Current Economic Developments, lot 70 D 467
Current Economic Developments
[Extract]
Issue No. 441
Review Completed of US Aviation Policy
In accordance with a request from the President of last September, the US Government’s basic policies related to civil aviation have been reviewed in the light of our national objectives. The review, prepared by the Air Coordinating Committee, was delivered to the President April 30 and is expected to provide policy guidance to executive agencies in testimony before the Senate Interstate and Foreign Commerce Committee on Senator McCarran’s redraft of the Civil Aeronautics Act, 1938, in hearings that are scheduled for mid-May.
The new policy statement says that there must be a continuing expansion of our air services and their supporting base to keep pace with our economic growth and our responsibilities as a principal world nation. For this task, the resources and initiative of private enterprise are essential. The goal of federal policies at this time should be directed to the development of economically healthy carriers, capable of financing with private resources their own continuing growth.
The sections of the report of most concern to the Department are those dealing with air transport rights, exports of aircraft and other aeronautical material, movement of US mail on foreign carriers, subsidies, air routes, aviation technical assistance, and relations with the International Civil Aviation Organization. This article deals principally with the international aspects of the policy review.
[Page 429]International Aviation Agreements. The review recognizes the importance of operations abroad of US airlines for our commercial needs, for postal service, and for our national defense. In general, it endorses the policies that we have been following in the international aviation field. It points to the forty-five bilateral aviation agreements which we have with other countries and states that the exchange of air transport rights will continue to be by bilateral agreement until such time as it is possible to achieve a multilateral agreement which contains principles generally in accord with those of existing US bilateral agreements.
The US will continue to adhere to the policy of negotiating for international air rights on the basis of all five freedoms, according to the new policy statement. The five freedoms are: first—right of an aircraft to fly across the territory of a foreign country without landing; second—right of an aircraft to land for non-traffic purposes; third—right to carry traffic from country of nationality of aircraft to another country; fourth—right to carry traffic from a foreign country to country of nationality of the aircraft; fifth— right to carry traffic from point of origin in one foreign country to point of destination in another foreign country. The US has regarded the enjoyment of all these rights as essential to economic operation of international routes, to the fullest development of air transport services, and in the interest of the traveling public. All bilateral air transport agreements negotiated by the US since the latter part of 1944 have been based on the exchange of the five freedoms.
Since the conclusion of the Air Transport Agreement with the UK at Bermuda in February 1946, the US has adhered to the basic principles which were established in that agreement. These include standards for relating capacity to traffic on an ex post facto basis, taking into consideration the public requirements for air transport service, and the requirements of both trunk line operations and local or regional operations. They also include certain provisions, designed as safeguards to the airlines of both contracting parties, such as the declaration that capacity shall bear a close relationship to traffic demands, that the airlines of both countries shall have a fair and equal opportunity to operate the routes for which they are designated, and that the airlines of one country shall take into consideration the interests of the airlines of the other country so as not to affect unduly the other’s services. The policy statement says that in negotiation of agreements for the exchange of international air rights, the US will continue to adhere to the Bermuda principles as the most satisfactory for relating capacity to traffic. In determining the routes to be included in bilateral agreements, the US [Page 430] will continue its objective of establishing, insofar as possible, an equitable exchange of economic benefits.
Essentially, the network of bilateral air transport agreements has now expanded to the point at which world-wide services are possible, and the conclusion of additional agreements will serve to augment and regularize the system rather than to establish the basic requirements necessary to begin operations. Therefore, while new agreements may be concluded from time to time, it is expected that the most outstanding developments will consist in their application and interpretation in relation to operations under them. The US will seek interpretation and application of its agreements in a manner which will accord with the over-all objectives of an effective international air transport system.
The policy also states that the US should seek to arrange long-term rights for use by US civil and military aircraft of foreign bases which have been constructed or improved with US funds.
Fares and Rates. The International Air Transport Association (IATA), an organization consisting of most of the international air carriers of the world, presently serves as the primary instrument for establishing and maintaining the highly complex structure of international fares and rates. The new policy states that full US support should be given to the IATA as the primary instrument for establishing and maintaining sound fare and rate structure for international air services. However, US reliance on IATA should be supplemented by governmental authority, which is currently lacking, to resolve rate problems resulting from the inadequate functioning or the absence of IATA machinery. Therefore, the new policy states that the Civil Aeronautics Board should be empowered by Congress: a) to control the fares, rates, rules, and practices of the US air carriers, applicable to transportation to and from the US, to the same extent as the Board now has power to act with respect to domestic air transportation; and b) to control the fares, rates, rules, and practices of foreign air carriers, applicable to transportation to and from the US, more effectively than is now possible under the Civil Aeronautics Act.
Participation in ICAO. The new policy statement says that the accomplishments to date of the International Civil Aviation Organization (ICAO) have fully demonstrated the need for continuance of cooperative efforts in fostering the development of international civil aviation. Therefore, the US should continue to support ICAO and propose that its future activities be consistent with the following objectives: a) development of additional international standards, recommended practices, procedures, and regional plans for facilities and services, when necessary for safe and efficient international air navigation, emphasizing implementation of standards [Page 431] and regional plans by ICAO members; b) progressive development and implementation of ICAO’s program for the facilitation of international civil aviation; c) collection and distribution of information in the field of air transport economics; d) adoption of conventions on needed international air law; e) administration of joint support projects for international financing of essential international air navigation facilities and services. However, the number and duration of meetings of the ICAO Council and its subordinate bodies and the workload of the organization should be reduced with consequent budgetary economies.
International aviation traffic is such that national regulations and procedures governing entry, transit and exit must be simplified to the maximum extent consistent with national security. The US has worked with other nations in the ICAO to establish uniform standards and recommended practices governing border crossing formalities in order to expedite this traffic. The policy statement reiterates continued US support of this facilitation program.
Safety and efficiency of operations over international air routes require a system of aids to air navigation based on “common system” concepts. The policy states that the US will, to the extent practical, continue to provide in the US and its territories and areas under its control, airports, facilities, and related services required to facilitate international air navigation, in accordance with ICAO standards and recommended practices. The US will stress the obligations of ICAO member nations in this regard and give support to all practical efforts by other nations to provide such facilities and services.
Export and Import of Aircraft and Equipment. The policy points out that it is in the national interest of the US to sell civil aircraft and other aeronautical equipment to purchasers in friendly foreign countries. If the manufacture and supply of aircraft become critical because of a shortage of materials necessitating the use of a priority system, civil purchasers of aircraft and parts in friendly foreign countries should receive substantially equal treatment to that accorded US civil purchasers. Likewise, the export sale of available military aircraft and related equipment to friendly nations is desirable and to be encouraged as much as possible, consistent with military requirements and international policy. Each application by a manufacturer to release his military aircraft products for sale abroad must be considered on its merits and in the light of the article’s importance to national security. To encourage and facilitate the sale of aircraft and related equipment abroad, the Eximbank, in appropriate cases and where necessary, should continue to make loans and to guarantee loans made by others for the purpose of financing such sales.
[Page 432]The policy also points out that the US favors the development of international trade and proposes to keep its market open to competitive foreign aircraft and equipment which meet US levels of safety as a valuable and necessary corollary to a healthy, expanding market for US aeronautical equipment abroad. To accomplish this objective it is believed that the following measures should be taken to permit readier access by foreign manufacturers to the US market for this equipment: a) expansion of the program of patent arrangements and exchange of licenses between US and foreign manufacturers; b) agreements for mutual recognition for import and export purposes of airworthiness certificates for aeronautical equipment; c) elimination or reduction to a minimum of tariff rates and avoidance of unnecessarily burdensome taxation and regulations on foreign-manufactured aviation equipment.
Subsidies and Routes. The policy recommends termination of subsidies to the aviation transport industry in an orderly manner and the merging of trunk lines into fewer systems, thereby eliminating uneconomic operations. It recognizes, however, that in some cases it may be necessary to continue subsidy for an indefinite period to preserve a service which is essential in the national interest and which cannot be provided feasibly on a non-subsidized basis. Thus, foreign competition and other special factors will probably prolong the period during which subsidy will be required for international air transport operations. These cases must be very carefully considered, however, not only to determine whether the service itself is sufficiently essential to justify federal support, but also to determine whether the service can be rendered by other US carriers with less or no subsidy.
Because of the distances involved and lack of adequate high speed surface transportation, US territories are dependent upon air transportation for rapid communication, but in many instances are unable to generate sufficient traffic to support self-sufficient air transport operations. Under these circumstances, too, uneconomic duplication in services must be avoided or eliminated.
National interest factors require that many international routes be maintained, despite subsidy requirements. The policy review points out that in large part, the present international route pattern was established at a time when there was relatively little experience with the economic characteristics of international air service. At that time it was not generally expected that foreign flag operations would provide the degree of competition which has actually developed. It was therefore thought necessary to certificate competitive US flag operations for the purpose of assuring adequate attention to the needs of the traveling public, and development of efficient and economical service. Actual financial experience [Page 433] of international operations has proved to be considerably less favorable than was originally anticipated. In all areas, competition has greatly increased and on some routes traffic has not developed sufficiently to support economical frequency or load factors. As a general policy, it is desirable in the public interest that competition between US flag carriers be maintained in areas where traffic is sufficiently dense so that competition can be economically supported. However, where such is not the case, it is difficult to justify subsidy expenditures in terms of the public benefits to be derived. Under the present pattern of US flag international operations, no general improvement in the dependence on subsidy support is anticipated in the foreseeable future. In view of this fact, and the continuing increase in the effectiveness of foreign competition, the policy states that it is necessary at this time and continuously to review most critically the justification for maintaining the present pattern of competition between US carriers on international routes. Route decisions in this area should recognize the necessity of avoiding or eliminating uneconomic duplication of service between US carriers.
Aviation Mobilization Planning. The policy paper recognizes the importance of mobilization planning on a continuing basis and in sufficient detail to achieve a high level of readiness so that available civil airlift capacity will be ready to augment military air transport and support the war program immediately should there be an outbreak of war. It also states that international mobilization planning is desirable to establish coordinated principles and policies which could be applied uniformly insofar as possible by allied states to their wartime civil air transport operations in order to enhance their effectiveness in a mutual war effort and to assure orderly resumption of normal commercial operations in accordance with prewar commercial rights.
Other Items. The policy endorses the principle that US mail will be transmitted internationally on the most convenient and expeditious schedules utilizing the services of foreign as well as US air carriers.
The US currently extends technical and economic cooperation to friendly nations for the improvement of safety and efficiency in civil air operations. We do this directly through the executive agencies and indirectly through participation in the aviation technical assistance programs of the UN, administered by ICAO. Within the limits of funds available and consistent with our international interests, the policy statement declares, the US shall continue such assistance with full coordination between the programs conducted by the US and those conducted by ICAO.
[Page 434]The policy statement also says that the US should continue to provide the aeronautical communication services for international aviation operations within areas under US jurisdiction, where as a contracting state of ICAO it has accepted such responsibilities, and that this shall be on the same basis for foreign aircraft as for US craft. Likewise, it is to seek to assure, principally through the ICAO machinery, that our civil aircraft are provided aeronautical services on the same basis as are provided for foreign aircraft by the US.
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