Following is the full transcript of the May 21 Hudson event titled Are Gulf State Airlines Taking Unfair Advantage of Open Skies Agreements?.
TOM DUESTERBERG: Good morning everyone, and welcome to the Hudson Institute. I'm Tom Duesterberg. I'm a senior fellow here. I work on economic issues, especially trade. Thanks for showing up on a bright spring morning here without any rain. We're very honored to have as our keynote speaker Dr. Peter Navarro. As you all know, he's an economist with a Ph.D. from Harvard. He's serving as assistant to the president, director of trade and industrial policy, and director of the White House Trade Council. He's a professor emeritus of economics and public policy at UC Irvine. He's author of a number of books and professional articles, especially concentrating on China. He was an important adviser to the Trump campaign, authored a very important paper with Secretary of Commerce Wilbur Ross on economic policy. He's an influential voice in trade policy, especially, but also policy to strengthen the American industrial sector. He's here to say a few words about the recent agreement between the United States and the United Arab Emirates on Open Skies. And, Dr. Navarro, if you are ready, we invite you to the podium. Please give a warm round of applause to Peter Navarro.
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PETER NAVARRO: Truly great to be here. I’m a longtime admirer of the Hudson Institute. One of my favorite guys there (I had the pleasure to interview him for my film on the rise of the Chinese military), Seth Cropsey, is truly a visionary in terms of the need to rebuild the American navy in an age of budget sequestration. What I'm going to do this morning is simply read some remarks on what I think is an extremely significant issue. And this is the fly in the fair and Open Skies. So last week, President Donald J. Trump secured another big win for American workers and businesses: at the direction of the White House, Secretary of State Mike Pompeo, working closely with the Department of Transportation, struck a deal that resolved a 3-year Open Skies disagreement between the United States and the United Arab Emirates over UAE's unfair subsidization of its two major airlines, Etihad and Emirates. The U.S. has signed Open Skies civil aviation agreements with about 125 countries, including the UAE and Qatar, which are intended to facilitate the growth of an efficient market-based international aviation system.
Worldwide, these agreements have helped protect the interests of American workers and businesses. These agreements are something that the administration strongly supports. They are good things for our aviation industry. But in the case of UAE and Qatar, serious concerns over many years – dating back to the Obama administration – were raised about their effectiveness. According to some U.S. airlines, the oil-rich governments of the UAE and Qatar have provided their air carriers with over $50 billion in subsidies since 2004. American carriers have asserted that the subsidy-enabled dumping of airline capacity by the Gulf carriers into the U.S. market has nearly eliminated U.S. airline service to the Middle East and India. For every long-haul route foregone by U.S. carriers, more than 1,500 American jobs are lost according to their estimates. The result of this unfair competition is that Emirates Airlines, Etihad and Qatar have become among the fastest growing carriers in the world. UAE's Dubai Airport is now one of the world's busiest. What these U.S. carriers have been arguing is simple: their pilots, flight attendants, machinists and other working men and women flying our Open Skies cannot compete with state-owned airlines operating outside the free and fair marketplace envisioned by the Open Skies framework. The pleas of these U.S. carriers, however, fell on deaf ears during the Obama administration. In contrast, the Trump White House quickly assembled a task force with representatives from two key agencies, the State Department and the Department of Transportation, along with representatives from the Departments of Commerce and Justice, the United States Trade Representative, and the Council of Economic Advisers. Emblematic of the president's America First policies, the State Department was directed by this interagency group, led by the White House, to secure a new understanding with Qatar, which was consummated in January, and then with the UAE, which was achieved this week.
The contours of these two new understandings are very simple. First, there is an acknowledgment on both sides that government subsidies adversely affect free and fair competition in the international aviation market. The Gulf carriers should pay their full and fair share of the costs of operating out of their international airports. Second, the UAE and Qatar governments have committed to financial transparency, and to conduct transactions based on commercial terms. Their airlines should not operate behind an opaque accounting wall that shields their government subsidies from public view. Together, these reforms and understandings should substantially curtail any unfair subsidization. Third, both the UAE and Qatar governments have informed the United States that their respective carriers have no current plans to begin any new commercial fifth freedom flights. This is particularly important to the concerned U.S. carriers, as such routes involve Gulf carriers flying to destinations like Europe, without U.S. travelers ever landing in Qatar or the UAE. And if you want to know a little bit more about the intricacies of fifth freedom versus seventh freedom and the like, Doug Holtz-Eakin will be up here shortly, and he will explain the mysteries of that, as he did in an excellent op-ed last week. By addressing the concerns of these U.S. carriers and standing against unfair trade practices, President Trump is keeping candidate Trump's promises at a record pace.
And let's look at the record here. It's amazing. He has slashed the corporate tax rate, eliminated scores of unnecessary regulations, unleashed our coal and petroleum resources, and withdrawn from bad trade deals, ranging from the Paris climate accord and Trans-Pacific Partnership to the Iran nuclear fiasco. Bad deals, I should say. He has taken action to address threats to our national security, by imposing tariffs on aluminum and steel and negotiating means to address those threats with various countries. He has also taken action to address injurious imports of solar cell and modules and washing machines, thereby stimulating significant new investment on U.S. soil. He has successfully renegotiated the deeply flawed South Korean trade pact. Against this backdrop of promises made and promises kept, robust economic growth and historically low unemployment rates, the Trump Administration will rigorously ensure that our Open Skies agreements and these new understandings continue to work in the best interests of Americans, as our president continues to demonstrate he will never back down when American jobs are at stake and American companies are at risk. And I should say also that with respect to Qatar and UAE, we have a tremendous partnership with these countries, dealing with significant issues in the Middle East. And I had the burden of actually working not just on things like Open Skies, but things like the arms sales agreements that President Trump signed, historically, back in May. And my office has worked very closely with the State Department to make sure that those deals are consummated and move forward in a way which serves both our countries.
When the president is able to work with these countries, our partners and allies, whether it's in the Middle East or Asia or around the world, when we're able to sell weapons systems, defense systems to our allies, it really has a number of benefits. First of all, it provides better defenses for our partners – UAE, Qatar, Saudi Arabia, whoever that is. And that lends more regional stability. Secondly, it means, importantly, fewer American boots on the ground. Third, it creates jobs back here in the homeland. And finally, when we're able to do those kinds of defense sales with our partners and allies, it also lowers the costs of our production for our own purposes because it provides more economies in scale and scope. So I want to signal very clearly to the UAE and Qatar, and all of our partners and allies, that we have very strong relations with them. And we were glad to work closely with them on this Open Skies framework. And you're going to have a great morning this morning. You got the top experts in the field on this to discuss this. I want to assure everybody, in the U.S. airlines, commercial, cargo and in-between, that the president, Trump, has your back, and we're here to help. Thank you very much.
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DUESTERBERG: It's my pleasure and my honor to introduce the Honorable Newt Gingrich, the former speaker of the House of Representatives, a longtime important political actor, the architect of the Republican resurgence in the Congress in the 1990s, a visionary leader of the Republican policies starting in the 1990s. And he's remained an important figure in U.S. politics ever since. Dr. Gingrich is now the chairman of the Gingrich Group, a communications and consulting firm that specializes in transformational change. He has offices here and in Atlanta. He serves as general chairman of the American Solutions For Winning The Future. He's a senior fellow at the American Enterprise Institute, a distinguished visiting fellow at the Hoover Institution at Stanford. And he's honorary chairman of the NanoBusiness Alliance [now known as the NanoBusiness Commercialization Association]. He's also a news and political analyst for Fox News Channel. Dr. Gingrich started out in life as a historian and taught modern European history for a number of years before entering politics. He has written on the Open Skies question and other trade issues. And it's my honor to welcome Speaker Gingrich to the podium.
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NEWT GINGRICH: Well, thank you all very much. It's great to be back here at Hudson, an institution which has a very long tradition of thinking new and unusual thoughts, and shaping public debate in a variety of ways, all the way back, of course, to the great founder, who himself did so much to shape our national security thinking for 30 years.
I got interested in aviation for a very practical reason called survival. I was running for Congress starting in 1974 in the sixth district of Georgia, which included the Atlanta airport and also included the Hampton FAA center, which is the largest single air traffic control center in the country. So obviously, if you were going to run for office, you were going to pay some attention to aviation issues. And I was reflecting, as I was sitting here a while ago, how things had changed. When I first started running, Southern Airlines existed. Eastern Airlines actually was as big in Atlanta as Delta.
And so things go on. I flew out last night from Atlanta. And I was looking at the Delta jet base, and I was thinking back to the number of mornings that I had stood there. Well, in fact, one of my habits was after each election, the next morning I would be at the Delta jet base at 5:00 a.m. thanking them for their vote. And the people who worked in aviation have been a major part of my ability to run for office and to win. So when I finally won – I lost in '74 and '76 – but when I finally won in '78, I came hat in hand to the leadership and begged to be on public works, and in particular, to be on the Aviation Subcommittee. So as a freshman, I ended up on the Aviation Subcommittee. I was reflecting back to some of the hearings we had in the early days on trade negotiation, which at that time largely focused on the Japanese, and various and sundry problems in dealing with the Japanese. And I couldn't help but reflect in terms of how the world evolves. In the '80s (and I was there: I'd campaigned with Reagan in the '70s; I was a freshman when he ran for president, and I campaigned with him and then worked with the administration for eight years), we were worried economically about Japan and militarily about the Soviet Union. And there were books like Japan As Number One and The Emerging Japanese Superstate, very parallel to some of the current thinking about China, with, I think, two singular differences. One is that China's much, much bigger than Japan. So it's conceivable that China can sustain a momentum that the Japanese couldn't sustain. But the other I just want to pose in passing. I'm going to write about this in the near future.
But I just want to pose this for you to think about this, that what you're watching Xi Jinping do is in fact an extraordinary strategic disaster, because the development of the social scoring system is the victory of Lenin over Deng Xiaoping. Deng Xiaoping saves communism in China by insisting on going to a market economy, and makes the famous speech in his southern tour that he doesn't care what color the cat is – whether it's a black cat or it's a white cat – as long as it catches the rat. Now, that was an argument that unless you had openness, unless you had freedom, unless you had an ability to invest, that they couldn't meet the needs of the Chinese people, and the Chinese people would throw them out. And for a very long period – 40 years – it seemed that Deng Xiaoping was the winner and that his model was in fact gradually replacing the centralized, Leninist, Maoist model. And now Xi's come along. And like many people, Xi misunderstands short-term efficiency for long-term wisdom. And so he now thinks that he can use all these modern technologies, that he can create this extraordinary technocratic system, and that he will be able to keep score of every person in the country, and do so automatically down to a level that if you have the wrong friends and say the wrong things, you won't be able to get on an airplane or a train. Now, the only problem with that model is: it is precisely what we defeated in the Cold War. It's simply one more effort to coerce human beings from a centralized political system, at which point, of course, human beings, who are ultimately clever, begin to lie and cheat.
And you'll presently see the equivalent of Chinese samizdat. And I'm told there are already companies that are showing up that are willing to help you get a better social score if you pay them enough money. They think they can outwit the centralized agencies' acumen. But I just raise this in the background because the No. 1 lesson I learned over – I spent a decade on the Aviation Subcommittee. (I actually ended up as ranking member, serving as ranking member for three months and then became the Republican whip partially with the vote of Bill Clinger, who was the second person in the Aviation Subcommittee on the Republican side, who was thrilled that I left. And he became the ranking member on aviation, at which point, as his wife told me one time, their treatment at airports improved remarkably.) And so I did have a decade of experience looking at this stuff. And ever since, obviously, as somebody who's concerned about the country, I've written and talked about trade policy, et cetera. I want to make two points that are complex but not contradictory. We are all better off if we have the largest possible open market in which people can specialize and develop things. In that sense, Adam Smith is correct: the larger the market, the better. It also requires an enormous amount of policing to sustain an open market, because there's a natural propensity for people to cheat. And so to the degree that you don't have an effective rule of law – and I want to draw a distinction between the rule of negotiation and the rule of law. The rule of negotiation says, “We had a really good meeting yesterday. We liked the meeting so much. We have another meeting in a month. And you should be really glad that we have these meetings. Just think how good it is that we're meeting.” That doesn't necessarily achieve anything.
If you watch the way societies that have functional, effective free markets operate, they have to have a legal system capable of enforcing contracts. They have to have a level of transparency which is enforceable by law. And there have to be consequences that are rapid and swift in order to sustain the system. Otherwise, you create such huge advantages for cheating that people, in fact, will routinely do so. And again, I'm a conservative. I think that the Reagan principle of “trust, but verify” is pretty good, even if it was originally, I think, a Russian proverb. But I think that we have to understand that going into this. I want to make one other point in general. And I think this is really important because it's antithetical to the American historic experience. Americans believe that there's a climactic moment. A big event occurs. And then that chapter is over. We move on. So we fight a civil war. The Civil War ends. We fight World War II. World War II ends. The natural conflict and the natural effort to gain advantage, inherent in a worldwide market system, will never end. And so you have to say, “Whatever this week's deal is, how am I going to enforce it next week? What indicators am I going to look for, to see whether or not it's being fulfilled by the people who signed the contract? And I should expect that they will cleverly try to find a way to get an advantage,” just as, by the way, our side should be cleverly trying to find ways to get advantage.
So as we enter this process, whether it's the Open Skies agreement – and I'll talk about it briefly in a minute – with Qatar and UAE, or it's what will turn out to be, I think, one of the great major developments of the next 20 years, which will be a titanic struggle between the United States and – I think, increasingly, most of the world – and the Chinese, because the Chinese are going to try to export their social system. And you can imagine they'll show up and say to various potential dictators, you know, for a modest fee, we can show you how to have 100 percent control of your citizens. By the way, we'd also like the information. And this is going to become an ongoing struggle. My other point, though, to everybody is to sort of relax and understand that unless we're really unlucky, it's not going to have a climactic event. We're not going to fight Gettysburg. We're not going to fight Normandy. But we're going to struggle every week with a system which is very different from ours, and which will seek to take every advantage of our inaction, and every advantage of our ignorance. And the burden is on us to be able to match this. The burden is not on the Chinese. It's not that they're bad people. They are doing what comes naturally, given their civilization. And we simply have to be prepared to be methodical enough and disciplined enough and tough enough to match it and to be capable. And I think we are capable of actually in the long run doing better than they are, because I think it's easier for us only to create a very large coalition in favor of freedom. I think it's harder to create coalitions in favor of tyranny than it is to create coalitions in favor of freedom. But I think we have to understand that this kind of struggle goes on.
So the same thing is true on the Open Skies arguments. The administration has proven on almost every front that it is more realistic and tougher than the last administration. This is also true in the way it's approached these particular negotiations. It's partly a reflection of the president, who is a naturally combative and pugnacious person and quite happy to be in the middle of conflict. It is partially the nature of the coalition that elected him and the people who he's appointed. So he's assembled around him people who largely agree with him. And Lighthizer has been saying this stuff since the mid-1980s. So it's not a great shock. Navarro's been very clear about this. So you have both the people who are in agreement. I just have a new book – brief commercial – I have a new book coming out in June on Trump's America, where I'm making the argument that actually Trump is a manifestation of a much larger pattern that involves many more people, and that the myopic focus of the Washington press corps really underestimates how large this movement is and where it's going. So what happened here is pretty straightforward. The UAE and Qatar have figured out a reasonably good game to play. They've been playing it fairly well for least a decade. Virtually everybody uses the same general numbers and says they subsidize their airlines to the tune of about $50 billion. That seems to be a generally acceptable term. And they can afford to. I mean, if you've been there, I mean, if you’ve looked around. Callista and I were recently in Dubai and went over to Abu Dhabi. You look at the scale of their wealth; they have money that they can afford to subsidize all these things. So why not? Well, the reason not of, course, is it happens to violate agreements.
But you had a long stretch where the attitude of the diplomats was, “Look: we're going to get together probably in six months, and we'll talk with each other. I'm sure it's going to be a very meaningful conversation. And when we're done talking, we'll then agree to get together in about six months and have even more conversation.” And they've been doing this for several years. Well, if you're the UAE and Qatar, you're perfectly happy to do that. As long as you're winning, I mean, you don't mind meeting for 20 years. Now, what happened that changed all that is Trump shows up. And what people tend to forget: Trump is not a negotiator in the diplomatic sense. Trump is a negotiator in the entrepreneurial-business sense. That is, he goes into a negotiation to get something done. He doesn't go into a negotiation for the purpose of having a negotiation. And he's been very clear. I have tried, again, to say to people, Trump is tactically very fluid and very unpredictable. He is strategically remarkably consistent. So if you go back to the campaign, what did he say about the Iranian agreement? He said it was terrible. “It was the worst deal we've ever made.” He said it for a year and a half. Then he appointed people. And one of the reasons you had tension in the White House was he had at least two senior people who didn't agree with him. And so he'd get up in the morning and say, “This is a really terrible agreement.” They'd say, “Yeah, but let's not be too pushy.” And one of the interesting things: my prediction is having Bolton and Pompeo, who are both themselves pretty aggressive, will actually allow Trump to be less aggressive, because they'll be aggressive for him.
But the directions he's going in are very clear. And just remember: the negotiations with Qatar and the UAE also occur in the framework of Iran. And particularly on the side of the UAE, the fear is with the Saudis. The fear of the Iranians is so great that the relative American leverage is as great as it's ever been, because they have a very clear understanding that if we weren't there, they would disappear, or they would exist only at the sufferance of the ayatollah. And so making us happy has suddenly gotten to be a higher value. And apparently – and I don't say this as a partisan comment, but just looking at what happened – the unhappiness in the Gulf on the Arab side with the last administration was so great that just the simple act of having a replacement improved things overnight. This is why you may remember when Trump goes to Riyadh not only did they assemble 58 countries in an unprecedented meeting, but also the king comes out to the airport to meet him. Every time Trump is in public, for three days the king is standing next to him. And he's sending a signal. Well, that's a signal that ultimately does permeate the Gulf despite the arguments between Qatar and its neighbors. I mean, all of them in the end have decided that working with the Americans may be the only road they have to survive. And that's the context in which this agreement suddenly began to shape up.
Now, I think it is a historic agreement. I think that there's a very real chance that it's going to change behavior. I think I would echo Peter Navarro and just say anybody who thinks that Trump will forget the agreement, and that they can backtrack and that they can – you know, there's a certain argument about the side letter, and whether or not the side letter really means you can't do it, or it just means you won't do it. I think Trump's view would be as long as you don't do it, he doesn't care whether it's because you can't do it or you won't do it, but don't do it. And so my guess is, because it takes a good while to launch a new flight, I think in this administration we're going to lean very aggressively if they found either of the two airlines not keeping the agreement. I think it's important. But I think it's important to set the terms of the competition not to avoid competition. This is my last real comment. I'm going to toss it open to questions. I think Americans have to compete in the world market. And we can demand that we compete with fairness. We can demand that we compete with transparency. We can demand that other countries don't dump on us and use us as a way of getting rid of their last marginal production. But in the end, I think you cannot go towards pure protectionism because it guarantees that your systems decay. They fail to innovate, and they fail to remain competitive. And I don't know of any occasion where countries that move towards autarchy don't, in the long run, end up in a mess of dramatically lower production. So I think it's very important that the Open Skies agreement be enforced for Open Skies, not as an excuse to hide. Let me, if I may, just take – I'm told I could take questions for one or two minutes. So...
DUESTERBERG: We have a microphone here, and we ask that you identify yourself and, instead of making a statement, ask a question. Are there are questions out there? OK, right here in front.
UNIDENTIFIED PERSON: Speaker Gingrich, I'm very glad to be here today. So I represent an NGO that works in the matters of the Middle East, especially in the area of Yemen with all the crises that is happening right now. So it may be a question more for political perspective, because you're the closer to the politics more than trade here. So how this could impact the advantage that sometimes Saudi Arabia or Iran takes over the area where there is conflict in Yemen? How can they take advantage of the Open Skies agreement to use them for maybe military intervention or military force in the area of Yemen, for example? This...
GINGRICH: And I don't think the two are related. I think that the Open Skies agreements were commercial agreements involving countries that are stable and that we have a relatively good relationship with. And I think that Yemen is a totally different problem and has to be seen in a totally different context.
DUESTERBERG: Other questions? Sir, over on the side aisle.
UNIDENTIFIED PERSON: Good morning, Speaker Newt Gingrich. […] with the U.S. Travel Association. You mentioned when you were first running for office that there were all these airlines that you had to get to know. And I noticed a couple of them that you named, and I actually think both of them that you named are no longer around, which is largely because of consolidation, which is a trend we've seen in the domestic market but also the international market. And in the transatlantic market itself, we've actually seen consolidation through joint ventures and antitrust immunity, which is a regulatory form of subsidy that our carriers received from the U.S. government. For industries like the US travel industry, that's actually not a positive development, because it shuts down free and open competition to have those joint ventures or to have antitrust immunity, unless you have Open Skies. So my question is: if the Trump administration wants the UAE and Qatar not to exercise their rights under Open Skies, should we also review antitrust immunity, so that consumers are protected, so that businesses that depend on aviation are protected? Or is it better to keep that Open Skies framework in place, so that we can have free and fair competition, since everybody's receiving subsidies?
GINGRICH: Well, I may be wrong because I'm not an expert on the nuances. You're going to have several people on the panel that are. But I'll go out on a limb here for a second and say, I don't think that this in any way weakens the Open Skies model. What it says is that they have to meet certain standards of transparency and non-subsidy in order to participate in Open Skies, and that the only point of suspending their continued development of more flights into the U.S. was to say, “Until you get to be transparent and until we're certain that you're not subsidizing these flights, they're, in fact, destructive of American jobs, and we're not going to set up a game where you get to continue to grow and expand while you pretend that eventually 10 or 15 years from now, you'll be in compliance.” And I think the minute they're in compliance, I think, they are back with an absolute right to be competitive. In terms of flights – and again, I'm not an expert in the zone – but living in Rome, as I do right now with Callista, as the ambassador to the Vatican, I've talked to people who fly Norwegian at astonishingly low prices, which strikes me as a pretty competitive setting. And I think somebody's going try to buy them because, you know, they're a product. But I go out on the airlines today, there are airlines that disappear. There are other airlines that have grown dramatically. Southwest would be an example – JetBlue, Spirit. I mean, there's a continual turmoil in the aviation industry, which has been here, actually, since the 1920s and '30s. And I think we're not in any danger of ending up with an oligopoly in the near future because every time they get big enough, they get three new competitors who are cheaper and have lower rates.
DUESTERBERG: We have time from one more question for the speaker, if there is one.
GINGRICH: Way in the back.
DUESTERBERG: Way in the back, yeah.
UNIDENTIFIED PERSON: Thank you. […] with NTDTV. Because in the recent case of ZTE – you know, the Chinese telecom company – we know that the Trump administration, at first, they want to sanction this company. But later on, because of president tweet, then it seems the obvious change-up – the president, on his position. So what's your interpretation about this change? Because it seems the president is not so consistent in his strategy.
GINGRICH: Well, as I said a while ago, tactically, Trump has an ability to be continually surprising, sometimes positively, sometimes pretty negatively. But strategically, he tends to be pretty stable. My guess is – and this is all reverse engineering because I was not in the room and I'm not professing any inside knowledge – that there are two things going on. One of which will have a substantial impact on Chinese negotiations in the near future, and that's North Korea. We are engaged in the dance right now, one of the alternatives of which is nuclear war. And I think the president really has come to understand that being very patient with the Chinese while maximizing their pressure on North Korea is really important because in fact, we really want to get Kim Jong-un to a point where he decides that his regime survival requires giving up nuclear weapons. And whether they can do that or not, as you know, it's very possible that this proposed summit will collapse. But I think Trump's actually being very healthy about that. He said, “Oh, if it doesn't work, it doesn't work.” But we haven't dropped any of our sanctions.
The Chinese begged us not to intervene and take three oil tankers that were taking desperately needed oil to North Korea, and we backed off. I suspect this next round we won't back off. And if Kim Jong-un right now plays games with Trump, I think Trump will just get tougher and he'll just get steadily tougher. But that's such a dangerous place that if you said to me, “Can you be a little patient for six months with the Chinese trade deal, so we can finish up trying to solve the nuclear problem without war?” I think that's reality. I think you have to go through that kind of thing. I think, second, my impression is that the president, as he does occasionally, probably spoke without consulting anyone, other than Xi Jinping, who, I think, my guess is that he got a call from the president of China who said, “Now, look, we're friends. Aren't we friends? Yes, of course we're friends. Well, as friends, you know, this is a really big deal. It would be nice for you not to do this. Well, are we friends or not? Yeah, of course.” My impression is since then, his staff, as we had to explain to him, it may not be quite as easy to unwind as the tweet suggested. So we'll have to wait and see. I certainly am in the wing that believes that China represents an enormous military and economic threat, that it is very methodical and very dangerous, and that we have to really rethink very profoundly how we approach them. And we have to accept that that means there will be continuous tension from here on out for a very long time, because they're not going to change their behavior without a lot of tension. Thank you all very much for allowing me to come and visit with you.
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DUESTERBERG: Thank you Mr. Speaker. I'll see you in Rome. OK, so we've ventured quite widely in our discussion this morning. We're going to try to focus a little bit more on the issue at hand, the Open Skies agreement. And first of all, I want to thank the Americans for Fair Skies, who made this event possible today. We've assembled, I think, an extremely distinguished group of experts to delve into the intricacies of this agreement and what it means. I'm going to introduce each of the panelists and ask them to make around five or six minutes of remarks, then we'll have some discussion. And if you have questions, we will have time for questions towards the end. First of all, we have the Honorable James Burnley. Jim is a partner at the law firm Venable. He's a former deputy secretary, then secretary at the U.S. Department of Transportation during the Reagan administration. He's also served as an outside legislative counsel to American Airlines. To my left is Doug Holtz-Eakin, a distinguished economist. He's the president of the American Action Forum. He served as chief economist of the president's Council of Economic Advisers in the second Bush administration, served as the director of the Congressional Budget Office, and as a longtime professor of economics at Columbia, and then at the Maxwell School at Syracuse University, where I believe you were the dean of the Maxwell School, no? I'm believing wrong, sorry.
DOUGLAS HOLTZ-EAKIN: I was never that bad.
DUESTERBERG: Never got kicked upstairs.
(LAUGHTER)
DUESTERBERG: So finally, we have Steve Taylor, the vice president for regulatory and industry affairs at the FedEx Corporation. He's been with FedEx since 1992. He's a trained attorney from Tennessee. He's a graduate of the University of Tennessee at Knoxville, a law degree from SMU and an advanced degree, I believe in law, from Cornell. He served in several private firms before going with Federal Express. So we're going to start with Secretary Burnley, who probably knows more about this than certainly I do, and probably most people in the room.
JAMES BURNLEY IV: Thank you very much, Tom. I've got to say, Speaker Gingrich always puts things in a context that almost nobody else can frame. And the cosmic reach of Open Skies agreements, I had not fully appreciated until a few minutes ago. But I do think it's a very important topic. And even though, in a sense, this chapter is closed, it just closed last week for now. And it's appropriate, I think, to reflect on why it is so significant as to how it played out. And you mentioned I have worked with American Airlines, and I want to be very clear, I've worked with American Airlines on this issue and have since its inception. When I was at DOT in the 1980s, there was no such thing as an Open Skies agreement, much less over 120 Open Skies agreements. Every time we wanted to find new opportunities – and I'm talking about the opportunity for one carrier to make one flight between two cities – we had to negotiate with the other country. We recognized then that was not a rational system. It was heavily politicized. So decisions were not made on the merits, however you might define them most of the time.
We had – and it still exists over at DOT, I'll come back to that in a moment – we had this process where once we'd reach an agreement with another country about new rights, then the airlines that wanted to exercise those rights had to compete, and file all kinds of economic arguments, or a lot of economic consultants, who've made good-sized fortunes in these matters in days gone by. And some still do, because again, unfortunately there are still some cases like China, where we don't have an Open Skies agreement, where this is still the process. But we knew there had to be a better approach. And my successor at DOT, Sam Skinner, under Bush 41, was successful with one of the great visionaries of the last 50 years in this country on aviation issues, Jeff Shane, as his point man in negotiating the first Open Skies agreement in the early 1990s with the Netherlands. And that really did break the ice. And as has been referenced today, we have over 120 such agreements. And the opportunities for cargo carriers, for passenger carriers alike have been, I think, exploded by this new process and so many of these agreements being negotiated in a relatively brief period of time, about 20 to 25 years. So that's my context. I can't tell you how this might reflect into our negotiations with the North Koreans and the like. But, well, that's Speaker Gingrich's context. My context is what is happening here is significant given this brief history I've shared with you.
Well, what's happened is that the Trump administration has recognized that these agreements over time will erode and become very troublesome in a myriad of ways if they're not enforced. Now, some of those who have been on the other side of this issue have made the argument loudly and repeatedly that American and Delta and United, who had complained first to the Obama administration, carried over in the Trump administration, about what Qatar was doing with subsidies, about what UAE was doing with subsidies, were basically trying to abrogate the Open Skies agreements. That is utter nonsense. It is contrary to the facts. The fact is agreements are meaningless if they're not enforced. The best way to make sure that an agreement remains viable is to enforce it when there are issues. So that is, I think, the most significant part of this, when you look at it in the history of modern international aviation, is that we have now signaled not just Qatar and the UAE, we have signaled to all our other partners in these 120-plus agreements that we expect everybody to abide by them in good faith. This time it was about passenger carriers and unfair competition with massive subsidies, no transparency in terms of economics. Next time it could be about cargo. And sometimes – I know, Steve, you've had those issues, like in 2002 when you all complained about DHL, the German cargo carrier. So I think that's the significance of what has happened here. And I think going forward, it's going to make it easier with our other 120 or so partners in these bilateral agreements to make sure the agreements do continue to be carried out in good faith, and continue to expand economic opportunities for both our passenger and our cargo carriers.
DUESTERBERG: Thanks, Jim. Steve, why don't we go to you?
STEVEN TAYLOR: OK. Thank you. Thank you for including us. We appreciate it. I actually may disappoint many of you because I'm going to echo almost everything that Speaker Gingrich said, that Jim just said, which is that the record of discussions, the Open Skies agreements that FedEx benefits from–- and I'm going to talk about that a little bit here in a second – are very important. And the enforcement of those agreements is very important. And the written record of discussions that have been released, the statements by the State Department, the statements by the White House, the statements by the UAE all are very consistent, in that the obligations under the Open Skies agreements have not been abrogated in any way, that the parties are going to live up to their obligations. And I might also add that I think Speaker Gingrich is right on when he says that as you go down the road, the key is that the parties live up to those obligations. And the best way to know whether or not the parties are living up to those obligations is by looking at the documents and looking at what's out there: looking at the Open Skies agreements and the language that is there; looking at the record of discussions and the languages there. And we feel very comfortable that the fifth freedom rights that FedEx depends upon, the fifth freedom rights that the UAE carriers use – they've all been protected here, and the parties can use those.
Now, that doesn't mean that things like fiscal transparency and the state-owned enterprises aren't a real concern, because they absolutely are. And it doesn't mean that it's not appropriate for the Trump administration and for our government to talk to our partners about those situations. No one is more sensitive to competing against state-owned enterprises than FedEx and UPS, because we compete in 220 countries. And literally, in every country, one of our biggest competitors at least is the post office. And the post office doesn't have to make money. It has government-protected monopolies. They're heavily subsidized. So we truly appreciate the challenges and the concerns that come with competing against state-owned enterprises. But FedEx uses fifth freedom rights, and our friends at UPS use fifth freedom rights to generate a lot of jobs and a lot of economic activity. And so let me tell you a little bit about our operations, why it's so important that these fifth freedom rights be protected and, fortunately, why we feel like the U.S. government did that in reaching these record of discussions. FedEx has around 450,000 employees; UPS has even more employees. Our friends at Atlas have employees. Between FedEx, UPS and Atlas, we employ over a million people. Most of those jobs are here in the United States. Unlike a passenger carrier, like our friends at American or Delta or United, if you fly to Prague, most likely, you'll fly on an American aircraft into Paris or into Frankfurt. And then you'll get on a partner's airplane – Air France, Lufthansa, BA – and you'll fly onto that secondary city.
Cargo carriers don't operate that way. We operate all over the globe between foreign points with our pilots. These are ALPA-represented pilots. These are Americans. These are Boeing aircraft. And our friends at Boeing – we keep buying those fabulous aircraft that they build. All of this economic activity generates a lot of American jobs. They are supported by mechanics in the U.S. They are supported by flight schedules. They are supported by programs. All these people living in the great city of Memphis, Tennessee, are sitting there, controlling this activity all over the world. So fifth freedom rights are very important to FedEx. And they generate an incredible amount of jobs. They generate opportunities for shippers. And we feel like if you look at the written documentation that's come out, a very good agreement has been reached. These records of discussions are very positive and we feel comfortable. And so we want to thank the State Department. We want to thank the White House for coming up with what seems like an agreement that everybody can live with. And now we just need everyone to live up to it over the next year – two years, five years – and not only with this agreement, but, as Jim said, all the Open Skies agreements around the world, because they're very important to us.
DUESTERBERG: OK. Thanks. And cleanup hitter is Doug Holtz-Eakin, who hopefully can give us an economic perspective on this. You've written on the subject.
HOLTZ-EAKIN: So I come at this indirectly. I'm not an aviation person. I appreciate the chance to be on this panel with these folks. But my interests came from the general observation that's not particularly unique, that the American public had lost faith in trade agreements and in the global trading enterprise. And it struck me, as Mr. Burnley said, that they didn't think things were being enforced, that they thought trade agreements are fine, but they weren't being enforced. So I don't want any more these until we actually see some action on that front. And so if you look at trade agreements, they typically come with some dispute settlement mechanism, whether you sort of enter into the WTO and use WTO panels. Or you might have, as NAFTA does, a dispute settlement system, state-to-state investor state, things like that. The Open Skies agreements – and there are lots of these, and they're by and large very successful and have this great track record of having improved the welfare of airline passengers. There's a great paper by Cliff Winston at Brookings; it sort of documented the enormous gains that have come out of these. They include a fairly unique dispute settlement system, which is the State Department opens negotiations with the country, and it becomes a diplomatic matter. And that's fairly unusual in the economics world, where we have lots of different mechanisms. So I was sort of interested in seeing if there was a legitimate case that these agreements were being abrogated to some extent. And I think that case has been clearly made. UAE, Qatar had enormous state subsidies to these passenger airline enterprises. And now the question is: can you get some sort of dispute settlement that puts it back on the original intent of Open Skies, to have competition on a level playing field, and to literally get the government out? That was the whole point. You don't have to have a negotiation over every route.
So I think these are significant agreements – the Qatar agreement in January, now this one with UAE – in a number of ways. I mean, first – and I think this is really important because until now it hadn't happened – the UAE folks acknowledged that subsidies are damaging to fair competition. And they've never before acknowledged that there were subsidies, never before acknowledged that if there were, it would be a bad thing. That's an important thing. This notion of financial transparency is really important so that you can document the financial statements, the accounting, the auditing standards will be international standards and will match those of other airlines. And you can document that things are being done as close to commercial terms as possible, and not some sort of cushy deal between an airline and its government. That, I think, is incredibly important because, you know, if you get to this issue of whether they can't fly more fifth freedom flights or have decided not to, I'm not a lawyer and I wasn't in the room for that, but if you've got the financial transparency, they won't be able to unfairly subsidize those routes. They can have the right to fly them, but they can't compete unfairly. And that problem will solve itself over time. So the other thing that I thought was important about this is the agreement not only to do those things but to meet regularly once a year, sit down and put the books side by side, make sure that they are in compliance. Let's face it: they weren't in compliance with the first Open Skies agreement. It is an important job to monitor adherence to this particular agreement and to do so on a regular basis, to make sure there's a steady march toward the transparency that is necessary and restore the competitive balance. And after that, you know, let the market win. And I think that's the importance of this from the larger economics perspective, that you have to take some steps to give the public comfort that U.S. rights in these agreements are being protected in an appropriate way. They're not being used for protectionist purposes, they're not being just giveaways. These are agreements that allow for trade to take place in a sensible fashion. And that's sort of what got me here, and this seems like an enormously important moment from that perspective. It's also an enormously important moment from the perspective of the other folks on this panel and those in the aviation industry. These are central agreements, and it does put other partners on notice that they are going to be enforced. And that, I think, is a good message to send.
DUESTERBERG: OK, Doug, there was a question for Speaker Gingrich earlier, I believe, from the travel and tourism industry representative of that, if I understood it correctly, sort of sanction, cartel-type behavior here in the United States. Would you care to comment on that?
HOLTZ-EAKIN: So, I mean, the question is: does the nature of the legal protections provide an implicit subsidy that is inappropriate to our airlines and thus harmful to passengers? And I think the key there is that there is no evidence there's been harm to U.S. passengers. In fact, the studies that look at the impact of Open Skies come to the other conclusion. And so, you know, I understand the concern. But in reality, that doesn't appear to be the case.
DUESTERBERG: OK. So last week, there were a number of stories about KLM and Air France again being in trouble – It's not the first time, especially for Air France – and that we might end up with a new-style president Macron having to make a decision on whether to subsidize Air France again. And it appears to be an open question. But that raises the larger question of there have been and there still are a number of airlines operating around the world, including in Europe, that receive subsidies. Should we invoke the need to challenge them on those subsidies as well? I invite anyone to take...
BURNLEY: I'll take that first and then Steve can have a go at it. I don't think in this day and age that there's evidence of substantial state subsidies among EU members. We have an Open Skies agreement with the EU. And I think our carriers would certainly have serious concerns if such subsidies, like we've seen in the Middle East, in the instances of the three Middle Eastern carriers, that are based in these two countries. Anything of that magnitude, I don't believe, exists in Europe. And so I'm sure the situation you're talking about is one that would be monitored carefully by everybody in the aviation industry on this side of the Atlantic. Having said that, these agreements are not self-executing. And that's a very important point, I think, about what happened last week. And it is up to interested parties in the industry to monitor the activities of those on the other side of each of these agreements. And they do that. They do that. It's in their economic best interest to do that. And they do pay attention. That's what led to these complaints by United, American and Delta now about four years ago. And so I think that then the trick is when do you see signs of activity such that you believe you need to take it to the U.S. government and get the U.S. government to engage government-to-government, which is exactly what happened here.
Forensic accountants were used because there was no transparency, in these three Middle Eastern carriers, about their books. And they did put together a very credible case that since 2004, over $50 billion had been pumped into these carriers by the two governments. And when you get that kind of a story – which, again, there's nothing like that in the EU that I'm aware of – then it is incumbent upon the U.S. government to sit down with the governments of those carriers and say, “What's going on here? Something's got to change.” And that's what happened. We heard from some of those who were on the other side of this issue for the last four years over and over again that there really weren't any violations of the agreements. And I'm glad to hear today that we're all in happy agreement that these agreements require the UAE and Qatar to cut out the violations, the subsidies and to give us more transparency, because I think the evidence was overwhelming that there were subsidies of massive amounts. So that is a very important signal, again. And I would certainly think it would be a part of any discussions in France about going down that path.
TAYLOR: OK. I actually don't agree that there were violations of the Open Skies agreements through subsidies. And let me kind of back up, and talk a little bit about the history of these agreements, and then talk about the way the parties have described what happened in terms of the U.S.-UAE agreement. If you look at the history of the aviation industry, the United States was probably the only country in the world that had truly private airlines, and even those airlines were heavily subsidized through the postal system and other things going back. In most countries even today, if they have an airline, the airline is run just like a section of the government. Again, it's run just like the post office. So there has always been heavy subsidization of airlines. Today I saw within the last, say, three or four months, I saw South Africa pumped $100 million into their airline. Alitalia over the last 20 years, I can't even count how many times they've pumped money into their airline. Air France a few months ago, or maybe it was probably a couple of years ago, increased their interest in Air France. They own over 20 percent of Air France, so they can protect some of the workers. China uses buying airplanes as part of their diplomacy and their policy that they then distribute out to their airlines. And other people even blame us in the United States.
So clearly, the idea that we're in an industry that has a pristine open market and there's no subsidization and there's no state-owned enterprises is not accurate. That doesn't mean these Open Skies agreements aren't incredibly valuable and they haven't generated great benefit for American workers. Of these 120 agreements – I checked – about 60 of them are actually with countries that have some sort of state-owned airline. When the parties negotiate a disagreement, and as you look at the record of discussions and you look at the statements, they quite clearly talk about the fact that these were discussions outside of the Open Skies agreement, which is completely appropriate. If another country is subsidizing some industry, it is appropriate for our government to go and have discussions with them. But it's not under the Open Skies Agreement. We don't want to throw the baby out with the bathwater. We don't want to lose these incredibly valuable freedom rights because of other concerns that we might have with the way these airlines do things. So this is an excellent record of discussion. When I look at what is being said, it's clear that all the rights under these Open Skies agreements are being maintained by all the parties. However, these concerns, and they're valid concerns, they're legitimate concerns about financial transparency, about state-owned enterprises that are investing in companies, all of those things have been addressed outside the Open Skies agreement. And I'm optimistic that this has been solved. And moving forward, the parties are going to move forward. They're going to do the things that are commercially responsible, make the decisions. FedEx is certainly looking forward to growing its network all over the world, to utilizing fifth freedom rights more with other countries that heavily subsidize their airlines. So we're comfortable that the issues that have concerned American, Delta and United have been addressed in this agreement, while all the rights of the Open Skies Agreement have been preserved.
HOLTZ-EAKIN: This is interesting, I mean, I come at this, in part, from just experience on sort of thinking about these things. You know, I was in a Bush White House that imposed steel tariffs. And I did not think that was a good idea. And I think we learned some negatives from that. I was also in a Bush White House that post-9/11 helped American Airlines. You know, we had Airwest that needed help; we had U.S. Airways. There was a whole series of interventions. And I get worried that economists do a great disservice to global commerce when they talk about free trade. There is no such thing as free trade. There's nothing that looks like textbook free trade competition anywhere. We have trade agreements. And those trade agreements set the terms by which firms and customers will conduct themselves in global markets. Those trade agreements have, on the whole, been a thing that have made the world better. But if you start getting into like, these extreme benchmarks, which are just like, “No one's ever subsidized anything, no one's ever intervened in any way,” that's not a real discussion. And my understanding – not an international lawyer – is that the Open Skies agreements ask for fair and equal competition. It doesn't say unsubsidized. It doesn't say priced at marginal cost. It doesn't say anything like that. It says fair and equal. And these are self-enforcing agreements, so if industry participants decide it is unfair and not equal, they bring their complaints to the table, and the dispute mechanism is to try to adjudicate that. And in this case, the adjudication yielded, “Yeah, wasn't fair, yeah, wasn't equal, has to be different in the future.” And that's a very appropriate finding, and I think that's what's important about it.
BURNLEY: That is right, Doug. And this was a process within the walls of the Open Skies agreements. There's a side letter, and there's been a lot of silly back-and-forth about what the side letter means. The side letter means what it says. Mr. Navarro made that clear last week. And if the side letter is meaningless, then why is there a slide letter? So the side letter says that the two carriers in UAE and the carrier in Qatar will not and do not have present plans to exercise their fifth freedom rights. It doesn't abrogate anybody's rights, doesn't undermine anybody's rights. It's a very clear, open, public signal. In addition to what you just pointed out, Doug, they'd said about, “Yeah, we probably have [not] been playing within the rules,” and that they are going to have to be transparent. The subsidies are going to have to be wound down to a different order of magnitude, at the very least, before we get back into seeing new flights under the fifth freedom rights. Again, nobody's lost their rights. I agree with you about that, Steve. But side letters are meaningful, or there wouldn't be any side letters. Side letters have been used in U.S. diplomacy since the founding of the republic.
Now, Doug, one thing I do want to correct the record on, because it's very important: the U.S. government after 9/11 did not subsidize any U.S. airlines. Rather, it compensated them for the massive damages they suffered when, by force majeure, they were grounded after 9/11. And that was a one-time – we hope – event and did not lead to new subsidy programs or ongoing subsidies. It was, by order of the United States government, “We shut your businesses down for a period of time, and we're going to compensate you for the damages that you suffered in that period.” And when I was talking about subsidies: no, we don't live in a pristine world. Yes, there are subsidies. But we do live in a world where under these Open Skies agreements, yes, a state can own part of an airline, but that doesn't mean the state is also free to give massive subsidies to that airline over time with many billions of dollars, as happened with the Middle Eastern carriers. And so I think it is important to recognize that we have a situation here that, again, sends a very clear signal – not just to these two countries, but to every country with whom we have aviation relations under Open Skies agreements – that if you're going to deal with the U.S. in bad faith over many years and do massive subsidies with no transparency, that the United States government will, when their carriers come to them, give it appropriate attention and come to that corresponding government and demand that they stop doing what they're doing. And now we've got two agreements that send that signal as clearly as it could possibly be sent. And again, I think it reinforces the rights of U.S. airlines of all kinds going forward, including the cargo carriers, in a very constructive way.
DUESTERBERG: I have one more question. Then we're going to throw it open to the audience. So if you have questions, please prepare them. The elephant in the room – raised by both Mr. Navarro and Speaker Gingrich – is China, which is the rising economy. They have a program: Made in China 2025. One of the 10 areas that they're specializing in is commercial aviation. They want to dominate that in China in the next 10 years or so. They're not competitive in building aircraft. They're not going to be for a while. But apparently, they're buying up to 25 percent of all the commercial airlines being sold today. Where do we stand with China on Open Skies? And what is the competitive landscape, both from the passenger and the cargo side, in China? And do we need to do something further to perfect our relations with the Chinese?
BURNLEY: You want to go first?
TAYLOR: I'll start on that. You know, FedEx has a large hub in Guangzhou. We fly fifth freedom flights. In fact, they're all fifth freedom flights, with just a few exceptions. The cargo industry does have something like an Open Skies agreement. The passenger carriers don't, but the cargo carriers do have something like an Open Skies agreement with the Chinese. I'm not going to get into the difficulties of competing in the Chinese market, because you can read about things in the newspaper every day, but I will say this. Whatever discussions take place with the Chinese carriers and the Chinese government, about whether or not they subsidize and to what level they subsidize, we don't want it to ever impact these fifth freedom rights, because these fifth freedom rights are what FedEx uses to run a huge international network. Those pilots that are flying out of Guangzhou are Americans. Those aircraft are all Boeing aircraft. They're all American jobs supporting those pilots. And so China is a challenging market, and there are things that the U.S. government is doing to try to advance our interests there, and we appreciate that. But at no time do we want the fifth freedom rights to be held hostage, because there is no upside to parties losing their fifth freedom rights. Fifth freedom rights are a win-win for everybody.
DUESTERBERG: Do...
BURNLEY: This is not American Airlines speaking. This is Jim Burnley separate and apart from them. Our negotiations with the Chinese have a rich and lengthy history on aviation matters. And I would love to see the day come when we could genuinely sit down and talk about an Open Skies agreement on the passenger side with China. I don't know that that day is upon us yet. I think, though, when all's said and done, the timing on that, whether it happens or not, is going to be part of the much larger U.S.-China set of relationships, across all sectors of those relationships. And, you know, in a sense, I mean, this will play out, I think, within that context to a greater extent than it will with just U.S. and Chinese aviation negotiators sitting down and hammering it out. It is in the interest of the two growing economies, and two huge economies – the world's two biggest economies now – to liberalize, in whatever way we can, our relationships in aviation to provide more opportunities for people to fly on both the U.S. and Chinese carriers where they want to fly and when they fly. And so it may be that we'll see what we have been seeing, which is a slower process, working out opportunities in ones and twosies. But again, if the overall relationship evolves in a positive way, I think that would enhance the chances that you might someday be able to do a true Open Skies agreement.
HOLTZ-EAKIN: I guess I'd politely disagree. I mean, Speaker Gingrich came around to what has been my position for a while, which is that China's our implacable foe, and to treat it as anything otherwise is a mistake. And we have, for quite some time, somehow treated it as a great business opportunity and pretended that didn't come with a lot of danger. I have always felt that we should treat China like we treated the Soviet Union. I'd like to believe that Western countries saw the advantages of open trade because the economists gave great lectures, but that's not what happened. We knitted together the Western alliance against the threat of the Soviet Union, and we did it through trade and many other international agreements. We should do exactly the same thing with China. That was an opportunity that was in the Trans-Pacific Partnership. That opportunity went past. But I don't think this is a trade issue. This is, “They are our enemy, and they want to defeat us, and they will if they can.” And we have to treat it that way. And so I don't think we should do an Open Skies agreement, just pretend there's a trade agreement over here in aviation that we should do. I think we have to have a far more systemic strategy toward the Chinese.
DUESTERBERG: OK, any questions from you in the patient audience? In the back. There it is.
UNIDENTIFIED PERSON: Thank you. […] with Air Transport World magazine. So can I just understand why there was talk of a routes freeze by the Americans last week, which seems to be why the discussion is, if this agreement is – is everybody's happy and they've come with the agreement that suits all sides, why are we still having the argument and still talking about, you know, what was agreed? And like I say, where did this talk of a routes freeze come from?
BURNLEY: Well, I think this short and simple answer is: the documents speak for themselves, including the side letter. And Mr. Navarro made that very clear in his remarks last week and reiterated it, to an extent, today. I don't know what else there is to say on the subject. The documents say what they say, including the side letter. You know, again, if the side letter's meaningless, why do you have it?
UNIDENTIFIED PERSON: But you said freeze.
BURNLEY: Well, I didn't say freeze. I don't think anybody's saying freeze. But it says no present intentions. And again, Mr. Navarro made clear what the Trump administration thinks that means, so that's what it means for now. They're the folks that negotiated the agreement.
DUESTERBERG: Yes, sir, here in front.
UNIDENTIFIED PERSON: Hi. I'm […] from The Arab Weekly. And as you people have noted, this dispute has been going on for several years. If each of you might say: what do you think the one factor more than any was that got some progress finally on these issues?
TAYLOR: I have no idea.
(LAUGHTER)
BURNLEY: I'll say: the outcome of the 2016 presidential election. President Trump took the complaints and concerns seriously. President Obama and his people did not. Elections matter. This is a pretty good example of that, I think.
HOLTZ-EAKIN: What he said.
DUESTERBERG: I thought I saw a hand up here. You're passing? Okay. Over here on this side.
UNIDENTIFIED PERSON: Hi, […] from Air Line Pilots Association. I'm going to speak mostly for myself on this, but just a couple of points and a question. One is, you know, there's been a lot of discussion about what happened last week with the UAE and before that with Qatar. It seems to me – and again, this is just me speaking – but these are political agreements, that the documents speak to part of it, but there's also sort of the patina of the political commitments that governments make to each other. And the documents say one thing, but I think we have to pay attention to the overall context for the real meaning of it. The second thing is that this is the culmination of a long process in which the carriers and labor were asking for consultations, just asking to sit down and talk. The last administration barely started that process but didn't push it through. This administration did something different. But consultations are part of what every Open Skies agreement has as part of its dispute resolution program. First you sit down and talk and then at least in some agreements, there's a provision for arbitration.
So we on our side were met with this battle royal of the very idea of sitting down and talking. So finally, that did take place. And then one point about fifths, and then onto a question about China. I think it's worth noting – this sounds very arcane – but fifth freedom rights are used by all of the U.S. airlines, passenger and cargo alike. Every time you get on a U.S. carrier and find yourself transferred in Europe onto a European airline and so long as your ticket says United, American or Delta on it, those carriers are using fifth freedom rights to put you on their partners. And FedEx, similarly, uses their fifth freedom rights to use their own, as they say, purple tail airplanes but also to transfer packages to other carriers as well. And some of those carriers fly Cessna, some of those fly bigger airplanes. Some of them get transferred as belly cargo into other international airlines. But everyone makes use fifths. So the question I have is with respect to China. We don't have an Open Skies agreement with China for a reason. And one of the main reasons is that the cargo carriers have been having a huge problem of getting their rights enforced under what is essentially an Open Skies agreement. And the U.S. government doesn't want to pay twice for something it's already thought it negotiated. So my question for the panel is: isn't what we just saw with the UAE and Qatar exactly the type of consultation and enforcement process that you would want to see as a signal to the Chinese that we are serious about our rights?
TAYLOR: Can I just start out. Dave is an excellent lawyer for ALPA. And he's doing a very good job advocating his client's rights. First of all, I don't believe – and people who are more knowledgeable than I am can correct me – that the U.S. government ever referred to these as consultations under the Open Skies agreements. I think it's just a discussion. So these were not consultations under the agreement. Maybe that's only important to lawyers. But lawyers care about those sorts of things. The second thing is, you know, I'd have to think about your point, but when we transfer cargo to another airline, I don't think we ever use fifth freedom right. I'm looking at Nancy here, because Nancy is the expert. Nancy Sparks. Is that right, Nancy? Yeah, we don't use fifth freedom rights. We don't have alliances; we don't have code shares. Again, important maybe only to regulatory lawyers and to lawyers, because we do transfer a lot of freight to small countries where we don't fly, because we don't have enough freight. But we don't use fifth freedom rights. We use fifth freedom rights for a FedEx aircraft with purple tail aircraft, purple tail pilots and purple tail mechanics and purple tail schedulers all managed out of Memphis, Tennessee, all those great jobs that are created because of fifth freedom rights.
DUESTERBERG: I'm just looking at the document from 2017 where the Trump administration decided to move aggressively ahead with – you call them – discussions. Deputies agreed that the U.S. government should seek to obtain these commitments through bilateral discussions with UAE and Qatar.
TAYLOR: I think that's an important distinction. They never referred to them as consultations. They've always been discussions outside of the Open Skies agreement.
BURNLEY: I think it's a totally meaningless distinction. We got where we wanted to go. That's what matters. You can call a pig a cow or a cow a pig. It doesn't really make a difference.
UNIDENTIFIED PERSON: So I agree with both of them on the question of (inaudible).
(LAUGHTER)
DUESTERBERG: OK, anything else? Well, I'd like to thank our panelists for a great discussion. I want to thank the audience for your attention and thank you for coming to the Hudson Institute.
TAYLOR: Thank you.