175. Current Economic Developments1
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Results of Government-Industry Aviation Talks
The government-industry conference on problems of international relations in the civil aviation field, held in the Department November 14–16, was very worthwhile from the Department’s view-point. Apparently industry representatives also regarded the meetings as successful as the consensus was that consideration should be given to calling similar meetings at appropriate times in the future. The meeting furnished an opportunity for a frank exchange of views on the problems that exist in this field. Department representatives stressed that the US cannot deal with aviation in a compartment but that it is a part of our economic and political relations with other countries and that a policy of restrictionism in the aviation field would be inconsistent with our policy in the whole trade field:
No policy decisions were reached in the meeting, nor were any expected because of the exploratory nature of the discussions. The problems were dealt with in an objective manner and discussions were conducted in a friendly spirit of cooperation for the national interest. Views expressed by the participants will be taken into careful consideration in development and application of US policy in the conduct of air transport relations with other countries.
While no policy decisions were reached, an examination of some of the major difficulties the US faces with other countries in international aviation matters resulted in a change of atmosphere on some points which should, the Department believes, be helpful in future negotiations.[Page 473]
One of the most important areas in which progress was made concerns the US position toward fifth freedom carriage, which is the right of airlines to carry traffic to and from third countries on international trunk routes. In past negotiations the instructions of the US delegation have precluded any compromise on this matter. This is a major bone of contention between the US and other countries, which feel they cannot give their airlines enough protection if our lines have unlimited fifth freedom rights. They are also dissatisfied with the US interpretation of Bermuda principles in that regard. As a result, the US has had to sacrifice some of its third and fourth freedom rights (to fly to and from another country) in order to preserve its position against any concession on fifth freedom. This was particularly true in the case of the air agreement with India. (See page 1, February 7, 1956 issue.2) Our airlines are beginning to realize that this is a pretty stiff price to pay for fifth freedom and it appears likely that in the future, where conditions warrant, they may be willing to agree to some negotiating leeway on fifth freedom rights. A degree of flexibility on fifth freedom should assist the US in protecting its major concern—a strong international network of US airlines based on third and fourth freedom traffic.
Another important subject which was discussed concerned American airlines having a majority or minority interest in the airlines of other countries. The CAB has discouraged this in the past, largely because of the influence the US airline would have when aviation negotiations take place between the two countries. However, with the advent of Russian aviation penetration of underdeveloped countries, the Department is anxious that American companies establish themselves in these areas to forestall Soviet efforts to provide aviation assistance. Almost the entire group at the meeting felt that a way must be found to eliminate red tape and expedite CAB hearing processes so that American companies can get into an area quickly where it would be in US national interest to do so. There was not such general agreement when the factor is investment by a friendly European country rather than by a Soviet bloc country. While there are some political considerations in those instances, the problem is largely economic. When European domination exists in the airline of a third country—often a Western Hemisphere country—the Department pointed out that the US gets into difficulty with the European country when it refuses to grant a route or some other aviation request of the third country. Then, too, third countries orient themselves toward the international trunk lines of the European countries rather than to those of the US and also orient themselves toward the European country equipmentwise.[Page 474]
The Department also pointed up the problem it faces in the timing of aviation negotiations with other countries as related to the public hearing procedures of the CAB. The CAB first holds hearings and reaches decisions on where the US wants to fly. Then it has hearings on which company should be certificated. During this long period of public hearings, the other countries find out where the US wants routes and how much its lines estimate they will realize through this service. The result is that the US has no bargaining power when it starts to negotiate. This procedure is particularly stultifying when one of the new nations that are coming into being wants to have an aviation agreement with the US. As a result, other countries are often able to negotiate aviation agreements with the new country before the US does. The Department urged that whenever such cases occur, the US should negotiate an air agreement as quickly as possible and that it could be put in “deep freeze” until some time later when the CAB is in a position to issue permits to the airlines. There was general agreement at the meeting with the Department’s position in this regard.
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