396 Cabinet Submission by Drakeford

Agendum 1006 16 November 1945,

PROPOSED RECIPROCAL AGREEMENT WITH U.S.A. REGARDING AIR TRANSPORT RIGHTS

The American Legation, Canberra, has submitted to the Department of External Affairs a proposal that an air transport agreement be negotiated between the Australian and United States Governments and has submitted a draft agreement accordingly. This followed closely on a similar approach made to the New Zealand Government for a similar agreement between the United States and New Zealand.

2. The Chicago Conference: It is recalled that the International Civil Aviation Conference held at Chicago in November/December, 1944, drew up two draft multi-lateral agreements covering rights for international air services, namely:-

(i) the International Air Services Transit Agreement (which conferred rights of transit and of non-traffic stop), and (ii) the International Air Transport Agreement (which conferred further rights of picking up and setting down traffic).

The United States has signed both Agreements but Australia (like all other British Commonwealth countries) became a signatory to the Air Transit Agreement only. The position at present, therefore, is that both Australia and the United States now possess rights for their respective airlines to operate over and into the territory of the other, but not to pick up or set down traffic. For an effective service between the two countries traffic rights are necessary and it is on this account that the United States has sought a bilateral agreement. It might be mentioned that Australia is in a stronger bargaining position than the United States since, under the provisions of the International Air Services Transit Agreement passengers to and from the United States carried on an Australian service could, subject to an agreement with Canada, be set down and picked up in Canada without the negotiation of any further agreement with the United States.

3. The refusal of Australia and other British Commonwealth countries to sign the Air Transport Agreement is due primarily to the refusal of the United States and certain other countries to include in that Agreement provisions relating to the regulation of competition which the British countries consider necessary to avoid uneconomical operations and to protect the interests of those countries which, due to war and other causes, would be severely handicapped if in the immediate post war period there is allowed to develop an uncontrolled scramble for international air services.

4. Proposed Bi-lateral Air Transport Agreement: The draft agreement submitted by the United States Legation is on the general lines of the pro forma for such bilateral agreement drawn up at Chicago and provides for the granting reciprocally of all Five Freedoms, namely, the right of transit and right of non- traffic stop (both already conferred under the Air Transit Agreement); the right of picking up passengers for the State of registration of the aircraft; the right of setting down passengers from the State of registration, and the right of picking up and setting down passengers to or from other States served by the service (in accordance with the Air Transport Agreement).

5. It is of course unthinkable that Australia and the United States should fail to reach some basis of agreement which will enable air services to be operated between the two countries but it is important that in negotiating such agreement Australia should protect to the fullest possible extent her interests and those of the other Members of the British Commonwealth. To this end it is desirable, if practicable, that the American air service should not be enabled to commence operations in advance of a British Commonwealth service. It is equally important that we should endeavour to include in the agreement clauses which will regulate competition and protect the interests of the British Commonwealth service in accordance with the principles proposed unsuccessfully by the British Commonwealth Governments at Chicago- and since generally confirmed by those Governments.

6. In order to protect the interests of the British Commonwealth Governments concerned in Pacific operations, it is undesirable that Australia (and the Governments of the other British territories in the Pacific) should grant Fifth Freedom rights as to do so would enable the U.S. service to carry traffic between such British territories-for instance, between Australia and New Zealand and between Australia and Fiji. It may be mentioned that Pan American Airways do not seek to operate between New Zealand and Australia. Further, we should insist on the inclusion in the agreement of the standard clauses approved at Montreal in December, 1944, and drawn up during and immediately after the C.A.T.C. Meeting in London in June, 1945, which are designed to avoid uneconomic competition; to reduce and ultimately eliminate subsidies; to keep the traffic capacities at a reasonable level;

and to ensure reasonable division of such capacity between the airlines of the various countries concerned.

7. In order to ensure that Canada also secures rights to operate its proposed parallel service from Canada through the United States to Australia and New Zealand, it was agreed during the various British Commonwealth talks that Australia in negotiating a reciprocal agreement with the United States should endeavour to secure rights not only for itself but also for the other British Commonwealth countries who may be interested in operating similar services in a partnership arrangement whether through a joint organization or by separate organizations operating in parallel partnership. It is therefore proposed that in the negotiations with the United States, Australia should seek to have appropriate provision to this effect included in the agreement.

8. Recommendations: It is recommended that Cabinet approve in principle that Australia should negotiate with the U.S.A. a reciprocal Air Transport Agreement (but excluding Fifth Freedom Rights) with the inclusion of appropriate clauses to safeguard our interests, and those of the other British Governments concerned, on the lines indicated herein. Other Member Governments of the C.A.T.C. could then be informed and supplied with a copy of the proposed agreement (referred to hereunder), and, subject to any comments that those Governments may make, negotiations would then be undertaken with the American Government. A draft agreement embodying the safeguards proposed would be drawn up by the Civil Aviation, External Affairs and Attorney-General's Departments in collaboration, and, subject to the approval of the Ministers of those Departments, would be submitted to the American Government.

In all these negotiations it would be the aim to ensure, if practicable and without offence to the United States Government, that the U.S. service should not be enabled to commence operations prior to the institution of a British service (which is the subject of a separate Cabinet submission [1]).

1 Document 397. Both submissions were considered by Full Cabinet on 20-22 November, and a sub-committee comprising Chifley, Beasley, Makin and Drakeford was appointed to consider them.

Chifley and Drakeford discussed the matter with McVey, Director General of Civil Aviation, on 26 November in Melbourne; with the subsequent approval of Makin it was decided that a draft air transport agreement with the United States should be prepared as proposed in the submission and submitted to Full Cabinet for approval before presentation to U.S. authorities. Full Cabinet approved the sub-committee's decision on 18 December, and on 26 March 1946 approved the draft agreement. See agendums 1006-7 and 1006A, in AA : A2700, vol. 21.

[AA : A2700, VOL. 21]