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Clearly, the Board must think twice before disapproving an LATA resolution when the consequences of our disapproval are such as throw all power into the hands of other governments while the Board must stand helpless with respect to either the suspending or the fixing of rates.

Furthermore, the IATA mechanism does not always solve the dif ficult problem with which it is set up to grapple. The carriers therlselves may sometimes be unable to reach agreement, and an open-rate situation comes into being.

Or some government may disapprove the rates established by IATA and for this reason an open-rate situation is brought about, the very situation which recently existed on the North Atlantic.

Finally, there are some important operations by carriers who are not participants in IATA. In all of these situations it seems abundantly clear to us that this Government should not be deprived of the tools necessary to take effective action in the fixing of rates.

On balance, therefore, the Board firmly believes that from the vierpoint of the public interest, especially the traveling and shipping putlic, Congress should enact H.R. 6400, and that loss of the right to suspend the rates of the foreign air carriers which are subject to the Bermuda rate provisions will be a small price to pay.

H.R. 1716

H.R. 1716, which is sponsored by the Air Transport Association. would amend the act so as to empower the Board to suspend propose tariff's of air carriers and foreign air carriers relating to foreign air transportation, as well as existing tariffs of foreign air carriers, for a period or periods not exceeding 365 days.

In the case of suspension of a proposed tariff, the tariff, in effect immediately prior to the filing of the new tariff would be maintained.

In the case of suspension of existing tariffs, the foreign air carriers could use the lowest or most advantageous tariff currently in effect for air carriers engaged in the same foreign air transportation.

Certain criteria would have to be taken into consideration by the Board in exercising its suspension power. The Board would also be given the same power to prescribe rates and practices for air carriers in oversea transportation that it now has with respect to interstate air transportation.

It is clear that the ATA bill provides the Board only with the power to suspend rates, and does not give it the power to fix rates of either United States or foreign air carriers engaged in international air transportation.

It is equally clear that the bill does not bring into force the provisions of paragraph (e) of the rate article of the Bermuda-type bilaterals, under which a proposed rate in dispute goes into effect unless the country of the carrier proposing the rate sees fit to suspend.

On the contrary, it leaves in effect the provisions of paragraph (f), under which a country objecting to a proposed rate may take such steps as are necessary to prevent the rate from going into effect. The bill must, therefore, be reviewed in light of this background in determining whether or not it gives the Board the necessary power to protect the American public from unreasonably high rates imposed by foreign air carriers acting through IATA in concert with their governments.

There is only one area in which the ATA bill would be advantageous, and that is in the situation where a foreign carrier files a rate which is uneconomically low.

In such a case the Board would be able to suspend the rate—something it cannot do now, nor could do in the case of carriers subject to E the Bermuda rate provisions if H.R. 6400 is enacted.

As I have previously stated, however, the problem of rate-cutting in international air transportation is now minor, and has been confined primarily to a few non-IATA carriers.

I also indicated that carriers accounting for the vast preponderance of international air traffic belong to IATĂ, and that these foreign carriers and their governments have, in general, pursued a high rate policy. On the other hand, we believe the U.S. carriers are generally the low-cost carriers and the most efficient.

The ATA bill is deficient in a number of respects from the standpoint of giving the Board the necessary power to protect the American public against unreasonably high rates. Its most basic defect is the fact that no power whatsoever would be conferred upon the Board after the expiration of the 365-day suspension period.

Although it is contemplated that settlement of a disputed rate would be negotiated during the suspension period, the inability of the Board to control the rate at the end of the period would tend to weaken this Government's hand in any such negotiations.

Moreover, even where negotiations would not be a factor, i.e., where the Board was dissatisfied with the rate of U.S.-flag carriers, the power to suspend would be futile since the carrier would be able to put the rate into effect at the end of the 365-day period regardless of the Board's wishes.

One of the most glaring inadequacies of the bill is the fact that the right of a foreign country to suspend rates filed by U.S. carriers would not be terminated by its enactment, since paragraph (f) of the Bermuda-type bilaterals would be left in effect.

Let us suppose, for example, that both the U.S. Government and the U.S. carriers desire to put into effect lower fares at the next IATA traffic conference, but that the conference fails to reach agreement on the fares because one or more carriers, under the unanimity rule, veto a fare reduction.

In this case, despite the wishes of our Government and our carriers, the foreign governments would be free, under paragraph (f), to suspend any reduced rates proposed by our carriers following the breakdown of the IATA procedures.

In fact, the Board may be confronted with this precise situation in the transpacific area within the next 6 to 9 months. It is not know to what extent U.S. carriers will advocate lower rates for this area. However, even if they do, they as well as the Board could be prevented from putting such rates into effect because of the opposition of foreign governments.

Moreover, the power to suspend foreign rates would result in minimal advantages or be illusory in most instances. There would appear to be little necessity for suspending unduly high rates of foreign carriers since they would not result in injury to U.S. carriers.

Also, the power to suspend an existing rate of a foreign air carrier could probably be used in very few instances because the foreign air carrier would be entitled to charge "the lowest, or the most advantageous to it, of such rates” as may be currently in effect for air carriers engaged in the same foreign air transportation.

In a great many cases the U.S. carrier would be charging the same rate (due to IATA, competitive forces, or by order of a foreign courtry) as the rate of the foreign air carrier which would be suspended The suspension would, therefore, have no practical effect. Where unduly low rates are filed by carriers of countries not having Bermudatype bilaterals, as is likely to be the case, the Board should not be limited to mere suspension of the rate, but should also be able to pre scribe a correct rate.

Finally, the ATA bill is deficient because it does not give the Board power to regulate the rates of our own carriers. While we can hope that it would rarely be necessary to require our carriers to increase o decrease their rates, such occasions may arise.

Whenever foreign carriers, governments and our own carriers favor high rates, the traveling and shipping public can be protected by the Board only if it has power to regulate the rates of the U.S.-flag carriers.

This would conclude my discussion of the ATA bill except for the fact that ATA contended at the hearings on S. 1540 and no doubt will repeat such contentions here, that only suspension power is necessary because the Board has power under section 402 of the act to insert conditions dealing with rate matters in the permits of foreign air carriers.

The Board is unable to agree that any effective control over the suspension and fixing of rates could be achieved under this section. Section 402 of the act is the licensing provision which requires that a foreign air carrier must obtain a permit from the Board before it may engage in foreign air transportation to and from the United States.

Section 402(e) provides that the Board may attach to a foreign air carrier permit "such reasonable terms, conditions, or limitations as, in its judgment, the public interest may require."

Although section 402 constitutes a broad grant of authority, it does not give the Board the power to regulate the level of the rates of foreign air carriers.

This view is further supported by the fact that the rate and tariff powers which the Board does possess both with respect to foreign and U.S. carriers are spelled out in precise and definite terms in the act.

The Board has full power in interstate air transportation to suspend and determine the level of rates in such transportation, and to cure discrimination in rates or practices. Similar powers are also spelled out precisely with respect to the Board's authority over rates in oversea air transportation, that is, transportation between the United States and its possessions, such as Puerto Rico.

In the field of foreign air transportation, the Board is given the same nower hy section 404 to cure discriminations with respect to foreign air carriers as it has with respect to U.S. air carriers.

Both foreign and domestic carriers are covered equally with resnect to the content, filing, and observance of tariffs; and nrocedures, time limits, and statutory standards are spelled ont in detail. There is not, however, in this long and detailed enumeration of specific powers any grant of nower to suspend or fix the level of rates of either U.S. of foreign air carriers in foreign air transportation.

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In our view, therefore, an attempt by the Board in these circumances to regulate the level of the rates of a foreign air carrier by nditioning its license would represent an attempt indirectly to exerse powers which the Congress intended to withhold from the Board.

Finally, even if the Board agreed with ATA that it had power to cercise some form of rate control under section 402, this power plus e ATA bill would still be unsatisfactory. Under the prevailing sysm of bilateral agreements, paragraph (f) would remain in effect and reign countries would continue to be able to suspend the rates of our rriers.

SUMMARY

In view of the length of my testimony and the complexity of this
coblem, I would like to close with a brief summary:
1. Statutory authority for the regulation of rates in foreign air
ansportation is necessary because of the need for more effective gov-
'nmental influence on rates to protect the needs of the traveler and
e shipper.
2. The Board is virtually powerless at the present time to influence
le level of rates because its indirect power of approval of rate agree-
ents of IATA carriers is ineffective.
3. Legislation cannot provide the perfect solution of all possible
tuations, since no one government can expect to impose its will on
her governments.
4. It is the opinion of the Board, and it has been supported in this
pinion by the Senate in passage of S. 1540, that the prime need for
ite control will continue to be protection of the American public
com high rates by IATA carriers rather than protection of U.S.-
ag carriers from the low rates of foreign competitors.
5. Enactment of H.R. 6400, and the consequent activation of para-
raph (e) of the Bermuda-type bilateral, would provide the greatest
ssurance of obtaining fair and reasonable rates for the public and the
irriers. Foreign governments would be unable to prevent the rates
four carriers from going into effect, and economic forces would pre-
ude the foreign carriers from operating at higher rates.
6. The Board strongly urges, therefore, that favorable consideration
e given to H.R. 6100.
Thank you, Mr. Chairman.
The CHAIRMAX. Thank you, Mr. Boyd.
This is obviously a rather complicated problem and it is somewhat
ifficult to understand in its full import.
We will, however, try to get a picture of the problem as we go along.
I think that we will need further discussion of these proposals and
hat is offered and further explanation of what we are able to do, in
ontrast to what foreign governments are able to do, and further ex-
lanation of IATA and perhaps more discussion on the so-called Ber-
iuda-type agreements which have come into the picture as a result of
ne agreements reached by the International Air Transport Associa.
con in 1917 or 1919.

Mr. Boyd. The Bermuda agreement, I believe was signed in 1916,
Ir. Chairman.
The CHAIRMAX. 1916.
Mr. Boyd. Yes, sir.

The CHAIRMAN. This Bermuda-type agreement is the predominar: program now insofar as international rates are concerned. I belier that is true, isn't it?

Mr. Boyd. Well, the bulk of the bilaterals the United States ha: are of the Bermuda type, and the bulk of the rates under which to carriers operate are set by the International Air Transport Associa tion which was given the blessings of the United States and the Unite Kingdom at the time the Bermuda agreement was signed.

The CHAIRMAN. But these rates which are finally arrived at in thes various IATA conferences from time to time are primarily insofar :we are concerned, subject to the so-called Bermuda-type agreement?

Mr. Boyd. Well, if I understand your question correctly, Mr. Chaizman, the rates as such are not subject to the agreement. The rates ar something separate. What is subject to the agreement is what harpens, after IATA has agreed on rates, if a government disapproves That is where the Bermuda agreement comes in.

The CHAIRMAN. And then when that occurs—well now, there is one section of the Bermuda-type agreement, if they are approved, that comes into play, and if they are disapproved another section come into play, isn't that right?

Mr. Boyd. No, sir.
The CHAIRMAN. What is the difference between (e) and (f)?

Mr. Boyd. The difference between (f) and (e) is what power the Government has where the Government disapproves. Under

The CHAIRMAN. If you get confused, you can imagine how confused we are going to get.

Mr. Boyd. I can explain the difference, I keep forgetting which is which. We are under (f) now, and this paragraph (f)—I would like to read this in full into the record, if I may, Mr. Chairman, be cause this paragraph (f) of the Bermuda-type agreement is baxd on the assumption that the Civil Aeronautics Board of the United States will obtain from the Congress rate legislation.

The CHAIRMAN. Before you do that, let's get a little better picture of the Bermuda agreements.

I am just assuming I don't know anything about it and it is a pretty good assumption, I would think, even though I have had the pleasure of attending one of these conferences in the past, and I think it might be helpful to the members to give a little, first, give a little background of this thing so we will know what we are talking about.

Mr. Boyd. All right, sir.

What we are talking about is an executive agreement entitled “Air Transport Agreement. The Berinuda agreement was an agreement reached on the island of Bermuda by a delegation from the United States and a delegation of the United Kingdom, signed in the early part of 1946, after extensive negotiations throughout 1945, in an effort to establish the future civil air transportation relations between the two countries and hopefully to provide a model for other countries to follow.

The Bermuda agreement was essentially a compromise between two completely different points of view.

The CHAIRMAN. Between these two countries.
Mr. Boyd. Between these two countries.
The CHAIRMAN. Only!

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