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Mr. Boyd. Well, there were other countries on both sides of the gument; but this is just bilateral between these two countries. These differences became apparent at the Chicago conference in 44 when all of the nations of the free world were invited to a conrence by the United States to settle this matter of aviation relations ter the war. At that time the United States was a very strong proponent of eedom of the skies. In other words, that civil aircraft should be able fly wherever they wanted to go on such frequencies and with such pacities as they chose, and with no rate regulation. The United Kingdom was at the complete opposite end of the scale. The United Kingdom wanted to have complete control over rates, have complete control over capacity, to have complete control over utings, and to have complete control over frequency of operation. Well, as you will recall, this was the irresistable force and the imovable object, so nothing came out of the Chicago convention, to ttle any of this, and it became apparent that there had to be a settleent. We just could not have a state of affairs after World War II where

a body knew what the situation was. So the United States and United Kingdom got together with major legations at Bermuda, and they argued for, I think 2 or 3 months, r. Chairman, but I am not sure of myself. I know it was a long time, id they came out with the agreementThe CHAIRMAN. Major delegations. What are you talking aboutlegations from each of the two countries? Mr. Boyd. Yes, sir. The CHAIRMAN. Or delegations from each of the other countries? Mr. Boyd. Just from these two countries. The CHAIRMAN. All right. Mr. Boyd. And they came up with the agreement which has since en called the Bermuda agreement, which devised or developed irough compromise a series of principles which are called the ermuda principles. Now, these principles as best I can enumerate them from memory, e, first of all, you have a route annex which is not a principle but this just deciding who gets what route over which the carriers can fly.

Then there is the principle or policy of multiple designation which le United States insisted on, that is to say, that either country may signate one or more of its own carriers to operate on the routes it is been granted. This was because of the U.S. belief in the forces of competition. The second principle was on capacity, that the capacity to be offered y the carriers of each country should be reasonably related to the affic to be carried between those two countries. However, the carrier managements should have the freedom to acide how much capacity should be offered. In other words, in the first instance the carrier management makes a ecision that "we want to put 10 flights a week on,” and neither we or the British can say, "No, you should only put 5 flights a week on." They have the right under the Bermuda agreement to do this. It is to be reasonably related to the traffic moving between the two ountries.

Now, that gets into definitions. Traffic insofar as the United States and the U.S. carrier is concerned is called third freedom traffic when that traffic moves from New York to London, that is third freedom traffic for a U.S. carrier.

When traffic moves on a U.S. carrier from London to New York that is fourth freedom traffic and this is the traffic on which the capacity is supposed to be based.

We also have another category or definition which is called fifth freedom traffic, and that is the traffic which moves from a third country to a country in the bilateral agreement.

For example, traffic which Pan American or TWA would haul from ! Rome to London or vice versa would be fifth freedom traffic, and the capacity is not supposed to be geared to carry that fifth freedom traffic under the concept of the agreement.

That fifth freedom traffic is supposed to be generally what is called fill up traffic.

I have enlarged on this capacity quite a bit, Mr. Chairman, because then we come to the next policy

The CHAIRMAN. What is first and second freedom traffic?

Mr. Boyd. First and second, well these are not as far as passengers are concerned involved-passengers are not involved in first or second freedom traffic.

I have forgotten what first freedom is. I think second freedom is the right to operate a civil aircraft through a foreign country and to make stops for nontraffic purposes. I guess maybe the first is to overfly a country with a civil aircraft on peaceful mission.

Two, is to stop in transit for fuel or something like that.

Now, getting back to capacity, a carrier under the agreement puts in a certain amount of capacity, a certain number of frequencies. After a reasonable period of time the other country may say, “We think you have got too much capacity. We want to have a capacity consultation.”

This brings up one of our cherished policies from the Bermuda agreement which is that of ex post facto review, and we say "OK, we can have a review of capacity after the service has been put in."

But the service must go in in the first instance, so ex post facto review is another one of the policies.

What else have we got? I have to call on Mr. Watson here. One of the other Bermuda phrases is fair and equal opportunity to compete. That is, the carriers of both countries under the agreement must have fair and equal opportunity to compete.

We construe this to mean there are no holds barred insofar as competing is concerned, that this does not mean reciprocity in the sense that reciprocity is defined by some to mean, “You run a flight and we run a flight."

This is not involved. It is that you can run as many flights as you want and we run as many as we want subject to the right to have capacity consultations.

In the capacity consultations the country, either country, may raise the question of undue effect, which is another one of the Bermuda principles.

That is to say that even though we have this more or less free competition, the agreement provides that the United States for example,

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under the Bermuda agreement, cannot provide so much competition that it has an undue etfect on the operation of BOAC. This would mean if there is sufficient traffic for everybody to make a living, the U.S. carriers cannot run BOAC out of business just by adding frequency and capacity, assuming that BOAC has got a fairly reasonable operation,

fairly efficient. If they are operating a dog, that is something else again, but assuming that the operations are comparable in terms of equipment, efficiency, and so forth, then the United Kingdom under that situation would be able to say, “Hold the phone. You cannot do this to us under the terms of the agreement.'

And we couldn't.

But they would have to show it was the action of our carrier in this instance that was creating the harm, the harmful effect on the British carrier.

Now, these are the major Bermuda principles, Mr. Chairman. The CHAIRMAN. In those then come these two provisions, the ones which you were about to read.

Mr. Boyd. These are in the rate article of the Bermuda agreement, and paragraph (f) of the rate article in the Bermuda agreement provides as follows:

Prior to the time when such power may be conferred upon the aeronautical authorities of the United Statesparenthetically this power is the rate power by legislation to which I alluded earlier as being assumedif one of the contracting parties is dissatisfied with any rate proposed by the airline or airlines of either contracting party for services from the territory of one contracting party to a point or points in the territory of the other contracting party, it shall so notify the other prior to the expiry of the first 15 of the 30-day period referred to in paragraph (b) above, and the contracting parties shall endeavor to reach agreement on the appropriate rate.

Now, if I may interject here this provision means that if one of the countries disagrees with a proposed rate which has been filed 30 days before the time the rate becomes effective it must contact the country whose carrier published the rate within 15 days and say “Let's talk about this. We don't like this rate and let's see if we can reach an agreement."

That is this paragraph.

In the event that such agreement is reached each contracting party will use its best efforts to cause such agreed rate to be put into effect by its airline or airlines. It is recognized that if no such agreement can be reached prior to the expiry of 30 days the contracting party raising the objection to the rate may take such steps as it may consider necessary to prevent the inauguration or continuation of the service in question at the rate complained of.

That is paragraph (f) and that is the paragraph under which we are and have been living, Mr. Chairman, and that is why the foreign countries last spring were able to force our carriers to raise their fares over our stringent and violent objections, because they complained about our rate. We talked, they were dissatisfied, so in the words of the agreement they took such steps as they considered necessary, and

The CHAIRMAN. And that step was, “If you don't agree to the rate we suggest you don't get to land at our airport."

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Mr. Boyd. That was one of the possibilities, Mr. Chairman. Of course, it worked differently in different countries.

We were very pleased that in one country the government sent officials out to the airport to collect the difference from passengers on one of our airplanes when it landed. This was wonderful publicity, I will tell you, to have Pan American come in with a bargain rate ticket and this foreign government with a uniformed guard saying, “Give us $25 extra."

In other cases there were threats there would be confiscation of the aircraft and in others there were civil penalties threatened to be imposed on the carriers in the way of fines, and also our carriers were advised in one or two countries if they did not increase their fares they would be guilty of criminal violation.

So that is where we were, and that is where we are.

The CHAIRMAN. Do most of your bilateral agreements, most of our bilateral agreements now with foreign nations follow this principle of the Bermuda type?

Mr. Boyd. Yes, sir. Yes, sir. We have, as I recall, we have about 48 or 19 agreements, Mr. Chairman, and about three-quarters of them have the Bermuda type rate article in them.

I can provide the committee with a list of the types of bilaterals we have.

The CHAIRMAN. I have a list here. I will submit it for the record and you can look it over to see if you have any corrections. Most of them are Bermuda type, and in No. 2 there seems to be a new form with

а Mexico and the United Arab Republic. Is that true!

Mr. Boyd. Yes, sir.
(The list referred to follows:)

TYPES OF BILATERAL AGREEMENTS TO WHICH UNITED STATES IS A PARTY AND

FOREIGN COUNTRIES PARTIES TO VARIOUS TYPES 1. Bermuda type:

1. Bermuda type Continued
Australia

Venezuela
Belgium

Nigeria, Jamacia, and Trinidad
Brazil

have assumed obligations of Canada

United Kingdom
Chile

2. New form:
China

Mexico
Colombia

United Arab Republic
Cuba

3. Short form:
Denmark

Peru
Finland

Uruguay
France

4. No rate article:
Germany

Austria
India

Bolivia
Iran

Burma
Israel

Czechoslovakia
Italy

Dominican Republic
Japan

Ecuador
Korea

Greece
Netherlands

Iceland
New Zealand

Ireland
Norway

Lebanon
Pakistan

Panama
Spain

Paraguay
Sweden

Portugal
Switzerland

Syria
Union of South Africa

Thailand
United Kingdom

Turkey

The CHAIRMAN. Then there seems to be No. 3, a short form with Peru and Uruguay.

Mr. Boyd. Yes, sir.

The CHAIRMAN. And No. 4, apparently there is no rate article with a number of countries, primarily smaller countries which are included, you can look over to see if this is true. This might be helpful.

Mr. Boyd. Yes, sir. I am sure that list of yours is correct.

The CHAIRMAN. I will put it in the record if there is no objection that it go into the record at this point subject to your correction.

Mr. Boyd. Yes, sir.

Mr. Chairman, what we are trying to do, among other things, is to get under paragraph (e) of the rate article, and I would like to

The CHAIRMAN. I think you might as well go ahead and explain that, Mr. Boyd, so we can get the whole thing here.

Mr. Boyd. All right, sir. Paragraph (e) provides : In the event that power is conferred by law upon the aeronautical authorities of the United States to fix fair and economic rates for the transport of persons and property by air on international services, and to suspend proposed rates in a manner comparable to that in which the Civil Aeronautics Board at present is empowered to act with respect to such rates for the transport of persons and property by air within the United States, each of the contracting parties shall thereafter exercise its authority in such manner as to prevent any rate or rates proposed by one of its airlines for services from the terri. tory of one contracting party to a point or points in the territory of the other contracting party from becoming effective if in the judgment of the aeronautical authorities of the contracting parties, whose airline or airlines is or are proposing such rate, that rate is unfair or uneconomic. If one of the contracting parties on receipt of the notification referred to in paragraph (b) above

That is the 15-day notice.
The CHAIRMAN. Paragraph what?

Mr. Boyd. (b) as in baker. That is the 15–30-day notice. is dissatisfied with the rate proposed by the airline or airlines of the other contracting party, it shall so notify the other contracting party prior to the expiry of the first 15 of the 30 days referred to and the contracting parties shall endeavor to reach agreement on the appropriate rate

Then I will skip over if agreement is reached.

If agreement has not been reached at the end of the 30-day period referred to in paragraph (b) above, the proposed rate may, unless the aeronautical authorities of the country of the air carrier concerned see fit to suspend its application, go into effect provisionally pending the settlement of any dispute in accordance with the procedure outlined in paragraph (g) below.

Which is a procedural paragraph. But you see, Mr. Chairman, the difference is that where we have a disagreement now under paragraph (f) the foreign countries are able to do what they want to do, and impose it on our carriers.

If we have a disagreement, and we have rate legislation, then we are able to permit our carriers to operate at whatever the U.S. Government feels is the appropriate rate or tariff, pending legislation; in other words, they can stop us now, but they couldn't stop us under paragraph (e).

The CHAIRMAN. In other words, if there was any stopping under paragraph (e) you would have the right to do it?

Mr. Boyd. That is right, sir.

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