international air transportation. The most significant features of this convention are its proof-of-fault requirements and limitations of liability, originally $8,300 in passenger cases (now equal to approximately $10,000 with devaluation of the dollar), and $7.50 (now equal to approximately $9.00) per pound in baggage or cargo cases. In addition, the convention provides detailed rules on passenger ticketing and, with respect to cargo, on the issuance of an air waybill and on various rights and responsibilities of the carrier, consignor, and consignee thereunder.

In the early 1950's, dissatisfaction with the Warsaw Convention, primarily because of the low level of the passenger liability limit, led to negotiations for amendment which culminated in the conclusion of the Hague Protocol of 1955. This protocol doubled the liability limits in passenger cases to $16,600 (now $20,000) and made certain technical provisions. However, there was continued dissatisfaction with the limits in the United States and agreement could not be reached on a domestic plan to increase recoveries under the Protocols; consequently the United States never ratified it.

The United States subsequently made further efforts to push the liability limits for passenger cases under the Warsaw Convention to $100,000 per passenger. This was strongly resisted by other countries, and consequently the United States filed a notice of denunciation of the convention. Pursuant to the terms of the convention, denunciation would have taken effect 6 months later. At the time of filing of the notice the United States announced that it would withdraw the notice: (1) If an interim carrier agreement were entered into providing for a passenger liability limit of $75,000; and (2) if there were a reasonable prospect of international agreement to amend the convention to provide for a limit in the area of $100,000. Ultimately, a carrier agreement was reached (the "Montreal Agreement"-CAB Agreement 18900, approved by Order E-23680, May 13, 1966), and the United States withdrew its notice of denunciation. The Montreal Agreement, presently in effect for international air transportation to and from the United States, contained two major elements insisted upon by the United States: (1) Liability of air carriers to $75,000 per passenger in cases of passenger injury or death; and (2) liability without regard to fault on the part of the carrier (no-fault liability). Subsequent negotiations on amendment of the convention resulted in adoption of the Guatemala City Protocol. It was opened for signature on March 8, 1971, and signed by the United States at that time. This protocol was directed to cases involving passengers and baggage, but not cargo. It increases the passenger liability limit to $100,000 (now approximately $115,000 with the devaluation of the dollar), and provides for a baggage liability limit of $1,000 per passenger (now approximately ($1,150). Carriers are subject to no-fault liability, an element carried over from the Montreal Agreement. In addition, the Guatemala City Protocol contains a provision known as the "settlement inducement clause." which permits a court to impose attorneys' fees if the carrier has not within six months of a claim involving passenger injury or death made an offer to settle at an amount at least equal to the ultimate recovery. Finally, the Guatemala Protocol recognizes in

specific treaty language that a State may adopt a domestic system to supplement the passenger liability limit. This latter provision was insisted upon by the United States, since it was not contemplated that the protocol would be submitted for ratification until such a domestic plan to supplement the passenger liability limit had been developed.

A domestic plan providing for a total passenger liability limit of $315,000 ($200,000 in addition to the carrier's liability of $115,000 under the protocol) has now been developed among major foreign and national air carriers and The Prudential Insurance Company of America, under guidelines established by agencies of the United States Government having responsibility for international aviation. The plan is currently pending before the Civil Aeronautics Board for approval as an intercarrier agreement, pursuant to § 412 of the Federal Aviation Act (Docket 28713). The plan would only have effect if the air carrier agreement with The Prudential is approved by the CAB and if the United States ratifies Montreal Protocol No. 3.

The United States is a party only to the Warsaw Convention of 1929; it is party to none of the subsequent protocols which revised the convention. However, by ratifying Protocols No. 3 and No. 4, the United States will adopt all of the newest versions of the rules: the passenger and baggage rules adopted at Guatemala City in 1971 with the SDR clause developed at Montreal in 1975 (Montreal Protocol No. 3) and cargo provisions adopted at Montreal in 1975 (Montreal Protocol No. 4).

Furthermore, final clauses of Protocols No. 3 and No. 4 permit a State ratifying them to limit its treaty relationships only to the newest version of the rules (in effect, repealing all older provisions), if it wishes, by making appropriate declarations, and, if it is presently a party to the Warsaw Convention or any protocols, by depositing a notice of denunciation of the earlier instruments to which it is party. Thus, by ratifying Protocols No. 3 and No. 4 and making the appropriate declarations, and by depositing a notice of denunciation of the 1929 Warsaw Convention to which it is party, the United States can end the old provisions and establish treaty relationships to govern international air transportation of passengers, baggage and cargo which are limited to the newest versions.

The United States would make the appropriate declarations (under Article XI(c) of Protocol No. 3 and under Article XXI(b) of Protocol No. 4), and deposit a notice of denunciation of the Warsaw Convention of 1929, at the same time as it deposits the United States instruments of ratification of Protocols No. 3 and No. 4. . . .

The United States has been one of the leaders in the efforts which have resulted in Montreal Protocols No. 3 and No. 4. For nearly two decades the United States has been in the forefront in urging amendments to the Warsaw Convention to provide for increased

limits of liability and no-fault liability, to encourage rapid settlement of claims at a fair level for Americans. The 1970 Presidential Statement on International Air Transportation Policy stated that the primary objectives of the United States in the revision of the Warsaw Convention were "certainty, speed, and sufficiency of recovery by the injured party." The United States has also sought generally to modernize the convention's provisions and, in particular, to streamline the ticketing and cargo documentation requirements. These objectives will have been achieved upon the entry into force of Protocols No. 3 and No. 4 and the implementation of the domestic plan.

On January 14, 1977, President Ford transmitted the two protocols to the Senate recommending that they receive prompt consideration. S. Ex. B, 95th Cong., 1st Sess.

§ 5

Domestic Law and Regulation
U.S. Policy

On September 8, 1976, President Ford announced his approval of a comprehensive statement of international air transportation policy recommended by the Economic Policy Board Task Force on International Air Transportation Policy, setting forth the objectives the United States would seek in negotiations with other nations and calling for revisions of certain regulatory policies of the Civil Aeronautics Board (CAB). The President directed that the new statement of policy guidance supersede the statement issued June 22, 1970, for use by officials of the Government in dealing with international aviation matters.

The U.S. policy statement listed five principal objectives to guide U.S. international air transportation policy:

First, reliance on competitive market forces to the greatest extent feasible, recognizing that the views of other nations may differ and that our policies must be modified in some instances in order to reach bilateral and multilateral accommodations.

Second, provision for the transportation of people, mail, and goods, wherever a substantial need exists, at as low a price as is economically justified.

Third, support of a private U.S. international air transportation industry that is economically viable and efficient, that will generate sufficient earnings to attract private capital and provide job opportunities.

Fourth, consistency with and contribution toward U.S. national objectives in defense and security, foreign policy, and international

commerce.

Fifth, encouragement of a safe and efficient system of airports and airways and protection of the U.S. environment.

In the area of public service considerations, the policy statement said that the United States would pursue the following goals:

Regularly scheduled international air transportation of people, mail, and goods at as low a cost as is economically justified.

• International air charter transportation of people and goods by charter specialists and scheduled carriers operating charter flights, at as low a cost as is economically justified, recognizing that essential levels of scheduled service must be maintained.

• Effective competition among carriers and among the classes of service offered, including a fair and equal competitive opportunity for the private enterprise air carriers of the United States. The statement recommends a system of routes, as extensive as can be economically sustained, with regular, scheduled service by U.S. flag air carriers. It calls for U.S. Government support of actions by U.S. flag carriers to rationalize their route structures and to drop uneconomic routes. In instances where a specific and clearly defined national defense or foreign policy interest may require service by a U.S. carrier on a route that is not economically viable, it states that direct Federal subsidy would be preferable to a policy of indirect subsidy or cross-subsidization from profitable routes.

In bilateral international negotiations, it states as the primary objective the achievement of an international environment in which privately owned and operated U.S. air carriers have a fair and equal opportunity to compete for benefits at least as great as those available to foreign carriers. It continues:

The United States will continue to endorse the exchange of air transport rights and privileges through a system of bilateral air transport agreements. We have considered multilateral agreements and other alternatives to the bilateral system, but are not convinced that another system would work more effectively. While particular problems, such as fare and rate regulation, may require multilateral discussions, we can work within the basic structure of bilateral agreements, which provides sufficient flexibility to accommodate most circumstances.

Closer integration of international and domestic route systems is recommended, including the following actions:

Services to Canada, Mexico, and the Caribbean should be extensions of the domestic route system.

• Authority to carry local traffic on domestic segments of international flights, both passengers and freight, should be granted, because regulatory restrictions on the local traffic authority of the U.S. international air carriers no longer serve the public interest. Such authority will increase the economic viability of domestic extensions of international flights, thereby supporting more direct services for the shipping and traveling public.

• Blocked space agreements on domestic segments of international flights and equipment interchange agreements should be

considered by the carriers and the Civil Aeronautics Board as means to increase the economic viability of behind-the-gateway route segments, and hence to benefit the public with more direct service at more American cities.

All U.S. international carriers should be permitted to have domestic traffic systems to feed traffic to their international operations.

In the area of charter services the policy statement calls for modification of Civil Aeronautics Board regulations to make available more low-cost services to the traveling public. In negotiating charter service landing rights, it states, the United States would insist on equal treatment of U.S. scheduled and supplemental carriers.

The policy statement declares that the air transport interests of the United States are best served by a private U.S. international air transportation industry and that the United States will support a strong, viable system of international routes. With respect to market share, the statement continues:

The United States has traditionally espoused the Bermuda system, under which each carrier determines for itself the level of capacity it believes is warranted, subject only to ex post facto review by governments. The United States is faced with increasing criticism of the Bermuda system by foreign governments whose perceptions of competitive principles differ from our own. The preservation of the competitive concept underlying the Bermuda system is vital, because systems under which carriers or governments predetermine capacity for market share reasons can introduce artificial restraints unrelated to carrier efficiency or traffic demand. When capacity disputes arise, the United States must weigh carefully each situation to determine overall U.S. interests. Special procedures to deal with capacity disputes may be appropriate in some instances. When other countries advocate less flexiblity in capacity competition, we may insist, as a quid pro quo, on greater flexibility in pricing competition, so long as forecast load factors are well below full utilization load factors.

[Another] capacity issue arises from situations where carriers rely excessívely on traffic having its origin or destination behind the homeland of the carrier. Such reliance is contrary to the provisions of our bilateral air transport agreements; these operations have severely distorted traffic levels and distribution in certain markets. The United States will seek bilateral review of foreign carrier operations considered to be in violation of such provisions and will attach high priority to resolution of this matter. Policy with respect to the international competitive environment is described as follows:

The United States opposes unfair, discriminatory, or restrictive practices by foreign countries that limit the competitive capability of U.S. flag carriers. Section 2 of the International Air Transportation Fair Competitive Practices Act of 1974 specifically directs