Canada’s international competitiveness

Running head: CANADA’S INTERNATIONAL COMPETITIVENESS

Canada's International Competitiveness

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Canada's International Competitiveness

The recent issue on landing rights dispute between Air Canada and Emirates/Etihad airlines clearly demonstrates how politics mix business in certain occasions. The issue began as simply a commercial matter but turned into a complete political scandal as soon as the United Arab Emirates failed to renew a Canadian lease which is a major supply base of the military in Dubai. According to Gregory (2010), the Ottawa government declined to reopen a 2001 two-sided agreement on air transport so as to allow Etihad Airways and Emirates Airline to gain more access to airports in Canada.  Emirate Airways which operates between Toronto Pearson and Dubai  international airport on  Mondays, Wednesdays and Fridays intends to increase its flights between its Canada’s and Middle Eastern hub busiest airports to one flight per day and open additional ever day services into Vancouver and Calgary. Apparently, transport Canada has rejected the proposal on the basis that the current Etihad and Emirate service level satisfies the present travel demand between the United Arab Emirates and Canada.

Unquestionably, this controversial issue in the airline industry has greatly affected Canada’s international competitiveness.  The problem intensified after Air Canada’s CEO Calin Rovinescu publicly accused Etihad and Emirates of attempting to flood the Canadian air transport market by implementing cheap capacity as its key plan to make Dubai the largest air transport hub all over the globe with aid of subsidies from the government. In relation to D’ Cruiz, 1992), “Canada is likely to risk its good relationship with Dubai if it doesn’t approve the application which is vital for Emirates global operations” (p. 57). This is because there is a high possibility that Emirate plans regarding its A380s will capsize if Canada doesn’t grant them additional access to its airports. In the meantime, Canada’s decision not to renew the lease with United Arab Emirates might cost its taxpayers greatly, mainly for Air Canada’s sake. In respect to this, a Dubai-based career commissioned a study that indicated that the Canadian economy stands to loose $485 million on a yearly basis which it was to gain if the country renewed the lease on the Dubai-based airline in order for Emirates to gain more access to Toronto.

In addition, the country stands to benefit from over 2,800 spin-off and direct jobs if Ottawa removes restrictions that are currently limiting Emirates from operating thrice a week between Dubai and Toronto in the United Arab Emirates (Chadwick, 2010, p.9).  Canadian air transport industry has successfully competed with other countries in the past years especially in terms of quality services and pricing. However, the current issue at hand is likely to impose high competitive risk for Canada’s aircrafts. Nevertheless, Canada should make a decision that contradicts its own trade policies on free trade. In accordance with D’Cruiz (1992), “If a country aims to benefit from other nations through free trade, it can’t hold back trade even when it represents a competitive form. On the other hand, the United Arab Emirates ought to utilize economic tools when dealing with economic issues without confusing them with other issues (p.57).

The neo-classical theory best applies to the current issue between Canada and United Arab Emirates. Classical economists of the neo-classical theory advocated for free markets and free trade between nations of the world in order to encourage economic growth. Fundamentally, this approach places complete dependence on markets, and advocates for abolition of anything that may prevent proper market clearance.  Reference to Edwin (2001), “Governments should take the responsibility of ensuring market imperfections are eliminated” (p.45).

Free market theory involves the sequence of surplus labour (unemployment)-decrease in wages-increased labour demand-full employment equilibrium. In this context, Canada’s economy would gain more by accepting the United Arab Emirates application for lease renew. Obviously, Canada would benefit from full employment equilibrium since the new airline services would call for more labour. The Canadian government and the United Arab Emirate federal government have failed to reach a consensus on the issue of landing rights. However, the Canadian Armed Forces are making every effort to move the “secret” base camp. 

The United Arab Emirate government had given Canadian military access to this piece of land in order to facilitate its operations in the neighbouring Afghanistan. Nevertheless, the Canadian Forces have been ordered to vacate the area unceremoniously following the recent commercial landing rights between Canada and the United Arab Emirates. The Canadian government claims that there was an agreement for the Canadian Forces to retain the camp for an additional year though the United Arab Emirate government declines this claim (Edwin, 2001, p.47).

The federal governments are trying to rebuild the healthy trade and friendly relations that have existed between the two nations for decades.  Needless to say, the Canadian government still insists that the UAE should be contented with the 1999 agreement which allowed Etihad Airline to operate three flights weekly between Abu Dhabi and Toronto, and Emirate Airlines to fly three return trips between Dubai and Toronto per week. On the other hand, the United Arab Emirate government still insists on doubling its flight operations between Dubai and Toronto claiming that there is need to meet market demand.

 The Canadian government claims that the main objective behind its restriction on commercial rights is to enable the ongoing domestic market protectionism, which is included in the Canadian trade policies. According to Emirates spokesman, the airline company is disappointed by the Canadian airline response regarding its lease renewal application. In accordance with Chadwick (2010), the UAE government plans to convince most of its friends in Ottawa to support its proposal in order to increase business between Canada and Dubai (p.7). On the contrast, the Canadian government says that it will not give into Emirate’s application because it will only constrain Canadian airports growth by converting them to stubs from hubs. In this line of thought, the government claims to support liberalism in markets but only in cases where the agreement benefits the two nations mutually. Moreover, the Canadian government says that it doesn’t allow capacity damping by airlines that are state-owned. In reference to Chadwick (2010), “The Canadian government intends to protect its consumer at all cost and therefore has no intention of changing its stand on the issue” (p. 7). Based on the neo-classical theory, the Canadian government has allowed free market with UAE and it’s not trying to protect its consumers from the possible consequences that might arise by renewing the lease.

The United Arab Emirate approach to the airline issue with Canada is not in accordance with economic theory. United Arab Emirate has resolved to boot the Canadian military from the base-camp due to the existing commercial issue. Landing rights are basically commercial and have nothing to do with the military or politics. In reference to the economic theory, free markets should only be encouraged with the aim of promoting economic growth. Moreover, the UAE approach of demanding a visa for every Canadian visiting the country is not logical. In line with Edwin (2001), United Arab Emirate is not being considerate of the negative impacts that its application will bring to the economic growth of Canada and its citizens (p.46).

There have been several journalistic and popular issues clouding the Airline Canada and United Arab Emirate landing right issue. On this note, some journalists have published misleading information on why Airline Canada has rejected the United Arab Emirate application. Certain published articles claimed that Air line Canada aimed at eliminating possible competition from Emirate Airline and Etihad Airline. This is just a mere fallacy because according to the statistics on the number of flights operating between middle-east and Canada, Airline Emirates and Etihad Airline form the largest Canada-middle east capacity. The Emirate 31% and Etihad 24% share capacity cannot be compared to the 23% share capacity of Air line Canada. In reference to Gregory (2010), doubling the number of flights by Emirate and Etihad would only flood the Canadian airports and market. In other occasions, journalists have accused Canada of being a nation that claims to promote demand and supply regulations as well as free trade yet in reality it practices blinded protectionism (n. d).

 Given economic theory, Canada may be forced to make improvements regarding the issue. Considering that United Arab Emirate has imposed visa on arrival to all Canadians, the Canadian government may need to resolve the issue in a diplomatic manner in the interest of the two nations because its citizens are likely to experience a great loss.  In order to be able to promote economy in both countries, Canada may reconsider agreeing to the United Arab Emirate application and charging a legitimate compensation fee on Emirate and Etihad passengers using these routes in order to promote economic growth in both countries.

However, both Canada and United Arab Emirate will need to apply supply-sides policies in order to be able to achieve a free market without imperfections. The supply-sided policies may include removing unnecessary regulations, eliminating capital controls, and reducing taxes so as to encourage enterprise (Edwin, 2001, p.51). Canada needs to gain new knowledge on protectionism in order to be able to solve the already existing issue with the United Arab Emirate and avoid similar situations in the future.

References

Chadwick, H. (2010). Up in the air. The Canadian business journal. Vol. 4(1): 7-10.

D’Cruz, R. J. (1992).New compacts For Canadian Competitiveness. Pennsylvania: DIANE Publishing.

Edwin, C. (2001). A review of economic theory. Upper Saddle River, NJ: Penguin Publishers.

Gregory, P. UAE Plays Hardball on Behalf of Emirates, Etihad.  Retrieved November 25, 2010 from http://www.ainonline.com/news/).