we use the services of Air France, we must pay the rate quoted by the Postal Administration of France. Historically, member countries of the union have carefully distinguished between mail rates which are charged or paid to foreign air carriers for the use of their services, and rates paid to their own national carriers. In the international agreements, the Postal Union has prescribed the maximum rate which one country may charge another. These maximums have been at comparatively high levels, and historically, for varying independent reasons, the countries having air carriers engaged in international operations have maintained the rate at the maximum permitted. At present the maximum rates are as follows: for letter mail, $1.91 per ton-mile, for parcels, 59 cents per ton-mile, and for newspapers, 47 cents per ton-mile. The $1.91 rate for letter mail, which makes up the greatest part of the volume, is in sharp contrast to the transatlantic and transpacific rates of 55 and 50 cents per ton-mile prescribed by the Civil Aeronautics Board. This differential exists and is explainable only by the fact that the Universal Postal Union maximums are charges between postal administrations, and have not been prescribed as rates established or realistic normally accepted ratemaking principles. Senator SCHOEPPEL. Mr. Chairman, I would like to ask the gentleman a question at this point. Senator MONRONEY. Senator Schoeppel. Senator SCHOEPPEL. What you are referring to there, if this bill was accepted with the provisions in it which you do not think ought to be in it, you would be placed in a kind of a straightjacket position; would you not? Mr. GOFF. Well, I would say we would be. Senator SCHOEPPEL. And it would cost us a lot more money? Mr. GOFF. Mr. Wadsworth, could you explain that? Mr. WADSWORTH. It would cost us a lot more money, and I think in the statement it will be shown Senator SCHOEPPEL. All right, yes. I have not had a chance to read the statement through. Mr. GOFF. But the countries have agreed, pursuant to the present postal convention to maintain these charges at a high level, each country for reasons of its own. In the case of the United States air carriers, the volume of foreign country mail carried by them is far greater than the volume of United States mail transported by foreign flag carriers. Thus there is a substantial net balance in favor of the United States air carriers. Obviously, therefore, it is to the advantage of our carriers that this charge between postal administrations be maintained at a high level. Moreover, it financially benefits the United States Government to the extent that the foreign mail revenue reduces the carriers' need for subsidy. Total payments by foreign countries to United States air carriers for the fiscal 1954 amounted to approximately $8,922,357. Payments by the United States to foreign flag carriers amounted to $2,191,943. It is this situation which has prompted the United States air carriers to urge that the Universal Postal Union rate be maintained at a high level. Indeed, there have been many instances where our carriers have urged the Department to dispatch less outgoing United States mail via American flag carriers and increase the volume dis patched on foreign flag carriers so that by reciprocal action they in turn will receive greater volume from foreign countries. Some carriers who have urged such action have expressly recognized and admitted that the higher expenditures incurred by the United States postal service as a result of executing such arrangements are not properly a function of the postal service but are attributable to other factors such as the subsidy factor. In urging us to implement the policy of greater use of foreign flag air carriers, other interested agencies of our Government have expressly recognized that these extra expenditures by the Post Office Department are not being incurred for purely postal services, but are expenditures in the nature of an indirect subsidy ultimately for the purpose of reducing direct subsidies to our own flag carriers. S. 308 and S. 1119 provide that the Civil Aeronautics Board shall take into consideration the rates paid to foreign air carriers for transporting our mail in international operations. This is highly objectionable for the following reasons: 1. Since only about 10 percent of United States international mail is carried by foreign air carriers, the provision permits the tail to wag the dog. 2. It would require the Civil Aeronautics Board to depart from normal ratemaking principles, and consider as a factor a rate admittedly not related to cost or other normal ratemaking principles and established only as a charge between postal administrations. 3. It would permit a relatively high charge, established as a charge between postal administrations, to influence the rate we must pay our own carriers. As previously mentioned, the United States Government has supported the high Universal Postal Union rate in the interest of the United States carriers because of the subsidy factor. 4. If the rate of $1.91 per ton mile which we charge foreign countries for using our air carriers, and which is the same rate foreign countries in turn charge us for using their air carriers, were applied to Civil Aeronautics Board prescribed rates which we pay our United States international air carriers, it would increase our payments to such air carriers fourfold, or by approximately $97 million annually. This is a striking contrast to the estimated subsidy to these carriers for fiscal 1956 amounting to about $20 million. In other words, subsidy and service mail pay combined for United States international air carriers is expected to total only approximately $50 million annually, whereas, under the Universal Postal Union rates our mail payments alone would amount to an estimated $127 million. MINIMUM WEIGHT Other features of these bills are also objectionable. One such feature would require the Board, in fixing rates for the transportation of mail, to fix a minimum weight of each mail dispatch to each point to which mail is dispatched (S. 308, p. 14, lines 5-8: S. 1119, p. 11, lines 17-20; amendment E to S. 1119, p. 3, lines 11-14). Here, again, the bills open the door to hidden subsidies, since any prescription for a minimum mail level can result in fictitious mail loads, for the transportation of which the Department must pay the air carrier. We believe that a determination as to whether there is any need for a minimum weight feature in airmail rates should be left to the informed judgment of the Civil Aeronautics Board, based upon the individual requirements in the particular circumstances. In many instances, a presentation of a minimum mail load would require the Department to alter present procedures of dividing mail between competing carriers, or between successive schedules of the same carrier, in order to guard against payments for the transportation of fictitious mail loads. Mail certificate as instrument for subsidy.—Now, while on the subject of subsidy, we wish to offer another comment directed to the fact that subsidy grants, under the bills, could only be made to air carriers holding mail certificates. The bills both provide that "*** any air carrier holding a certificate authorizing the transportation of mail in air transportation***" is entitled to petition the Board for subsidy (S. 308, p. 18, line 1; S. 119, p. 15, lines 22-23; amendment E to S. 1119, p. 2, lines 11-15). It would appear, therefore, that only carriers holding mail certificates are entitled to claim subsidy. In this respect there is no change from the present law. The Department believes that this provision should be changed so as to provide for a complete separation of the subsidy program from the mail transportation service. Otherwise, when the Civil Aeronautics Board has before it the question of whether a carrier should be authorized to engage in the transportation of mail, its decision may be influenced by the fact that the granting of a mail certificate will authorize the carrier to claim subsidy under other provisions of the Act. To eliminate this possibility the Department urges that the right to claim subsidy be completely divorced from the transportation of mail, so that a mail certificate is not the initial requirement for claiming subsidy. In this connection, we wish to emphasize that we are not proposing that Government subsidy be expanded to cover any and all air carriers who have been or may hereafter be certificated to engage in air transportation. In fact, the bills expressely provide that the fact that a carrier holds a certificate of public convenience and necessity authorizing certain services shall not be deemed "conclusive" of the issue whether such services are so essential to air transportation as to warrant governmental assistance in the form of subsidy (S. 308, p. 20, lines 3-11; S. 1119, p. 16, lines 12–20). In other words, the carrier must prove that the particular service it is authorized to perform warrants subsidy before it is entitled to receive assistance. To effectuate this, we believe that all carriers should stand on an equal basis, regardless of the type of certificate they may hold, and that the requirement of a mail certificate as the indispensable vehicle for subsidy should be eliminated from the proposed legislation. By this, the desirable objective of the bills-complete separation of mail transportation and subsidy-can be accomplished. Amendment E to S. 1119: Several proposed amendments to S. 1119 have been filed, of these, only amendment E, dated March 23, 1955, appears to be of direct interest to the Department, and I shall confine my remarks to that amendment. Value of service.-Amendment E introduces a new element in the fixing of service mail rates, not contained in the present law; I use the term service mail rates as descriptive of pay for the actual transportation of mail, as distinguished from payment of subsidy. Under amendment E, the Civil Aeronautics Board would be authorized, in fixing rates for the transportation of mail, to consider "the value of such transportation." (Amendment E, p. 3, lines 3-5.) The Department opposes this provision. The Department has consistently opposed the introduction of "value of service" as an element in fixing fair and reasonable rates for the transportation of airmail; instead we believe that such rates should not exceed reasonable costs plus a fair return. We do not deem it proper to consider "value of service" in fixing airmail rates because it would in a sense mean that the Government-the Post Office Department-as a captive customer of the air lines would then be considered as having unlimited ability to pay for airmail service. Rates fixed on the concept of "what the traffic will bear" should not be adopted for a captive customer who cannot divert its traffic to other competitive forms of transportation for the carriage of airmail. Subsidy. Amendment E also provides, with respect to subsidy, that any carrier holding a mail certificate may apply for mail compensation which includes a subsidy. Eligibility for subsidy and the amount thereof would be determined by a subsidy administrator, and the amount fixed by him would become effective unless the carrier should request, or the Board should decide on its own initiative, that a hearing be held. The amendment provides that, prior to issuance of an order fixing a rate including subsidy, the Chairman of the Board and the Postmaster General should decide what part thereof constitutes service mail pay and what part constitutes subsidy, without participation by any other party; furthermore, if they were unable to agree, then the Director of the Bureau of the Budget would decide what portion of the mail rate represents service mail pay from information available to him, and the balance would be considered subsidy. Mail pay would be paid by the Postmaster General and subsidy would be paid by the Board (amendment E, p. 4, line 12, through p. 6, line 7). The proposed provision for final determination by the Director of the Budget Bureau of what constitutes service mail pay and what constitutes subsidy is objectionable to the Department (amendment E, p. 5, lines 18-24). It opens up a very definite possibility that the decision as to what the amount which constitutes service mail pay might be decided without reference to established and recognized principles of rate-making, and no appeal would lie from such a determination. Before closing, I wish to refer to section 30 of S. 308. Now this particular provision provides that no multilateral agreement between this country and foreign countries which grants to a foreign government of an airline representing it any rights to operate in air transportation, or which provides for the formation or participation of this country in any international organization for the regulation or coordination of international aviation, or any phases thereof, shall be entered into except by treaty (S. 308, p. 37, lines 11-19). As has been heretofore explained, maximum rates for the transportation of airmail are established by the Universal Postal Union, although that is but one small detail of the many postal arrangements entered into by the postal convention. We construe section 30 of S. 308 to relate to the regulation and coordination of international air transportation, and as having no relation to postal arrangements between this and foreign governments. But to eliminate any doubt, we suggest that the provision be amended so as to state explicitly that it does not apply to postal agreements. For the reasons stated, the Department opposes the enactment of either S. 308 or S. 1119, including amendment E to the latter, in their present form. And I might say that this last statement I made in regard to the international postal agreement and the necessity of treaty-that subject was not included in the letter addressed to the Chairman. But that statement has since been cleared with the Bureau of the Budget.. Senator MONRONEY. Thank you, very much, Mr. Goff. Mr. GOFF. Thank you, sir. Senator MONRONEY. Senator Bible, any questions? Senator BIBLE. No questions. Senator MONRONEY. Senator Schoeppel, any questions? Senator MONRONEY. Other than these objections you have as to the effect of the mail pay on the Universal Postal Union rates, and the subsidies administered, you have no further objection to it? Mr. GOFF. We have no objection to the bill otherwise. Of course. we feel that we should not really express an opinion on the bill generally, except as to some postal parts. But we have no other objection to it. Senator MONRONEY. You strongly believe that the principle of separation of mail pay and subsidies must be maintained? Mr. GoFF. I think it is fundamental to a fair operation of the Postal Department and to the public generally. Senator MONRONEY. Thank you, very much. Mr. GoFF. Oh, yes, I forgot one thing. We did have an objection to minimum wage. A minimum wage might get us into a subsidy. Senator MONRONEY. You feel that the Civil Aeronautics Board is more capable of determining the instances where a minimum wage might be necessary? Mr. GOFF. We do, sir. Senator MONRONEY. Thank you, very much, Mr. Goff. Senator MONRONEY. Our next witness will be Mr. Daggett Howard, Office of the General Counsel, Department of the Air Force. Mr. Howard, we are pleased to have you before the committee, and we have I believe 2 statements from you, 1 a résumé of your longer statement, is that not correct? Mr. HOWARD. There is one statement which is rather brief. There are some longer written comments which we submitted. Senator MONRONEY. These comments will be made a part of the record of this hearing. You may proceed, sir. |