ritories and permit air lines of their respective nationalities to operate services over such routes. An example of this rule is to be found in paragraph 3 of the Air Navigation Arrangement between the United States of America and Great Britain (Executive Agreement Series, No. 76), which provides: "Subject to the provisions of this note, United States aircraft will, in time of peace, be allowed liberty of passage to and over the territories to which this note applies: Provided, however, That no regular air route or service may be established or operated to, within, or over any such territory, with or without a landing there, except by prior consent of His Majesty's Government in the United Kingdom." From experience already accumulated it is deemed desirable in the furtherance of national policy that the element of routes in our foreign air commerce, as well as the services over the routes, especially when such routes enter or traverse United States territory, should be left in the control of the Government. If this is done, it is believed that a repetition of the condition now existing in our merchant marine will be prevented from arising in our foreign air commerce. From the record, it appears that at the present time only about 35 percent of American goods in foreign commerce is carried in American bottoms. Of interest in the same connection is the fact that 70 percent, or more, of the passengers crossing the Atlantic Ocean by steamer in Americanflag and foreign-flag vessels are United States nationals.

It is, therefore, urged that the proviso contained in section 305 (e) be omitted and that there also be omitted from the same section another proviso contained in it. The last-mentioned provides that:

"No term, condition, or limitation of a certificate shall restrict compliance by a carrier engaged in foreign transportation with any treaty, agreement, or convention between the United States and a foreign country, or with any fran chise, obligation, right, privilege, duty, or liability granted or imposed by any foreign country, in respect of transportation outside of the United States."

This clause is objectionable unless it be amended so as to provide that the Government of the United States should not be so bound by any franchise, obligation, right, privilege, duty, or liability granted or imposed by any foreign country which had been entered into by private American person, or company, with such foreign country, unless this Government saw fit to agree to the terms of such franchise, obligation, right, privilege, duty, or liability.

As a sample of the mischief that could be wrought under such proviso, there is cited an agreement which has recently come to the attention of the Department of Commerce. It was entered into by an American air-line company and a foreign country and provides that if the American company was to be permitted to establish an air route and service in the territory of the foreign country, the United States Government would have to permit an air line of the foreign country, or an air line approved by it, to establish a reciprocal route and service into the territory of the United States. One of the articles of this agreement provides that all contracts of carriage, whether of passengers, mail, or other cargo by aircraft used in conducting the certain service, shall be deemed (wherever entered into) to be made under, and shall in all respects be subject to and conform with the law of the foreign country. Casual study of this article shows it to mean that even though an American national purchased a ticket in the United States on an aircraft of United States registry to travel to the foreign country and suffered injury en route, the American national, in seeking redress, would be subject to the laws of the foreign country. The hardship that might be worked by this provision to one of our own citizens traveling under such circumstances should be guarded against by governmental negotiation.

These propositions suggest that, in keeping with international policy and practice, all arrangements relating to the establishment of air routes and services in foreign commerce between the United States and a foreign country, where such country demands, or it is to be expected will demand, a reciprocal service by one of its air lines into the United States, should be arrived at between the Governments of the United States and the other country if the interests of the public, the Government, and the aviation industry as a whole are to be properly advanced and regulated.

Section 305 (k), providing that, "If any person applying for a certificate for foreign air transportation, holds a contract, license, permit, concession, or franchise, which was in effect at the dates of the passage of this part, permitting such transportation, the Commission shall give preference to such holder over any other applicant if such holds is fit, willing, and able properly to perform such transportation", like the preceding provisions discussed, is

presumably designed to freeze the field. It is very probable that such contracts, licenses, permits, concessions, or franchises, as are referred to in the provision, and as relate to most of the desirable air routes of the world, are already held by a few individuals or groups.

The requirements of the bill respecting certificates of convenience and necessity cause this Department no little concern. It is appreciated that the matter

is one of policy and consequently is for the Congress to determine. In deliberating upon this aspect of the bill, however, it is suggested that the following be taken into consideration:

Our air-transport industry is still in a formative state with a history of about 7 years; the airways map is still devoid of feeder lines; and, in the opinion of informed persons, there is not yet enough competition to promote the potential traffic. This country is not sufficiently provided with air-line routes as it is with rail or motor routes. The domestic routing of air lines at this time is about 30,000 miles. The total express and freight carried by our air lines in 1936 (estimated for all services, foreign and domestic) was about 3,800 tons; the total mail carried was about 8,000 tons; and the number of passengers carried was about a million and a quarter. These traffic figures are significant on the question of the necessity for such requirements now.

Another matter of policy which raises a query, disquieting from the standpoint of public interest, includes those phases of the bill whereby the provisions of the Air Mail Act of 1934, as amended, regarding consolidation, merger, and acquisition of control, are materially relaxed or entirely omitted.

The following structural features of H. R. 5234 should be given careful consideration before any final action is taken on the proposed legislation:

Paragraph (b) of section 302 would serve to place very broad regulatory powers in the hands of the Interstate Commerce Commission. If the intent is only to place jurisdiction of the purely economic phases of air carriage in the hands of such tribunal, leaving all control of safety matters to the Secretary of Commerce, such intent should be made clear of possible ambiguity.

Paragraph (1) of section 303 does not indicate the status of the Philippines under the proposed legislation. This matter should be clarified.

Paragraph (a) of section 305 would appear to require a certificate of convenience and necessity for nonscheduled air carriers quite as well as scheduled air lines. It is believed that, at the present time, there is no real need for any such regulatory provision and that a more careful differentiation should be made with respect to the regulatory features applicable to each kind of aircarrier service. Attention should be given to the provisions of the Motor Carrier Act of 1935, wherein a clear distinction is drawn between the various carrier services.

Paragraph (g) of section 305 definitely requires all air carriers, holding or operating under a certificate of convenience and necessity, to undertake, when authorized and required by the Postmaster General, to transport the mails. The bill extends to nonscheduled, or charter carriers, as they are known in the trade, as well as to the scheduled line carriers. The nonscheduled air carrier business in the United States today is still in the formative stage. Should the provision of section 305 (g), therefore, extend to all air carriers, including nonscheduled carriers? This provision would seem to be open to serious question. If any restriction is intended, it is believed that the restriction should be set forth.

Paragraph (j) of section 305 provides for revocation of a certificate only after a showing of willful failure, on the part of the holder, to comply with its terms. The inclusion of the "willful" element would clearly serve to place an undue burden on the Government; in fact, a burden so great as to rather completely emasculate the power of revocation.

Paragraph (a) of section 316 contains similar (knowingly and willfully) and the comments immediately above are believed applicable.

Paragraph (d) of section 303 requires only a holding of 51 percent of the voting interest for air-carrier operations. While such a percentage is required under the provisions of the Air Commerce Act for purposes of determining the nationality of owners of aircraft, it is at least open to question whether such a percentage should suffice for air-carrier operations receiving economic protection from a Federal agency. It is believed that serious consideration should be given to the water-carrier precedent of requiring at least a 75-percent ownership, on the part of our nationals, before engaging in certain kinds of commercial enterprise. The features differentiating stock ownership from stock control

have been so clearly pointed out by the Securities and Exchange Commission and leading writers on corporation finance that this matter should be given careful thought.

Cordially yours,

J. M. JOHNSON, Assistant Secretary of Commerce.

Mr. MULLIGAN. H. R. 5234, in conjunction with H. R. 4652, the Crosser bill, would, in addition to other purposes, transfer the present jurisdiction of the Department of Commerce over air lines to the Interstate Commerce Commission. The Department takes cognizance of the fact that the primary intention of H. R. 5234, the Lea bill, is to vest in the Interstate Commerce Commission the economic regulation of the transportation of property and passengers by air carriers in interstate, overseas, and foreign commerce.

May I digress for a moment from my statement to say that in the field of economic regulation the Department of Commerce, under existing law, has little authority, so that its concern with this particular piece of legislation is not especially great; but it would like to make several comments in connection with certain provisions of the bill that may enable the committee to draft a better one; so that in the event the proposed legislation is enacted, or the plan contemplated in the bill giving increased authority to the Interstate Commerce Commission is to be effected, the Commission under the perfected bill would be able to perform more simply and efficiently the service devolving upon it than it could under the current draft of the bill.

The CHAIRMAN. We will be glad to have you suggest any amendments that you might think proper to the bill.

Mr. MULLIGAN. At the moment I cannot submit the specific language, Mr. Chairman. My purpose here is simply to point out and perhaps, after further consideration, make suggestions which, when compared with your own, will result in an improved bill.

The CHAIRMAN. That is entirely satisfactory.

Mr. MULLIGAN. I am directed to state the Department's conclusion with respect to the bill. In brief, it is this: While the Department of Commerce is in accord with the aim to eventually consolidate the activities of the Federal agencies dealing with transportation, it is unable to give its approval at this time to the enactment of the legislation proposed in H. R. 5234. The reasons-or better, some of the additional reasons for the Department's position will appear by examination of another statement that has been prepared and will be submitted in connection with the sister piece of legislation, the Crosser bill.

One of the major features of the bill that I would like to discuss has to do with its provisions relating to overseas and foreign commerce. That is a subject which, during the last year and a half, has demanded the careful attention of the Departments of State, Post Office, and Commerce. It was not until about that middle of 1935 that air lines of foreign countries began to seek air-navigation rights or privileges in United States territory. That field of aviation, though provided for in the Air Commerce Act of 1926, was virtually unexplored; and not until the arrival of several foreign missions from continental Europe was there begun to be made a study of available legislation and the manner in which it should be administered.

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There is effort made in this bill to provide for the regulation of overseas and foreign air commerce. In this regard we wish to call your committee's attention to a substantial defect which we believe exists in the bill. Not enough, if any real consideration, has been given to the other half of the overseas and foreign commerce problem; that is to foreign-flag lines seeking air route and service privileges in the United States. There is a bare reference on top of page 3 of the bill to that phase, but it is a thin reference. No specific provision is made in the bill to the reciprocal operation of foreign airlines in United States territory, in return for similar privileges to Amercan carriers to operate in territory of their nationality, which brings up an element of the bill which I believe you will wish to deliberate on at some length. That is the fact that the bill on this point fails to amend the Air Commerce Act of 1926. Under section 6 of the 1926 statute the Secretary of Commerce now exercises authority with respect to both sides of the problem. This bill would enable the Interstate Commerce Commission to regulate United States airlines operating in overseas and foreign commerce through the issuance of cartificates of convenience and necessity but does not repeal the authority of the Secretary of Commerce to give or withhold authorization to foreign lines to operate in the United States. It would seem to be conducive to better administration if the power to exercise control over both were lodged in the same organization. Such unity of command would also be able to achieve better results in negotiating necessary arrangements with foreign governments.

On this proposition there is more detailed information to be found in the written report submitted as a part of my presentation. Mr. MARTIN. May I interrupt for a question?

The CHAIRMAN. Mr. Martin.

Mr. MARTIN. Can you give us the names of any foreign lines that are operating in the United States at the present time?

Mr. MULLIGAN. There are only a few. But in the mill at the present time there are a number of applications, probably six or seven in all, from foreign countries seeking air-navigation privileges on behalf of their air lines. One partly foreign operation into the United States is the service between Montreal and Newark. It is made up of two subsidiary companies, the Canadian-Colonial Airways, Ltd., and the Canadian-Colonial Airways, Inc. Another foreign operation is that one on the west coast, coming into Los Angeles from Mexico. It is nominally a Mexican company but is largely American controlled. It may be said that some of the principal powers of the world are represented in this picture. If we are to avoid in our foreign air commerce the unfortunate condition that has arisen in our merchant marine, appropriate legislation must be carefully designed. Today, with regard to our merchant marine, less than 35 percent of the commerce initiated in the United States is carried in American bottoms. Moreover, 75 percent of the passengers crossing the Atlantic on our own steamers and on foreign-flag vessels are American nationals. The law respecting our foreign air commerce should be so drawn so that it will assure to registered aircraft of the United States at least 50 percent of the commerce initiated in this country.

A certain principle of international air law is of prime importance in this matter. It differs from the law of the sea. It is the doctrine of sovereignty in air space, which does not allow an air line of one

country to do business in foreign territory without the permission of the foreign government concerned. Under the rule it is the practice of European governments to provide airways and to make the establishment of regular air-transport services by foreign air lines into their territory, along such airways, subject to their granting permits for such services. If we are to maintain and advance our position in world aviation, we must also apply this doctrine.

A detailed consideration of several of the provisions concerning the regulation of overseas and foreign air commerce will better reveal the attitude of the Department of Commerce toward this part of the bill. Section 305 (a), among other things, provides that no air carrier shall engage in overseas or foreign transportation unless there is in force a certificate issued by the Commission authorizing such carrier so to engage. In the long administration of our water-borne foreign commerce this Government has not seen fit to require such a certificate, and the question naturally arises, Is it necessary to require such certificate in a mode of transportation that is only now emerging from the experimental stage?

Section 305 (e) contains the proviso that a certificate issued under this section to engage in foreign air transportation shall designate such points only insofar as the operation is to take place within territories or territorial water subject to the sovereignty or authority of the United States and otherwise shall designate only general trade route and the foreign market to be served.

Our interpretation of that particular section is that it means to waive aside something we believe to be vital in fostering air commerce in the domestic as well as in the foreign field. It is the development of airways or routes in the navigable air space available for all aircraft. Such routes with their navigation facilities are indispensable to safe and efficient air transportation and travel. It probably will be necessary to limit commercial traffic from abroad over our airways linked with foreign routes, but it is firmly believed that the airway as a definitely charted and equipped air highway should not be abandoned. It can be surmised that this restriction provision is aimed to keep intact commercial advantages now re siding in certain lands and to facilitate their extension.

The subject provision is in conflict not only with the existing Federal law but with international policy and practice. Before reciting the law I would like to indicate what might be the purpose of that provision.

If, for example in setting up an operation from the United States to a distant country, some private company negotiates and obtains from the intermediate countries between the two terminals of the route exclusive landing franchises, perhaps, for a long term of years, it will be very difficult for another American company to secure permits to operate between the terminals, unless this Government enters into an arrangement with all the foreign governments concerned, the purpose of which arrangement will be to establish an airway, a right-of-way in the air space over which other American companies may eventually seek to operate. In this connection it is to be recalled that this Government pays the expense of installing, maintaining, and operating the civil airway designated by the Secretary of Commerce and that their is a statutory prohibition against their exclusive use.