Friday, February 6, 2009

More on the Oberstar Bill

A lead article in this week's edition of The Economist is entitled, "The Return of Economic Nationalism."  As it states:

Managing a[n] [economic] crisis as complex as this one has so far called for nuance and pragmatism rather than stridency and principle. . . . But the re-emergence of a spectre from the darkest period of modern history argues for a different, indeed strident, response. Economic nationalism—the urge to keep jobs and capital at home—is both turning the economic crisis into a political one and threatening the world with depression. If it is not buried again forthwith, the consequences will be dire.

This is as true for the international trade in goods as it is in services, including air transport services.  Nationalism is not new to international civil aviation.  In fact, for over six decades it has been coeval with it.  As Prof. Brian Havel notes in his forthcoming book, Beyond Open Skies:

Launched by a restrictive global convention in Chicago in 1944, [international civil aviation's] existing regulatory regime has largely stood firm against the neoliberal free trade winds of the post-war era, straitjacketing the world's airline industry within a system of bilateral, point-to-point air treaties that explicitly reserves to governments the power to parcel out (and to deny) access to national airspace by foreign airlines, to exclude foreign airlines from domestic air service ('cabotage'), and to prohibit foreign citizens (and their airlines) from owning and controlling national air carriers (the 'nationality rule').

While a great deal of attention is currently (and understandably) being paid to an $800 billion-plus stimulus bill being debated on Capitol Hill which, some fear, could contain a provision shutting out foreign suppliers from the vast public works programs the legislation envisages, that should not distract from Rep. James Oberstar's bill targeting international airline alliances.  It, no less than a "Buy American" clause, could have a chilling effect on international trade relations.  It is important to remember that Rep. Oberstar's bill is being introduced at a time when the United States and European Union are engaged in second stage negotiations to expand the historic 2007 U.S./EC Air Transport Agreement.  Article 21 of the Agreement propounds a second stage agenda which implicitly contemplates cabotage ("further liberalization of traffic rights") and easing of inward investment restrictions ("additional foreign investment opportunities") as issues of "priority interest."  Given the Air Line Pilots Association's steadfast opposition to relaxing either restriction and President Barack Obama's apparent willingness to adhere to ALPA's policy positions (discussed on the blog here), chances are slim for progress in these areas during the second stage.  What, then, does the U.S. have to offer?  Some analysts have held out the possibility of both sides integrating their regulatory oversight of airline alliances, but that, of course, assumes the present alliance system remains.  Rep. Oberstar's bill hangs like a dark cloud over that assumption.

It is also important to consider what sort of message legislation which could lead to an unraveling of deregulation for air transport sends.  Could it be that the country which so boldly deregulated its domestic market 30 years ago and pursued such liberalizing external aviation policies as "Open Skies" is setting the stage for an aviation trade war?  Remember that the EU (and possibly its individual Member States) has the option to suspend any or all of the rights granted under the 2007 Agreement if a satisfactory second stage agreement is not secured by November 2010.  The United Kingdom has been particularly outspoken about its dissatisfaction with the first stage and its willingness to dismantle U.S. carriers' newly acquired route privileges.  With the pending approval and antitrust immunization application of the proposed British Airways/American Airlines/Iberia alliance potentially compromised by the threat of Rep. Oberstar's bill, the U.K.'s dissatisfaction will only deepen.  Should the bill come into effect and the present immunization for both the SkyTeam and Star alliances sunset, the U.K.'s antipathy will spread quickly.  With the alliances gone, traffic rights suspended, and the hopes of furthering air transport liberalization dashed, the transatlantic aviation marketplace will quickly find itself haunted by the spectre of economic nationalism.

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