Foreign Relations of the United States, 1958–1960, South and Southeast Asia, Volume XV

453. Memorandum From the Assistant Secretary of State for Economic Affairs (Mann) to the Associate Special Counsel to the President (McPhee)¹

Washington, July 20, 1960.

SUBJECT

• Resumption of Air Transport Negotiations with the Philippines

Negotiations to conclude a United States/Philippine air transport agreement to replace the one that had terminated on March 3, 1960, and at Philippine initiative, were conducted in Washington from April 26 to June 2, 1960. The negotiations bogged down primarily on capacity principles. The Philippines, whose national airline intends to resume transpacific service since the end of 1961, were insistent that the agreement permit them to restrict arbitrarily United States airline operations into and out of Manila. They presented a formula to the United States delegation which for the first five years of Philippine Airlines operation would divide the capacity offered equally between the one Philippine carrier and the two certificated United States carriers. The Philippines claimed that such unilateral control over United States capacity was essential to the survival of Philippine Airlines.

The United States delegation pointed out that it had never accepted the principle of predetermination of capacity and that to do so in this instance would undermine the basis upon which United States services are operated throughout the world. Furthermore, Philippine Airlines was already a thriving airline merely adding a new route to its network, and it had an operating organization that was fully familiar with transpacific operations and had made a financial success of these until the voluntary suspension of service in 1954. However, because of the strong feelings held by the Philippines the United States delegation agreed to review its position on this matter.

The United States delegation then offered a proposed minute of understanding to the Philippines,² which was concurred in by the Department of State, the Civil Aeronautics Board, and the interested United States airlines. This minute gave assurances that the United States airlines would not operate an undue capacity prior to inauguration of Philippine Airlines services and would submit to a freezing of capacity for a one-year period after that inauguration. This offer, which went well beyond United States international aviation policy, was summarily dismissed by the Philippines, and they expressed their desire to terminate the negotiations without further discussions.

During the course of the negotiations the two delegations exchanged their route desires. The proposed United States route description was identical to that in the terminated agreement, and the Philippines expressed the view that this gave the United States excessive rights. The Philippine desires were exceedingly broad and were not considered justified on aviation grounds. However, no detailed discussion of routes was possible because of Philippine concentration on the capacity issue.

You will recall that during the conversation on June 15 between President Eisenhower and President Garcia in Manila³ some time was devoted to a discussion of our bilateral aviation relations. President Eisenhower at the time “stated his agreement to the holding of preliminary talks” and promised that we would look at the Philippine proposal regarding arbitrary provision of capacity “very sympathetically and earnestly”. From several sources we now learn that the Philippines interpret President Eisenhower’s remarks as indicating we will be willing to make concessions even though they may be contrary to the normal standards negotiated by the United States.

In the light of these developments the Civil Aeronautics Board, in consultation with the interested United States airlines, has reviewed the position taken in April and recommends that a revised position be taken in renewed discussions (Tab A).⁴ A Memorandum of Understanding (Tab B) is now being proposed which will offer limitations on the United States capacity to be offered not only for the period up until Philippine Airlines inauguration of transpacific service but for a two-year period after inauguration of such services on the assumption that Philippine Airlines will commence service in the late fall of 1961. This is a concession far more liberal than any heretofore proposed by the United States.

The Board has not seen fit to expand its previous position on the routes to be offered to the Philippines, since this (Tab C) would already offer their airline considerably more traffic potential than it had in the terminated agreement, but now proposes a more specific description of United States routes to satisfy Philippine desires. Trans World Airlines and Northwest Airlines are satisfied with the new Board position on capacity and routes. Northwest is particularly anxious that an agreement be concluded if at all possible. Pan American objects to including Tokyo on a Philippine route which will in all likelihood overlap Pan American into the United States. It is also Pan American’s view that voluntary limitations on United States airline capacity are undesirable and that a preferable alternative would be to abandon attempts to reach a compromise agreement and to provide for continuation of operations under unilaterally-issued permits.

The proposed Board position is considered a generous, but equitable, one. On the other hand, it falls short of what the Philippines stated this spring to be their minimum requirements. The Department is prepared to discuss this position with the Philippines, but before doing so would appreciate your confirmation of its belief that in his conversations the President wished only to convey to President Garcia and the Philippine Cabinet members that the United States would give every consideration to reasonable Philippine requests.⁵ If this belief is accurate, the Department plans to send a representative to Manila within the next few days for preliminary discussions.⁶

Thomas C. Mann

1. Source: Department of State, Central Files, 611.9694/7–2060. No classification marking.
2. Not found in Department of State files.
3. See Document 451.
4. None of the tabs was attached to the source text, but copies were enclosed in a letter from Mann to Snowdon, July 21. (Department of State, Central Files, 611.9694/7–2160)
5. In a memorandum to Mann, July 25, Phillip Areeda, Assistant Special Counsel to the President, relayed the President’s views: He agreed with the U.S. position on capacity as stated in the Memorandum of Understanding, but he preferred Seattle to San Francisco or Los Angeles as the terminal for the Philippine trans-Pacific route. (Ibid., 611.9694/7–2560)
6. At the end of July, Snowdon went to Manila for further preliminary discussions which were again futile. Serrano insisted that the air transport issue was a political rather than an economic one. No agreement was reached in 1960. Documentation on the subject is ibid., 611.9694.