and S. 308, the omnibus aviation bills pending before your subcommittee. The Chamber agrees with the requirement for a showing of public need before authorization of air transportation, the need for regulation of contract air carriers, and the gradual withdrawal of air-transport subsidy. It opposes the extension of rate regulation to the international field. Specifically, our membership believes that: (1) The policy of the Civil Aeronautics Act establishing regulated competition in air transportation is sound, and the exemption authority contained in the act should be used only in limited and exceptional circumstances. To the extent that there is a public need for air-transport service now being offered under the irregular carrier exemption, this need may be met by the issuance of certificates authorizing such service upon proof of public convenience and necessity and the fitness of the applicant. This burden of proof should be upon the applicant and not upon the Civil Aeronautics Board, as advocated in proposed amendment C to S. 1119. The enactment of this amendment would completely reverse the basic principles of the Civil Aeronautics Act, and all other similar acts passed by Congress to regulate carriers and public utilities. (2) The rates and service of contract carriers by air should be regulated under the Civil Aeronautics Act, in order that there may be a determination in each case as to whether the operation is a bona fide contract service or in reality that of a common carrier. Enforcement of the act is deficient without this information. (3) Government financial aid to domestic air transportation should be limited to a reasonable development period and should be gradually withdrawn as the industry becomes established. Further, the existence of a route certificate should not in itself obligate the Government to continue subsidizing a service if it is determined that the cost has become disproportionate to the public benefit. It is recognized that great strides have been made in the past few years toward self-sufficiency of air transport, with subsidy becoming an increasingly less important part of carrier revenues. We believe that this trend should be encouraged in every possible way. (4) Authority should not be granted to the Civil Aeronautics Board to regulate rates in international air transportation. No valid need has been shown for the substitution of governmental ratemaking for the flexible conference-type of ratemaking now in existence through the International Air Transport Association. The grant of this authority would be especially objectionable since, under a provision in most of our bilateral air-transport agreements, the United States Government has contracted with other governments to submit any contested rate of American international air carriers to the International Civil Aviation Organization for an advisory report, and to use its best efforts under the powers available to it to put into effect the opinion expressed in such a report. The International Civil Aviation Organization, as you know, is an international body composed of government representatives. Under existing law, the powers available to our government over international air rates are not extensive but if the authority to fix minimum rates proposed in these bills were granted, the Civil Aeronautics Board would be obligated to put into effect the rate agreed upon in ICAO, where the American air carriers concerned have no direct voice. We do not believe that American-flag carriers should be subjected to the authority of an international governmental body. We would appreciate it if you would make this letter a part of the record of your hearings. Cordially yours, CLARENCE R. MILES, Manager, Legislative Department. Hon. Ross RIZLEY, Chairman, Civil Aeronautics Board, Department of Commerce, Washington, D. C. DEAR MR. CHAIRMAN: In a statement of the views of the Chamber of Commerce of the United States on certain issues involved in S. 1119 and S. 308 submitted by letter to me from Clarence R. Miles, manager, legislative department, under date of May 16, a number of reasons are presented in opposition to granting to the Civil Aeronautics Board authority to regulate rates in international air transportation. The following are the reasons presented by Mr. Miles on behalf of the chamber: "Authority should not be granted to the Civil Aeronautics Board to regulate rates in international air transportation. No valid need has been shown for the substitution of governmental ratemaking for the flexible conference-type of ratemaking now in existence through the International Air Transport Association. "The grant of this authority would be especially objectionable since, under a provision in most of our bilateral air-transport agreements, the United States Government has contracted with other governments to submit any contested rate of American international air carriers to the International Civil Aviation Organization for an advisory report, and to use its best efforts under the powers available to it to put into effect the opinion expressed in such a report. The International Civil Aviation Organization, as you know, is an international body composed of government representatives. "Under existing law, the powers available to our Government over international air rates are not extensive but if the authority to fix minimum rates proposed in these bills were granted, the Civil Aeronautics Board would be obligated to put into effect the rate agreed upon in ICAO, where the American air carriers concerned have no direct voice. We do not believe that Americanflag carriers should be subjected to the authority of an international governmental body." I shall appreciate it if the Board would review the issues presented by the chamber and give me your comments thereon for inclusion in the record. Sincerely, MIKE MONRONEY, Chairman, Aviation Subcommittee, Senate Committee on Interstate and Hon. A. S. MIKE MONRONEY, Chairman, Aviation Subcommittee, CIVIL AERONAUTICS BOARD, Washington 25, D. C., May 27, 1955. Committee on Interstate and Foreign Commerce, United States Senate, Washington 25, D. C. DEAR MIKE: The Board is pleased to have this opportunity to express its views concerning the comments of Mr. Clarence R. Miles, manager, legislative department, of the Chamber of Commerce of the United States relating to legislation granting Board authority over rates in foreign air transportation of United States air carriers. In the Board's opinion, the views expressed by Mr. Miles are not well founded. The gist of Mr. Miles' argument appears to be (a) that passage of the legislation would substitute a governmental rate machinery for the conference-type of ratemaking in the International Air Transport Association (IATA), and (b) that the executive branch of the Government, by means of bilateral air-transport agreements, has contracted away certain rights of its air carriers regarding the fixing of rates which the passage of legislation granting rate power to the Board in this field would fully implement and subject United States air carriers to rate control by an international body. The Board believes on the contrary that passage of the legislation would strengthen our carriers' position in IATA, whose ratemaking machinery the Board continues to endorse. With respect to the second and principal point raised by Mr. Miles the Board believes that, under present law, United States air carriers, far from being independent to fix whatever rate they choose, are subject to almost complete rate control by the foreign countries to which they operate, without this Government having any effective power to back up our carriers in their contentions. The enactment of rate-control legislation would bring into force provisions in these agreements divesting foreign countries of this power and placing it in major part in the hands of the Civil Aeronautics Board. In effect, passage of this legislation would give the United States control over the rates of our carriers which now is in foreign hands. The fallacy in Mr. Miles' argument lies in the unexpressed assumption that air carriers, in the absence of international agreement, are free to charge any rate they may decide upon. His logic, which might have certain application in the maritime field where the doctrine of freedom of the seas prevails, has precisely the reverse application in the aeronautical field. In aviation, there is no freedom of the air. National sovereignty in airspace is reaffirmed by the Chicago Convention and is a matter of fundamental policy not only of this country, but of all the other sixty-odd parties to the Chicago Convention. There is consequently no natural right on the part of an air carrier of any country to serve ports within the territory of another country. Article 6 of the Chicago Convention expresses this principle in the following language: "ARTICLE 6 "No scheduled international air service may be operated over or into the territory of a contracting state, except with the special permission or other authorization of that state, and in accordance with the terms of such permission or authorization." [Italics supplied.] The bilateral air-transport agreements constitute the groundwork for obtaining this special permission or other authorization. Thus, they are the mechanism whereby rights are obtained for air carriers rather than agreements which curtail such rights. It has not been possible to obtain these rights completely free of conditions. In particular, one of the matters over which foreign countries have consistently refused to relinquish control in granting bilateral operating rights to United States carriers has been the veto power over the rates charged by our carriers in the absence of effective rate control in the aeronautical authorities of the United States. The agreements, therefore, provide for a certain veto power in the government of each country admitting carriers foreign to it, as a condition on the right of entry of such carriers to its territory. This veto power takes the form, in the case of an IATA rate, of the requirement that all countries must approve any rate agreed to by their carriers before it can be put into effect. This is a veto power pure and simple, since any one government may prevent the rate from going into effect. When veto action is taken, or for other reason there is no agreed IATA rate, an "open rate" situation is said to exist. Under such circumstances, with the present law in effect, the foreign country retains almost absolute veto power under the bilateral agreements over rates charged by a United States air carrier. There is, it is true, a clause in our bilateral agreements providing that the rates shall be fair and reasonable. Thus, if the United States believes that the rates charged by its carriers in fact are fair and reasonable, it may challenge the foreign country's determination to prevent the rate from becoming effective, hold discussions with the foreign government and attempt to convince it of its error, and if this fails, go to international arbitration. But it should be emphasized that under the present system, the carrier may not put the challenged rate into effect pending its final settlement. Bilateral agreements, however, are so worded that if the Civil Aeronautics Board obtains rate control power over its own air carriers, a new rate, which has been approved by the Board, may be placed in effect notwithstanding any objection by the foreign country concerned. This rate, again, is subject to international conference and settlement by international arbitration in case of continued disagreement between the governments. However, the major difference between this and the present situation is that, pending the settlement of the case on international arbitration, the rate is in effect. In the Board's opinion, this fact alone is all important, since international arbitration may last a considerable period of time, and during this period the new rate can be tested in practice to see whether it is a sound and economic rate, or whether it has the catastrophic results anticipated by the foreign country. Moreover, it is the opinion of the Board that the burden of proof in the international arbitration would be on the foreign country in the event that the Board has rate control and has found the challenged rate to be fair and reasonable. As a necessary corollary to the foregoing, we believe that the grant of rate power to the Board would, under the Air Transport Agreements, give United States air carriers additional bargaining power and greater flexibility in negotiating a rate within IATA than they now possess. At the present time our air carriers are not completely free agents to bargain within IATA as to the proper level of the conference rates. Every rate IATA sets must be without objection of any member carrier and must be designed to overcome potential objections of all governments, foreign as well as the United States. Because of the lack of direct Board power over rates in foreign air transportation, and under the bilateral agreements as now written, there is no practical governmental power to back up United States carriers in supporting rates which they might urge within IATA. However, if the Board were granted rate control power, United States carriers in IATA conferences would be assured that with Board backing they could place the rate they want in effect, even though the foreign carriers do not agree to it, and the foreign countries oppose it. The increase in bargaining power resulting from this fact is obvious. Mr. Miles raises the specter of an international organization fixing the rates of United States air carriers. The bilateral agreements do provide for an arbitration of differences between governments as to whether a challenged rate is fair and reasonable. However, before these provisions may come into effect, the foreign government must object to the rate in question and challenge its fairness and reasonableness. Under the present situation such an objection on the part of the foreign government effectively kills the rate. If the Board had rate control power, the rate would remain in effect, and the foreign government would have the obligation of demonstrating to the arbitral tribunal the fact that the rate was not fair and reasonable. The question can thus be asked: Is it preferable to have almost complete control over the rates of our international flag carriers vested in foreign governments, or is it better to have such determinations by foreign governments subject to international arbitration, accompanied by a stay of the foreign determination and an excellent chance of winning in the end? To pose the question is to answer it, and it seems obvious to the Board that the asserted ends of Mr. Miles' testimony of additional flexibility for American air carriers can be better accomplished with rate control in the Board than without it. Sincerely yours, JOSEPH P. ADAMS, Acting Chairman. THE UNDER SECRETARY OF COMMERCE, FOR TRANSPORTATION, Washington 25, D. C., May 27, 1955. Hon. MIKE MONRONEY, Chairman, Aviation Subcommittee, Committee on Interstate and Foreign Commrece, DEAR SENATOR MONRONEY: This is in reply to your letter of May 17, 1955, regarding certain objections raised by the chamber of commerce to those provisions of S. 308 and S. 1119 which would authorize the Civil Aeronautics Board to regulate rates in international air transportation. We have carefully considered the points raised by the chamber of commerce. We do not believe that these considerations provide valid reasons for withholding rate regulatory authority from the Board in the international field. In the first place, there is no reason to assume that the granting of this authority to the Board would weaken the ratemaking machinery of the International Air Transport Association. The Board and other Federal agencies have consistently endorsed the IATA arrangement as a sound basis for the development of rates by international carriers. The Air Coordinating Committee, which has recommended international rate authority for the CAB, has urged at the same time that the United States support IATA "as the primary instrument for establishing and maintaining a sound fare and rate structure for international air services." It is not contemplated that the proposed authority of the Board would basically alter the existing IATA function of developing consistent rates among the carriers. We feel sure that the Board if granted this authority, would exercise it in such manner as to avoid any curtailment of IATA's effectiveness. We also question the chamber's assumption that this legislative proposal would have the effect of placing ultimate control of our carriers' rates in the hands of the International Civil Aviation Organization. It is true that our bilateral aviation agreements provide that, in the event of inter-governmental disputes over rates, such disputes may be referred to ICAO or to a board of arbitration for an advisory opinion. However, this provision for arbitration is just as applicable at present as it would be under the proposed grant of rate authority to the Board. In either case, this Government has already expressed in bilateral agreements its intention to use its best efforts to carry out the results of arbitration. As indicated in the testimony presented by this Department on S. 308 and S. 1119, we believe it would be desirable to grant the CAB authority over interna62505-55-24 tional rates. For the reasons stated above, we do not believe that the considerations advanced by the chamber of commerce justify a change in this position. Sincerely yours, Hon. A. S. MIKE MONRONEY, LOUIS S. ROTHSCHILD. CHAMBER OF COMMERCE OF THE UNITED STATES, Chairman, Subcommittee on Aviation, Committee on Interstate and Foreign Commerce, United States Senate, Washington 25, D. C. DEAR SENATOR MONRONEY: Thank you for the opportunity you have given us, in your letters of May 27 and 31, to comment further on the views of the Civil Aeronautics Board and the Under Secretary of Commerce for Transportation with respect to the proposal to grant the Board authority over rates of United States flag carriers in foreign air transportation. Acting Chairman Adams, speaking on behalf of the Civil Aeronautics Board, says it is interested in protecting United States flag carriers from the actions of foreign governments. To us, his interest appears paternalistic, however, and paternalism, even if it could be assured that it would always be used in the best interests of the public, should not be a motivating force in authorizing increased Government regulation. It is the view of the chamber's membership that Government controls should be authorized only where needed to protect the public interest. Moreover, we are not prepared to accept completely the view that governmental intervention in international rate matters under present authority has always furthered the best interests of our carriers or the public, or that it would in the future. The Board's letter stresses the point that foreign governments have almost complete control over the rates of United States flag carriers and, if the CAB is given the power it asks, implies that it will be used to strengthen the position of our carriers. We agree that national sovereignty in airspace is reserved to each party to the International Civil Aviation (Chicago) Convention, and that a veto power over rates of international air carriers is reserved to each country that is a party to the Bermuda-type bilateral air agreement. These, however, are reciprocal and do not give other countries any more power over United States flag carriers than they do the United States over foreign air carriers. We, therefore, do not understand the emphasis placed by the Board on any rate control that may be exercised by foreign governments over United States-flag carriers. Furthermore, we have no assurance that any present protective provisions of foreign governments would be relinquished if the power now asked for the CAB were granted, or that the rate-protective provisions of the Bermudatype agreements would automatically change the situation. Arguments in the Board's letter, based upon a stated desire to give greater flexibility as free agents to United States-flag carriers in international rate matters and to eliminate a veto power from foreign governments, are not impressive when related to the proposed legislation. It would not appear to us that either greater flexibility, or freedom to act by the United States-flag carriers, or any lesser exercise of veto powers by our Government, would be likely to result from the proposed legislation. The greater the control and veto power exercisable by our Government, the greater is the prospect of reciprocal insistence upon exercises of control and veto actions by foreign governments. Moreover, the heavy hand of government control has never been conductive to greater flexibility. The Board's letter might also give the impression that it does not now quite effectively control the international rates of carriers in the International Air Transport Association (IATA). This would be erroneous. Under its power to approve or disapprove agreements among carriers, including the very IATA machinery itself, the Board has disapproved rates, fares, and charges, and rules affecting them, because of the level of the fare or for one or more of a variety of reasons. We are informed, moreover, that even before rate proposals are to be presented by United States-flag carriers at IATA rate conferences, the carriers customarily are advised in advance by the Board or its staff concerning what positions they may be free to urge or support. In actual practice and effect, therefore, the Board's present control of rates of certificated international air carriers in this manner is quite extensive. The Board's letter appears to lay great stress on the prospect of actually putting rates into effect where there is international disagreement. This, to us, is unrealistic. If this were to become the practice, more than likely objections |