Photo credit to Andrew W. Sieber via CC by NC

Or Billsplainer. Titles have always been a weak suit of mine.

This is the first entry in what I think will be a series of blogs on both bad and good legislation. That being said, this is thoroughly in the bad camp. H.R. 5090 is a piece of legislation that inexcusably panders to airlines and their workers. It also is a great example of diffuse benefits from trade and competition, sometimes concentrated negatives, and collective action problems. Additionally it raises more questions about campaign contributions and the impact they do (or do not) have on the decisions of congressmen.

HR 5090 essentially tries to shut out a wholly owned subsidiary of Norwegian Air Shuttle (Norwegian International) from the United States Market, using a treaty that we signed with the EU as a justification. Norwegian is already in the transatlantic market, but only has a 2% market share. Thus far Norwegian has operated as a Norwegian firm, but to gain the benefits associated with EU treaties in travel, such as the 2007 US-EU open-skies agreement, they created a new Ireland-based firm (Norwegian International.) This firm requested permission to operate in the United States, between Ireland and Boston. The Department of Transportation had concerns about their usage of Thai flight crews, because it could possibly violate Article 17 of the open-skies treaty which places requirements on labor rights. However after negotiations in which Norwegian promised to not use this labor, the Department of Transportation tentatively approved the request by Norwegian. Questions about safety were also raised, but the FAA saw no such issues. Ireland (an EU member) has both strict labor and safety standards.

HR 5090 attempts to explicitly state that if labor standards are not commensurate that foreign carrier permits should not be granted in a more explicit and heavy handed way.

As it stands 49 U.S. Code § 41302 reads:

The Secretary of Transportation may issue a permit to a person (except a citizen of the United States) authorizing the person to provide foreign air transportation as a foreign air carrier if the Secretary finds that—

(1) the person is fit, willing, and able to provide the foreign air transportation to be authorized by the permit and to comply with this part and regulations of the Secretary; and

(2)

(A) the person is qualified, and has been designated by the government of its country, to provide the foreign air transportation under an agreement with the United States Government; or

(B) the foreign air transportation to be provided under the permit will be in the public interest.

The amendment bars the Secretary of Transportation from granting a permit unless they find:

that issuing the permit or exemption would be consistent with the intent of the parties, set forth in article 17 bis of such agreement, that opportunities created by the agreement do not undermine labor standards or the labor-related rights and principles contained in the parties’ respective laws

This may not matter, as the DoT has already stated that article 17 (regarding labor standards) isn’t relevant, but it’s clearly an attempt to push DoT policy to reject the Norwegian request. What ‘undermines existing standards’ means is pretty ambiguous, but labor standards have largely been set by the existing carriers who control a full 78% of transatlantic flights and have very high profit margins compared to their competitors across the Atlantic. HR 5090 is an attempt to block Norwegian in light of the Department of Transportation Ruling. It may not work, but that doesn’t make it any less bad. It hurts competition and the ability of all Americans (and Europeans!) to afford transatlantic travel. It hurts businesses who depend on tourism, as well as businesses engaged in transatlantic travel.

Though this video is reasonably one sided, it is interesting and touches on all the key points.

Why does the bill have bipartisan support? Strong pressure from labor unions and existing airlines, but not much resistance from those who get diffuse benefits. It’s a collective action problem in which if everyone who benefited acted in favor they would be able to outweigh opposition, but the individual benefits are rather small and hard to measure. Additionally, many are not aware of them. Unions and corporations who benefit from a lack of competition lobby strongly against it, as they get large concentrated benefits from doing so, and existing mechanisms which they can use. Hence, things like this really favor the unions and corporations over Joe the Plumber.

Here is a widget which shows the current status of the bill. As we can see it’s sponsored by Rep. Peter DeFazio. He’s ranking member of the Transportation Committee. He’s from Corvallis, where there are no international airports. There is no reason to believe his constituents would be anything but helped by the legislation if they wanted to see Europe or host European tourists. But he’s for it… I wonder why?

Table from Opensecrets.org

Well, this table may show part of why that is. In his district, Air Transport contributions are ranked 53rd, but overall, including out of district contributions they are #1. Talk about representing ones constituents. He’s being lobbied and contributed to by Unions and owners of Air Transport, but not by “People who benefit from cheaper prices” ie. everyone.

So here we see that concentrated benefits can lead to some pretty bad outcomes for the average person. It’s why I decided to write my representative and tell them to oppose this terrible piece of legislation.

#####More Reading

  • http://www.economist.com/blogs/gulliver/2016/05/not-so-open-skies
  • https://www.govtrack.us/congress/bills/114/hr5090/text
  • https://www.opensecrets.org/politicians/summary.php?cid=N00007781&cycle=2016
  • https://www.law.cornell.edu/uscode/text/49/41302