For instance, under section 402, the Board issues permits to foreign air carriers to engage in air transportation, and, as Senator Magnuson, the chairman of this committee, stated in the Senate

There is no question in my mind that the Board has the power and indeed the duty to condition foreign air carrier permits so as to prevent foreign carriers from operating to and from points within the United States at rates which the Board determines as being adverse to the public interest.

I took the liberty of interrupting and bringing that to the attention of Chairman Boyd because, if I did have to go to the floor, I wanted to make sure he would cover that point.

The CHAIRMAN. Thank you.

Any other members of the committee?

Witnesses today will be the Chairman of the Civil Aeronautics Board, Mr. Boyd, accompanied by his General Counsel and other members of his staff; Abram Chayes, Legal Adviser to the State Department, accompanied by Edward Bolster, in the Office of Transport and Communications; and then we have the two international airlines involved, namely, Pan American and Trans World Airlines, John Leslie, administrative vice president of Pan American, and Thomas Taylor, vice president of Trans World Airlines. We will try to hear all these witnesses.

All right, Mr. Boyd.

STATEMENT OF ALAN S. BOYD, CHAIRMAN, CIVIL AERONAUTICS BOARD; ACCOMPANIED BY JOHN H. WANNER, GENERAL COUNSEL; IRVING ROTH, DIRECTOR, BUREAU OF ECONOMIC REGULATION; AND JOSEPH C. WATSON, DIRECTOR, BUREAU OF INTERNATIONAL AFFAIRS

Mr. BOYD. Thank you, Mr. Chairman and members of the committee. We do appreciate very much your immediate and direct interest in this matter. I was most appreciative of your offer to hear any suggestions, and the major suggestion the Board can make is that we obtain the rate legislation which we have sought and for which we believe the need has been very clearly spelled out in the recent past.

If I could allude for just a moment to the rate legislation, I would point to the situation in Canada today. The air carriers operating between Canada and Europe are operating at the old fares, and they are doing so because Canada has rate legislation and because the Canadian bilateral has a somewhat different article than the one the United States is presently operating under with the European countries.

When we obtain rate legislation, we believe we will be in a situation similar to that of Canada. I point out also that the European countries have acknowledged, I am advised, that they have no right to take any action at the present time on the rates between Canada and the European countries. I notice both Senator Cotton and the chairman referred to the Board's authority under section 402. And if I might state the question, and then give you the information I have on that. Can the Board condition foreign air carrier permits, so as to prevent foreign carriers from operating to and from the United States

at rates which the Board determines to be adverse to the public interest? My answer is as follows:

The Board unquestionably has very broad power to place conditions in the permits of foreign air carriers. It can do so under section 402 (e) of the act, which authorizes the Board to attach to the permit such reasonable terms, conditions, or limitations as in the judgment the public interest may require.

However, this is not an unlimited power. In our judgment it does not give the Board power by conditions in the permit to exercise control over the level of rates in foreign air transportation in a situation where Congress has carefully and clearly written the rate provisions of the act in a manner which withholds such rate power from the Board.

Although the Board cannot fix foreign air carrier rates in terms of determining the appropriate rate level based on conventional rate standards, as I have just mentioned, the Board does believe it may impose conditions designed to preclude operations at rates inimical to the interests of the United States.

The fact that the rates may not be fixed as such does not mean that all matters concerning rates are beyond the Board's reach. The term "public interest" is a broad one and embraces legitimate regulatory considerations and the same "public interest" considerations which are relevant in determining whether to grant, deny, or terminate a foreign air carrier permit are also relevant to the question of conditions to be imposed in such a permit.

For example, if operations were being conducted by a foreign carrier at rate levels so low as to constitute destructive competition, we could impose conditions to prevent or cure that situation. That result is supported, we think, by the terms of the statute and its purpose and also by commonsense and existing case law.

The Board is not fixing rates in such circumstances, but rather is using its licensing power to prohibit operations which are not in the public interest, because conducted at the destructive rate level. The Board could take similar action in other circumstances with respect to conditions affecting but not directly regulating rates.

Just how far we could go depends on the facts and circumstances of the case. I should say we are here talking about an area where there is no precedent that we know of and as I have related to you, we don't feel in this particular situation, where we are talking about 5 percent roughly that we could say that the rate is so far out of line as to be inimical to the public interest.

I realize there are gradations and degrees and matters of judgment, but we think as a legal proposition it would be very difficult for us to make a finding that would be required to go to the extent of amending the foreign air carrier permits based on this 5-percent differential.

The CHAIRMAN. Would you prefer us to ask questions as you go along, or do you prefer to finish your statement?

Mr. BOYD. If I might, I would like to give you gentlemen the background.

The CHAIRMAN. All right. We will recess subject to the call of the bell. We have a rollcall now.

(Whereupon, a recess was taken.)

The CHAIRMAN. I think we can proceed here. The other members will be back shortly. You can proceed, Mr. Chairman, with your

statement.

Senator MONRONEY. Talking about the public interest, you said section 402 would not apply unless there was a great adverse public interest. It is my understanding that the CAB, some two times, perhaps three times, had rejected the 52-percent increase, because it was against the public interest. Now, what is catastrophic, what is the increase? In other words, this is the breakdown, I think, of whether we will have anything to say about the rates that will be charged for the great volume of traffic that flows across the North Atlantic.

Now, if you held that the fare increase is against the public interest, how can it suddenly become a minor thing adverse to the public interest, such as the breakdown of yesterday would indicate?

Mr. BOYD. Well, Senator Monroney, I would-I don't want to bandy words, but I think our finding was that the 5-percent increase was not in the public interest, rather than making a finding that the 5-percent increase was detrimental to the public interest.

Now, I don't know how much difference is involved here, very frankly. But this was our finding, as I recall it, that it was not in the public interest. Now as our lawyers

The CHAIRMAN. Could I interrupt? The statement you read on the interpretation of section 402, is that a recent interpretation from your legal staff?

Mr. BOYD. Yes, sir; I got this at noon today.

The CHAIRMAN. Thank you.

Mr. BOYD. And that is what our lawyers tell me is their view of the law, that while clearly we are dealing with a matter of degree, it must be a matter of great rather than lesser degree for us to utilize the public interest aspects of section 402(e), to amend a certificate. Now, I would like to point out-you say if we can't do this, we will have no say-so over the fares, on the North Atlantic, which are the bulk of the fares the U.S. citizens pay.

The fact is that if we get the rate legislation, what we are talking about here today is going to be academic, because it won't be a question of section 402, it will be a question of the rate legislation and the rate articles of the bilateral. So we will be on an altogether different ground with the rate legislation.

The CHAIRMAN. Well, you will be on firmer ground with the rate legislation, but that doesn't mean to say that there might be some disagreement as to whether or not you could have, in this particular case, used 402 as it now stands?

Mr. BOYD. Well, I can only give you our best judgment on this, Senator, and I would like to tell you that to give you exactly our construction of where we are today with the rate legislation.

The CHAIRMAN. All right.

Mr. BOYD. With the rate situation, under the bilateral, as it is today. Prior to the time it has rate legislation, which is now, CAB lacks power under the statute to fix international rates. In the event consultations over a disputed rate do not result in agreement, the party objecting to the rate may take such steps as it thinks necessary to prevent the inauguration or continuation of the service at the rate

complained of. This disagreement may be made the subject of arbitration.

We had not sought arbitration, because it seemed to us that there are other ways we can get at this problem before any arbitration result could be effective and the higher rate in this case goes into effect. The CHAIRMAN. You mean while the arbitration is going on? Mr. BOYD. Even while they arbitrate. So we felt this was a wasted effort, because we have one arbitration going on now that was started last September, and it hasn't come to a head yet. So we certainly expect to have a resolution of the fares across the North Atlantic

The CHAIRMAN. This is a lot like the judge rendering a verdict and the defendant arguing about it after it is rendered.

Mr. BOYD. Yes, sir; that is exactly what we are faced with here. The CHAIRMAN. He talks to himself, conducts his own appeal, and answers his own questions.

Mr. BOYD. This is a provision of our bilateral that was put in there in 1946, at which time we and the British felt the Board would have rate legislation very shortly thereafter. Now, should we get legislation, then if one party to the bilateral is dissatisfied with a proposed rate, it notifies the other party, and there is a consultation to try to reach an agreement.

If an agreement is not reached, the proposed rate may go into effect unless the country proposing the rate sees fit to suspend it. Of course, in this case we would be the ones seeking the lower rate, and we wouldn't seek to suspend it. If it does not see fit to suspend the rate, the proposed rate becomes effective pending submission of the question to arbitration.

So, you have the exact reverse. If we have rate legislation, the rate we want goes into effect, until the arbitration is resolved. Without rate legislation, the rate the other fellow wants goes into effect until arbitration.

Senator CANNON. Mr. Chairman.

The CHAIRMAN. Senator Cannon.

Senator CANNON. Are you saying then if you get the legislation, that despite the agreement that is in effect now, you could propose a lower rate and that rate would then go into effect immediately, even though someone else may ask for arbitration?

Mr. BOYD. That is right, sir. That is already in our bilateral, on an alternative basis. The bilateral was drafted and signed in 1946. The Board, not having rate legislation, two provisions were put in, one to be effective until the Board got rate legislation, the other to be effective after the Board got rate legislation.

So, it is already there, and it is a part of the agreement and other countries would have to comply with this unless they wanted to violate the bilateral.

Senator CANNON. Actually under section 402, couldn't you have made a determination in this case that this was not in the public interest and taken action there? Who would have been able to complain? When you take some action on behalf of the public, it seems to me you don't find many complainants, if the public is benefiting by it.

Mr. BOYD. Well, I think that is true; however, that gets into a question, I believe, of whether we act under right or under power. Certainly we have more power than we do rights, I believe.

I can only tell you that it is our legal counsel's opinion that for the amount involved we could not exercise section 402, and I can only say that I am constrained to accept the opinion of our general counsel. Now, there is another real problem that is involved here, and that is that we talk about a 5-percent fare increase. There is not really a 5-percent fare increase as I understand it. There are a number of different rates or fares which result in an average 5-percent fare increase, so we obviously, I believe, with the foreign carriers fighting this process-which would have to be a public hearing process-have to go through these fares and make a determination. Is New YorkCopenhagen a 5 percent, 4 percent, 3 percent; and if it is 3 percent, is that sufficient to bring 402 into play?

What standards do we use to say that 5 percent is so unreasonable that 402 would come into play? I think there is no question but what we have the power to hold a hearing and to come out with some sort of an order. Now, whether it would be legal, I don't know. I can only say again our counsel doesn't think it would be under these circumstances.

The CHAIRMAN. Why didn't the Board do some of these things to sort of hold the line, as it were, until you could come up here with this kind of legislation, since you say there is no question in anyone's mind of your power and authority to do so.

Mr. BOYD. The only answer I can give you to that, Mr. Chairman, is that up until

The CHAIRMAN. Sort of call time out, you know, blow the whistle. Mr. BOYD. Up until Monday afternoon our judgment was that the European solid front was going to fall apart. I think you could say we weren't very smart, we didn't evaluate things well, and this might well be true. However, we had a number of indications from various foreign countries that they would fall by the wayside when the situation got critical. The fact of the matter is they did not fall by the wayside, and we were faced with a situation that made it very clear that our carriers would be in a situation where if they continued operating at the old rates, they would be violating the laws and regulations of various foreign countries, who have amended their permits, which they are able to do without any hearing or any procedural action at all, as we understand procedural action.

It is a matter of writing out a slip of paper and somebody in authority signing it. So our carriers were faced with the problem of being guilty of violating the law which subjects them in various countries to penal sanctions as well as to confiscation of their aircraft.

Unfortunately the countries that we had evaluated as folding didn't fold. Now, why they didn't, I don't know.

The CHAIRMAN. As a matter of fact, the reason that the Board, as I understand it, didn't make haste on this matter, to say that legislation is needed, was that up until the end of last week, you didn't think that this was going to happen, what has happened over the weekend?

Mr. BOYD. That is right, sir. I think I can say that we did not have any definite indication that sanctions would actually be imposed against our carriers.

The CHAIRMAN. Otherwise, you would have been up here much earlier. Now, why didn't the Board, knowing that this was a possi