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GENERAL COUNSEL OF THE DEPARTMENT OF COMMERCE,

Washington, D.C., April 9, 1964. Hon. OREN G. HARRIS, Chairman, Committee on Interstate and Foreign Commerce, House of Representatives, Washington, D.C.

DEAR MR. CHAIRMAN: This is in further reply to your request for the views of this Department on S. 1540, an act to amend the Federal Aviation Act of 1968 to provide for the regulation of rates and practices of air carriers and foreign air carriers in foreign air transportation, and for other purposes.

S. 1540 deals with oversea air transportation (i.e., transportation from the continental United States to U.S. territories and possessions or between l'.S. territories and possessions) and foreign air transportation (i.e., transportation between the United States and any place outside thereof but not including oversea transportation).

This act (1) sets forth the duties of the air carriers and foreign air earriers in foreign air transportation in establishing just and reasonable rates and praetices; (2) requires that orders of the Civil Aeronautics Board directing an air carrier or foreign air carrier to discontinue a rate or practice for foreign air transportation and actions of the Board suspending tariffs filed by such carriers for such transportation be reported to the President; (3) extends the Board's authority over the rates of U.S. carriers in oversea air transportation from the present right to prescribe only maximum and minimum rates to the right to prescribe exact rates (the Board now has this authority in respect to rates for interstate transportation); (4) extends the public interest factors to be considered by the Board in acting on rates to cover foreign air carriers as well as U.S. air carriers; (5) continues existing authority of the Board to order an air carrier or a foreign air carrier to remove a discrimination, preference, or prejudice in its foreign air transportation rate structure, and authorizes the Board to require discontinuance by the carrier of the unreasonable or discriminatory rate or practice, as well as provides new authority to prescribe the lawful rate or practice; and (6) authorizes the Board to suspend rates and practices of air carriers or foreign air carriers in foreign air transportation pending hearing. The Board presently has this authority over air carriers in interstate and oversea air transportation.

A recent statement of international air transport policy, approved by the President, recommended that “* * * Congress should adopt legislation which would give to the Civil Aeronautics Board authority, subject to approval by the President, to control rates in international air transport to and from the United States."

H.R. 6400 and S. 1540 in its original form, introduced at the request of the President, give effect to the "Statement of International Air Transport Policy" by giving the Board power to approve or disapprove the rate of United States and foreign international air carriers similar to the power it now has with re spect to domestic carriers.

For some time, the Board has sought additional rate powers in foreign air tranpsortation. At the present time, some foreign governments unilaterally control the rates of the U.S. air carriers, but the United States does not have the machinery to control the rates of foreign air carriers. It is in this area that the power to control rates and tariffs is desired. Because of the responsibilities of the President in the area of foreign affairs we supported legislation that would subject CAB action in this field to Presidential approval.

We endorse enactment of H.R. 6400 and would therefore support S. 1510 if amended to the original language making the CAB orders regarding rates for foreign air transportation by air carriers or foreign air carriers subject to the approval of the President.

We have been advised by the Bureau of the Budget that there would be no objection to the submission of this report, and further, that enactment of H.R. 6400 or S. 1640 if amended as recommended herein would be in accord with the program of the President. Sincerely,

ROBERT E. GILES.

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DEPARTMENT OF STATE,

Washington, April 27, 1964. Hon. OREN HARRIS, 'oreign Com Chairman, Committee on Interstate and Foreign Commerce,

House of Representatives, Washington, D.C. reply to per

DEAR MR. CHAIRMAN: In your letter of December 30, 1963, you requested the nó tbe feat Department's views on S. 1540, an act to amend the Federal Aviation Act of practia din 1958 to provide for the regulation of rates and practices of air carriers and

for the foreign air carriers in foreigu air transportation, and for other purposes. ation LL.

Except for one amendment made by the Senate, S. 1540 is identical to H.R. s and parte 6400, which has already received the unqualified support of the Department. trumpre

In our letter to you dated July 26, 1963, we analyzed in detail each of the prode tener

visions of H.R. 6400, the effect which its passage would bave on our extensive network of bilateral aviation agreements, and the reasons why this country would be in a considerably more favorable position vis-a-vis foreign countries if the legislation were enacted. We strongly urged prompt enactment of the bill, and we renew that support now.

The purpose of S. 1540, as you know, is to give to the Civil Aeronautics Board Ne

authority to prescribe rates and practices and to suspend tariffs in international air transportation to and from the United States under the same standards now applicable to interstate transportation. The question raised by the amendment to the bill made by the Senate is whether this discretionary authority is to be exercised subject to the approval of the President. The Senate amendment would remove the requirement of approval by the President of any order granted pursuant to the new authority, and substitute simply a requirement to reporting such order to the President before publication.

The Senate amendment would remove the power to fix rates of international air transportation from policy review by the President. Removal of this power from Presidential review would fragment the President's authority over the conduct of foreign affairs. This could be justified only if international air ratemaking were not an integral aspect of our foreign relations. However, the incidents surrounding the North Atlantic rate dispute during the spring of 1963 demonstrate the interrelationship of aviation ratemaking, like other aspects of economic regulation of international transporation, with our overall foreign relations. The history of this dispute leaves no doubt that international ratemaking has vast and far-reaching foreign policy ramifications. We would conclude, therefore, that the President's constitutional powers over foreign affairs require that the international ratemaking function, being an integral aspect of foreign affairs, should be subject to policy review by the President.

The executive branch, of course, does not propose to become directly involved in details of ratenaking. But the exercise of this function would affect our foreign relations to at least the same extent as exercised by the Civil Aeronautics Board of the other powers relating to regulation of international air transportation now contained in sections 401 and 402 of the Federal Aviation Act. Section 801 authorizes review in these latter cases and we see no justification for drawing a distinction between these cases and the new powers to be granted by H.R. 6400.

Moreover, as a practical matter, it would appear that elimination of Presidential review has the correlative effect of subjecting international ratemaking decisions to the process of judicial review as required by section 1006 of the Federal Aviation Act. As the law now stands, Board actions which are subject to Presidential review under section 801 are immune from judicial review under section 1006. Accordingly, if the requirement of Presidential review is eliminated, it would appear as though these decisions would then become subject to judicial review. If the powers available under S. 1510 are ever to be exercisel, it would probably be essential that they be exercised promptly. Presidential review, rather than the cumbersome and time-consuming process of review in the courts of appeals, would permit this expeditious action.

In summary, we reiterate our support of the objectives of S. 1540 and H.R. 6400. We continue to be concerned by the problem of rates in international air transportation for the aviation industry, the traveling public, and for the overall foreign relations of the United States. We favor enactment of S. 1540 as originally introduced ; i.e., with the powers over rates in international transportation subject to Presidential approval.

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46-409-65-2

The Bureau of the Budget advises that there is no objection to the submissia of this report and that S. 1540 as introduced on May 15, 1963, would be i accord with the program of the President.

Sincerely yours,
For the Secretary of State:

FREDERICK G. DUTTOX.

Assistant Secretary.

EXECUTIVE OFFICE OF THE PRESIDENT,

BUREAU OF THE BUDGET,

Washington, D.C., April 27, 194. Hon. OREN HARRIS, Chairman, Committee on Interstate and Foreign Commerce, House of Representatives, Washington, D.C.

DEAR MR. CHAIRMAN: This is in response to your request for the views of the Bureau of the Budget on S. 1540, a bill to amend the Federal Aviation Act 1958 to provide for the regulation of rates and practices of air carriers and foreign air carriers in foreign air transportation, and for other purposes, which has been passed by the Senate.

As introduced, at the request of the President, S. 1540 and H.R. 6400 were identical. Their purpose is to give the Civil Aeronautics Board authority to pė scribe rates and practices of air carriers, both U.S. and foreign, and to suspend tariffs in international air transportation to and from the United States. As proposed the legislation would have made the Board's authority subject to arproval of the President in view of his preeminent responsibilities in the area of foreign policy.

As passed, s. 1540 would give the Civil Aeronautics Board ultimate authority over international air rates and provide only that the President be informe of Board actions. The Bureau of the Budget would be strongly opposed to the enactment of S. 1540, in its present form, as a serious abridgement of the powers and responsibilities of the President in the realm of foreign policy.

The Bureau of the Budget endorses the views being expressed by the Departments of State and Commerce in reports being sent to your committee and urges that the bill be restored to its original text. If thus amended the bill would be in accord with the program of the President. Sincerely yours,

PHILLIP S. HUGHES,

Assistant Director for Legislative Reference. The CHAIRMAN. I think it is generally understood that the question of international rates came to a head sometime ago when a controversy

a resulted between this country and other nations regarding rates to be charged.

I am sure that it will be developed that IATA could not come to an agreement which resulted in a head-on crash between airlines operating in this country and our own airlines operating in other countries.

Obviously, the question of the Bermuda-type agreements arises in connection with this matter. There are many questions that should be developed since this is quite a departure from, or would be quite a departure from, the procedures that we have had over the years.

I have a feeling there will be some disagreement developing during the course of the hearings but it will be the purpose of the committee to try to develop all these questions with a view of trying to resolve the issue in the best interests of our own country and, of course, our own airlines, which compete with airlines from other countries coming to this country.

So, I should think that during the course of the hearings we would like to know something about the difficulty in IATA, just what the problem is that requires us to consider a complete departure from what we have experienced over the last many years, and find out how it

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affects our own airlines, what they have to do or do not have to do and why the Government should have this authority.

To start off this in effort to obtain information, the Chairman of the Civil Aeronautics Board is the first witness.

Mr. Boyd, I know you have been interested in this problem for some time. For several months, I have had in mind to give you a hearing as I told you from time to time.

We are glad to have you and we are glad to have your statement.

STATEMENTS OF HON. ALAN S. BOYD, CHAIRMAN; JOHN WANNER,

GENERAL COUNSEL; JOSEPH WATSON, DIRECTOR, BUREAU OF
INTERNATIONAL AFFAIRS; IRVING ROTH, DIRECTOR, BUREAU
OF ECONOMIC REGULATION; AND AL STOUT, CHIEF, COMMERCIAL
RATES SECTION, CIVIL AERONAUTICS BOARD
Mr. Boyd. Thank you, Mr. Chairman.

I am accompanied this morning by Mr. John Wanner, General Counsel of the Civil Aeronautics Board, Mr. Joseph Watson, our Director of our Bureau of International Affairs, Mr. Irving Roth, Director of the Bureau of Economic Regulation, Mr. Al Stout, who is Chief of our Commercial Rates Section.

The Civil Aeronautics Board appreciates this opportunity to present its views with respect to H.R. 1716, H.R. 6400, and S. 1540.

H.R. 1716 would amend the Federal Aviation Act of 1958 so as to give the Board power to suspend tariffs of United States and foreign air carriers engaged in foreign air transportation.

H.R. 6400, on the other hand, would not only give the Board power to suspend tariffs of such carriers, but would also empower it to regulate the rates and practices of the carriers.

S. 1540 is identical to H.R. 6400 except for the fact that under the Senate bill actions and orders of the Board would only have to be reported to the President prior to publication, while under the House bill his approval would be required. Since this is the only difference between H.R. 6400 and S. 1540, I propose to limit my comments to H.R. 1716 and H.R. 6400 except to the extent necessary to discuss this variation.

As the Board has stated in reports to your committee, it strongly urges that favorable consideration be given to H.R. 6400' rather than to H.R. 1716.

H.R. 6400

H.R. 6400 is identical to draft legislation submitted by the President to the Congress on May 14, 1963. The bill is in furtherance of the recommendation in the “Statement on International Air Transport Policy," approved by the President on April 24, 1963, that Congress should adopt such legislation.

As your committee knows, this statement of policy was based on a report submitted to President Kennedy by an Interagency Steering Committee, consisting of representatives of the Federal Aviation Agency, the Bureau of the Budget, the Civil Aeronautics Board, the Agency for International Development and the Departments of State, Defense and Commerce, appointed by him in September 1961 to study U.S. international air transportation policies and problems.

The President recognized that the recommendations made were consistent with the interests of our carriers and the needs of travellers and shippers, and at the same time took account of the legitimate interests of other countries and the prinicples which govern this Nation in international aviation matters.

Specifically, he said: The U.S. air transport policy takes into account all of the U.S. intaests: the health and growth of our carriers, the contributions which air transport can make to our national security, and above all the needs of the consumerthe traveler and shipper. It does so in a way which considers the legitimate needs of other nations, and the basic principles under which we conduct our international relations.

In addition to implementing these objectives, H.R. 6400 also is consistent with the views of the Board since 1942 that it should be given power to regulate rates in foreign air transportation.

In point of fact, the Board repeatedly has urged legislation in this field up to and including the 87th Congress. During the 87th Congress we recommended that consideration of the legislation be deferred until completion of the Interagency Steering Committee study.

Before discussing the provisions of the bill, I believe that it would be helpful to comment on the premise in the statement of policy that the Board should be empowered to regulate rates in foreign air transporation because of the need “for more effective governmental infiuence on rates” to protect the needs of the traveler and the shipper.

The fact of the matter is that the Board now has no really effective method by which it can protect travelers and shippers against foreign rates which are too high.

Similarly, the Board lacks power to prevent the establishment of rates which are so low as to endanger the financial health of the carriers.

At the present time, the only direct authority which the Board has over foreign rates charged by either our carriers or foreign air carriers is the power to remove any discrimination found to exist after notice and hearing. But as to level of rates--that is, whether they are too high or too low—the Board has only indirect powers in this area through its approval of rate agreements between carriers reached through IATA, the International Air Transport Association.

As I shall point out later, this is not only indirect but also quite ineffective in critical situations.

The Board's present power to approve rate agreements of the IATA carriers is derived from the requirement in section 412 of the Federal Aviation Act that agreements between our carriers and other carriers affecting air transportation shall be filed with the Board for its approval.

If the Board approves, all of the carriers who are parties to the agreement are relieved, through the application of section 414 of the act, from what otherwise would be an antitrust violation of fixing rates by agreement.

On the other hand, if the Board disapproves, the carriers are then unable to act in concert without risking antitrust prosecution, but must all act individually in filing their rates.

When they do so, however, the Board is powerless to prevent the carrier from filing any rate it chooses—the rate filed may be wholly unacceptable froin the standpoint of conventional rate-fixing criteria.

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