely would be creating serious problems for themselves. Hence, Germany and France should call Emirates bluff.
However, if these two countries succumb to internal pressures and accede to the demands of Emirates, then we move on to the second question. In trade disputes should countries trade off one sector for another in order to reach some form of understanding? In this case, should Germany and France sacrifice Lufthansa and Air France respectively in favor of Airbus?
Of course, this also might be the decision both governments might make if they do not believe that Emirates are bluffing. But is this the best way to resolve trade disputes?
The failure to date to reach a conclusion in the Doha Round of the GATT negotiations suggests that multi-sector negotiations may not be the way of the future. Sector-specific negotiations may be more successful. In other words, to make headway in further reducing trade barriers, countries may have to negotiate sector-specific agreements that do not allow for inter-sector trade-offs. Such negotiations would preclude the type of trade off either Germany or France or both might be tempted to make in the ongoing dispute with Emirates Airlines.
The third question also stems from the possibility that Germany and France might cave in order to save the Airbus orders. Should such a decision, if one materialized, be considered a subsidy for Airbus? The WTO already has ruled against European subsidies for Airbus. Would this be a way to circumvent the WTO decision and guidance on what types of government support are illegal under the WTO rules? How would Boeing and the US treat such a case?
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.