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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 rates 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 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 considerations 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 suspending 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 any foreign air carrier, shall be subject to the approval of the President. and that giving the Board authority to control rates in international air transportation would substantially add to its powers over foreign air carriers.

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

While it is true that such orders are essentially technical or economic in nature, they could have a serious effect on our international relations as evidenced by the dispute a year ago with the British and other countries regarding the North Atlantic round trip discount fare.

I would now like to describe how international rates in air transportation are fixed and the various intergovernmental agreements governing them, since I believe that a knowledge of these procedures 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 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 agreed 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.

Almost all of the outstanding air transport agreements bet ween the 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 effect.

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 prorisions 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

deciding on the substance of any legislation Congress should enact this field. At the present time, of course, paragraph (f) is in effect. Paraaph (f) provides that where one country is not satisfied with the te 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 le 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 statupry power to suspend any rates in foreign air transportation. This bsence of power has resulted in a one-way street in which foreign overnments have been able to take unilateral action against our arriers, while we have not been able to do the same with respect to heirs.

The Board firmly believes that the advantages of H.R. 6400 greatly utweigh its disadvantages, because the prime need for rate control s the protection of the American public from excessive rates charged y the IATA carriers with the assistance of their governments.

Carriers accounting for the vast preponderance of international air raffic belong to IATA. These foreign carriers and their governnents have, in general, pursued a high rate policy which we believe irises in large measure from a desire to offset the effect of unconomical or prestige routes and possibly from higher costs in many

In contrast, the U.S.-flag carriers are the most efficient in the world ind generally speaking can afford to charge lower rates than their foreign competitors. Therefore, the principal need is for legislation which 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 go with the British and other countries regarding the reduction of the Cound trip discount agreed upon by the United States and foreign arriers at the IATA Conference held at Chandler, Ariz.

ases.

As your committee knows, despite the Board's disapproval of the reduction of the round trip discount, the governments of several European countries insisted that the increased fares be placed in efiect by United States and other carriers.

If provisions similar to those in H.R. 6400 had been in effect, and if as a consequence paragraph (e) of the rate article had been op erative, the Board would have had the power to require the U.S.-flag carriers to charge the lower pre-Chandler fares and the foreign governments would have been unable unilaterally to prevent them from doing so.

The sole recourse of the foreign countries under these circumstances would be the consultation and arbitration provisions of the bilaterals. Moreover, for competitive reasons the foreign air carriers would have been compelled to follow suit and charge the lower fares charged by the U.S. carriers. Thus, the rate authority would have operated for the protection of the American traveling public, and I might add parenthetically, for the entire traveling public.

Although our objective of lower rates in the North Atlantic has in a large measure been realized for the current season, this does not mean that the legislation is not needed or that we will be equally successful the next time.

To say that "it was not easy to do” is probably the understatement of the year-in fact a major crisis occurred and a lot of hard work and cooperation by governments and carriers were necessary.

Fortunately, we already know that traffic across the North Atlantic has been up sharply since the new fares became effective on April 1, and we are confident that the lower fares are at least partially responsible.

As I have pointed out, the United States would lose the theoretical right to suspend the rates of foreign air carriers if H.R. 6400 is adopted and the provisions of paragraph (e) come into effect.

In our judgment, however, the loss is relatively unimportant. The power to suspend is of value primarily in cases where a foreign carrier proposes a rate which is uneconomically low, because in the absence of the power to suspend the rate our carriers must meet it or suffer severe diversion.

While this may have been a major problem a few years ago the threat of cutrate competition appears to have diminished.

Moreover, it is important to note that rate cutting has been confined primarily to a few non-IATA carriers, and that the governments of most of these carriers either do not have bilateral agreements with the United States, or have agreements which do not contain provisions similar to those of paragraph (e). Thus in these cases there is no paragraph (e) prohibiting suspensions, and the Board could suspend and fix rates of such carriers, whether they are too high or too low.

In addition, if it develops, after experience under the legislation, that the provisions of paragraph (e) do not sufficiently protect the overall public interest of the United States, the agreements containing the provisions of paragraph (e) could be renegotiated.

One objection which has been advanced against giving the Board rate control authority is that it would deprive U.S. carriers of the flexibility necessary to participate in IATA rate conferences, and that the IATA procedures for establishing a fair and sound rate structure for international air services would be impaired.

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The Board does not believe that this is a sound objection. From a long experience in rate and other international matters, the Board is * fully aware of the problem of negotiating flexibility, and has no in

tention of using its rate power in a manner inconsistent with the bate continuance of IATA as the basic mechanism for determinig iniernadar tional rates and fares in the first instance. or For a number of years the Board has followed the practice of conesulting with our carriers prior to IATA conferences and advising them to ne of the Board's views concerning changes in the IATA rate structure.

In establishing these guidelines the Board has been aware of the need to permit negotiating flexibility on the part of our carriers, and

this would obviously continue to be necessary if rate legislation is 1* adopted. Indeed, enactment of H.R. 6400 would probably improve

the negotiating position of our carriers, since it would be backed by !greater power in the Board.

It has also been urged that if the United States were given unilateral power to fix rates, this could lead to widespread adoption of the same practice by other countries, to frozen rates, and to loss of negotiating flexibility on the part of all carriers participating in the IATĂ conference.

The short answer to this is, of course, that virtually all other countries do have authority to fix the rates of their and our carriers, and will use that power when they deem it necessary, as the recent controversy with the British and other countries regarding the Chandler fares demonstrated.

This authority is derived from many sources other than direct statutory rate authority, such as decrees, regulations, direct power derived from the air sovereignty of the country according to the constitutional structure of that government, and provisions in bilateral agreements which have the effect of law without implementing legislation.

A further contention has been made that the fixing of international rates is a multilateral problem, that no one government can expect to impose its will on other governments, that even two governments bilaterally cannot solve a multilateral rate problem effectively and successfully, and that the problem can best be handled by the carriers through the IATA machinery.

We can largely agree with this point. One need become only generally familiar with the complexity of international rates to appreciate the tremendous difficulty of reconciling different viewpoints, and the need for an organization such as IATA.

Indeed, the international air transport policy study recently released recognizes this quite clearly when it states that this multilateral mechanism (IATA), though it has some drawbacks, seems to be the most practical one we can achieve, and it should be maintained."

The fact is, however, that legislation is needed in addition to and as a supplement to the IATA machinery. The knowledge by the IATA carriers that the Board lacks effective power to back up its positions with regulatory action obviously diminishes the Board's influence over IATA actions.

Thus, power to suspend and fix rates would be a powerful force for reasonable rates even if that power were never exercised.

Morever, this lack of effective power in the Board becomes an important factor which inhibits and restricts our final action upon IATA resolutions after the carriers have reached agreement.

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