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con i ny 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 hear

ing as I told you from time to time. ITU ZE

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


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 bisl 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.

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The President recognized that the recommendations made were con sistent 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. inter: ests: 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 inter national 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 de ferred 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 inftuence 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 effectire 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 from the standpoint of conventional rate-fixing criteria.

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Thus, a rate may be either too high, or it may be so low as to endanger the financial health of the carriers, without the board being able to deal with the matter.

The contrast between the Board's powers with respect to rate in interstate and foreign air transportation further points up the need for additional authority over foreign rates.

In interstate air transportation the Board has full authority to fix Contrates after notice and hearing, and it may suspend the operations

of new tariffs for interstate transportation pending a determination of the lawfulness of such tariffs. It is this power which the Board is seeking here for foreign air transportation; that is, the power to fix rates and suspend tariffs. The Board could then take effective action in the foreign field as it may now taken in the domestic field. at the same time, recognition would be given to the differing problems involved in the two types of transportation, and the foreign policy factors involved, by making the new powers discretionary and subjecting their exercise to the approval of the President.

Specifically, the Board would have discretionary authority under

H.R. 6400 to prescribe rates and practices and to suspend tariffs in He foreign air transportation under the same conventional ratemaking

standards that apply to interstate air transportation.

I emphasize that the authority is discretionary, since this confers

flexibility of action in this Government in view of the special con1992 siderations which exist in foreign air transportation.

Similarly, orders of the Board directing an air carrier or foreign - air carrier to discontinue a rate in foreign air transportation or sus

pending a tariff would be subject to the approval of the President.

However, orders relating to the removal of discrimination would not require the President's approval since the act, presently permitting such orders, does not impose such a requirement.

In addition, the bill would place an affirmative duty upon the carriers to establish just and reasonable rates and practices relating to foreign air transportation.

Finally, the existing power of the Board over rates and practices in oversea air transportation would be modified so as to correspond with those which it presently has with respect to interstate air transportation, and which are proposed for foreign air transportation.

At this point, I believe that it would be advisable to point out why the Board considers that the provision in H.R. 6400 requiring Presidential approval is preferable to the provision in S. 1540 requiring that such orders only be reported to the President prior to publication.

The requirement in H.R. 6400 was incorporated therein as the result of a recommendation in the report of the Interagency Steering Committee.

The Committee reached the conclusion that Presidential approval was imperative because of the significant impact that the regulation of rates and practices in foreign air transportation would have upon the relations of the United States with the countries whose carriers would be a ffected.

One of the things that no doubt influenced the Steering Committee in making such a recommendation was the fact that at the present time section 801 of the act requires that the issuance, amendment, or transfer by the Board of a certificate authorizing an air carrier to engage in

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oversea or foreign air transportation, or any permit issuable to an ind foreign air carrier, shall be subject to the approval of the President

, and that giving the Board authority to control rates in international

A air transportation would substantially add to its powers over foreim air carriers.

Obviously, the provision was designed to provide assurance that the additional powers would be exercised in conformity with our interna mit tional obligations and with the overall foreign policy interests of the United States.

the While it is true that such orders are essentially technical er economic in nature, they could have a serious effect on our inter

P national relations as evidenced by the dispute a year ago with the British and other countries regarding the North Atlantic round trip discount fare.

effer I would now like to describe how international rates in air trans portation are fixed and the various intergovernmental agreements

pen governing them, since I believe that a knowledge of these procedures

T and agreements is essential in order fully to understand the effect of the Board's present and proposed powers on international rates

Since 1946, most rates and fares in international air transportation have been determined collectively by carrier representatives at the

31 Traffic Conference of the International Air Transport Association, subject to subsequent approval by the governments concerned, including the United States. Thus, if all of the governments concerned approve the rates a great

T upon at the Conference, they become effective and no problems arise As a practical matter, most airlines have generally known what their governments would approve before they participated in a traffic conference and, over the years, carrier and governmental agreement has usually been reached.

However, in order to take care of the situation where IATA is unable to agree on a rate, or where a rate is agreed upon by IATA but is disapproved by one or more of the governments concerned, or where the carrier concerned is not a member of IATA, most air transportation agreements between the United States and the various countries contain rate articles relating to the rates to be effective in such instances.

is Almost all of the outstanding air transport agreements bet ween the

br United States and foreign countries are of the Bermuda type. The rate article in such agreements provides essentially that disputes between two countries with respect to proposed new rates shall

, if possible, be settled by the governments before the rates go into effet.

If the two governments cannot agree, then the article provides for arbitration of the dispute and a commitment by each country to use its best efforts to implement the arbitration award.

The status of a proposed rate during the period of time required for consultation and arbitration is dealt with in alternative prori

fo sions of the bilateral agreement.

Paragraph (f) of the rate article is in effect during the time that the Board; that is, the CAB, does not have power to suspend and fix rates in foreign air transportation, while paragraph (e) would go into effect if the Board did obtain such power from the Congress The differences between these two paragraphs are of great importance

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deciding on the substance of any legislation Congress should enact this field. At the present time, of course, paragraph (f) is in effect. Pararaph (f) provides that where one country is not satisfied with the ite proposed by the carrier of the other country, the objecting untry can attempt to resolve the difficulty by discussing the problem ith the other country, but if those efforts fail then the objecting juntry "may take such steps as it may consider necessary to prevent je inauguration or continuation of the service in question at the ite complained of." Paragraph (e) of the rate article, which would be applicable in the rent of enactment of legislation such as H.R. 6400, provides that here there is a dispute as to a proposed rate, that rate goes into fect provisionally--that is, pending completion of arbitrationnless the country of the carrier proposing the rate sees fit to susend it. Thus, enactment of H.R. 6400 would terminate the present right of foreign country to suspend the rates of U.S. carriers since such ites would go into effect provisionally pending settlement of the ispute in accordance with the arbitration procedures. Moreover, the Board would have the power, notwithstanding objecons by a foreign country, to suspend and fix new rates of U.S. arriers and to modify existing rates of such carriers which it onsiders uneconomic. The Board would, at the same time, lose the right, which it neoretically has now under the bilateral agreements, to suspend the ates of foreign air carriers, since such rates would go into effect proisionally pending arbitration. I emphasize that the right which ould be lost is a "theoretical” one since the Board now lacks statury power to suspend any rates in foreign air transportation. This osence of power has resulted in a one-way street in which foreign overnments have been able to take unilateral action against our rriers, while we have not been able to do the same with respect to eirs. The Board firmly believes that the advantages of H.R. 6400 greatly tweigh its disadvantages, because the prime need for rate control the protection of the American public from excessive rates charged

the IATA carriers with the assistance of their governments. Carriers accounting for the vast preponderance of international air ffic belong to IATA. These foreign carriers and their governents have, in general, pursued a high rate policy which we believe ses in large measure from a desire to offset the effect of unonomical or prestige routes and possibly from higher costs in many ces. n contrast, the U.S.-flag carriers are the most efficient in the world 1 generally speaking can afford to charge lower rates than their eign competitors. Therefore, the principal need is for legislation ch will permit the lower rates of our carriers to be put into effect. The validity of such an opinion is supported by the dispute of a year with the British and other countries regarding the reduction of the nd trip discount agreed upon by the United States and foreign iers at the IATA Conference held at Chandler, Ariz.

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