The Fractured Power
How to Overcome Tribalism
THE Agreement signed at Bermuda on February 11, 1946, between the United States and Great Britain, and subsequent similar agreements with France and Belgium, indicate a major shift in United States policy for the operation and development of air transport. The announcement by the State Department on July 25, 1946, that the United States would withdraw from the Chicago Air Transport Agreement in a year's time was concrete evidence of the changed policy foreshadowed by the "Bermuda plan." The Air Transport Agreement -- to which only the United States, Sweden, the Netherlands and a few other countries had subscribed -- was the product of the sharp disagreement between Great Britain and the United States at the Chicago Air Conference in 1944.[i]
No one questions the importance of this "Bermuda plan." On February 26, 1946, President Truman followed the unusual course of giving out a special statement expressing his satisfaction with it. Official statements in the same tenor were made in both Houses of the British Parliament; and in the House of Lords, on February 28, Lord Swinton, the Conservative ex-Minister of Civil Aviation and Chairman of the British delegation at Chicago, called it "probably the most important civil aviation agreement that this country has entered into." The renunciation of the Air Transport Agreement was preceded by the action of the Assembly of the Provisional International Civil Aviation Organization (the body created by the Chicago Interim Agreement and now functioning at Montreal) in May of this year, postponing consideration of a proposed multilateral international civil aviation agreement which had been prepared after long study by the Council of PICAO. That action also clears the path for the Bermuda Agreement.
The principles on which the Agreement stands are not those for which either Great Britain or the United States contended so bitterly at the Chicago Conference. Admittedly the plan represents a compromise. There are still important differences between the points of view of the two countries in regard to the principles which shall govern commercial air transport, and there seem already to be varying interpretations of the plan by British and American spokesmen. These require immediate clarification, and may, indeed, presage serious new difficulties. Nonetheless, the Bermuda plan holds out the possibility of world-wide acceptance of uniform rules of air commerce.
To sketch in the general background of the old differences and the new understanding (even at the risk of oversimplification), it may be said that every international air agreement now in force, and every plan proposed, involves one or more of the following factors: routes, privileges (accorded to an air carrier of one nation in the airspace of a second), rates, frequency of operation, capacity of aircraft, and degree of economic control accorded to an international authority. The full list of privileges is called the five freedoms. The first and second freedoms are transit privileges -- to operate non-stop through the airspace of a second nation, and to stop for non-traffic purposes; the third, fourth and fifth are commercial privileges -- to discharge cargo from a first nation in the territory of a second, to pick up cargo in the second destined to the first, and to pick up or discharge cargo in the second nation destined to or coming from territory of a third.
By international law, each nation has complete and exclusive sovereignty over the airspace above its territory, and no foreign aircraft may enter its airspace or land in its territory for refueling or other non-traffic purposes, or to pick up and discharge passengers or cargo, except as authorized. For example, in the late fall of 1945, before the Bermuda Agreement was signed, Great Britain advised the United States that it would permit United States commercial air services to discharge and pick up transatlantic traffic, but not in excess of 14 times a week, nor with total seat capacity of more than 500 per week, and with a passenger rate of not less than $375.[ii]
The Bermuda plan is a result of the acceptance by Great Britain and the United States of the so-called Transit Agreement drafted at the Chicago Conference covering the first and second freedoms, plus the principles incorporated in the Final Act of the Bermuda Conference, the bilateral agreement signed at Bermuda, and the detailed annex to this latter agreement.
The general effect of the plan may be summarized as follows. Each nation grants to the air carriers of the other nation transit privileges (freedoms one and two) to operate through the airspace of the other and to land for non-traffic purposes on routes anywhere in the world subject to the provisions of the Chicago Transit Agreement, including the right of the nation flown over to designate the transit route to be followed within its territory and the airports to be used. Each nation also grants to the other commercial privileges of entry and departure to discharge and pick up traffic (freedoms three, four and five); but these commercial privileges are valid, in contrast to the transit privileges, only at airports named in the agreement and on routes generally indicated, and in accord with certain general traffic principles and limitations. Rates to be charged between points in the territory of the two nations are to be subject to approval of the governments within their respective powers. As to frequencies and capacities, each nation, or its designated air carrier, is free at the outset to determine for itself the traffic offered to the public on the designated commercial routes, but the operations must be related to traffic demands and conducted according to the agreed principles affecting frequency and capacity.[iii]
In case of a dispute not settled by consultation, each nation has the right to insist on an advisory opinion of the Provisional International Civil Aviation Organization and, in the case of rates, each nation will use its best efforts within its powers to make the rate recommended by PICAO effective. As the advisory opinion of PICAO can cover any dispute, it apparently follows that PICAO can be asked for an opinion as to whether either party to the agreement is violating the principles applicable to traffic frequency and capacity and the special limitations as to fifth freedom traffic. But nothing in the agreement provides for the enforcement of a decision.
In the absence of general agreement at Chicago as to economic control of international air transport, the United States supported the Air Transit Agreement and the Air Transport Agreement which the Conference offered for signature. The Transit Agreement covered the transit privileges of freedoms one and two; the Transport Agreement embraced these transit privileges plus the commercial privileges of freedoms three, four and five. Great Britain and many other states refused to accept the Transport Agreement, but together with certain others advised that it would accept the Air Transit Agreement. Under the latter agreement, Great Britain could have organized an air service through the United States or through Alaska and across the Pacific, using such United States airports as the latter might assign for that purpose; but the British planes could not have picked up and discharged passengers in the United States. Similarly, the United States could have authorized services to continental Europe through England, but with no right to pick up or discharge traffic in England (except under the special conditions mentioned earlier).
Between the close of the Chicago Conference and the meeting at Bermuda, the United States concluded bilateral agreements with Ireland, Sweden, Norway and Denmark, each providing for reciprocal transatlantic services with no limitation on rates, frequency or capacity of transatlantic service. In addition, Sweden, the Netherlands and the United States had signed the Air Transport Agreement. Under that agreement the parties accorded each other the five freedoms, but the commercial rights are to be available only on routes constituting "a reasonably direct line out from and back to the homeland." It contained no provision for the regulation of rates, and only a very vague provision for possible limitation of frequency or capacity.
II. ROUTES AND PRIVILEGES
The advantages and difficulties of the Bermuda plan can best be understood by comparing it with other agreements and plans for economic control. The general interchange of the transit privileges (freedoms one and two), with the right to specify the route and airports reserved for security purposes to the nation flown over, is gaining approval as time goes on. To that extent the Bermuda plan is already widely accepted. However, Ireland, France and Portugal (among other important gateway nations) have not yet accepted the Transit Agreement, and apparently intend to insist that the exchange of transit privileges be limited to special bilateral agreements.
The Bermuda plan contrasts sharply with the arrangements governing commercial privileges in force under the Transport Agreement. Under the Bermuda plan, as stated above, definite routes and airports for commercial traffic are named, and the traffic is to be governed (as will be discussed later under frequencies and capacities) in accord with agreed principles. Under the Transport Agreement, which controls transatlantic service between the United States and the Netherlands, the commercial privileges are available on generally direct routes out from the homeland and back, the nation flown over fixing only the airports and routes to be used in its territory. In fact, the Transport Agreement is so vague in this respect that serious questions had already appeared as to how the agreement should be applied between the United States and certain Latin American countries which had accepted it, particularly as to the number of carriers to be received and the number of ports of entry to be named. The plan proposed at Montreal by PICAO was even more vague in that it authorized unnamed routes constituting "reasonably direct lines out from and back to the territory of the contracting state whose nationality the aircraft possesses."
For the first time in our history, foreign air carriers are granted fixed routes across the United States. This possibility was inherent in the Transport Agreement, but never became definite. Among the routes named for use by Great Britain are those under which British air carriers can fly from London to New York, then to San Francisco, and then via Honolulu, Midway, Wake, Guam or Manila to Singapore or Hong Kong. Routes are also specified along which a British carrier may fly from London or Scotland to New York, and then either to New Orleans and on to Mexico City, or to Cuba and thence via Jamaica or Panama to Colombia, Ecuador, Peru and Chile. Reciprocally, the United States carriers can fly transatlantic services to London or Scotland, and thence to Holland, Germany, Scandinavia and Russia, or to Belgium, central Europe, the Near East and on to India; also across the Pacific via Honolulu to Hong Kong, China and India, or to Singapore and then to the Netherlands East Indies. At each named point in United States territory, British air carriers can pick up or discharge traffic from or to its own territory or third countries; and reciprocally, at each named point in British territory, American carriers can discharge or pick up international traffic. A British carrier can pick up transpacific traffic in New York, and returning, can pick up transatlantic traffic at San Francisco or New York. On other routes a British carrier at New York can pick up traffic for Cuba and South America or for Mexico via New Orleans. Foreign air carriers will compete indirectly with internal American transport operations; and so, of course, will American carriers compete with British carriers on British routes from England to and from Europe and other points. In other words, air transport is now a business in which a foreign commodity is sold in the local market in competition with domestic sellers and without the protection of a tariff. This may be the case under any multilateral convention. Under the proposed Montreal Agreement, as under the Chicago Transport Agreement, the competitive traffic points and the particular routes themselves are not fixed.
Certain further differences as to fifth freedom traffic between the Bermuda plan and the Transport Agreement must be noted. In the latter, any contracting state could, on six months' notice, withdraw itself from fifth freedom rights and obligations. Under the Bermuda Agreement, fifth freedom privileges cannot be separated from the rest of the plan. In the Transport Agreement, fifth freedom privileges extended only to traffic to or from other nations parties to the agreement. For example, the United States air carrier on the route from the United States to Sweden via Great Britain and the Netherlands could pick up international traffic in the Netherlands for Sweden, because both of those countries and the United States are parties to the Transport Agreement. On the return journey, however, traffic could not be picked up under the Transport Agreement in the Netherlands for Great Britain because the latter was not a party to the agreement. Under the Bermuda plan, the United States can pick up and discharge at London traffic to or from any country on the route. Under the Transport Agreement, the nation flown over fixed the port of entry, and it was not clear whether the same port of entry had to be made available for traffic from all nations parties to the agreement. Under the Bermuda plan, ports of entry are named and cannot be changed except by agreement. The route through third countries can be changed by the nation doing the flying, but the other nation may ask PICAO to determine by advisory opinion whether such changes are prejudicial.
Rates to be charged by the air carriers of each party operating between points in British and United States territory "shall be subject to the approval of the Contracting Parties within their respective constitutional powers and obligations." In signing such an agreement the United States has passed a milestone in diplomatic and legal international transport history. It is the first time, so far as the writer is aware, that the United States has made an international agreement for the control of transport rates. At the present time the Civil Aeronautics Board has no legal authority to fix rates of American air carriers in foreign commerce, such as it has in interstate operation. The Board does have authority, however, to approve rate agreements in which American carriers participate. Accordingly, the Board announced that it would approve for a period of one year the traffic conference rate-making machinery of the International Air Transport Association (IATA), an operators' organization of which American international operators are members. Thus the Board would have an opportunity to approve or disapprove international rates when submitted by the operators. The United States Government has also applied to Congress for extension of the powers of the Civil Aeronautics Board so as to give that Board authority directly to fix international rates. If the two countries are unable through IATA or otherwise to agree on rates, the Bermuda Agreement makes provision for handling the rate problem.
Before the Civil Aeronautics Board has power to fix rates and compel its carriers to charge a rate agreed between the two governments, either government objecting to a rate "may take such steps as it may consider necessary to prevent the inauguration or continuation of the service in question at the rate complained of." After the Civil Aeronautics Board acquires rate-fixing powers, if the two countries cannot agree on a proposed rate, the dispute will be referred to PICAO for an advisory opinion. Each country agrees to use its best efforts to put into effect the rate recommended by PICAO. Obviously, this means that if the Civil Aeronautics Board receives power to fix international rates, the advisory opinion of PICAO will actually determine the question in case of disagreement between the two countries. At Bermuda the United States has gone further than it was apparently willing to go at the outset of the Chicago Conference, by granting that economic power may be given to an international authority to fix rates where the governments concerned could not agree.
In his White House statement referred to earlier, President Truman said: "In the Bermuda Agreement the Executive branch of the United States Government has concurred in the plan for the setting-up of machinery which should protect against the type of rate war feared by so many of the countries through whose air space we desire that our airlines have the right to fly. Part of the plan for future rate control will be dependent on the granting of additional powers by Congress to the Civil Aeronautics Board." It is obvious from this statement that the United States has accepted international rate regulation as part of its civil air policy. This brings into sharp relief the fact that in none of the bilateral agreements for transatlantic service in force prior to the Bermuda Agreement, nor in the Transport Agreement, is there any provision for rate regulation. The United States must now agree on rates with England, France and Belgium, but has no method of government control of rates that may be charged by Scandinavian or Dutch operators in the North Atlantic area. Unless the terms of the Bermuda compromise are generally adopted, a most confusing situation will arise.
IV. FREQUENCY AND CAPACITY
The question of the control of the frequency and capacity of the services offered by international air lines, was, of course, the stumbling block for the Chicago Conference. If, under the Bermuda plan, the United States on the one side and Great Britain, France and Belgium on the other are now actually in agreement, great progress has been made.
In the Final Act of Bermuda the parties agreed on principles which are so important that they must be set out in full:
(3)~ That the air transport facilities available to the travelling public should bear a close relationship to the requirements of the public for such transport.
(4)~ That there shall be a fair and equal opportunity for the carriers of the two nations to operate on any route between their respective territories (as defined in the Agreement) covered by the Agreement and its Annex.
(5)~ That in the operation by the air carriers of either Government of the trunk services described in the Annex to the Agreement, the interest of the air carriers of the other Government shall be taken into consideration so as not to affect unduly the services which the latter provides on all or part of the same routes.
(6)~ That it is the understanding of both Governments that services provided by a designated air carrier under the Agreement and its Annex shall retain as their primary objective the provision of capacity adequate to the traffic demands between the country of which such air carrier is a national and the country of ultimate destination of the traffic. The right to embark or disembark on such services international traffic destined for and coming from third countries at a point or points on the routes specified in the Annex to the agreement shall be applied in accordance with the general principles of orderly development to which both Governments subscribe and shall be subject to the general principle that capacity should be related: (a) to traffic requirements between the country of origin and the countries of destination; (b) to the requirements of through airline operation, and (c) to the traffic requirements of the area through which the airline passes after taking account of local and regional services.
(7)~ That insofar as the air carrier or carriers of one Government may be temporarily prevented through difficulties arising from the War from taking immediate advantage of the opportunity referred to in sub-paragraph (4) above, the situation shall be reviewed between the Governments with the object of facilitating the necessary development, as soon as the air carrier or carriers of the first Government is or are in a position increasingly to make their proper contribution to the service.
The Annex to the Bermuda Agreement provides that the rights accorded of commercial entry and departure to discharge and pick up international traffic shall be in full accord and compliance with the principles set out in the Final Act (including, of course, those just quoted). Also, under the agreement, any dispute between the parties not settled by consultation can be referred to PICAO for an advisory report, but nothing is said as to the enforcement of the report. It appears to follow, therefore, that the transport operations of either nation which the other considers inconsistent with the fundamental principles of the Final Act as quoted above may become the subject of an advisory opinion of PICAO. Thus PICAO is given jurisdiction to consider whether the principles applicable to traffic frequencies and capacities are complied with by both nations.
It is apparently the view of both parties, as evidenced by the statement jointly issued by the two delegations at the close of the Bermuda Conference,[iv] that the plan contemplates "freedom by each country to determine the frequency of operations of its airlines," and "freedom to carry fifth freedom traffic in accordance with defined principles subject to adjustment in particular cases where such adjustment may be found necessary in the light of experience." The same joint statement referring to the principles for fair and equal opportunity for the air carriers of the two nations says that this "does not imply the allocation of frequencies by agreement but only the right of each nation to offer the services it believes justified under the principles agreed to." In a further comment the delegates state that "the Conference has placed no specific limitation on frequencies. Each nation operating under the principles agreed to is to be free to determine for itself the number of frequencies which are justified; services being related to traffic demands."
Apparently, therefore, under the Bermuda plan frequencies are not to be allocated in advance; but each nation has promised that its own air carriers do not offer frequencies or capacities or indulge in competitive practices not authorized under the quoted principles. The procedure for a review by an advisory opinion by PICAO is not an idle gesture and must be accepted as part of the agreed plan.
It is not entirely certain that the United States and British Governments are in full accord on this matter. In the House of Lords on February 12, 1946, the Minister of Civil Aviation, Lord Winster, stated:
As regards the control of capacity operated on the routes, it has been recognized that pre-determination on the basis of estimated traffic potentials is beset with practical difficulties and instead, it has been agreed that the principle for which we stand, namely, the maintenance of a close relationship between capacity operated on the various routes of mutual interest and traffic offering, can best be put into practical effect by providing for an ex post facto review on the basis of this principle. Machinery for close and continuing collaboration between the two Governments will be established to this end.[v]
There can be no doubt that Lord Winster was referring to the general principles of traffic offering and not to the added special limitations of fifth freedom traffic which he quoted later.
In the general debate of February 28 on the Bermuda Agreement in the House of Lords, Lord Swinton asked very pointed questions as to how the principles of the Final Act would work in practice, and particularly as to what would happen under the equal opportunity principles when Great Britain was fully prepared to fly. He said:
The Agreement, as I understand it, that there shall be a fair chance for both, means that each will be able, or ought to be in a position to put on enough planes, on this load factor principle, to carry half the traffic. That must mean, if it is to be carried out, that the United States will reduce their number of aircraft as we increase our number of aircraft. If not, we can get our share of the traffic only by putting on a large number of planes, while the United States' number of planes remains unreduced. In that event, it means that there would be, in fact, more planes operating than the traffic would justify, and that completely knocks the bottom out of the earlier provision that the amount of capacity shall be related to the amount of traffic.[vi]
In reply, the official British Government spokesman stated, referring to Lord Swinton's remarks:
As he said, quite correctly, so far as that is concerned the United States have a great start over ourselves, but I think that Paragraphs (4) and (5) to which he referred quite fairly cover the point. It is perfectly evident that as things develop in the course of time, the tribunal which will be set up to consider disputes or questions will be able to adjudicate on the difficulties as they arise.[vii]
Then, referring to Paragraph 7 of the principles, which describe the situation in which the air carriers of one government are temporarily prevented by war from proceeding immediately with development of traffic, he added: "That is clearly designed in order to meet the kind of development to which the noble Viscount has referred." Without question the view of the British Government appears to be that frequency and capacity questions, as well as others under the agreed principles, are subject to review by PICAO in case of disagreement. On the other hand, President Truman in his statement of February 26 made no mention of these principles of the Final Act nor of the provision for review, stating simply:
Under the Bermuda Agreement there will be no control of frequencies, and no control of so-called Fifth Freedom rights on trunk routes operated primarily for through service. It gives to the airline operators the great opportunity of using their initiative and enterprise in developing air transportation over great areas of the world's surface.
If differences do exist in the interpretation of the Bermuda plan, they must be clarified. The plan cannot be used as the basis for a world wide scheme for economic control of international air transport unless those most directly concerned fully agree on its meaning. On the face of the documents, it seems very clear to this writer that PICAO can give an advisory opinion, in case of complaint, and can find that one or the other nation is operating more frequencies or capacities than it is entitled to under the principles of the Final Act. No machinery except the force of public opinion is provided to police such a finding. However, subsequent uncorrected operations after such a finding might create a most unpleasant diplomatic situation. It may well be, therefore, that in actual practice the Bermuda plan will result in a certain amount of control of frequencies and capacities, as Lord Winster stated, by "ex post facto review."
The proposed Montreal agreement favors local operators by requiring the foreign operator of fifth freedom traffic to charge higher fares than the local operator for the same service. For example, a United States air carrier's rate from London to Amsterdam on the through route from New York to Amsterdam would be higher by a fixed percentage than the rate for competitive local British or Dutch services. Such a formula appears exceedingly difficult to administer, and not fair to the traveling public. The Montreal agreement also proposes giving to the international authority definite power to determine whether a nation is operating general (or fifth freedom) traffic frequency or capacity in violation of principles similar to those outlined under the Bermuda plan, and to order corrective action. In other words, the Montreal plan would provide for control by review, as in the Bermuda plan, but would vest actual police power in the international organization. This raises a fundamental question. Should this problem of economic control be met by asking the nations of the world to yield part of their sovereign power over their own national transport -- a thing never done in merchant shipping? Or is it better to reach a definite treaty agreement, as in the Bermuda plan, and leave to each nation the responsibility for carrying out its air transport obligations, exactly as every country is expected to abide by other international obligations and to control its own citizens accordingly? That is the question running through all the great decisions of our time.
The Bermuda Agreement is under certain legal clouds in the United States. Both it and the Chicago Transport Agreement were put into effect as executive agreements. Both have been vigorously attacked on the ground that their subject matter should have been included in treaties and submitted to the Senate for ratification. Much testimony has been taken. On April 19, 1946, the Committee on Commerce of the United States Senate filed with the Senate a report on "International Civil Aviation" with a copy of a Resolution from the Committee indicating its view that the agreements are ineffective and illegal unless and until they are ratified as treaties. The executive departments of the government have insisted on the propriety of the procedure followed. On June 18, 1946, the Attorney General in a letter to the Secretary of State expressed a very definite view that the President has the right to enter into executive agreements of this general character. The withdrawal of the Transport Agreement by the State Department now settles part of the practical problem. But the principle involved should be definitely determined. It involves complex legal questions which need not be discussed in an article intended only to consider whether the Bermuda plan is suitable for incorporation in a widely-accepted multilateral convention.
The reader will have seen that, in the author's opinion, the answer to this is yes. If there is accord as to the construction of the principles of the Bermuda Final Act and Agreement, the plan could easily become the basis of a general international air transport convention. Such a convention would provide for general exchange of transit privileges between the parties, giving the nation flown over the right of fixing airports and transit routes in its territory. The convention would not fix commercial routes or grant commercial privileges, but would include the commercial operations and traffic principles of the Bermuda plan and provide that when two or more nations, parties to the agreement, should determine to exchange commercial privileges and agree on commercial routes, the operations would always be conducted according to the principles of the plan. Such an agreement would bring about international commercial uniformity but would leave to the nations concerned the right to determine with what nations and over what routes they might wish to trade. A further provision might be included giving to any nation, when accepting the agreement, the right then and there to name ports of entry and airways open for international commercial traffic when operated in accord with the principles of the plan, thus obviating the need for subsequent special agreements as to ports of entry and routes. Some nations might prefer this means of inviting world traffic to their territories. If such a general and permanent convention were adopted it certainly would be submitted for ratification as a treaty, as were the Havana Convention of 1928 and the permanent International Civil Aviation Convention signed at Chicago.
[i] Cf. Edward Warner, "The Chicago Air Conference," FOREIGN AFFAIRS, April 1945.
[ii] On two flights per week no rate control was in effect, as Pan American Airways still held a prewar British permit for that number.
[iii] The delegates to the Conference also initialed "Heads of Agreement" relating to the proposed future civil use of the air bases constructed by the United States on leased British territory. Since it is not a necessary part of the "Bermuda plan" it will not be discussed here.
[iv] "Joint Statement by the United Kingdom and United States Delegations." Department of State Bulletin, Vol. XIV, No. 347, February 24, 1946, p. 302-306.
[v] Parliamentary Debates (Hansard), House of Lords, v. 139, no. 53, p. 367-368.
[vi] Parliamentary Debates (Hansard), House of Lords, v. 139, no. 62, p. 988.
[vii] Ibid. p. 1007.