UNITED STATES OF AMERICA 

DEPARTMENT OF TRANSPORTATION 

OFFICE OF THE SECRETARY 

WASHINGTON, D.C. 

IN RE HAWAIIAN INSPECTION FEE ) 

PROCEEDING ) Docket DOT-OST-2010-0243 

OPENING COMMENTS OF THE AIR TRANSPORT 

ASSOCIATION OF AMERICA, INC. 

IN SUPPORT OF THE PETITION FOR DECLARATORY ORDER 

Roy Goldberg 

Sheppard Mullin Richter & 

Hampton, LLP 

1300 I Street, N.W. 

Suite 1100 East 

Washington, D.C. 20005-3314 

Tel. (202) 218-0007 

Facsimile (202) 312-9425 

Email: rgoldbergasheppardrnullin.com 

David A. Berg 

Doug Mullen 

Air Transport Association of 

America, Inc. 

1301 Pennsylvania Avenue, N.W. 

Suite 1100 

Washington, D.C. 20004-1278 

Tel. (202) 626-4234 

Facsimile (202) 626-4139 

Email: dberg@airlines.org 

dmullenQairlines.org 

Dated: November 1, 2010 
INTRODUCTION 

The Air Transportation Association of America, Inc. ("ATA"), on behalf of itself 

and its air carrier members,' hereby submits the following comments in response to the 

Department's Instituting Order dated September 30, 2010 ("IO"). The Department has 

properly .instituted this proceeding "to determine the lawfulness of Hawaii's inspection 

fee statute as applied to air carriers." 2As set forth below, the Department should issue an 

order declaring that Hawaii Revised Statute § 150A, as amended by Act 173 S.B. No. 

2523 (2010) (hereafter the "Freight Fee Law"), as applied to air carriers, violates and is 

preempted by the Anti-Head Tax Act ("AHTA"), currently codified at 49 U.S.C. § 

40116, and the Airline Deregulation Act ("ADA"), currently codified at 49 U.S.C. § 

41713(b)(1). 

SUMMARY OF ARGUMENT 

As amended by Act 173, the Freight Fee Law requires air carriers which sell 

transportation of freight into Hawaii by aircraft to bill their customers a freight inspection 

fee based on the net weight of the freight determined by pounds (the "Freight Fee"), and 

imposes a fine of fifty dollars or more per transaction if the air carrier fails to timely 

invoice its customers for the Freight Fee, and remit payment of the Freight Fee to the 

1 The ATA is the principal trade and service organization for the U.S. scheduled service industry. 

Members are: ABX Air, AirTran Airways, Inc., Alaska Airlines, American Airlines, ASTAR Air 

Cargo, Atlas Air, Inc., Continental Airlines, Inc., Delta Air Lines, Inc., Evergreen International 

Airlines, Inc., Federal Express Corporation, Hawaiian Airlines, Inc., JetBlue Airways Corp., 

Southwest Airlines Co., United Air Lines, Inc., United Parcel Service Co., and US Airways, Inc. 

Associate members are Air Canada, Air Jamaica, and Mexicana Airlines. Hawaiian Airlines does 

not join in these Comments. 

, 2 10, at 1. 
Hawaii Department of Agriculture ("HDOA"). Moreover, the HDOA has asserted that 

Act 173 renders air carriers liable for these obligations retroactive to August 1, 2008. 

By requiring air carriers to invoice and remit the Freight Fee, the Freight Fee Law 

violates and is preempted by the Anti-Head Tax Act ("AHTA"), 49 U.S.C. § 40116, 

because it imposes a "charge" on the sale of the transportation of "property by aircraft." 

The AHTA prohibits the imposition of taxes, fees, and charges by state and local 

jurisdictions on airlines. Congress intended the AHTA to prevent the undue burden on 

interstate commerce and the economic harm on airlines, passengers, and shippers that 

would be inevitable if state and local governments were left to their own devices to raise 

general revenues on the back of commercial aviation. Only under certain enumerated 

exceptions to the statute's general prohibition may state and local authorities impose and 

collect fees and taxes in connection with the sale of air transportation, and no such 

exceptions apply here. 

The Freight Fee Law also violates the Airline Deregulation Act ("ADA"), 49 

U.S.C. § 41713(b)(1), because it is a "law . . . related to a price, route, or service of an air 

carrier" for which no statutory exemption applies. Among other things, the Freight Fee 

and the associated fines: (I) "relate" to the "price" being charged by the air carriers 

because such charge must either be borne by the air carrier or passed on to its air freight 

customers; (2) "relate" to the "service" of the air carriers which are being forced to 

provide the "service" of billing, collecting, and remitting fees on behalf of their shipper 

customers; and (3) "relate" to the "routes" of air carriers because the burden imposed on 

carriers of needing to invoice, collect and remit the fees, or face significant monetary 
sanctions for failing to do so, may impact the decision of that carrier whether to provide 

air service to Hawaii. 

As demonstrated below, the requirement in the Freight Fee Law for air carriers to 

bill and collect the Freight Fees from their shipper customers — or face significant 

monetary sanctions — imposes a significant administrative and financial burden on the 

airlines. Attached as Exhibits A, B and C hereto are declarations from officials from 

United Air Lines ("United") and Federal Express Corporation ("Fedex") which describe 

in detail the practical difficulties that the airlines must endure, and the significant costs 

they must incur, in order to attempt to comply with the requirements of the new law. 

Notably, however, even if there was no significant financial and administrative burden 

associated with the Freight Fee Law (and there clearly is), the Freight Fee Law is still 

unlawful because, as applied to air carriers, it constitutes a per se violation of both the 

AHTA and the ADA. 

The Department must not lose sight of the fact that allowing Hawaii to impose the 

Freight Fee would establish a dangerous precedent that is likely to be mimicked across 

the country by other revenue-strapped state and local governments. This would impose 

additional significant costs on air carriers that are already subject to enormous cost 

pressures from operating costs, labor, fuel, landing fees, terminal rents, other airport 

charges, and new federal regulatory requirements, and could force airlines to reduce or 

eliminate service to the states imposing the increased administrative and fiscal burden on 

the airlines. It is not difficult to imagine how quickly a proliferation of fees, taxes, and 

other charges by state and local governments could lead to a mushrooming effect that 

threatens to cripple the national air transportation system. 

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STATEMENT OF FACTS 

The Hawaiian Freight Fee Law 

During the 2008 Legislative Special Session, the Hawaiian Legislature enacted 

HB 2843, which was codified as Hawaii Revised Statute Chapter 150A. The effective 

date of the statute was August 1, 2008. As originally enacted, Section 150A-5.3 stated: 

Inspection, quarantine, and eradication service fee and charge. 

There is imposed a fee for the inspection, quarantine, and eradication of invasive 

species contained in any freight, including but not limited to marine commercial 

container shipment, air freight, or any other means of transporting freight, foreign 

or domestic, that is brought into the State. The fee shall be paid by the person 

responsible for paying the freight chares to the transportation company, who shall 

collect the fee and forward the payment to the department at the port of 

disembarkation; provided that the transportation company shall not be liable for 

any fee that is not paid by the person responsible for paying the freight charges to 

the transportation company. The department shall deposit the fee into the pest 

inspection, quarantine, and eradication fund under section 150A-4.5. 

The fee shall be assessed on the net weight of the imported freight computed on 

the basis of 50 cents for every one thousand pounds of freight brought into the 

State, or part thereof. 

HAW. REV. STAT. § 150A-5.3 (2008). Hawaii Revised Statute § 150A-2 defines 

"freight" to mean "nonpassenger goods, cargo, or lading transported for pay." HAW. 

REV. STAT. § 150A-2 (2008). See I.O. at 2 ("in 2008 Hawaii imposed a fee of 50 cents 

per thousand pounds of freight (net weight) on 'the person responsible for paying the 

freight charges' (i.e., the shipper in most instances) to the 'transportation company (i.e., 

the carrier by air and by water)"). 

In a letter dated September 12, 2008 3to the Airlines Committee of Hawaii, the 

chairperson of the State of Hawaii Department of Agriculture stated that "U.S. mail is 

3Letter from Sandra Lee Kunimoto, Exhibit D hereto. 

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generally not subject to inspection under federal law and is not subject to state agriculture 

inspection and the new fee." 4 

Act 173 Amended the Freight Fee Law to Impose New Obligations 

and Fines on Air Carriers 

On June 23, 2010, the Hawaiian Governor signed into law Act 173, which became 

effective July 1, 2010. 5Act 173 amended Hawaii Revised Statute § 150A to impose on 

transportation companies — including air carriers — "fines for failure to timely pay, bill, or 

remit the past inspection, quarantine, and eradication service fee." 

As amended by Act 173, Hawaii Revised Statute § 150A-5.3 states that the "fee 

shall be assessed and collected on the net weight of the imported freight computed on the 

basis of 50 cents for every one thousand pounds of freight brought into the state, or part 

thereof" It further provides, inter alia: 

The transportation company shall bill the fee to the person responsible for paying 

the freight charges to the transportation company within fifteen days of the 

delivery of the freight. The fee shall be paid by the person responsible for paying 

the freight charges to the transportation company within forty-five days of receipt 

of the bill. The transportation company shall collect the fee from the person 

responsible and forward the payment to the department at the port of 

disembarkation within forty-five days of receipt of the fee; provided that the 

transportation company shall not be liable for any fee that is not paid by the 

person responsible for paying the freight charges to the transportation company. 

Act 173 S.B. No. 2523 (2010). As amended by Act 173, the Freight Fee Law currently 

provides that if a "transportation company. . . . fails to [b]ill the fee, within fifteen days of 

the delivery of the freight, to the person responsible for paying the freight charges to the 

transportation company," or to "[r]emit the fee to the [state] department within forty-five 

days of collecting the fee" the transportation company must "pay a fine of two times the 

tater at 2. 

5To date, the new law has not appeared in the official Hawaii statutes, so there is no official cite. 

-5- 
amount of the inspection, quarantine, and eradication service fee or $50, whichever is 

higher." Act 173 S.B. No. 2523 (2010). See I.O. at 2 ("Effective July 1, 2010, Hawaii 

amended [its Freight Fee Law] to penalize carriers that failed to comply within a 

specified period of time by imposing a fine equal to the higher of twice the inspection fee 

or $50"). 

As amended by Act 173, Hawaii Revised Statute § 150A-4.5 establishes "in the 

state treasury the pest inspection, quarantine, and eradication fund," which shall consist 

of inter alia, "[s]ervice fees, charges, and penalties collected under section 150A-5.3" 

and "Mines for violations of this chapter." Id. In addition, the "moneys in the pest 

inspection, quarantine, and eradication fund shall be expended by [HDOA] for [inter 

alia] the operation of biosecurity and pest inspection, quarantine, eradication, and 

monitoring programs, related facilities, the execution of emergency remedial measures 

when pests are detected in the course of inspection and quarantine activities by the 

department, training of inspectors, education of the agricultural industry, permit and 

certificate holders, and the general public as to import requirements, and for any other 

purposes deemed necessary to carry out the purposes of this chapter." Id. 

In a memorandum "to Transportation Companies" dated July 7, 2010, the HDOA 

Plant Quarantine Branch ("PQB") stated that "both air and marine transportation 

companies that bring freight into the State have been required to collect the current 

service fee on incoming freight as of August 1, 2008, pursuant to Act 3 Session Law of 

Hawaii, 2008. 6HDOA added that: 

6Memorandum from Carol L. Okada, Manager, Plant Quarantine Branch, to Transportation 

Companies re Requirements of Act 173, SLH 2010 (July 7, 2010), Exhibit 2 to Petition for 

Declaratory Order, at 1. 

-6- 
As a result of Act 173, from July 1, 2010, all transportation companies bringing 

freight into the State . . must bill the above-referenced service fee, within 15 

days of freight delivery, to the person responsible for paying the freight charges 

and remit the payment, within 45 days of collecting it, to the HDOA, Plant 

Quarantine Branch (HDOA-PQB) at the port of disembarkation. Transportation 

companies that do not comply with this requirement will be subject to the fine [set 

forth in Act 173]. 

Id. at 2 (emphasis in original). The agency further stated that "transportation companies 

continue to be subject to the fee collection requirement as of August 1, 2008, and are 

responsible for payment of current and past due fees." Id. (emphasis added). 

The HDOA also has instructed that, "[a]long with the fee payments, a written 

statement" by transportation companies "should be provided to HDOA-PQB that reflects 

the collection period dates; port of entry for the freight for which the fees were collected; 

net weight of the freight for which each fee was collected, by flight/voyage; total net 

weight of all freight reported for the collection period; and the total fee amount paid." Id. 

at 3. In addition, the Act instructs the HDOA to adopt new rules, or amend existing ones, 

to impose or increase the fees authorized to be charged under Chapter 150A, between 

July 1, 2010 and September 30, 2010, without regard to various State public notice and 

public hearing requirements. 7 

The Act further instructs that if the HDOA has not completed these regulatory 

amendments by September 30, 2010, additional fees are to be automatically added. 

These additional fees are not insubstantial as applied to airlines because they include: (1) 

fees for any inspection conducted outside or regular working hours, to include overtime 

pay, staff mileage reimbursement, and meals; (2) fees for inspection during regular 

working hours but away from the port or department office, to include staff mileage 

'See Act 173, Section 13(a). 

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reimbursement; (3) a $50 per hour fee for follow-up inspections plus staff mileage 

requirement; (4) a $50 fee per parcel for treatment or destruction of infested commodities 

performed by the department's plant quarantine branch; (5) a $50 fee per room per month 

for the use of a quarantine house operated by the department's plant quarantine branch; 

and (6) a storage fee of $5 per day for commodities stored at any department plant 

quarantine branch office, forty-eight hours after written notification. 8 

The Freight Fee Law Imposes Onerous Financial and Administrative 

Burdens on Air Carriers Transporting Freight to Hawaii 

As explained in considerable detail in the airline declarations at Exhibits A, B and 

C hereto, the Freight Fee Law imposes a significant and unfair administrative and fiscal 

burden on airlines. 9 

1. The Freight Fee Law Requires Airlines to Spend 

Significant Sums to Modify their Billing Systems. 

The metric that the Freight Fee Law requires air carriers to use to determine the 

Freight Fee raises overwhelming practical problems and imposes large financial burdens 

on the carriers shipping freight to Hawaii. The Freight Fee Law states that the fee is to be 

"computed on the basis of 50 cents for every one thousand pounds of freight brought into 

the state, or part thereof." HAW. REV. STAT. § 150A-5.3 (2008). This metric is not 

consistent with the industry practice throughout much of the world outside of the United 

States -- whereby air carriers charge their cargo shippers based on the weight of the 

81d. 

9See, e.g., Declaration of Jesse Cohen, United Air Lines, Inc. ("Cohen Deel."), Exhibit A hereto, 

3; Declaration of Aashish Gahlaut, Federal Express Corporation ("Gahlaut Decl."), Exhibit B 

hereto, ¶ 3 (the Hawaiian Freight Fee "is requiring FedEx to bill and collect from its customers 

which ship cargo into Hawaii on board FedEx aircraft imposes a significant and unfair 

administrative and fiscal burden on FedEx"). 

-8- 
shipment as measured by kilograms. 10 Accordingly, air carriers will need to undergo the 

considerable expense to modify their systems to process invoices for the Fees based on 

every thousand pounds, rather than kilograms." 

In addition, imposition of a minimum charge 50 cents per 1000 pounds is a 

completely non-standard way of pricing air cargo and is not easily meshed into carrier 

pricing systems that either price per pound, per kilo, or per piece. 12 

The modifications to the airline internal systems will be extremely expensive. For 

example, Fedex states that airlines "[d]esigning and implementing" a rate change to 

comply with the new Freight Fee Law: 

is burdensome from both a business and IT perspective. It requires not 

only the dedication of IT personnel but [also] requires coordination of 

resources from Pricing, Marketing, Finance, Legal, Solutions, and 

Communications. In total, such a change would require over 1,000 man 

hours by FedEx personnel and could potentially take years to implement: 3 

More specifically, in order for FedEx to bill for a new charge for shipments 

destined for Hawaii, FedEx would need to implement a change to FedEx's information 

technology infrastructure, which would require an intricate design and development 

process lasting well in excess of a year. The complexity is driven by the fact that the fees 

must be captured in a number of different systems including customer discount systems, 

rating systems, invoicing systems, accounting systems, pricing request systems, customer 

service systems, and automation systems: 4 

"Cohen Decl. ¶ 4. 

lId.; see also Gahlaut Decl. ¶ 5. 

12Cohen Decl. ¶ 4. 

"Gahlaut Decl. ¶ 5. 

14Gahlauf Dccl. ¶ 4. 

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Furthermore, there is no provision in the Hawaiian Freight Fee Law that enables 

the airlines to recover the cost of dedicating internal resources to enabling airline systems 

to accommodate the requirements of the new Freight Fee law. 15 

In addition, different billing processes and systems exist for domestic cargo 

transported in the United States, often billed directly to shippers, and international cargo, 

typically billed through individual country "Cargo Accounts Settlement System") 

("CASS") processes. Since Hawaii imports product from virtually all parts of the world, 

collecting the fee per the new law would require changes to CASS processes virtually 

globally. These kinds of large scale changes typically require thousands of hours of 

programming and testing, resulting in hundreds of thousands of dollars in costs: 6 

The time, resources, and personnel that airlines will need to devote to 

implementing the Hawaii Freight Fee serve no useful business purpose and will provide 

no additional value to the airline. Such time will detract from the amount of time, 

resources, and personnel that carriers may devote to issues of concern to air carrier 

customers, such as service enhancements. This burden extends beyond the 

implementation phase as the Hawaii Freight Fee will continue to impose a burden both on 

the personnel and information infrastructure of carriers as long as it is being imposed: 7 

2. Additional Expense from Customer Communications and 

Ongoing Efforts to Collect the Fees. 

The new Freight Fee also imposes a major administrative expense for airlines to 

communicate to all customers the new fee, as well as an ongoing expense in trying to 

"Cohen DecI. 11 4. 

161,d¶ 5. 

"Gahlaut DecI. If 6. 

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ensure collection of the fee, and reconciliation of the invoiced amounts versus payment 

amounts that are actually collected from shippers. This will require an extensive clerical 

effort that will mandate additional airline staffing. In addition, as a practical matter, 

many of the fees will end up being written off by carriers if disputed by the shipper, as 

the cost of pursuing such collections would significantly outweigh the income to be 

received from actual amount to be collected. 18 

3. Further Expense From International Customer Communications, 

Foreign Exchange, and Billing Process Changes. 

The cost and administration of the communications effort that is required because 

of the new Freight Fee law extends beyond U.S. borders to virtually every single country 

with entities and persons that ship goods to Hawaii. In general, air cargo is either priced 

in local currency or in U.S. dollars (and as reflected above in nearly all areas the weight 

standard is the kilogram, not pounds). The largest economies in Asia, Canada and 

Europe that generate most of the world's exports have air cargo priced in local 

currency.

19 Use of a 1000 pound standard by the new law results in an awkward 453.6 

kilo standard, to which a fractional amount in local currency would need to be applied. 

Normal international cargo industry practice is to price at 45, 100, 300, 500, 1000 kilo 

weight breaks, so a price at 453.6 kilos is awkward and difficult to process. As an 

example, orchids from Thailand to Honolulu for use in making leis would need to be 

18Cohen Decl. I 6. 

191d. I 7. 
charged at Thai Baht 16.24 per 453.6 kilos to pay the fee. This metric will be difficult to 

implement, explain and administer to customers throughout the world. 2° 

4. No Means for Measuring Weight as Required in the Freight Fee Law. 

One of the primary airlines that transport cargo to Hawaii — Fedex — lacks the 

means of obtaining the weight data necessary to implement the Hawaii Freight Fee. 21 

Pursuant to its Service Guide, FedEx measures the weight of packages that it transports 

for shippers, including those transported to Hawaii, in one of three ways: 1) using the 

customer supplied weight and/or dimensions, 2) using the dimensional weight calculated 

by FedEx, or 3) using the actual weight of the shipment as captured by FedEx. 22The 

January 4, 2010 FedEx Service Guide provides that where the dimensional weight 

measure is used for FedEx Express packages, the dimensional weight is determined by 

multiplying a package's length by width by height in inches and dividing by 194 (for 

shipments within the U.S. and shipments between the U.S. and Puerto Rico) or 166 (for 

international shipments). 23This is obviously not consistent with the Freight Fee Law, 

that requires the fee to be based on the net weight in terms of 1,000 pound increments. 

The second method FedEx uses when it measures the weight of the packages is to 

capture the actual weight, This "actual weight" measure includes the weight of the 

20 , ; see also Gahlaut Decl. ¶ 4 ("The complexity" from the Freight Fee Law "is magnified by 

the international nature of FedEx's operations because any changes must be engineered for 

multiple automation platforms"). 

21Declaration of Thomas P. Parker, Federal Express Corporation ("Parker Decl."), Exhibit C 

hereto, ¶ 3. 

22Parker Decl. If 4. 

231d. ¶ 5 . 

--I2- 
packaging and its contents and, in contrast to the Freight Fee Law, would not be the "net 

weight" of the goods being shipped. 24 

Furthermore, FedEx does not have any means of measuring the "net weight" of 

the packages that it transports and that measurement serves no relevant business purpose. 

FedEx regularly accepts packages for shipment with no way to determine what 

percentage of the total weight is comprised of the item being shipped and what 

percentage is attributable to the packaging. Where the dimensional weight is used, the 

"weight" registered for the package may vary significantly from the actual weight of the 

package. 25 

FedEx also does not measure any weight for some of the packages that it 

transports, including some of the packages that it transports to Hawaii. In such instances, 

FedEx relies upon the weight provided by the customer at time of shipment. 26 

Even if Hawaii were to modify the Freight Fee Law to apply to gross weight 

rather than net weight, there are substantial barriers to systematically weighing every 

package that is shipped via FedEx. 27FedEx operates 22 flights to Hawaii per week. 

Eleven flights originate in Memphis, six flights originate in Oakland, and five flights 

originate in Los Angeles. 28Currently, the major FedEx Express hubs have been equipped 

with the ability to measure the gross weight of packages, meaning that packages that pass 

through those hubs on the way to Hawaii would have their gross weight measured. These 

24M I 6. 

251d 17. 

26m 8. 

27/d.. 11 9. 

281d.. IF 10. 

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include Memphis, Indianapolis, Newark, Guangzhou, China, and Cologne, Germany. 29 

To capture the gross weight of those packages that do not travel through one of those 

hubs with weighing capability on the way to Hawaii would, however, require 

prohibitively high capital expenditures and years of implementation. Because many 

FedEx Express packages travel to Hawaii directly from hubs in Oakland, California and 

Los Angeles, California, which are not equipped to weigh packages, there is no 

infrastructure in place for obtaining even the gross weight of those packages. 30 

In order for a hub to be equipped with the ability to weigh packages, the facility 

must effectively be re-engineered. This process would take several years between the 

necessary engineering analysis on the front end and the development and implementation 

of a design plan. 31The cost of re-engineering a facility in order to give it the capability 

of capturing the gross weight of packages varies based on the age and design of the 

individual facility. The cost for equipping a given facility with this capability cannot 

even be assessed until an engineering study has been completed, a process which can take 

six (6) to twelve (12) months. 32Estimates for re-engineering specific facilities to enable 

weighing have ranged from $3 million to $15 million. Because of the age and design of 

the facilities in Oakland and Los Angeles, the costs to re-engineer each of these facilities 

would be a capital intensive effort. 33 

291d. 11. 

"Id. 1 12. 

311d 1 13. 

"Id. IF 14. 

"Id ¶ 15. 

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In response to the Department's query in the IO, Fedex states that, while safety 

and efficiency are paramount to the business of FedEx, the safe and efficient operation of 

FedEx planes does not require the balance of weight as measured by individual packages. 

Rather, individual packages are placed into containers with a large number of other 

packages and it is those that are carefully loaded, weighed, and balanced. 34 

5. Complications for Interline Billing Processes. 

The process for billing and collecting the Hawaiian Freight Fee becomes even 

more administratively complex, and for all practical purposes, uncollectible, with regard 

to interline cargo into Hawaii. 35In these cases, the first carrier that is part of the interline 

relationship does not fly to Hawaii, and may not be aware of the fee. This renders it 

extremely complicated to ensure that the first carrier knows to and does in fact collect the 

Freight Fee when the shipment is obtained. The IATA clearinghouse would need to 

make significant changes in their software to accommodate this new fee, which as noted 

above, may be in a different currency unit and undoubtedly a different weight unit than 

the air freight charges and rates from the originating country. 36 

6. Commercial Risk from Different Carrier Practices. 

Due to the administrative complexity and financial burden of collecting the new 

fee, some carriers may elect to simply absorb the fee and pay on their own, creating an 

unlevel playing field and increased commercial risk to carriers who do not pay the fee 

and try to collect from shippers correctly. Shippers may elect to shift their business to 

" Id. 11 16. 

35Cohen Decl. 11 8. 

36/d. 

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carriers who absorb the charge. This creates an unfair disadvantage for those carriers that 

seek to comply with the Freight Fee law by billing and collecting the charge from their 

customers. 37 

7. Negative Impact on Third Parties. 

In addition to imposing a significant burden on air carriers serving Hawaii, the 

Hawaiian Freight Fee also will have a significant negative impact on a number of third 

parties that rely upon air carriers for shipping freight to Hawaii. Such entities will also be 

required to implement systems to account for the billing of the Hawaiian Freight Fee. In 

the case of Fedex, such businesses include: (a) authorized FedEx ship centers, some of 

which are individually owned businesses; (b) shippers who maintain customized internal 

software for shipping via FedEx; (c) companies that provide custom IT services to 

shippers who ship via FedEx; (d) third-party providers of shipping hardware and software 

systems; and (e) all shippers who may ship to Hawaii to the extent they need to upload 

new software from FedEx. None of these businesses will receive any business benefit 

from the implementation of these systems. 38 

Moreover, the administrative burden imposed by the Hawaii Freight Fee lacks 

justification because it imposes a significant worldwide burden on FedEx, FedEx 

customers, and businesses related to FedEx — all of which will need to implement 

systems to take into account the Hawaii Freight Fee — which is not justified by the size of 

the Hawaiian market, which comprises an incredibly small portion of FedEx's worldwide 

" Id. ¶ 9. 

"Gahlaut Decl. ¶ 7. 

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express shipping market. Yet this small size does not lessen the administrative burdens 

that will be imposed on those impacted by this burden. 39 

8. Duplication of Federal Agricultural Inspection Fees. 

Imposition of the Freight Fee with regard to transportation of freight on aircraft 

into Hawaii from foreign countries is duplicative of inspection fees that must be paid to 

the U.S. Department of Agriculture Animal and Plant Health Inspection Service 

("APHIS"). 21 U.S.C. § 136a(a)(1). The current APHIS inspection fee for commercial 

aircraft flying from foreign countries into Hawaii (including ATA's member airlines) is 

$70.75 per landing. 7 C.F.R. § 354.3(e). In addition, aircraft passengers arriving from 

foreign countries are charged $5.00 in APHIS inspection fees. 7 C.F.R. § 354.3(f). 

The Anti-Head Tax Act 

The Anti-Head Tax Act ("AHTA") prohibits a "charge" on the "sale of air 

transportation," 49 U.S.C. § 40116(b)(3), and "air transportation" includes the 

transportation of "property by aircraft," 49 U.S.C. § 40102(a)(5), (23), (25). Congress 

intended the AHTA to prevent the undue burden on interstate commerce and the 

economic harm to airlines, passengers, and shippers that would be the natural result if 

state and local governments were left to their own devices to raise general revenues on 

the back of commercial aviation."' Only under certain inapplicable exceptions to the 

statute's general prohibition may state and local authorities impose and collect such taxes 

and fees. 

391d. ¶ 8. 

°See S. REP. 93-12, 1973 U.S.C.C.A.N. 1434, 1446-55, 1973 WL 12580 (Leg.Hist.) (Feb. 1, 

1973). 

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The prohibition against the imposition of a "tax, fee, head charge, or other 

charge" on the "sale of air transportation" applies to the sale of transportation of freight 

by air. "Air transportation" — as used in the AHTA — includes "interstate air 

transportation," "foreign air transportation," and "the transportation of mail by aircraft" 

49 U.S.C. § 40102(a)(5). "Interstate air transportation," in turn, includes the 

"transportation of . . . property by aircraft as a common carrier for compensation, or the 

transportation of mail by aircraft" between two American states. § 40102(a)(25) 

(emphasis added). In addition, "foreign air transportation" includes the "transportation 

of . . property by aircraft as a common carrier for compensation, or the transportation of 

mail by aircraft, between a place in the United States and a place outside the United 

States when any part of the transportation is by aircraft." § 40102(a)(23) (emphasis 

added). 

The Hawaii Legislature was aware of the AHTA when it enacted Act 173. The 

House Committee on Agriculture amended an earlier version of the new bill to change 

the Freight fee from a tax to a fee, acknowledging concerns that a tax "may conflict with 

federal laws, such as the Anti-Head Tax Act." Standing Committee Report No. 393-10 

on HAI No. 2294 (Feb. 12, 2010). However, the AHTA covers fees as well as taxes. 41 

The Airline Deregulation Act 

Under the Airline Deregulation Act ("ADA"), with certain limited (and 

inapplicable) exceptions, "a State . . . may not enact or enforce a law, regulation, or other 

41 See id. at 1446 (ABTA "prohibits the levying of state or local head taxes; fees, or other 

charges"); Jalbert Leasing, Inc. v. Massachusetts Port Authority, 449 F.3d 1, 3 (1st Cir. 2006) 

(ABTA "prohibit[s] locally enacted head taxes and other fees"). 

-18- 
provision having the force and effect of law related to a price, route, or service of an air 

carrier that may provide air transportation under this subpart." 49 U.S.C. § 41713(b)(1). 

As used in the ADA, "related to" expresses "a broad preemptive purpose"; a state 

law or enforcement action is "related to" a "price, route, or service" if it has a connection 

with reference to a price, route, or service. The Supreme Court in Morales v. Trans 

World Airlines, Inc., 504 U.S. 374, 383 (1992), held that the use of the words "related to" 

in the preemption provisions of the ADA "express a broad pre-emptive purpose" and 

prohibit all state laws "relating to" the rates, routes, or services of an air carrier. 

Congress expressly endorsed the holding in Morales in 1994 when it enacted the 

recodified Title 49 into law, noting that it "did not intend to alter the broad preemption 

interpretation adopted by the United States Supreme Court in Morales." H.R. Conf. Rep. 

No. 103-677 at p. 83 (1994); see also Sanchez v. Aerovias de Mexico, S.A., 590 F.3d 

1027, 1029 (9th Cir. 2010) ("Related to" . . "express[es] a broad preemptive purpose"; a 

state law or enforcement action is "related to" a "price, route, or service" if it "has a 

connection with reference to a "price, route, or service') (citing Buck v. Am. Airlines, 

Inc., 475 F.3d 29, 36 (1st Cir. 2007)). 

ADA preemption applies to both direct and indirect effects on air carriers. ABC 

Charters, Inc. v. Bronson, 591 F. Supp. 2d 1272, 1300 (S.D. Fla. 2008) ("Regulation of . . 

. individuals or entities [other than air carriers], if such regulation will have an effect on 

price, route, or service of a direct or indirect carrier, is preempted"); Marlow v. AMR 

Services Corp., 870 F. Supp. 295, 298 (D. Haw. 1994) (state enforcement actions which 

have a connection with or reference to airline rates, routes, or services are preempted by 

the ADA. The laws do not have to actually prescribe rates, routes, or service); cf Rowe 

-19- 
v. NH Motor Transp. Ass'n, 552 U.S. 364 (2008) (preemption under Federal Aviation 

Administration Authorization Act even if the state law's effect on rates, routes, or 

services is only indirect). 

ATA Petition and DOT Instituting Order 

On July 28, 2010, the ATA filed a Petition for Declaratory Order with the 

Department, requesting that the Department institute a proceeding regarding the Freight 

Fee Law and declare that the Freight Fee Law, as applied to air carriers, is preempted by 

and violates the AHTA and the ADA. 42 

In its Instituting Order dated September 30, 2010, the Department stated that the 

ATA's Petition raised "an issue of first impression for the Department," which had "not 

yet addressed whether inspection fees and responsibilities may be imposed on air carriers 

consistent with either the AHTA or the ADA." 43The Department requested comments 

from interested parties to address whether the Freight Fee Law, as applied to air carriers, 

is preempted by either the AHTA or the ADA. 44 

42The day after the ATA filed its Petition for Declaratory Order, it filed a multi-count complaint 

in the U.S. District Court for the District of Hawaii which challenges the lawfulness of the Freight 

Fee Law as applied to air carriers, but also asserts that the Department has primary jurisdiction 

over the issue of whether the Freight Fee Law is preempted by the AHTA and the ADA. The 

Court set October 25, 2010 as the day for initial case management conference. However, the 

ATA and the State agreed to seek an adjournment of that date because of the pending DOT 

proceeding. The Court acceded to that request and no case management conference occurred on 

October 25. 

4310, at 4. 

441d. at 5. 

-20- 
ARGUMENT 

I. THE FREIGHT FEE LAW, AS APPLIED TO AIR CARRIERS, IS 

PREEMPTED AND PROHIBITED BY THE ANTI-HEAD TAX ACT. 

As applied to air carriers, the Freight Fee Law violates and is preempted by the 

Anti-Head Tax Act. Subsection (b) of the AHTA, as amended, provides that "Except as 

provided in subsection (c) . . . and [a statute relating to passenger facility charges], a 

State, a political subdivision of a State, and any person that has purchased or leased an 

airport . . . may not levy or collect a tax, fee, head charge, or other charge on — 

(1) an individual traveling in air commerce; 

(2) the transportation of an individual traveling in air commerce; 

(3) the sale of air transportation; or 

(4) the gross receipts from that air commerce or transportation." 

49 U.S.C. § 40116(b) (emphasis added). 

A. The MITA Applies to Transportation of Freight by Aircraft. 

As a threshold matter, it should be emphasized that the AHTA applies to the 

transportation of freight by air. The AHTA prohibits, among other things, a "tax, fee, 

head charge, or other charge on," inter alia,"the sale of air transportation," 49 U.S.C. § 

40116(b) (emphasis added). The term "air transportation" is not confined to passenger 

transportation but, rather, also includes interstate and foreign transportation of freight. 

Specifically, "air transportation" is statutorily defined in the federal aviation statutes to 

include "interstate air transportation," "foreign air transportation," and "the transportation 

of mail by aircraft." 49 U.S.C. § 40102(a)(5). The statutory definition of "interstate air 

transportation," in turn, includes "the transportation of passengers or property by aircraft 

as a common carrier for compensation, or the transportation of mail by aircraft . . . ." 49 

-21- 
U.S.C. § 40102(a)(25) (emphasis added). Similarly, the statutory definition of "foreign 

transportation" includes the "transportation of passengers or property by aircraft as a 

common carrier for compensation, or the transportation of mail by aircraft, between a 

place in the United States and a place outside the United States when any part of the 

transportation is by aircraft." 49 U.S.C. § 40102(a)(23) (emphasis added). 45"Freight" 

shipped aboard an aircraft constitutes "property." Thus, there can be no doubt that the 

AHTA applies to the transportation of freight by aircraft. 

B. The Freight Fee Law Attaches a Fee Whenever Freight 

is Transported to Hawaii by Aircraft. 

The Freight Fee violates the AHTA because it requires imposition, collection and 

remittance of a fee whenever freight is transported via air into the State of Hawaii. 

Moreover, the Freight Fee is not a flat charge but rather is assessed on the "net weight of 

the imported freight computed on the basis of 50 cents for every one thousand pounds of 

freight brought into the State, or part thereof" See Tinicum Township Privilege Fee 

Proceeding, Order 2008-3-18, Docket OST-2007-29341, at 5 (holding that airport 

landing "privilege fee" as applied to cargo carriers violated and was preempted by the 

AHTA and suggesting that a fee would "constitute a prohibited charge on the sale of air 

transportation" if it was "imposed in connection with the sale of a ticket or waybill") 

(emphasis added). 

The potential fine for an air carrier violating the Freight Fee Law also may be 

determined based on the net weight of the transported freight. The fine is "two times the 

45See Port Authority of New York and New Jersey v. Department of Transp., 479 F.3d 21, 27 

(D.C. Cir. 2007) (applying the definitions in 49 U.S.C. §§ 40102(a)(2) and 40102(a)(21) to a case 

involving 49 U.S.C. § 47129). 

-22- 
amount of the inspection, quarantine, and eradication service fee or $50, whichever is 

higher" for each occurrence when the air carrier fails to bill or remit the Freight Fee. 

The U.S. Supreme Court has construed the AHTA broadly in order to effectuate 

Congress' intent. Thus, the ban applies even if the charge is directly imposed on the 

carriers rather than their passengers. See, e.g., Aloha Airlines, supra, 464 U.S. 7, 12-13 

(state tax on the annual gross income of airlines operating within Hawaii was preempted 

and barred by the AHTA despite the fact that the tax at issue was styled as a property tax 

and was imposed on airlines rather than their passengers). Lower courts have 

consistently given the AHTA broad application. 46 

In Allegheny Airlines, Inc. v. City of Philadelphia, 453 Pa. 181, 309 A.2d 157 

(1973), airlines challenged a City of Philadelphia ordinance which established a $3.00 

"head tax" on some (but not all) passengers departing from Philadelphia airports, 

excluding continuous flight passengers who remained in Philadelphia not more than six 

hours. Id. at 183, 390 A.2d at 158. In ruling that the AHTA preempted and prohibited 

the charge, the court stated: 

This legislation, enacted pursuant to Congress' constitutional authority to regulate 

interstate commerce, has undeniably pre-empted any state, or local, intervention 

in the field of airport head taxes . . . The Act renders constitutionally invalid and 

46See, e.g., New England Legal Found. v. Mass. Port Auth., 883 F.2d 157, 170 n.22 (1st Cir. 

1989) ("The prohibition is broader than just against head taxes"); Interface Group v. 

Massachusetts Port Authority, 816 F.2d 9, 16 (1st Cir. 1986) (even if the "primary beneficiaries 

of the [Anti-Head Tax Act] are air travelers, by prohibiting the levying of taxes on the 

carriage of persons, the statute, at least in some instances gives air carriers a 'benefit' that is 

'especial,' at least when neither have to face diminished demand for costlier services nor have to 

absorb all or part of the charge by reducing ticket prices"); Indianapolis Airport v. American 

Airlines, 733 F.2d 1262, 1267 (7th Cir. 1984) ("Whether airline or passenger ultimately bears the 

cost of an airport fee depends on the conditions of supply and demand rather than on who is 

assessed the charge"); and see 119 Cong. Rec. 3349 (1973) ("The bill prohibits the levying of 

State or local head taxes, fees, gross receipts, taxes, or other such charges whether on passengers 

or on the carriage of such passengers in interstate commerce"). 

-23- 
impermissible existing state or local airport head taxes. The Federal Government, 

having exercised its express constitutional authority over interstate commerce, 

that field is not available for state or local action, Here . . . state intrusion is 

precluded. 

Id. at 186, 309 A.2d at 159. Similarly here, the Hawaiian Freight Fee Law imposes 

impermissible charges on the transportation of freight by air, and should be declared 

unlawful on that basis. 47 

In its brief to the Third Circuit in the Tinicum case, the Department emphasized 

that the purpose of the AHTA was to "limit state and local taxation of aviation . . . ." 

Brief of Respondent DOT, July 29, 2008, available at 2008 WL 5583551 (3rd Cir.) 

(Appellate Brief), at 11. In connection with its ruling that the Tinicum "privilege fee" ran 

afoul of that purpose, the Department explained: 

The Department's reasonable interpretation of the [AHTA] comports with the 

AHTA's purpose to limit state and local taxation of aviation, and is consistent 

with long-standing judicial interpretation of the AHTA. See, e.g., Northwest 

Airlines, Inc. v. County of Kent, 510 U.S. 355, 363 (1994) ("[c]oncerned that our 

decision in Evansville 48 might prompt a proliferation of local taxes burdensome to 

interstate air transportation, Congress enacted the AHTA"); Western Air Lines, 

Inc. v. Board of Equalization of State of South Dakota, 480 U.S. 123, 126 (1987) 

("Congress acted [in the AHTA] to limit state taxation of air transportation"); 

Aloha Airlines, Inc ("[n]othing in the legislative history of the [Airport 

Development Acceleration Act] suggests that Congress intended to limit 

1513(a)'s preemptive effect to taxes on airline passengers or to save gross receipts 

taxes")' Southwest Air Ambulance, Inc. v. City of Las Cruces, 268 F.3d 1162, 

1173 (10th Cir. 2001) ("[i]t is unambiguously clear that Congress intended the 

AHTA to protect airlines from illegal state or municipal taxation based on gross 

receipts") . . . 

47The fact that the Freight Fee in connection with the net weight of subject shipments may be 

considered to be relatively small is no basis for determining that the Fee is not preempted by the 

AHTA. The fine for violating the Freight Fee Law — at least $50 per transaction — is certainly not 

small. In addition, the landing "privilege fee" in Tinicum was also relatively small. State and 

local governments should not be permitted to avoid the preemptive effect of the AHTA by 

initially setting fees at a relatively small level, only to subsequently increase the amount of the 

fees. 

48Evansville-Vanderburgh Airport Authority Dist. v. Delta Airlines, Inc., 405 U.S. 707 (1972). 

-24- 
Id. 

The same considerations apply here as well. The Department's ruling that the 

Hawaiian Freight Fee Law, as applied to air carriers, violates and is preempted by the 

AHTA is critical to protecting the airline industry and its members from a proliferation of 

state and local taxes on the transportation of freight into a state from either another state 

or a foreign country. 

Significantly, although the airlines subject to the Freight Fee Law are being 

unreasonably burdened by the requirements of the Freight Fee Law, such injury is not a 

prerequisite for the application of the express language of the AHTA. 

C. The Three Cases Referred to by the DOT are Not Controlling Here. 

The TO refers to three court cases involving challenges to state inspection fees in 

California, Arizona and Guam. 49However, the Department was not involved in these 

cases, and therefore could not exercise primary jurisdiction with regard to the issues that 

were raised. Furthermore, the facts and circumstances of these three cases demonstrate 

that none of them supports the upholding of the Hawaiian Freight Fee Law. 

1. The Alaska Airlines Case. 

In Alaska Airlines, Inc. v. California Dep't of Food and Agriculture, 33 Cal. App. 

4th506, 39 Cal. Rptr. 2d 426 (1995), the AHTA was deemed by a state appeals court not 

to apply to a "service charge" imposed by the State of California on airlines for 

inspection of passengers and cargo because the charge was not based on the number of 

'9 10, at 4, n. 4 and n. 5. 

-25- 
passengers or cargo items. Rather, the service charge had no connection whatsoever to 

the volume of passengers or freight being transported; rather, it was imposed on a peraircraft basis, and applied even if the aircraft was entirely empty of passengers and cargo. 

The case involved the California Airport and Maritime Plant Quarantine, 

Inspection, and Plant Protection Act, whose purpose was to inspect "conveyances 

entering California through airport and maritime facilities to prevent the introduction or 

spread within . . . [California] . . . of pests." Under the statute, aircraft or ships arriving 

from certain specified foreign locations believed to be potential sources of exotic plant or 

animal pests were "assessed a 'service charge' of $85, in the case of aircraft, and $200, in 

the case of ships, upon initial arrival in California." Id., 39 Cal. Rptr. 2d at 427. 

California had "entered into an agreement with the United States Department of 

Agriculture whereby the inspection fees [were] turned over to that agency to help pay for 

federally mandated pest inspections." Id. 

The air carriers which filed suit "approve[d] generally" of the California statute 

and did "not object to the inspection program," but did "object to the payment of the $85 

service charge." Id. at 428. The trial court granted the air carriers' motion for summary 

judgment that the $85 service charge was preempted by the AHTA. The appellate court 

reversed, concluding that "the trial court erred in finding that the inspection fee violates 

the [AHTA]." Id. at 432. However, the reasoning of the court fully supports a DOT 

finding here that the Hawaiian Freight Fee Law is preempted by the AHTA. Specifically, 

the appellate court stated: 

[The] facts establish that the inspection fee is not a direct head tax. It 

bears no relation to the number of passengers or cargo on the aircraft . . 
Id. at 430 (emphasis added), This language is critical because the Hawaiian Freight Fee 

Law bears a direct relationship to the amount of cargo on the aircraft. Specifically, the 

fee is imposed in connection with the specific number of shipments that are carried 

onboard the aircraft, and is based on the weight of each such shipment. Thus, the 

inspection "service charge" at issue in Alaska Airlines was "charged even if the airplane 

[was] empty." Id. By contrast, if the aircraft traveling to Hawaii is empty, there will be 

no Freight Fee owed (or any obligation on the carrier to bill, collect and remit the fee to 

the State of Haw'aii). 

There is a further reason why the Department should not apply Alaska Airlines in 

support of the Hawaiian Freight Fee. The same year that the California appeals court 

decided Alaskan Airlines, the California Supreme Court separately held that the service 

charge imposed on ships (and by implication also the service charge imposed on airlines) 

violated the commerce clause of the U.S. Constitution because the service charges were 

imposed solely on the shipment of goods from foreign countries, and not on the 

transportation of goods from other states into California. Pacific Merchant Shipping 

Ass'n v. Voss, 12 Cal. 4th503, 48 Cal. Rptr. 2d 582, 907 P.2d 430 (1995), cert. denied, 

517 U.S. 1221 (1996). As a result of this decision, the fees imposed on airlines 

transporting cargo into California is not lawful. Indeed, California acknowledges as 

much in the current website of the California Department of Food and Agriculture, which 

states as follows: 

In December 1991, the Pacific Merchant Shipping Association sued 

CDFA in a California state court alleging that the [airport and maritime 

plant quarantine inspection program] violated the Commerce Clause of the 

U.S. Constitution because it imposed a discriminatory and unreasonable 

burden on marine carriers that was not imposed upon domestic interstate 

commerce (trucks). The California Supreme Court agreed, struck down 

-27- 
the program, and ordered CDFA to refund $22.5 million to marine and 

airline carriers. 

Based on this ruling from the court, any new program would be 

tremendously challenging to craft and administer. To avoid a Commerce 

Clause challenge, as well as address other United States constitutional 

issues, international trade agreements, and federal law preemption, 

California could either establish an assessment on all commerce in the 

state or get Congressional authority to impose a fee on foreign 

commerce.

50 

Thus, the California inspection fee is not lawful as to airlines (or maritime entities). As a 

result, the existence of the service charge for agricultural inspections in California (which 

is not being paid by air carriers) can provide no viable precedent for the Hawaiian Freight 

Fee as applied to air carriers. 

2. The Arizona Case. 

The plaintiff in Arizona Dept of Revenue v. Cochise Airlines, 128 Ariz. 432, 626 

P.2d 596 (1980), Conchise Airlines, was "principally an intrastate airline with routes 

between various communities in Arizona." Id. at 598. The "single issue presented" in 

Arizona was whether the AHTA was violated by reason of the airline being "liable to pay 

transaction privilege taxes imposed by A.R.S. §§ 42-1309 and 42-1310(2)(d) on its 

intrastate operations." Id., 626 P.2d at 597. 

""Protecting California from Biological Pollution," at 19 

(http://www.edfa.ea.gov/files/pdf/ProteetCalLegisReport.pdf) (emphasis added). Prior pages in 

this document from the California state government warn of pest infestation in a way that echoes 

what Hawaii claims is the justification for the Freight Fees. It is easy to imagine other states 

making similar assertions of the need to protect the state from pest infestation. Will each such 

state be allowed to impose an inspection fee and billing/collection/remittance requirement on air 

carriers flying into that state? Such precedent simply cannot be allowed. 

-28- 
Section 42-1309 imposed "annual privilege taxes measured by the amount or 

volume of business transacted by persons on account of their business activities" in order 

to, inter alio, "liquidat[e] the outstanding obligations of the state and county 

governments," aikl "to aid in defraying the necessary and ordinary expenses of the state 

and the counties . . . ." Section 42-1310(2)(d) imposed a tax lalt an amount equal to one 

per cent of the gross proceeds of sales or gross income from the business upon every 

person engaging in or continuing within [Arizona] in [connection with] [t]transporting for 

hire freight or passengers by railroads or aircraft from one point to another point in the 

state." Id. 

The court held that the Arizona transaction privilege taxes violated the AHTA 

insofar as they were applied to "the business of carrying persons" by aircraft. Id. at 599. 

The court stated: 

It is apparent from [the legislative] history [of the AHTA] that Congress 

was primarily concerned with the dual objectives of eliminating unpopular 

head taxes and making available additional federal funds for airport 

development. A close reading of the reported legislative history, however, 

fails to reveal any expression of an intent to confine the prohibitory terms 

of § 1513 to the head tax. (Id.) 

It is true that the court went on to also rule that the AHTA did not prohibit 

application of "the Arizona transaction privilege tax" to "transporting freight," Id. at 601. 

However, this issue was apparently dealt with sua sponte by the court, without input from 

the parties, much less from the DOT or any other airlines or their representatives. The 

entire treatment of this issue by the Arizona court is as follows: 

Neither of the parties has alluded to the fact that, while A.R.S. § 42- 

1310(2)(d) imposes a tax upon the transporting of freight as well as 

passengers, the relevant prohibition in 49 U.S.C. § 1513(a) refers only to 

the carriage of persons in air commerce. The doctrine of preemption or 

supremacy of federal legislation does not extend beyond actual points of 

-29- 
conflict. There is accordingly no prohibition against the Arizona 

transaction privilege tax on transporting freight. 

Id. (emphasis added) (citations omitted). 

Simply put, the court was not apprised of the statutory language discussed above 

— including 49 U.S.C. § 40102(a)(5), (23), (25) — which unambiguously renders the 

AHTA applicable to the transportation of cargo. 51As set forth above, the AHTA 

prohibits, among other things, a "tax, fee, head charge, or other charge on," inter alia, 

"the sale of air transportation," 49 U.S.C. § 40116(b) (emphasis added). Perhaps 

because the parties did not brief the issue, the Arizona court did not consider this clear 

statutory language and, as a result, its decision provides no guidance here. 

3. The Guam Case. 

The third case referenced by the DOT in the TO — Guam Fresh, Inc. v. Ada, 849 

F.2d 436 (9th Cir. 1988) — clearly has no relevance here because the issue there was 

whether the territory had the authority to inspect, not whether the territory had the 

authority to charge airlines for inspection fees (which they do not). The plaintiffs there 

were not airlines or their trade association. Rather, they were importers of produce into 

Guam. They claimed that Guam's laws concerning agricultural pests, plant disease and 

quarantine were preempted by Section 8 of the Plant Quarantine Act of 1912, as 

amended, 7 U.S.C. § 161 (1982), and did not raise the AHTA or the ADA because the 

issue was authority to inspect, not fees charged for inspection services. 

In holding that the Guam laws were not preempted by the Plant Quarantine Act 

the court accepted the territory's contention that the Act "restored to the states full police 

51The decision in Arizona is also inapposite because it involved a tax on intrastate activity rather 

than interstate activity. 

-30- 
power to impose a quarantine on any articles not specifically interdicted by a federal 

quarantine." 849 F.2d at 438; see also id. ("the clear and manifest purpose of Congress, 

as indicated in the legislative history . . . was to overturn [a court decision] and restore 

the current regulatory scheme which existed prior to that decision"). In other words, the 

Guam case did not involve a challenge by airlines and, in addition, the court found that 

the Guam laws were specifically authorized rather than preempted by a federal statute. 

Here, there is no argument by Hawaii that either the ADA or the AHTA specifically 

authorizes the.Freight Fee Law. Therefore, the case turned on Guam authority to inspect, 

not the fees imposed for such inspections. 

The Guam case is also inapposite because the ATA is not claiming that Hawaii is 

precluded from inspecting cargo being shipped into the State. Rather, the attempt to 

require air carriers to bill, collect and remit fees from shippers who are subject to 

inspection — under threat of significant financial penalties — is preempted by the ADA and 

the AHTA for the reasons stated above. 

II. THE FREIGHT FEE LAW, AS APPLIED TO AIR CARRIERS, IS 

PREEMPTED AND PROHIBITED BY THE AIRLINE 

DEREGULATION ACT. 

The Freight Fee is also preempted and barred by the express preemption provision 

of the Airline Deregulation Act ("ADA"), currently codified at 49 U.S.C. § 41713(b). 

Congress enacted the ADA in 1978 to deregulate the airline industry. See 49 U.S.C. § 

40101(a)(6), (a)(12)(A) (formerly codified at 49 U.S.C. § 1302(a)(4), (a)(9); Gary v. The 

Air Group, Inc., 397 F.3d 183, 186 (3rd Cir. 2005). Under the ADA, with certain limited 

and inapplicable exceptions, "a State . . . may not enact or enforce a law, regulation, or 

-31- 
other provision having the force and effect of law related to a price, route, or service of 

an air carrier that may provide air transportation under this subpart." 49 U.S.C. § 

41713 (b)(1) (emphasis added). 

In enacting the ADA, Congress determined that "maximum reliance on 

competitive market forces would best further the efficiency, innovation, and low prices as 

well as variety [and] quality. . . . of air transportation services." Morales, supra, 504 U.S. 

374, 378 (1992) (citation and internal quotation marks omitted). Congress included an 

express preemption provision in the ADA "[tbo ensure that the States would not undo 

federal deregulation with regulation of their own." Id.; see also Taj Mahal Travel, Inc. v. 

Delta Airlines, Inc., 164 F.3d 186, 194 (3rd Cir. 1998) (Congress enacted the ADA to 

"prevent the states from re-regulating airline operations so that competitive market forces 

could function."); Gary, 397 F.3d at 186. 

The Freight Fee Law, as applied to air carriers, violates and is preempted by the 

Airline Deregulation Act because both the Freight Fee which air carriers must bill, 

collect, and remit to the HDOA, and the large fines for failure to do so, impermissibly 

relate to the "price," the "route," and the "service" of the air carriers that are transporting 

freight into Hawaii. 

The phrase "related to a price, route, or service of an air carrier" is to be broadly 

construed. In Morales, supra, the Supreme Court examined whether the ADA preempted 

enforcement of state guidelines concerning regulation of air fare advertising. The Court 

focused on the preemption clause's "relating to" 52language. Id. at 383-86. Relying on 

52 The prior version of what is now 49 U.S.C. § 41713(b)(1) — 49 U.S.C. § 1305(a)(l) — 

preempted States from enacting or enforcing laws "relating to rates, routes, or services of any air 

carrier . . .." (emphasis added). Congress intended the revision to make no substantive change. 

(footnote continued) 

-32- 
its ERISA line of cases and the ordinary meaning of the statutory language, the Court 

construed the phrase "relating to" broadly to preempt "State enforcement action having a 

connection with, or reference to, airline 'rates, routes, or services.'" Id. at 384. The 

Court stated: 

For purposes of the present case, the key phrase, obviously, is "relating to." The 

ordinary meaning of these words is a broad one — "to stand in some relation; to 

have bearing or concern; to pertain; refer; to bring into association with or 

connection with," Black's Law Dictionary 1158 (5th Ed. 1979) — and the words 

thus express a broad pre-emptive purpose. We have repeatedly recognized that in 

addressing the similarly worded preemption provision of [ERISA], 29 U.S.C. § 

1144(a), which preempts all state laws "insofar as they. . . . relate to any employee 

benefit plan." We have said, for example, that the "breadth of [that provision's] 

preemptive reach is apparent from [its] language," . . . that it has a "broad scope," 

. . . and an "expansive sweep," . . . and that it is "broadly worded," . . . 

"deliberately expansive," . . . and "conspicuous for its breadth." . . . Since the 

relevant language of the ADA is identical, we think it appropriate to adopt the 

same standard here: State enforcement actions having a connection with or 

reference to airline "rates, routes, or services" are pre-empted under [the ADA]. 

Id. at 383-84 (emphasis added). Based on this "broad preemptive purpose," the Court 

rejected contentions that the ADA only preempted states from actually prescribing rates, 

routes, or services, and that only state laws specifically aimed at the airline industry were 

preempted. Id. at 384-86. The Court held that the state law guidelines had the 

"forbidden significant effect" on the airlines' rates, routes, and services, primarily 

because they restricted fare advertising, which "relates to" price. Id. at 388-89; see also 

Hingson v. Pacific Southwest Airlines, 743 F.2d 1408, 1415 (9th Cir. 1984) NADA] 

preemption is not limited to those state laws or regulations that conflict with federal law. 

See American Airlines, Inc. v. Wolens, 513 U.S. 219, 221 n.1 (1995) (citing Pub. L. 103 -272, § 

1(a), 108 Stat. 745); see also Taj Mahal Travel, 164 F.3d at 191 n.3 ("the legislative history of 

these changes shows that Congress intended no substantive change to the meaning of the 

preemption section") (citing H.R. Rep. No. 103-180 at 305, reprinted in 1994 U.S.C.C.A.N. 818, 

1122; H.R. Rep. No. 103-677 at 83, reprinted in 1994 U.S.C.C.A.N. 1715, 1755). 

-33- 
It preempts state laws and regulations 'relating to rates, routes, or services') (emphasis 

in original); Witty v. Delta Air Lines, Inc., 366 F.3d 380, 383 (5th Cir. 2004) (ADA not 

only "preempts the direct regulation of prices by states, but also preempts indirect 

regulation 'relating to' prices that have 'the forbidden significant effect' on such prices"). 

In the situation presented here, the Hawaiian Freight Fee, as applied to air 

carriers, clearly has a "connection with" air carrier "prices, routes, and services" and thus 

has the very "forbidden significant impact" described by the Court as prohibited by the 

ADA. The domestic airline industry is highly cost sensitive and fiercely competitive. To 

preserve their already small margins, airlines will be pressured either to pass through to 

customers the increased cost of doing business in Hawaii, to reduce their level of service 

to Hawaii or otherwise alter their routes, or both. As such,.the imposition of the Freight 

Fee has an indisputable impact on airline prices, routes, and services. 

A. The Freight Fee Law Relates to the "Price" Charged by Air Carriers. 

The Freight Fee and the associated fines "relate" to the "price" being charged by 

the air carriers because such charges must either be borne by the air carrier or passed on 

to its air freight customers. In Buck v. American Airlines, supra, 476 F.3d 29, purchasers 

of unused nonrefundable airline tickets sought to recover the various fees and taxes they 

had paid when they bought their tickets. In holding that the claims were preempted by 

the ADA, the First Circuit rejected the plaintiffs' assertion that the taxes and fees were 

not part of the "price" of the tickets because they were separate from the "fare prices (or 

rates) set by airlines." Id. at 35. The court stated that "the ADA preempts laws that both 

explicitly refer to an airline's prices and those that have a significant effect upon prices," 

and that the "dichotomy" between (1) fares or rates charged for transportation, and (2) 

-34- 
fares or taxes imposed by the government "blurs when conceptualized within the 

contours of the 'significant effect' doctrine." Id. at 34-35. The court explained: 

Although the fees are in one sense separate from the base fare, the two are 

inextricably intertwined. In all events, an air traveler's concern is with the overall 

cost of his or her ticket. Thus, when an airline establishes the base fare, it must 

take cognizance of any surcharges that will be imposed by operation of law. 

It is freshman-year economics that higher prices mean lower demand, and that 

consumers are sensitive to the full price that they must pay, not just the portion of 

the price that will stay in the seller's coffers. For that reason, an airline must 

account for the fees when setting its own rates. 

Id. at 35-36 (emphasis added) (cited with approval by the Ninth Circuit in Sanchez, 

supra, 590 at 1030). 

Similarly here, even if the Freight Fee is in "one sense separate from the base" 

charge imposed for transportation of the freight, the imposition of the Freight Fee will 

nevertheless impact the "overall cost" of the air transportation being provided. As set 

forth above and in the declarations from Fedex and United attached as Exhibits A, B and 

C hereto, it will be enormously costly for airlines to attempt to comply with the Hawaii 

Freight Fee Law. 

For preemption to apply, there is no requirement that the Freight Fee Law 

"explicitly refer to" the amount of the rates charged by air carriers for transportation of 

freight into Hawaii. Rather, it is sufficient that the Freight Fee Law may have a 

"significant effect upon" such rates. As in Buck, the air carriers subject to the Freight Fee 

Law must "account for the" Freight Fees "when setting [their] own rates." Since ATA's 

members will have to make tremendously costly system-wide programming and 

personnel changes in order to attempt compliance with Hawaii's Freight Fee Law, it is 
inevitable that these carriers will have to raise the "price" they charge in order to finance 

these changes. 

B. The Freight Fee Law Relates to the "Service" Provided 

by Air Carriers. 

The Freight Fee and the associated fines also relate to the "service" of the air 

carriers because they require the air carrier — under threat of significant monetary fines — 

to provide the "service" of billing, collecting, and remitting fees on behalf of its shipper 

customers. 

In United Parcel Service, Inc. v. Flores-Galarza, 318 F.3d 323 (1st Cir. 2003), a 

Puerto Rico law prohibited air carriers from delivering any package unless the carrier 

provided a "certificate" that the package's addressee had paid the appropriate state excise 

tax, or the carrier had instead prepaid the tax on the addressee's behalf. If a carrier 

delivered a "package without obtaining this certificate, the carrier [could] be required to 

pay an administrative fine to the [commonwealth], a tax on the package's contents, and 

any surcharges and interest accrued from the date the items were introduced into Puerto 

Rico." Id. at 326. In holding that the ADA preempted the Puerto Rico law, the court 

stated: 

The challenged scheme both refers to and has a forbidden significant effect on 

UPS's prices, routes or services. Section 9066 — the linchpin of the scheme — 

forbids delivery unless and until a recipient produces a certificate from the 

Secretary. Compliance with this provision significantly effects the timeliness and 

effectiveness of UPS's service, which includes the delivery of packages on an 

express or time-guarantee basis. Likewise, the pre-payment mechanism imposes 

extensive requirements that must be met before a carrier may make a lawful 

delivery. These requirements create a substantial burden on UPS, in the form of 

labor, costs, and delays. The undisputed record ... shows that this burden directly 

and significantly affects UPS's routes and services, which depend upon an orderly 

flow of packages. 

Id. at 335-36 (emphasis in original). 

-36- 
Here too, the Freight Fee Law has a forbidden significant effect on air carriers' 

services because, inter alia, the carriers must conform their billing infrastructure to 

accommodate the obligation to bill their freight customers the Freight Fee based on a 

series of complicated conversions, including local currency to U.S. dollars, kilos to 

pounds, and gross weight to net weight. The carriers must then report these shipments on 

a monthly or more frequent basis to the HDOA. Such requirements "create a,substantial 

burden" on the air carriers in the form of labor and costs. 

In Sanchez v. Campania Mexicana de Aviacion S.A., Case No. CV-07-7196 R 

(RCx), 2008 U.S. Dist. LEXIS 86822 (March 25, 2008), aff'd on other grds., 361 Fed. 

App. 751 (9th Cir. Jan. 5, 2010), the court held that a claim that an airline improperly 

imposed a Mexican tourism tax on passengers transported from the United States to 

Mexico who were exempt from the tax was preempted by the ADA because, among other 

things: 

As the tourism tax is charged only on routes between Mexico and other countries 

and as the collection of the tourism tax at the time of ticketing is a service 

facilitating the flow of passengers through the airports in Mexico, [the claims] are 

preempted by the Airline Deregulation Act on the grounds that the claims are 

related to Mexican's routes and services. 

Id. at *9-10. 

Similarly here, the Freight Fee is charged only on routes between Hawaii and 

other states or countries and the billing and collection of the Fee "is a service facilitating 

the flow" of freight into Hawaii. See also Federal Express Corp. v. California Public 

Utilities Comm'n, 936 F.2d 1075, 1078 (9th Cir. 1991) (state regulation of trucking 

operations of air carriers — including "rates," "bills of lading," and "freight bills" — 

preempted by ADA) ("Most of the regulations . . . are obviously economic — they bear 

-37- 
on price. Those regulations which are not patently economic — the rules on claims and 

bills of lading, for example — relate to the terms on which the air carrier offers its 

services"). 

In Rowe, supra, 552 U.S. 364, the Supreme Court held that Maine's tobacco 

delivery law — which required delivery trucks to verify the lawful status of recipients of 

tobacco shipped into the state — was preempted by the Federal Aviation Administration 

Authorization Act (the version of the ADA which applies to motor carriers) because the 

law would "require [motor] carriers to offer a system of services that the market does not 

now provide and which the carriers would prefer not to offer." Id. at 372. The Court 

stated: 

We concede that the regulation here is less "direct" than it might be, for it tells 

shippers what to choose rather than carriers what to do. Nonetheless, the effect 

of the regulation is that carriers will have to offer tobacco delivery services that 

differ significantly from those that, in the absence of the regulation, the market 

might dictate. And that being so, treating sales restrictions and purchase 

restrictions differently from pre-emption purposes would make no sense. 

Id. (citation and internal quotation marks omitted). Maine contended that the "regulation 

will impose no significant additional costs upon carriers." Id. at 373. the Court rejected 

this argument, stating that "even were that is so (and the carriers deny it), Maine's reply 

is off the mark," because to "allow Maine to insist that the carriers provide a special 

checking system would allow other States to do the same," which "could easily lead to a 

patchwork of state service-determining laws, rules, and regulations" that would be 

"inconsistent with Congress' major legislative effort to leave such decisions, where 

federally unregulated, to the competitive marketplace." Id. 

The same holds true here. The Freight Fee Law would impose significant 

additional costs upon air carriers. As set forth in the airline declarations attached as 

-38- 
Exhibits A, B and C hereto, tremendous development, implementation, and maintenance 

costs are required to bring airlines into compliance with the new law, not to mention the 

additional costs for carriers who choose or are forced to absorb the fees themselves in 

some or all instances. But regardless of the costs to air carriers in this particular case, it 

would still be unlawful under the ADA for Hawaii to insist that carriers provide a special 

system for billing, collecting, and remitting the Freight Fee. Indeed, such obligations by 

multiple states or local govermnents could easily lead to a "patchwork of state" laws that 

require such services to be performed throughout the 50 states, perhaps with each state or . 

local government imposing some variant on how the fee is to be calculated, billed, 

collected, and remitted. The huge burden inflicted by such a "patchwork" of state laws is 

anathema to Congress' clear legislative intention of rendering the aviation industry free 

from federal intrusive regulation by state and local governments. 

C. The Freight Fee Law Relates to the "Routes" of Air Carriers. 

The Freight Fee and the associated fines also relate to the "route" of the air carrier 

because the Freight Fee only applies to flights to Hawaii and the ,financial and 

administrative burden imposed by the new law will impact whether and how the carrier 

chooses to serve the Hawaiian market. See Sanchez v. Compania Mexicana de Aviacion, 

supra, at *9-10 (challenge to airline collection of Mexican tourism tax preempted by 

ADA where it related to "route" of air carrier because the subject tax was "charged only 

on routes between Mexico and other countries"). The difficulty in collecting the Freight 

Fee by "interline" carriers is one example of the extreme difficulties carriers could often 

face if they attempt to charge their customers the fee instead of being forced to absorb it 

themselves. 

-39- 
III. HAWAII IS CHARGING FOR INSPECTION OF AIRCRAFT ARRIVING 

FROM FOREIGN COUNTRIES DESPITE THE FACT THAT THE 

FEDERAL GOVERNMENT ALSO IMPOSES FEES FOR THE 

INSPECTION OF AIRCRAFT LANDING IN HAWAII FROM FOREIGN 

COUNTRIES. 

Imposition of the Hawaiian Freight Fee is especially improper with regard to 

aircraft traveling to Hawaii from foreign countries because the U.S. Department of 

Agriculture Animal Plant and Health Inspection Service ("APHIS") already imposes 

significant fees on aircraft for agricultural inspection of flights landing in Hawaii from 

foreign countries. 21 U.S.C. § 136a(a)(A). The current APHIS fee imposed on aircraft 

entering the United States (including Hawaii) is $70.75 per commercial aircraft landing. 

7 U.S.C. § 354.3(e). In addition, aircraft passengers arriving from foreign countries are 

charged $5.00 in APHIS fees. 7 C.F.R. § 354.3(1). 

In its IO, the Department states that "Hawaii maintains its own inspection 

program independent from the Federal Government, which scrutinizes freight from 

foreign sources through [APHIS]." TO, at 2. Yet this does not change the fact that both 

Hawaii and APHIS inspect aircraft arriving into Hawaii from foreign countries. The 

Department also states that it "understand[s] that APHIS . . . does not inspect for 

precisely the same inbound pests as Hawaii." Id. at 2 n. 1. However, the basis for this 

statement is not provided, and it is not clear the extent to which APHIS and the State of 

Hawaii have clearly delineated different areas of inspection responsibility. In any case, 

the factual determination of whether the State and APHIS inspect for the same or 

different pests is irrelevant to the legal determination that the fee is preempted and 

prohibited by the AHTA and the ADA. 
The Department also states that "the Federal govermnent reportedly inspects 

domestic freight outbound from Hawaii to the mainland in order to protect the latter from 

invasive species found on the islands." Id. If anything, this demonstrates the conduct of 

the federal government in preempting the field of agricultural inspection between Hawaii 

and the mainland. 

IV. PERMITTING HAWAII TO REQUIRE AIR CARRIERS TO BILL AND 

COLLECT STATE INSPECTION FEES WOULD ESTABLISH A 

DANGEROUS PRECEDENT. 

If Hawaii is permitted to impose its Freight Fee Law on air carriers it may 

establish a precedent for other state governments (and county and local governments as 

well) to impose similar "inspection fees" or other charges which the government claim 

are necessary to raise revenue, especially in the current difficult economic climate. This 

precedent would directly conflict with Congress' intention in the AHTA as described 

above. Such a precedent merely serves to inflict upon the U.S. airline industry a 

disproportionate share of the shared obligation to fund necessary state and local 

government services. The fact that airlines are regulated and are required to maintain 

certain records should not give state and local govermnents a free hand to take advantage 

of the situation and look to the airlines to fund their revenue shortfalls for programs to 

serve Hawaii residents. 

The precedent that Hawaii want to set here would completely upset the balance 

struck by the AHTA, giving state and local authorities the incentive to fund programs on 

the backs of airlines, passengers, and shippers that do no reside and Hawaii and would 

not benefit from the inspection services. Multiply this fee and penalty provision by 49 

-41- 
other states and each local government near an airport and this precedent would create an 

unmanageable fee structure that Congress abolished with the AHTA after the Evansville 

decision. Such a new precedent should not be allowed. 

Although the Department acknowledges that the question of whether state 

inspection fee imposed on air carriers like the Hawaiian Freight Fee is preempted by the 

AHTA and the ADA is "an issue of first impression for the Department," 53the 

Department states that "both California and Guam operate aircraft inspection services for 

the same purpose and also impose fees, and there may be others." 54However, neither 

California nor Guam — nor any other United States state, territory or possession — seeks to 

impose the type of burdensome billing and collection requirement on airlines that is the 

case with the Hawaiian Freight Fee Law. 

With regard to the California fee, the Department cites Alaska Airlines, Inc., 

supra, 33 Cal. App. 4th 506, 39 Cal. Rptr. 426. However, as set forth in Section I above, 

that case is distinguishable because, inter alia, the fee was not based on the number of 

shipments on board the aircraft or the weight of such shipments. In addition, as set forth 

in Section I above the Guam Fresh case clearly has no relevance here. 

CONCLUSION 

For the reasons set forth above, ATA, on behalf of its member airlines, 

respectfully requests that the DOT grant this Petition for Declaratory Order and rule that 

the Hawaiian Freight Fee Law, as applied to air carriers, is preempted and prohibited by 

the Anti-Head Tax Act and the Airline Deregulation Act. 

at 4. 

541.0. at 4 n. 5. 

-42- 
Respectfully submitted: 

ter & Hampton, LLP 

Roy therg 

Sheppard Mullin 

1300 I Street, N. 

Suite 1100 East 

Washington, D.C. 20005-3314 

Tel. (202) 218-0007 

Facsimile (202) 312-9425 

Email: rgoldberg@sheppardmullin.com 

..tof 

David A. Berg 

Doug Mullen 

Air Transport Association of 

America, Inc. 

1301 Pennsylvania Avenue, N.W. 

Suite 1100 

Washington, D.C. 20004-1278 

Tel. (202) 626-4234 

Facsimile (202) 626-4139 

Email: dberg@airlines.org 

dmullen@airlines.org 

Dated: November 1, 2010 
EXHIBIT A 
UNITED STATES OF AMERICA 

DEPARTMENT OF TRANSPORTATION 

OFFICE OF THE SECRETARY 

WASHINGTON, D.C. 

IN RE HAWAIIAN INSPECTION FEE 

PROCEEDING Docket DOT-OST-2010-0243 

DECLARATION OF JESSE COHEN 

UNITED AIR LINES, INC. 

I, Jesse Cohen, hereby declare the following: 

1. I am the Managing Director — Cargo Planning and Revenue Management for United Air 

Lines, Inc. ("United"). I am over eighteen years of age and have personal knowledge of the 

statements contained herein, unless stated otherwise. 

2. United operates multiple daily flights of aircraft to Hawaii from the mainland of the United 

States and from foreign countries, and transports cargo aboard such aircraft on behalf of 

shippers located outside of Hawaii. 

3. AS set forth below, the freight inspection fee (the "Freight Fee") that the State of Hawaii is 

requiring United to bill and collect from its customers which ship cargo into Hawaii on board 

United aircraft imposes a significant and unfair administrative and fiscal burden on United. 

Expense of Modifying Multiple Billing Systems 

4. Hawaii requires that carriers bill and collect the Freight Fee based on the net weight of the 

freight being shipped, as measured by pounds. This metric is not consistent with the industry 

practice throughout much of the world, whereby carriers charge their cargo shippers based on 

the weight of the shipment as measured by kilograms. In addition, the basis of charging fifty 

cents (500) per 1000 pounds is also a completely non-standard way of pricing air cargo and is 

not easily meshed into carrier pricing systems that either price per pound, kilo, or per piece. 

Therefore, the new Freight Fee law means that United must devote significant internal 

resources to revise our billing and accounting systems to reflect this new metric. As a result, 

these internal resources cannot be used for other pressing needs of our airline. Moreover, 

there is no provision in the Hawaiian law that enables our airline to recover the cost of 

dedicating internal resources to enabling our systems to accommodate the requirements of 

the new Freight Fee law. 

5. In addition, different billing processes and systems exist for domestic cargo transported in the 

United States, often billed directly to shippers, and international cargo, typically billed 

through individual country "Cargo Accounts Settlement System") ("CASS") processes. 
Sihce Hawaii imports product from virtually all parts of the world, collecting the fee per the 

new law would require changes to CASS processes virtually globally. These kinds of large 

scale changes typically require thousands of hours of programming and testing, resulting in 

hUndreds of thousands of dollars in costs. 

US Customer Communications and Ongoing Administrative Expense for Collections 

6. The new Freight Fee imposes a major administrative expense for United to communicate to 

all customers the new fee, as well as an ongoing expense in trying to ensure collection of the 

fee, and reconciliation of the invoiced amounts versus payments amounts that are actually 

cdllected from shippers. This will require a large clerical effort that would need additional 

airline staffing. Many of the fees would end up being written off by United if disputed by the 

shipper, as the cost of pursuing such collections would significantly outweigh the income to 

be received from actual amount to be collected. 

International Customer Communications, Foreign Exchange, and 

Billing Process Changes 

7. The cost and administration of the communications effort that is required because of the new 

Freight Fee law extends beyond U.S. borders to virtually every single country that could 

pdssibly ship to Hawaii. There are two considerations here. In general, air cargo is either 

priced in local currency or in U.S. dollars (and as reflected above in nearly all areas the 

weight standard is the kilogram, not pounds). The largest economies in Asia, Canada and 

Europe that generate most of the world's exports have air cargo priced in local currency. Use 

of a 1000 lb standard by the new law results in an awkward 453.6 kilo standard, to which a 

fractional amount in local currency would need to be applied. Normal international cargo 

industry practice is to price at 45, 100, 300, 500, 1000 kilo weight breaks, so a price at 453.6 

kilos is awkward and difficult to process. As an example, orchids from Thailand to Honolulu 

for use in making leis would need to be charged at Thai Baht 16.24 per 453.6 kilos to pay the 

fee. This is all very difficult to implement, explain and administer to customers all over the 

\Odd. 

Interline Billing Processes 

8. The process for billing and collecting the Hawaiian Freight Fee becomes even more 

administratively complex, and for all practical purposes, uncollectible, with regard to 

interline cargo into Hawaii. In these cases, the first carrier that is part of the interline 

relationship does not fly to Hawaii, and may not be aware of the fee. This renders it 

extremely complicated to ensure that the first carrier knows to and does in fact collect the 

FrOght Fee when the shipment is obtained. The IATA clearinghouse would need to make 

significant changes in their software to accommodate this new fee, which as noted above, 

may be in a different currency unit and undoubtedly a different weight unit than the air 

freight charges and rates from the originating country. 

Commercial Risk from Different Carrier Practices 

WO2-EAST:9AGG1\200349018.1 -2- 
9. Due to the administrative complexity and financial burden of collecting the new fee, some 

cagiers may elect to simply absorb the fee and pay on their own, creating an unlevel playing 

field and increased commercial risk to carriers who do not pay the fee and try to collect from 

shappers correctly. Shippers may elect to shift their business to carriers who absorb the 

charge. This creates an unfair disadvantage for those carriers that seek to comply with the 

Freight Fee law by billing and collecting the charge from their customers. 

I declare under penalty of perjury under the laws of the United States of America that the 

foregoing is true and correct. 

EXecuted on October 26, 2010, in Elk Grove Village, Illinois. 

W02-EAST:9ROGI \200349018.1 -3- 
EXHIBIT B 
FedEx Services 

3640 Hacks Cross Road 

Building 0, 3rd Floor 

Memphis, TN 38125 

UNITED STATES OF AMERICA 

DEPARTMENT OF TRANSPORTATION 

OFFICE OF THE SECRETARY 

WASHINGTON, D.C. 

IN RE HAWAIIAN INSPECTION FEE ) 

PROCEEDING ) Docket DOT-OST-2010-0243 

DECLARATION OF AASIIISH GAIILAUT 

FEDERAL EXPRESS CORPORATION 

I, Aashish Gahlaut, hereby declare the following: 

1. I am a Director of Marketing FedEx Corporate Services, Inc. In that capacity, I have 

obtained personal knowledge of the business of Federal Express Corporation ("FedEx") I 

am over eighteen years of age and have personal knowledge of the statements contained 

herein, unless stated otherwise. 

2. I have been employed in my position since June 2000. In my role, I head a department called 

pricing science and engineering, which is tasked with engineering the implementation of fees 

related to shipping. 

3. As set forth below, the freight inspection fee that the State of Hawaii ("Hawaii Freight Fee") 

is requiring FedEx to bill and collect from its customers which ship cargo into Hawaii on 

board FedEx aircraft imposes a significant and unfair administrative and fiscal burden on 

FedEx. 

4. In order for FedEx to bill for a new charge for shipments destined for Hawaii, FedEx would 

need to implement a change to FedEx's information technology ("IT") infrastructure, which 

would require an intricate design and development process lasting well in excess of a year. 

The complexity is driven by the fact that the fees must be captured in a number of different 

systems including customer discount systems, rating systems, invoicing systems, accounting 

systems, pricing request systems, customer service systems, and automation systems. The 

complexity is magnified by the international nature of FedEx's operations because any 

changes must be engineered for multiple automation platforms. 

5. Designing and implementing such a rate change is burdensome from both a business and IT 

perspective. It requires not only the dedication of IT personnel but requires coordination of 

resources from Pricing, Marketing, Finance, Legal, Solutions, and Communications. In total, 

such a change would require over 1,000 man hours by FedEx personnel and could potentially 

take years to implement. 
6. The time, resources, and personnel that FedEx will need to devote to implementing the 

Hawaii Freight Fee serves no useful business purpose for FedEx and provides no additional 

value to FedEx's customers. Such time will detract from the amount of time, resources, and 

personnel that FedEx can devote to issues of concern to FedEx's customers such as service 

enhancements. This burden extends beyond the implementation phase as the Hawaii Freight 

Fee will continue to impose a burden both on the personnel and information infrastructure at 

FedEx as long as it is being imposed. 

7. The Hawaii Freight Fee will have a significant negative impact on a number of third parties 

that rely upon FedEx because such entities will also be required to implement systems to 

account for the billing of the Hawaii Freight Fee. Such businesses include: (a) authorized 

FedEx ship centers, some of which are individually owned businesses; (b) shippers who 

maintain customized internal software for shipping via FedEx; (c) companies that provide 

custom IT services to shippers who ship via FedEx; (d) third-party providers of shipping 

hardware and software systems; and (e) all shippers who may ship to Hawaii to the extent 

they need to upload new software from FedEx. None of these businesses will receive any 

business benefit from the implementation of these systems. 

8. The administrative burden imposed by the Hawaii Freight Fee lacks justification because it 

imposes a significant worldwide burden on FedEx, FedEx customers, and businesses related 

to FedEx — all of which will need to implement systems to take into account the Hawaii 

Freight Fee — which is not justified by the size of the Hawaiian market, which comprises an 

incredibly small portion of FedEx's worldwide express shipping market. Yet this small size 

does not lessen the administrative burdens that will be imposed on those impacted by this 

burden. 

I declare under penalty of perjury under the laws of the United States of America that the 

foregoing is true and correct. 

Executed on October 21, 2010, at e-Y4 , Tennessee. 

W02-EAST:9RGG1\200349018.1 -2- 
EXHIBIT C 
UNITED STATES OF AMERICA 

DEPARTMENT OF TRANSPORTATION 

OFFICE OF THE SECRETARY 

WASHINGTON, D.C. 

IN RE HAWAIIAN INSPECTION FEE 

PROCEEDING Docket DOT-OST-2010-0243 

DECLARATION OF THOMAS PARKER 

FEDERAL EXPRESS CORPORATION 

I, Thomas P. Parker, hereby declare the following: 

— 1. I am the Managing Director for Express Business Solutions, Global Air Ops, Manifesting 

and Movement Applications for Federal Express Corporation ("FedEx Express"). I am over 

eighteen years of age and have personal knowledge of the statements contained herein, unless 

stated otherwise. 

2. I have been employed by FedEx for twenty-four (24) years and have served in my current 

rote at FedEx since 2006. I am responsible for the creation of the actual weight-scaling 

systems used in FedEx Express hubs, and for preparing various dimensional weighting 

reports to senior management, for supporting the global air ops network, international 

manifesting and applications of clearance systems. 

3. As set forth below, FedEx does not have the means of obtaining the weight data necessary to 

implement the freight inspection fee that the State of Hawaii is requiring FedEx to bill and 

collect from its shipping customers. 

4. Pursuant to its Service Guide, FedEx measures the weight of packages that it transports for 

shippers, including those transported to Hawaii, in one of three ways: 1) using the customer 

supplied weight and/or dimensions, 2) using the dimensional weight calculated by FedEx 

Express, or 3) using the actual weight of the shipment as captured by FedEx. 

5. The January 4, 2010 FedEx Service Guide provides that where the dimensional weight 

measure is used for FedEx Express packages, the dimensional weight is determined by 

multiplying a package's length by width by height in inches and dividing by 194 (for 

shipments within the U.S. and shipments between the U.S. and Puerto Rico) or 166 (for 

international shipments). 

6. The second method FedEx uses when it measures the weight of the packages is to capture the 

actual weight. This "actual weight" measure includes the weight of the packaging and its 
contents and thus may not be the "net weight" that the state of Hawaii seeks to require FedEx 

to measure. 

7. FedEx does not have any means of measuring the "net weight" of the packages that it 

transports and that measurement serves no relevant business purpose. FedEx regularly 

accepts packages for shipment with no way to determine what percentage of the total weight 

is comprised of the item being shipped and what percentage is attributable to the packaging. 

Where the dimensional weight is used, the "weighf' registered for the package may vary 

significantly from the actual weight of the package. 

8. FedEx does not measure any weight for some of the packages that it transports, including 

some of the packages that it transports to Hawaii In such instances, FedEx relies upon. the 

weight provided by the customer at time of shipment 

9. Even if Hawaii were to modify the provision to apply to gross weight, there are substantial 

barriers to systematically weighing every package that is shipped via FedEx. 

10. FedEx flies twenty-two (22) trips to Hawaii per week. Eleven (11) originate in Memphis, 

TN, six (6) originate from Oakland, CA, and five (5) originate from Los Angeles, CA. 

11. Currently, the major FedEx Express hubs have been equipped with the ability to measure the 

gross weight of packages, meaning that packages that pass through those hubs on the way to 

Hawaii would have their gross weight measured. These include Memphis, TN, Indianapolis, 

IN, Newark, NJ, Guangzhou, China, and Cologne, Germany. 

12. To capture the gross weight of those packages that do not travel through one of those hubs 

with weighing capability on the way to Hawaii would, however, require prohibitively high 

capital expenditures and years of implementation. Because many FedEx Express packages 

travel to Hawaii directly from hubs in Oakland, California and Los Angeles, California, 

which are not equipped to weigh packages, there is no infrastructure in place for obtaining 

even the gross weight of those packages. 

13, In order for a hub to be equipped with the ability to weigh packages, the facility must 

effectively be re-engineered. This process takes multiple years between the necessary 

engineering analysis on the front end and the development and implementation of a design 

plan. 

14. The cost of re-engineering a facility in order to give it the capability of capturing the gross 

weight of packages varies based on the age and design of the individual facility. The cost for 

equipping a given facility with this capability cannot even be assessed until an engineering 

study has been completed, a process which can take six (6) to twelve (12) months. 

15. Estimates for re-engineering specific facilities to enable weighing have ranged from $3 

million to $15 million. Because of the age and design of the facilities in Oakland and Los 

Angeles, the costs to re-engineer each of these facilities would a capital intensive effort. 

WOZZAST9RGG11200349018.1 -2- 
16. Safety and efficiency are paramount to the business of FedEx Express. The safe and efficient 

operation of FedEx planes does not require the balance of weight as measured by individual 

packages. Rather, individual packages are placed into containers with a large number of 

• other packages and it is those that are carefully loaded, weighed, and balanced. 

I declare under penalty of perjury under the laws of the United States of America that the 

foregoing is true and correct 

Executed on October 2010, at /0e0codir , Tennessee. 

A 

Thomas P. Parker 

W02-EAST:9RGGI12,003491:11&I -3- 
Exhibit D 
LINDA LINGLE 

Governor 

SANDRA LEE KUNIMOTO 

Chairperson, Board of Agriculture 

DUANE K. OKAMOTO 

Deputy to the Chairperson 

State of Hawaii 

DEPARTMENT OF AGRICULTURE 

1428 South King Street 

Honolulu, Hawaii 96814-2512 

September 12, 2008 

Mr. Alan Ogawa 

Ms. Lori Peters 

Airlines Committee of Hawaii 

Honolulu International Airport 

300 Rodgers Blvd., #62 

Honolulu, Hawaii 96819-1832 

Dear Mr. Ogawa and Ms. Peters: 

SUBJECT: Act 3, Special Session 2008, Relating to Invasive Species 

Thank you for your letter dated July 18, 2008. During the 2008 Legislative 

Special Session, the legislature passed HB2843 which became Act 3 that revised HRS 

Chapter 150A to read as follows: 

150A-5.3 Inspection, quarantine, and eradication service fee and charge. 

There is imposed a fee for the inspection, quarantine, and eradication of invasive 

species contained in any freight, including but not limited to marine commercial 

container shipment, air freight, or any other means of transporting freight, foreign or 

domestic, that is brought into the state. The fee shall be paid by the person responsible 

for paying the freight charges to the transportation company, who shall collect the fee 

and forward the payment to the department at the port of disembarkation; provided that 

the transportation company shall not be liable for any fee that is not paid by the person 

responsible for paying the freight charges to the transportation company. The 

department shall deposit the fee into the pest inspection, quarantine, and eradication 

fund under section 150A-4.5. 

The fee shall be assessed on the net weight of the imported freight computed on 

the basis of 50 cents for every on thousand pounds of freight brought into the state, or 

part thereof. 

The effective date of Act 3 was August 1, 2008. 

Act 3 defines "freight" to mean non-passenger goods, cargo, or lading 

transported for pay. Act 3 imposes the fee on anyfreight brought into the State, 
Mr. Alan Ogawa 

Ms. Lori Peters 

September 12, 2008 

Page 2 

whether by marine commercial container, air freight or other means of transporting 

freight. Please note; however, that U.S. mail is generally not subject to inspection under 

federal law and is not subject to state agricultural inspection and the new fee. 

Act 3 provides for the fee to be "computed on the basis of 50 cents for every 

1,000 pounds of freight brought into the state, or part thereof' (emphasis added). 

Thus, freight weighing less than 1,000 pounds would be assessed $.50, the minimum 

fee, and freight weighing 1,001 pounds would be assessed $1.00. 

It's our understanding that cargo transiting the State and not terminating in 

Hawaii is not subject to agricultural inspection and not subject to the Act 3 fee. 

However, HDOA inspectors do inspect or monitor transiting shipments of high risk 

items, such as bees from New Zealand or Australia (suspect for the varroa mite), to 

assure no escape if the bee cargo is removed from the aircraft to an open cargo area 

for re-loading on another aircraft. HDOA absorbs the costs of such inspections. 

Under Act 3, the entity responsible for collecting the fee is the entity that brings 

the freight into the State. Air freight consolidators and transportation companies are 

free to work out their own financial arrangements if they feel the need to make 

adjustments because of the fee. These are matters outside the HDOA's jurisdiction. 

Act 3 doesn't authorize HDOA to specify a timeframe for remittance of the 

collected fee. The responsible transportation company should please send remittance 

to the Hawaii Department of Agriculture, c/o Plant Quarantine Branch, 1849 Auiki St., 

Honolulu, HI 96819. A transmittal letter indicating the period covered by the remittance 

and the total amount submitted will be appreciated. 

HDOA will do its best to cover the wide range of responsibilities and services 

provided through its programs with the various sources of funds available given the 

current economic circumstances. 

We look forward to working with the transportation industry in improving and 

enhancing the State's biosecurity cargo inspection programs. 

Sandra Lee Kunimoto 

Chairperson, Board of Agriculture 

C: Lyle Wong, Plant Industry Division 

Carol Okada, Plant Quarantine Branch