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International Air Cargo Services: The Italy -U.S.A.
Air Transport Agreement Arbitration
by M. A. Bradley *
Although most of the nine hundred and forty air transport
agreements 1 in force between states provide for arbitration as a
means for the settlement of disputes, there have only been two arbi-
tration proceedings in relation to those agreements –
The France-
United States Air Transport Arbitration 2 and the Italy-United States
Air Transport Arbitration. 3 The failure to use arbitration is not due
to a lack of disputes. 4 In fact, states prefer to settle disputes by
consultation rather than arbitration.5
The United States was a party to both proceedings and, in fact,
initiated them.” This action was clearly inspired by one of the rec-
Assistant Professor of Law, McGill University.
1Aeronautical Agreements and Other Arrangements, I.C.A.O. Document 8563-
LGB/228, lists air transport agreements registered with I.C.A.O. up to 31st
December, 1965. The number quoted does not include agreements not registered
with I.C.A.O.
2 The decision of the Arbitration Tribunal, decided on December 22, 1963, is
published in 3 International Legal Materials 668 (1964) and in I.T.A. (Institut
du Transport Adrien) Study 66/2-E (1966).
3 Italy – U.S. Air Transport Arbitration; Advisory Opinion of Tribunal (given
at Geneva, July 17, 1965) is published in 4 International Legal Materials, 974
(1965).
4 In the Annual Report of the U.S. Civil Aeronautics Board (36-37 and Appen-
dix 14) there appears a list of countries with which U.S. negotiated in 1964.
It can be safely assumed that two of the five formal negotiations listed and the
majority of the thirty one informal negotiations listed involved disputes about
the interpretation and application of the air transport agreements concerned.
From his personal experience the writer has found that where the airlines of
states, parties to an agreement, are operating in competition, disputes are fre-
quent.
5 In the absence of authoritative statements one can only surmise the reasons.
Both parties lose control of the dispute. There is the danger of an adverse deci-
sion which would financially have more adverse results than a compromise.
Suspicion exists as to the impartiality of arbitral tribunals. It is better to cut
one’s
losses from unilateral
restrictions during the period – not less than twelve months –
that the matter
is under arbitration. Perhaps the major reason is that the benefit of a favour-
able decision may be lost by the losing state giving twelve months notice of
termination of the agreement.
losses by compromise rather than suffer the
6 France – U.S.A. Arbitration, n. 2, supra, 670, and Italy – U.S.A. Arbitration,
n. 3 supra, 977.
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INTERNATIONAL AIR CARGO SERVICE
ommendations made in 1963 by an interagency steering committee
and approved by the President 7 that arbitration should be used as
one of the means for securing relief in the situation where a foreign
government, unilaterally and, in the U.S. Government’s view, in
violation of the provisions of the relevant air transport agreement,
imposed restrictions on the operations of US. airlines into its
territory.8
The matter in dispute in the Italy-U.S.A. arbitration clearly
falls within that class. The Italian Government refused to permit
U.S. airlines operating all-cargo services into Italy to increase the
frequency of their all-cargo services or to substitute larger aircraft
for the aircraft already being used. The Italian Government contended
that all-cargo services lay outside the terms of the Air Transport
Agreement between Italy and the United States. 9 The U.S. Govern-
ment took the contrary view. The interpretation placed on the
Agreement by the Italian Government had far-reaching implications,
for the whole corpus of air transport agreements. To a large extent
7 A statement of U.S. International Air Transport Policy, prepared by an Inter
Agency Steering Committee comprising the Administrator of the Federal Aviation
Agency and representatives of the Bureau of Budget, the Civil Aeronautics Board,
the Agency for International Development, the Department of State, the Depart-
ment of Commerce and the Department of Defence, was released from the White
House on April 24, 1963. The Committee was created in 1961 to review and make
recommendations on U.S. international air transport policy. The statement is
apparently a synthesis of the recommendations of the Committee. The President
in releasing the report said: “I am directing the officials of this Government
concerned with air transport to be guided by this policy statement in carrying
out their statutory responsibilities.”
s The range of remedies that are in practice available to the U.S. Government
are limited. While in the absence of statistical information it
is impossible to
reach informed conclusions, it seems that U.S. airlines, in most cases in -which
restrictions are imposed by foreign governments, are obtaining more benefits
from enjoyment of the rights under the agreements than their foreign competitors.
Consequently denunciation which may in any case be politically undesirable is
likely to do more harm to U.S. interests than foreign interests. Reprisals in kind
are unlikely to be effective in an environment where the foreign airline is at
a disadvantage. Thus, the only practical weapons left are persuasion and arbitra-
tion. Furthermore, pressures from U.S. airlines probably limit the possibilities
for compromise, e.g. by surrendering a portion of the rights already held or by
granting additional privileges to the other Government. See International Air
Transportation Problems, Hearings before the Aviation Sub-Committee of the
Committee of Commerce, U.S. Senate, 87th Congress, 1st Session, 22nd Sept. 1961.
9 Air Transport Agreement between the Governments of Italy and the United
States, signed at Rome on 6 February 1948, 73 U.N.T.S. 113; amended by an
exchange of notes effective 24 March, 1950, 89 U.N.T.S. 394, and by an exchange
of notes effective 4 August, 1960, 388 U.N.T.S. 338.
314
McGILL LAW JOURNAL
[Vol. 12
the texts of air transport agreements have been standardized and
the interpretation of the Italian Government, if the possibility of
other constructions arising from the practice of the Parties is ignored,
applies with equal force to many other air transport agreements.
Events leading to the Dispute 11
All-cargo air services were inaugurated by Trans World Airlines
(T.W.A.) to Italy in January 1947 under a temporary agreement and
prior to the conclusion of the definitive agreement in February, 1948.
All-cargo services were suspended in May, 1950 and were not re-
sumed by T.W.A. until October, 1.958. When the dispute arose, T.W.A.
was operating four all-cargo services a week. Pan American Airways
(P.A.A.) commenced operation of the all-cargo services to Italy in
September 1960. The frequency was altered from time to time rising
to a maximum of four a week. At the time of the dispute P.A.A.
was operating two services a week. Alitalia commenced operating
cargo services in 1961 and was averaging three services a week at
the commencement of the dispute.’2
The Dispute13
The occasion for the dispute was the submission on 10th June,
1963, by the United States Embassy in Rome of a time-table providing
for an increase in the frequency of P.A.A.’s cargo services from
two to four services a week. On July 3, the Italian Government
advised the Embassy that it could not consent to the increase in
frequency, as it would aggravate the imbalance already existing be-
tween Italian and United States services. The increase in service was
not justified by the traffic demand. The air transport agreement
regulated only combination services and did not mention all-cargo
1OThe Japanese Government in its dispute with U.S.A. over the Japan –
U.S.A. air transport agreement appears to have adopted the Italian interpretation
when it stopped the operation of a new all-cargo service by Pan American
Airways in June 1965. In an exchange of notes on December 28, 1965 (54 Dept.
of State Bull. 141 (1966), the parties agree inter alia that all-cargo services are
permitted by the agreement.
“. Opinion of the Tribunal, Italy – U.S. Abitration, n. 3, supra 976-977.
12 A most important practical consideration is that Alitalia probably did not
have aircraft available to match the combined T.W.A. and P.A.A. frequency. To
operate jet cargo services it hired jet aircraft from a U.S. company, Airlift Inter-
national Inc., n. 3, supra, 977.
13 N. 3, supra, 977.
No. 3]
INTERNATIONAL AIR CARGO SERVICE
services which were being operated on the basis of a reciprocal
concession outside of the agreement. Subsequent approaches for
consent to an increase in the frequency of T.W.A.’s cargo services and
the substitution of jet aircraft for the piston engined aircraft used
on T.W.A.’s existing cargo services were rejected on similar grounds.
The U.S. Government requested consultations in pursuance of
Article 10 of the Agreement. These were held in March 1964 and,
as no agreement could be reached as to the basic issue of whether
the agreement authorized cargo services, it was agreed to refer the
dispute to arbitration. An interim arrangement was reached under
which eight jet cargo services a week could be operated, four by
the U.S. airlines and four by the Italian airline.
Constitution of the Arbitral Tribunal
On March 23, 1964 the United States invoked the arbitration
clause, Article 12, of the agreement and a Compris of Arbitration
was signed at Rome on 30th June, 1964.14 In pursuance of the arbi-
tration clause the United States nominated Professor Stanley B.
Metzger of Georgetown University, Washington, D.C. The Italian
Government nominated Professort Riccardo Monaco of Rome Uni-
versity. The third member selected by the national nominees to be
President of the Tribunal was Professor Otto Riese of the University
of Lausanne.
The members of the Tribunal disagreed. Professor Riese and
Metzger in a joint opinion held that the U.S. interpretation was cor-
14 The arbitration clause –
article 12 –
provides, interalia, that any dispute
between the parties relating to the interpretation or application of the agreement
or its annex which cannot be settled through consultations –
in accordance
with article 10 –
shall be submitted for an advisory report to a tribunal of
three arbitrators, one to be named by each party and the third to be agreed
upon between the arbitrators so named or, failing agreement, by the President
of the Council of the International Civil Aviation Organization. It further
provides that the executive authorities of the parties will use their best efforts
to put into effect the opinion expressed in any advisory report. The compris of
arbitration (3 Intl. Leg. Mats. 1001) inter alia specifies the question for the
tribunal, the periods within which arbitrators are to appointed, the rules for
the conduct of proceedings and the place for hearing and provides for a decision
by a simple majority, clarification of the Tribunal’s opinion if requested and the
sharing of the costs of the arbitration. For a discussion of arbitration under air
transport agreements, see Paul B. Larsen, Arbitration in Bilateral Air Transport
Agreement 2 ATkiv for Luftrett 147 (1964) and Arbitration of the United States
–
France Air Traffic Rights Dispute, 30 J. Air L. & Com. 231 (1964).
316
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[Vol. 12
rect. Their opinion is described as the opinion of the Tribunal and
in this note they are referred as the Tribunal. Professor Monaco
dissented.
Issue Considered by the Tribunal
The question put to the Tribunal was as follows
Does the Air Transport Agreement between the United States of America
and Italy, as amended, grant the right to a designated airline of either party to
operate scheduled flights carrying cargo only ? 15
The resolution of this question rested primarily on the construction
of certain provisions of the agreement. Article 1 defines, subject to
the normal provisio, “except where the text otherwise provides,” “air
service”, by incorporating Article 96 (a) of the Chicago Convention 10
in the agreement, as “any scheduled air service performed by air-
craft for the public transport of passengers, mail or cargo.” Under
Article 2 each government grants to the other the rights specified
in the Annex (to the Agreement) for establishing the international
civil air routes and services described therein. Sections I and II of
the Annex provide that each government grants to the other govern-
ment the right to conduct air transport services by one or more
carriers designated by that other government on the routes, specified
in the appropriate schedule, which transit or serve commercially the
first government’s territory. These provisions were crucial in view
of the Agent of the United States to answering the question. However
Section III upon which the main thrust of the Italian Agent’s argu-
ment rested provided: “One or more air carriers designated by each
of the contracting parties.., will enjoy, in the territory of the other
contracting party, rights of transit and stop for non-traffic purposes,
as well as the right to embark and disembark 17 international traffic
in passengers, cargo and mail at the points enumerated…”
15 Article 1 of the Compris of Arbitration id. The phrase “designated airline”
is used in the question, as under the agreement rights exchanged may only be
exercised by airlines that have been designated by each contracting party. The
agreement contains provisions (Articles 3 and 7) which permit the aeronautical
authorities of one party to withhold rights from an airline designated by the
other party if the airline does not satisfy the conditions specified
in the
agreement.
16 Convention on International Civil Aviation concluded at Chicago on 7th
December 1944, 15 U.N.T.S. 295.
17 The words “as well as the right to embark and disembark…” are a literal
translation of the Italian text of the Agreement. The authentic English text reads
“as well as the right of commercial entry and departure for…” The first is used
as it appears to have been preferred by the Tribunal.
No. 3]
INTERNATIONAL AIR CARGO SERVICE
The Italian Argument
The Italian Government argued that Section III was the decisive
provision. The phrase “passengers, cargo and mail” used in that
provision excluded application of the definition of air services as
the specific reference was a case of the text providing otherwise.
The word “and” in the phrase was used in a cumulative sense.
Consequently when read as a whole Section III granted only the right
to operate combination services.’ The subsequent conduct of the
parties was not relevant as there was no ambiguity in the text and
in any event it lacked continuity. All-cargo services had been conducted
on the basis of special concessions or tacit authorizations. 19
United States Argument
The United States Government argued that Sections I and II of
the Annex were the key provisions. These provisions constituted the
exchange of rights between the parties and when used in conjunction
with the definition of air service in the Chicago Convention conferred
the right to conduct air services for the carriage of passengers, cargo
or mail. Sections III should be construed in harmony with these pro-
visions. It was unthinkable that a contradiction should exist between
it and these provisions. Indeed Section III referred only to types of
load and not the means of transport employed. “And” and “or” are
used indiscriminatingly to describe the whole system of commercial
air services.2 0 The subsequent conduct of the parties in allowing all
cargo services to be operated was evidence that the agreement was
intended to cover cargo services.2 1
Is N. 3, supra, 978. Auxiliary argument are –
(a) as international all-cargo
air services were not well established in1948, they could well have been left without
(b) all-cargo services constituted a distinct type of
international regulation;
traffic not amenable to the same form of regulation as combination service;
(c) as the agreement had been proposed by the United States the contra profertem
principle had to be applied; and (d) the principle that the interpretation which
least restricts the sovereignty of states must be applied.
‘9 N. 3 supra, 978.
20 N. 3 supra, 978. In support of these points it was pointed out: (a) The
Chicago Convention, n. 16 supra, and the Bermuda agreement (agreement with
the United Kingdom, signed 11th February, 1946, 3 U.N.T.S. 253) upon which
the Agreement with Italy was based, was clearly intended to regulate all scheduled
commercial services and (b) “and” and “or” are used indiscriminately in the
Chicago Convention and other agreements, in the Italian translation of article
6 of the Agreement and in other Italian agreements.
21 N. 3 supra, 978. The U.S. also argued that if the agreement did not cover
all-cargo services these would be illegal in violation of Article 6 of the Chicago
Convention which provides that no scheduled international air service may be
McGILL LAW JOURNAL
[Vol. 12
Opinion of the Tribunal 22
The Tribunal concluded that the agreement authorized the oper-
ation of all-cargo services. They first decided that Section III on its
true construction authorized all-cargo services even if “and” in the
section is given a cumulative meaning. No doubt “to cover their bets”
they then held that in any event “and” was used in the sense of “or”.
They next found an intention on the part of the contracting parties
at the time of the negotiation of the agreement to authorize cargo
services; amongst other things by an extraordinary process of reason-
ing they imputed to the Italian Government knowledge of the effect
of the Bermuda Agreement 23 in relation to cargo services. Sub-
sequent conduct in the form of operation of cargo services was held
to be evidence of the intentions of the parties.
The Italian argument was that the words “to embark and dis-
embark international traffic in passengers, cargo and mail” controlled
the type of service that could be provided. It had to be a combination
service, i.e. a service intended for the carriage of all three types of
traffic. The Tribunal decisively rejected this interpretation:
“Attributing its normal cumulative sense to the word ‘and’ the text merely
declares that the carriers have the right to embark and disembark one and
the other of three types of load; i.e. that they can embark and disembark
passengers, embark and disembark cargo, embark and disembark mail. The
text thus enumerates cumulatively possible loads for carriage by air and
grants the right – without however imposing any obligations –
to carry
them all; on the other hand, this text does not pronounce on the type of the
means of transport to be employed –
the nature, equipment, type or uilisa-
tion of the aircraft performing the carriage, nor of the kind or character
of service. It therefore does not follow directly from the text that only com-
bination services are permitted. ’24
Another and, it is submitted, more persuasive form of reasoning
would lead to the same conclusion. The words “in passengers, cargo
and mail” were inserted after “international traffic” to remove any
doubts about the composition of traffic. Sections I and II exchange
the right to conduct services and incidentally define the type of serv-
ices that may be conducted, namely, services for the public transport
operated over or into the territory of a contracting State, except with the special
permission or other authorization of that state… The Italian answer which
appears to a conclusive one, if main contention was correct, was that there
were tacit authorizations. Article 6 does not require the permission or authori-
zations to be in writing.
. 3 supra, 979-984.
22
23 N. 20 supra.
24 N. 3 supra, 980.
No. 3]
INTERNATIONAL AIR CARGO SERVICE
by air of passengers, cargo or mail. The purpose of Section III is
to define:
(a) the persons who may take the benefit of the Agreement, namely,
airlines designated by each party;
(b) the type of air rights which the services may exercise, namely,
transit and traffic rights;
(c) the olass of traffic which the traffic rights entitled the airlines
to, namely, international traffic.
It is surprising that the Tribunal should find it necessary to hold
that “and” in Section III means “or”, after, without doing violence
to the ordinary meaning of the words, it had concluded that all-cargo
services were included within the Agreement. It does detract from
the force of their first finding. They reasoned that “and” was used
as equivalent to “or” by reference to the indiscriminate use of these
words in the Chicago Convention, 25 in the Agreement and on the view
that it was incomprehensible that Section III should permit only
combination services when the Governments in Sections I and II ex-
change the right to operate combination and cargo services. 26
The Tribunal felt that the interpretation was supported by the
intentions of the parties. There were no travaux pr6paratoires to
refer to; consequently they based their inferences as to the parties’
intentions on related instruments and their subsequent conduct.
It was apparent, the Tribunal said, that the objective of the
American Government was to secure an agreement containing the
principles of the Bermuda agreement 27 and covering all types of
traffic. The Tribunal felt that the Italian Government must have
25 Sloppiness in the drafting of the Chicago Convention seems hardly relevant
to the agreement with Italy, unless it is used to show, as seems to be the case,
that it is the custom of those who draft civil aviation agreements to use alternative
indiscriminately. Does this now sanctify the
and co-ordinating conjunctions
practice if there be one ?
26 Another possible approach is that the parties leliberately changed to “and”
relying upon the particular over-riding the general.
2 7 n. 20 supra. The distinctive principles which the Bermuda agreement pio-
neered are –
(a) the capacity that the airlines of each party may provide is
related primarily to the traffic originating in or destined for its territory and
secondarily, subject to certain specified principles, to the traffic moving between
third countries, the capacity provided being subject to ex post facto review, and
(b) tariffs charged by the airlines of the parties are subject to the approval of
these parties. There are differences of opinion as the interpretation of the capacity
principles. See McCarrol, The Bermuda Capacity Clauses in the Jet Age, 29 J. Air
L. and Com. 115, (1963) and Jack., J. Roy. Aero. Soc., July 1965, 471.
McGILL LAW JOURNAL
[Vol. 12
been aware of this objective and must have been familiar with the
content and purposes of the Bermuda agreement. It therefore with
full knowledge of the facts accepted the United States proposals. It
is essential to the Tribunal reasoning that the text of the Bermuda
agreement should be unambigious and that it should have been ac-
cepted as the basis of the agreement with Italy. If the text of the
Bermuda agreement is not free of ambiguity on the question in issue
in the arbitration it is obviously essential that at the date of the
negotiations for the 1948 agreement the Italian Government should
have been aware, despite any material ambiguity, of the interpretation
accepted by the parties to the Bermuda agreement.
The argument of Italy in relation to its agreement with U.S.A.
applies with equal force to the Bermuda agreement as textually they
are in all material respects identical.2 8 Knowledge of the scope of
the Bermuda agreement is imputed to Italian Government, because,
in a press communique issued by it at the signing of the 1948 agree-
ment, the Italian Government stated the 1948 agreement was based on
the Bermuda agreement and because the representatives of the
Italian Government had attended an international conference in
November 1947 at which Bermuda principles were discussed at length.
The fact that an agreement is based on another does not make them
identical in effect. The effect of an agreement, which serves as the
basis for the second agreement, may be affected materially by travaux
28 The Tribunal considered that two clauses in the Bermuda Agreement put it
beyond doubt that it covered cargo services, the capacity and change of gauge
clauses. The same capacity clause is used in the 1948 Agreement and it was not
relied on by the Tribunal as an aid to interpreting that agreement. The fact is
that the traffic rights granted and the type of services to be operated are governed
in the Bermuda agreement by the equivalent of Sections I, II and III of the
Annex to the 1948 agreement. The capacity clause merely controls the quantity
of capacity which the services may provide. The change of gauge clause permits,
and prescribes the conditions under which, the airline of one party may switch to
smaller aircraft in the territory of the other party for onward operation of its
services. It argued further that the exclusion of cargo services was inconsistent
with the objective of the Bermuda agreement –
to establish a legal regime for all
international commercial civil aviation, an objective which, in their view, was re-
flected in the Chicago Convention and the 1948 agreement. It would have been
stated clearly that all-cargo services were excluded in all three instruments which
were intended to create a regime intended to benefit international civil aviation as
a whole. While it is true that the parties to the Bermuda agreement did express
the hope that the Bermuda agreement would serve as a model for air transport
agreements generally and for the multilateral air transport agreement then being
considered by I.C.A.O. (Joint statement, 19 Sept. 1946, 15 Dept. State Bull. 577
(1946), it is difficult to see what relevance this hope has to the scope of the 1948
agreement.
No. 3]
INTERNATIONAL AIR CARGO SERVICE
pr6paratoire, confidential interpretative understandings, 29 or practice.
These matters will be known only to the parties to the model agree-
ment. It seems most unjust to impute to the Italian Government an
interpretation which may rest on extraneous material not available
to it. As to attending an international conference at which the
Bermuda agreement was, inter alia, discussed, the Tribunal’s own
statement that the reference to the 1947 conference cannot be used
in interpreting the disputed 1948 agreement because these antecedents
have no bearing on it is clearly correct. The Tribunal’s explanation
of the reference is that it shows that Italy was acquainted with the
regime established by the Bermuda agreement. As discussion at the
conference in question revolved in the main around the issue of the
principles to govern capacity, it is submitted that the reference proves
nothing.30
The statement of the Tribunal that “at all events, all-cargo air
services were already known and being operated at the time the
Bermuda agreement and the 1948 Italian-American agreement were
concluded and this fact is decisive” 31 explains why they embarked
upon this line of reasoning. Furthermore, as the Tribunal must have
been aware, cargo services have been operated all over the world
within the framework of agreements expressed in identical terms.
Subsequent conduct of the parties is the basis upon which the
Tribunal relied to show its answer was consistent with the intentions
of the parties. For six years all-cargo services had been operated
29 It is a common practice for the parties to air transport agreement to record
in confidential memoranda their understandings of the interpretation and effect
of provisions of the agreement over which there was dispute in the course of
the negotiations.
30 The Conference to which the Tribunal refers is the Commission on Multilate-
ral Agreement on Commercial Rights in International Air Transport which met at
Geneva in November 1947 (I.C.A.O. Dec. 5230 A 2 – EC/10). The Commission
failed to agree upon a multilateral argument for the exchange of traffic rights
(for a summary of the work of the Commission and its antecedents, see Cribbet,
In the 800 pages of documentation and records
54 J. Roy, Aero. Soc. 669, (1950).
of the Commission there is no reference to all-cargo services. What significance
should be attached to this is incapable of a definite answer. The participants may
have assumed cargo services were to be included or, more probably, never ad-
dressed their minds to the question.
31 N. 3 supra, 983. The writer believes that, irrespective of the weight that is
given to the remark, it is inconceivable that the negotiatiors in the 1948 negotia-
tions overlooked the fact that cargo services were operating and that they must
have intended the agreement to cover them. It is contrary to normal negotiating
practice not to make a record that a party is permitting the continuance of a state
of affairs under protest and without prejudice to its remedies.
McGILL LAW JOURNAL
[Vol. 12
without protest and without either party applying for permission.
Each party had notified the other by letter of the inauguration of cargo
services without requesting or being granted permission and filed
timetables when the services were varied.,3 2 Both parties therefore
acted on the basis that the agreement covered all-cargo services.
The Tribunal considered that the conduct was insufficient to justify
them finding that a tacit agreement existed.33 The United States ap-
parently did not raise this argument.3 4 The subsequent conduct, how-
ever, was evidence of the intentions of the parties, evidence which
was consistent with the Tribunal’s interpretation of the agreement.
In effect the Tribunal felt that the “tacit concessions” argument of
Italy was an inherently improbable one.
The Tribunal considered that evidence of practice under other air
transport agreements to which the disputants were parties was of
minor importance in view of the clear evidence of the meaning of
the agreement from its language and the practice of the parties.
Dissenting Opinion
Professor Monaco considered that general agreements entered into
between third party states were not applicable. The sole source of
the obligations and rights of the parties was the agreement. In his
view the agreement should be divided into two parts, the normative
part containing provisions of a general character and definitions,
and the second part –
containing
provisions relating to the economic and commercial content of the
agreement. The distinguishing feature of the second part was that
it was “generally capable of being revised or amended” to meet chang-
ing circumstances. Article 2 in the normative part was only effective
he seems to mean the Annex –
32 The filing of timetables does not necessarily amount to in application for
permission. Many countries require the filing timetables for various purposes,
e.g. to ensure that the air traffic control service are aware of the services and
that the services are being operated in accordance with the agreement.
331n the Franco-American Arbitration, n. 2 supra, the Tribunal held that the
French interpretation of the Franco – U.S.A. air transport was correct, but
that, by subsequent conduct and acquiesence, tacit agreements had arisen, which
authorized the operation by U.S. airlines to the places challenged by the French
Government.
34 N.3 supra 983. Tactically it would have been most dangerous for the U.S.A.
to have so argued. It would have provided a useful compromise for the Tribunal
to find for Italy on principle and for the U.S. on the grounds of an implied
–
agreement resulting from subsequent conduct. But such a finding would have
placed in doubt the scope of the rights granted to U.S. under its other agreements.
No. 3]
INTERNATIONAL AIR CARGO SERVICE
323
to the extent that Section III defined the content of the grant. The
role of Sections I and II was conjunctive. They related the content
of the grant in Section III with Article 2. The definition of air
service only applied in relation to general principles and definitions
but not to the content of the grant contained in Section III. The use
of “and” to join “passengers, cargo and mail” clearly excluded the
possibility of all-cargo services. The basic principle of treaty inter-
pretation is that it must be read as a whole to find the intention
of the parties.35 Although the economic and commercial provisions
are segregated in the Agreement from the rest of the provisions,
the definitions are expressed to apply to Annex as well as the body
of the Agreement. Finally Sections I and II quite clearly are more
than conjunctive. They grant the right to operate air services. Section
III defines the content of the rights the air services may enjoy.
Professor Monaco rebutted arguments contrary to his thesis. As
it is a right (and not an obligation) to embark and disembark traffic,
the three types of -load do not have to be embarked or disembarked
simultaneously. The service must only be technically and oper-
ationally a combination service. He distinguishes between the means
of transport and the type of service. The former has not been in-
dicated.36 Section III controls the type of service. It mentioned only
combination services.
The definition of “air service” does not apply to Section III, as
a different formula is used. Section III is, in any event, reconcilable
with Sections I and II (this argument suggests lack of confidence
in the validity of his main argument), as the first two sections deal
with the general and Section III with the specific. He regarded the
Bermuda agreement as irrelevant. The agreement does not refer to
it and the intent of the parties can only be found in the agreement.
The objective of the U.S. Government is only decisive to the extent
that it was shared by the Italian Government. But even if at the
time of signature cargo services were covered, cargo services have
since become a separate category of operation.
The last argument is that the Annex provides “for an equilibrium
reflecting actual operational possibilities.” At the time the agreement
was negotiated Italy could not possibly operate all-cargo services.
It would be contrary to the principle of assent and to sovereignty
35 O’Connel, International Law, 275 (1965).
36 Sections I and II when read in conjunction with the definition of air service
clearly describe the means of transport and the service that may be provided
by the means of transport.
McGILL LAW JOURNAL
[Vol. 12
as exemplified by the Chicago Convention to interpret the agreement
extensively to restrict the sovereignty of a party to a greater degree
than intended by that party. Section III reflected the situation that
Italy was precluded from operating cargo services 7 This argument
was bolstered by reference to Section V which provides that there
shall be fair and equal opportunity for the carriers of the contracting
parties to operate on any route between their respective territories…
Equal opportunity implies the operation by or the possibility for both
parties to operate the same type of service. But Italy did not even
envisage operating all-cargo services, and consequently, cargo services
could not be regarded as being included in the grant of rights in the
absence of express provision. The writer finds it is difficult to see
what relevance Section V has to the grant of the rights. Their source
is Sections I-III. Section V appears to be one of the principles which
governs the exercise of these rights. On this view Section V has
nothing to do with the scope of the rights exchanged. It might,
however, justify measures against the airlines of one party to ensure
that the airline of the other party has a fair and equal opportunity
to exercise the right to operate services of a particular kind. The
effect of provisions similar to Section V have been the subject of
conflicting interpretations. 38
Professor Monaco found that the operation of cargo services
between 1947 and 1952 and from 1958 “absolutely cannot be regarded
as indicating an intention of the two parties to include all-cargo
services.” He accepted the “tacit concessions” argument, pointing
out that it was practice to grant temporary authorizations. The force
of this argument is however weakened by the international practice
of granting temporary authorizations in writing. He considered that
in 1961 the Italian Government did not seek authority for its airlines
to operate cargo services, because it assumed that under the principle
of reciprocity it was entitled to do so. Again practice is a fundamental
obstacle. A temporary authorization usually is unilateral in the sense
that it grants the right to the other country to operate a service
into the grantor’s territory. The grantee in the absence of express
provision as to grantor’s rights to operate a service which he accepts
37 This is surprising. Its airline could have, as it did in 1961, hired aircraft.
38 Section V is based on a similar provision in the Bermuda agreement. Contra-
dictory interpretations are placed upon it. One view is that it prohibits unfair
competition and discriminatory practices and does not imply allocation of frequen-
cies or a duty to remove inherent disabilities under which an airline may labour.
The other view taken by a number of countries is that it does imply, in ap-
propriate circumstances, allocation of frequencies. It implies practical equality,
e.g. the operation of aircraft of equivalent attractiveness.
No. 3]
INTERNATIONAL AIR CARGO SERVICE
either expressly or by acquiesence, e.g. by operation of the service,
cannot be considered bound. The argument of tacit concession is, in
the writer’s view, a flimsy disguise for the fact that the Italian
Government itself believed until 1963 that cargo services were author-
ized by the agreement.
The U.S. Government must find the decisions of the Tribunal
unsatisfactory. The extent to which the Tribunal relied on matters
that were special to the Italy-U.S. agreement makes it possible to
distinguish the decision in the event that the same question is raised
by other governments. This could seriously hinder the present devel-
opment now being sponsored by the U.S. Government of international
air cargo services. 9
The reaction of the Italian Government has been to give notice
of termination of the agreement.40 It seems clear that the issue of
all-cargo services was only a symptom of more fundamental disagree-
ments. Italy desires to extend its routes across the U.S.A. to points
in South America and the Pacific and to introduce a system of allo-
cation of frequencies. 41 The last reflects the desire of its airline,
Alitalia, for protection from “uncontrolled, all-powerful and over-
whelming competition” 42 and is consistent with Italian international
air transport policy.43
While it is probable that the U.S. airlines are earning more
revenue from their operations into Italy than the Italian airline is
39 For example, Statement on U.S. International Air Transport Policy, n. 7
supra, and remarks by the Chairman of the Civil Aeronautics Board before the
International Aviation Club 28/1/65 (C.A.B. Press Release).
4OAeroplane, 16 June, 1966, 12; Article 9 of the agreement provides that the
agreement shall terminate one year after notice of termination is given by either
party.
41 Aeroplane & Commercial Aviation News 25 Nov. 1965, 14; Aeroplane, n. 40
supra, and Aeronautica, 13th November 1965. Negotiations were held in November
1965 in which it was reported that U.S. was prepared to permit some extension
of Italy’s routes in return for extensions of its routes, but refused to accept
frequency limitations, I1 Tempo, 15th November 1965.
42 Quoted from the 1965 Annual Report of Alitalia, reported in Aeroplane
July 21, 1966, 8.
43 The agreements which Italy has with Australia (I.C.A.O. No. 1688) and Cana-
da (335 UNTS 281) contain articles making provision for predetermination of
frequencies. It is believed that certain other agreements which do not contain
express frequency controls are the subject of confidential understandings
to
that effect.
McGILL LAW JOURNAL
[Vol. 12
earning from traffic picked up or discharged in the U.S.A., 44 Italy
stands to lose far more than the U.S.A. should they fail to reach
agreement. The revenue earned by Alitalia from its services to U.S.A.
is a far higher proportion of its total revenue than is the case for
the U.S. airlines.45 Consequently, the loss of operating rights would
have far more serious effects on Alitalia. By virtue of the range of
points which U.S. airlines serve in Europe they should be able to
retain most of the revenue from their Rome traffic by disembarking
or embarking it at other places in Europe for on carriage by other
airlines. This course is not open to Alitalia, as its only other landing
place in North America is Montreal. It is unlikely that the Canadian
Government would welcome Alitalia operating the frequency of
service necessary to serve its United States traffic. 46
44 In 1964 U.S. airlines carried 132,869 passengers between the United States and
(Avi-Week and Space Technol. October 25, 1965).
Italy and Alitalia 143,968
These figures do not include the considerable traffic which U.S. airlines carry
between Italy and third countries or the similar type of traffic carried by
Alitalia. In all probability the U.S. airlines when their carryings to third countries
and their all-cargo services are taken in to account are in a better position than
Italy.
45 On a conservative basis Alitalia earned from the carriage of passengers
between United States and Italy in 1964 $40,000,000 and $7,600,000 from the
carriage of traffic between U.S.A. and countries between Italy and U.S.A. To
this should be added the revenues from the carriage of traffic to and from
points being beyond Rome e.g. to and from Athens and Nairobi through Rome.
46 The Canada Italy agreement, n. 43 supra, provides for allocation of frequen-
cies. Canada may therefore control Alitalia’s frequencies.
