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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 com

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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merce.

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 Goyernment 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.

The CHAIRMAN. Let me say with respect to foreign commerce, that the reason advanced for the provision in the bill is that we have no right to exercise jurisdiction over rates in foreign countries, an dthat can only be done by their consent, and that is the reason for this language.

Mr. MULLIGAN. That is correct, sir, because the other country can of course exercise its sovereignty just in the same way that we can, between points within its own territory. But there is a feeling on our part that if this provision is enacted into law this government will lose all or a part of the influence that is now exercised in bargaining with another government in the matter of fixing routes.

Let me proceed further and cite from the existing law. By the terms of the Air Commerce Act of 1926, the Secretary of Commerce is authorized to designate and establish civil airways, which are routes in the navigable air space suitable for interstate or foreign air commerce. Thus it is to be seen that civil airways are routes not only for interstate but for foreign air commerce as well.

Mr. MARTIN. May I ask a question there?
The CHAIRMAN. Mr. Martin.

Mr. MARTIN. You say the Secretary of Commerce, or the Commerce Department, now exercises that power under the existing law ?

Mr. MULLIGAN. Yes. This power does not extend to foreign territory, however. All we can do is to designate such routes in our own territory, but we have negotiated and bargained with foreign countries for the designation of routes in their territory to serve our own purpose.

Mr. MARTIN. All right. Now if section 305 (e) is delimited, would that take away that power from the Department of Commerce?

Mr. MULLIGAN. It is questionable. But section 305 (e) provides simply that only the general trade route and the foreign market to be served will be designated.

Now turning to the international side of this question: The most important single body of law governing this question, to which most of the world powers have adhered, is the International Convention for the Regulation of Air Navigation, signed at Paris on October 13, 1919. The last paragraph of that convention provides :

Every contracting State may make conditional on its prior authorization the establishment of international airways and the creation and operation of regular international air navigation lines, with or without landing, on its territory.

Such an idea is also found in the Habana Convention on Commercial Aviation, which is the only multilateral convention dealing with public international air law that this country has ratified. The Habana Convention provides for the fixation, or designation, of routes, which is in line with our conception of the law on airways, whether they be in interstate or foreign commerce.

There are also practical reasons why the airway should be definitely located and its location, in some measure, be agreed upon, not only in our own territory but in the foreign territory over which United States aircraft operates. It is understood that one of the basic rules in fixing mail-pay aid is that the mail be carried by the shortest, most direct route. Doubtlessly this criterion would be followed, no matter what scheme of subsidy be adopted, so long as a

subsidy is necessary. It will also be necessary to know such locations if proper authority is to be granted to United States air lines to carry American passengers and goods safely in foreign or overseas air commerce. It may be, for example, that this Government would find it desirable to certify only a particular kind of equipment for operation over certain routes in foreign or overseas territory. In these remarks it is comprehended that a Government can exercise sovereignty only over its own territory or territorial waters, and that the fixing of air routes between any two or more points within a territory of a State is ultimately a matter for decision by that State; but if the proviso proposed were to be written into the Federal law, it is felt that a certain amount of the influence now exercised by the United States in determining the route to be traversed by the reciprocal services operating between this country and other countries would be foreclosed by this proviso. In short, the liberty to bargain, even in a matter where the sovereignty of the other country is controlling, would be negatived by such a statutory provision, a liberty which has already appeared to be of value and may be of very great value in the future establishment of our foreign air routes and services.

Mr. MARTIN. Will you permit an interruption there?
Mr. MULLIGAN. Yes.

Mr. MARTIN. Just where is there a provision in the bill that will operate to foreclose or lessen the influence of this country to deal with other governments to establish air-line routes in those countries!

Mr. MULLIGAN. Sir, this is just one of about four provisions in the bill which will foreclose, not so much the Government, but which might very well foreclose possible competitors from inaugurating air-transport services to foreign fields where the exclusive privileges had already been obtained. The provision in question contains a limitation and is not in keeping with the prevailing rule.

Mr. EICHER. May I ask a question there?
The CHAIRMAN. Yes, Mr. Eicher.

Mr. EICHER. Mr. Mulligan, do I understand that it is your idea that this bill should specifically determine whether or not the authority for entering into reciprocal arrangements with foreign countries, such as for landing facilities, apportionment of cargo rights, and so on, should be vested either in the Commerce Department or the State Department, instead of the Interstate Commerce Commission?

Mr. MULLIGAN. No, sir. Under existing law the authority to grant authorization to foreign aircraft to navigate in the United States is in the Secretary of Commerce, while under this bill the control of our own aircraft engaged in overseas and foreign commerce would be vested in the Commission. It would be better to have all such authority concentrated in one organization, and this bill does not appear to do that, because it does not amend the pertinent provision of the Air Commerce Act, section 6, under which the Secretary now exercises authority with regard to foreign aircraft.

Mr. EICHER. Do you feel that the State Department would be the more appropriate agency to handle those relationships, so far as foreign commerce is concerned ?

Mr. MULLIGAN. Well, whether the State Department would be willing to undertake all of these matters is doubtful. It will always

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