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The Harper government has added fuel to the heated diplomatic feud with the United Arab Emirates, accusing it of subsidizing its airline and arguing that allowing it to fly more often to Canada would have cost "tens of thousands of jobs" here.

The government's charge that the UAE government subsidizes the Emirates airline will only fan the dispute, as both have for years vociferously denied charges of subsidy levelled by airlines in Europe, Australia, and Canada, which are fighting the Mideast airline's aggressive drive for market share.

The diplomatic feud was sparked by Canada's rejection of the UAE's demand for its two airlines, Emirates and Etihad, to fly daily routes from Dubai into three Canadian cities. In response, the UAE booted the Canadian Forces out of a Dubai base it had been using to stage operations in Afghanistan, and slapped visa restrictions on Canadian visitors.

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The spat has split the Harper cabinet, as Defence Minister Peter MacKay lobbied hard for the government to allow the UAE expanded landing rights – and asserted that the refusal deeply damaged relations.

But yesterday, the Conservative government turned up the tone.

In Lisbon for a NATO summit, Foreign Affairs Minister Lawrence Cannon said the negotiations for the landing rights broke down because Canadians would have lost jobs.

"I made it perfectly clear that we're not prepared to put Canadian workers out of their jobs by allowing a subsidized foreign airline to literally flood the Canadian market," he said.

And in the House of Commons, Government House Leader John Baird suggested Canada's airline industry would have been decimated: "It would have cost Canada literally tens of thousands of jobs and was not in Canadians' best interest," he said. "That is why we said no."

Mr. Baird's assertion amounts to an argument that the increased flights – daily from Dubai to Toronto, Calgary, and Vancouver instead of three times a week to Toronto – would devastate Canada's airline industry. The Canadian competitor on overseas routes, Air Canada, employs 26,000, and the industry as a whole, 65,000.

But the Canadian government's assertion that the UAE subsidizes airlines that use job-killing predatory practices to dump cheap flights on foreign markets will be a red flag to the UAE, which has been fighting this argument for years.

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Competitors have claimed that Emirates gets low-cost subsidized fuel and financing from Dubai ruler Mohammed bin Rashid Al Maktoum and favourable rates from its home-base airport in Dubai, but Emirates denies that. And it has become a hot political issue because European airlines and Air Canada are trying to preserve traffic into their European hub in Frankfurt, while Emirates – and the UAE government – are trying to establish Dubai as a major air-travel and tourism centre.

"The reality is some competitors, realizing that Emirates was emerging as a major competitive entrant, simply devised a plan, sans facts or evidence, to throw enough mud to ensure some of it stuck," Emirates President Tim Clark said in a speech last year, adding that the claims are "usually fired from a grassy knoll in the Frankfurt area."

Diplomats at the UAE's embassy in Ottawa could not be reached for comment.

Emirates entered a fierce lobbying battle with Air Canada over the expanded landing rights, meeting with dozens of cabinet ministers and senior officials before their request was rejected in October.

Emirates insists its request would take up only about 2 per cent of Canada's international passenger traffic, and wouldn't devastate the industry here, but opponents said it would force Air Canada to sink resources into international competition, and perhaps cut less profitable routes to regional airports in Canada.

The Conservatives' insistence that their decision to reject the UAE airlines would protect jobs appeared to place them in an unusual position – winning warm words from trade unions, but criticism from conservative free-market advocates.

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Mark Milke, a policy analyst with the free-market Fraser Institute, said the issue of whether the UAE's airlines are subsidized should affect the Canadian government's decisions. But with all the claims and denials, the fact that Emirates is government-owned means the public has to take their word for it, or not.

If it isn't subsidized, more foreign competition would be good for the industry and consumers by lowering prices and creating competition for better service, he said. But either way, he added, the Conservative government's claims it would cost tens of thousands of jobs are exaggerated.

"That assumes that somehow you're going to see the disappearance of WestJet and Air Canada. It's fanciful," he said. He likened the decision to the rejection of a foreign takeover of Saskatchewan's Potash Corp. "It's the kind of protectionist rhetoric that unfortunately the Tory government has become famous for."

With a report from Susan Sachs in Lisbon

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