We Need a Revolution in Trade Enforcement
September 14, 2018
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Since he was a candidate, President Trump has said free trade must also be fair. He has consistently challenged anti-competitive and unfair practices by our trading partners while working to forge new agreements.
The most recent example of this is the announced deal with Mexico – which his critics had claimed would never happen – and the potential deal with Canada, which has been spurred and shaped by Trump’s toughness.
President Trump’s success in international trade is happening because he understands every trade partner is self-interested and, if allowed, will take actions to benefit their own population and economy. Since the United States is the largest market in the world this gives us enormous leverage in negotiating trade deals.
While the tough negotiating approach has been working, there is a key piece missing. For Trump’s trade revolution to work, there must be a revolution in trade enforcement. It doesn’t matter how fair and equitable new trade agreements are written if other countries are happy to sign them and then cheat.
So, as a part of his revolution in trade, President Trump must build a new, dramatically more effective enforcement system that constantly monitors all trade agreements and quickly acts when parties bend, break, or ignore the rules.
The current multinational, globalist system simply moves too slow to be effective. Countries that disregard the rules have years to make money and dominate markets by cheating the system before they face any consequences. Meanwhile, for those countries who are keeping their words, justice delayed is justice denied. The current, slow system only benefits the cheaters.
An important example of something this revolutionized trade enforcement system should monitor and check are unfair state subsidies.
State subsidies are devious because they unfairly eliminate financial pressure on foreign competition, which in turn allows the companies in subsidizing countries to lower prices, expand distribution, or upgrade products without concern on how to pay for it – or whether the market even wants it.
One example of this system of cheating through state subsidies is the more than $50 billion in state subsidies that have gone to airlines in Qatar and the United Arab Emirates (UAE) since 2004. With state subsidies, these airlines have been able to ignore market considerations and dump excess capacity all over the world in order to push out competition and gain market share – destroying market-based U.S. aviation jobs in the process.
Earlier this year, President Trump’s administration signed historic agreements with Qatar and the UAE to create transparency and accountability frameworks to expose the full levels of state subsidies flowing to these airlines. This leadership by President Trump has led to statements and understandings by the European Union and Japan to address state subsidies in aviation.
However, the U.S. seriousness about these state subsidies is being tested. Prior to commitments to the Trump administration, the Qatari government-backed Qatar Airways cleverly invested in Meridiana, a small privately owned airline that formerly operated out of Sardinia. Before Qatar intervened, Meridiana had lost more than $50 million in both 2015 and 2016, had reduced the number of flights to just 54 per day, and had only 15 aircraft with no new orders in sight.
Enter Qatar Airways. While the investment from Qatar Airways is capped at 49 percent, it is the Qatar CEO who has made the announcements about Meridiana’s future. A future that rebrands the airline as Air Italy, relocates the airline from Sardinia’s small market to the financial and industrial center of Italy in Milan, expands the fleet with more than 50 new planes from Qatar’s existing fleet and order books, and expands service by nearly 350 percent.
Certain facts about this are incontrovertible. First, Qatar Airways, in both action and word, is in full control of Meridiana/Air Italy. Second, Qatar Airways will report losses over the last two year in excess of $1 billion, so the investment in Meridiana/Air Italy is unquestionably a state subsidy from the Qatari government. Third, Qatar Airways’ expansion of Meridiana/Air Italy flights to the U.S. is directly counter to the assurances provided by the Qatari government to the Trump administration at the beginning of the year. This final point is what the Trump administration must address.
Once again, President Trump’s intuition has proven right. Despite assurances of fairness, our international trading partners are seeking to gain an unfair advantage. This is why Trump’s trade revolution also needs a revolution in trade enforcement.
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